Ensign Group(ENSG) - 2025 Q4 - Annual Report

Operations and Facilities - As of December 31, 2025, the company operated 357 skilled nursing facilities with a total of 37,911 operational beds, generating approximately 46.6% of skilled services revenue from Medicaid and 24.7% from Medicare[26] - The company operates 373 facilities with a total of 37,911 skilled nursing beds and 3,402 senior living units as of December 31, 2025[81] - From January 1, 2021, to December 31, 2025, the company acquired 145 facilities, adding 14,739 operational skilled nursing beds and 1,148 senior living units[33] - In 2025, the company expanded operations by adding 40 skilled nursing operations and 5 senior living operations, contributing 4,175 skilled nursing beds and 313 senior living units[35] Revenue Sources - The company generated rental revenues of $126.9 million in 2025, with $107.6 million derived from independent subsidiaries, which were eliminated in consolidation[27] - Revenue is primarily derived from Medicaid, Medicare, managed care, and private pay patients, with Medicaid being the largest funding source for skilled nursing facilities[45][46] - Medicare currently accounts for approximately 24.7% of the company's skilled nursing services revenue year-to-date, making it the second-largest revenue payer[135] Quality of Care - The average score on the Overall Star Rating for all facilities is 6.8% better than the national average, with an average quality measure rating 18.2% better than the national average[41] - The company has a strong history of improving the quality of care in acquired facilities, with consistent improvements in star ratings post-acquisition[38] - The company aims to attract high acuity patients, which generally result in higher reimbursement rates, by maintaining a reputation for quality care[90] Workforce and Talent Development - The company emphasizes ongoing education and training for its staff, which is believed to enhance the quality of care provided[78] - The company has a rigorous "CEO-in-Training Program" with 70 to 80 prospective administrators progressing through training at any given time[88] - In 2025, approximately 89% of employees contributed to Elevate Charities Emergency Fund, demonstrating strong employee engagement[104] Market Trends and Demographics - The aging population in the U.S. is projected to increase from 17% to 21% by 2030, creating a growing demand for skilled nursing and senior living services[42] - The competitive landscape is characterized by numerous local and regional providers, with the company focusing on establishing a strong community reputation to attract patients[70][72] Financial Performance and Strategy - The company has a disciplined acquisition strategy focused on selectively acquiring operations within target markets, contributing to its growth[80] - The aggregate EBITDAR as a percentage of revenue for facilities acquired from 2002 through 2025 improved from 13.2% during the first three months of operations to 18.8% during the 45th quarter of operation[95] - The company plans to continue growth through talent development, increasing the mix of higher acuity patients, and acquiring additional operations in existing and new markets[33] Regulatory Environment - The company is sensitive to changes in state-based revenue programs, particularly Medicaid, which may face variability due to budget shortfalls and legislative changes[49] - The OBBB establishes a limit of $1.0 million for home equity that can be exempted from calculating an individual's eligibility for Medicaid in seeking long-term care starting January 1, 2028[118] - The OBBB reduces Medicaid retroactive eligibility from 90 days to 30 days for most enrollees, with a 60-day limit for long-term care residents[116] Medicare and Reimbursement Changes - For fiscal year 2026, CMS has finalized a 3.2% increase to SNF PPS payment rates, based on a final SNF market basket of 3.3% and adjustments[123] - The Patient-Driven Payment Model (PDPM) classifies residents based on clinical condition and care needs, incorporating five case-mix adjusted payment components[136] - The SNF Quality Reporting Program (SNF QRP) imposes a 2.0% payment rate reduction for facilities that fail to submit required quality data[138] Compliance and Legal Issues - Financial arrangements between healthcare providers are regulated under federal and state laws, including anti-kickback and Stark laws[205] - Violations of the Social Security Act can lead to criminal penalties exceeding $0.1 million and civil monetary penalties of more than $0.1 million per violation[207] - The Stark Law prohibits physicians from referring Medicare or Medicaid patients for designated health services to entities with which they have a financial relationship unless exceptions are met[208]