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Senior Facilities Companies Sail Through Choppy Seas

By Allison Bell

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Publicly traded companies that provide senior housing and senior care may show signs of federal policy change damage when they report fourth-quarter earnings, but their third-quarter earnings are looking good.

Executive at some of the facility companies that reported earnings this week acknowledged that changes in Medicare reimbursement rules could hurt them.

At Brookdale Senior Living Inc., Brentwood, Tenn. (NYSE:BKD), an executive who spoke during the company’s earnings call cited “recent changes in the Medicare elements of our business” as one reason to expect full-year earnings to be toward the low end of the range the company had predicted.

Bill Sheriff, the Brookdale chief executive officer, was one of a number of facility executives who has been quick to emphasize efforts to reduce reliance on Medicare and other government payers.

“We have a strong private-pay insurance orientation, with only about one-third of our census coming from Medicare,” Sheriff said.

But, for this quarter, facilities seem to be doing somewhat better than they were a year ago.

Brookdale is reporting a $7 million net loss on in $616 million in revenue, but that’s down from a $17 million net loss on in $576 million in revenue for the third quarter of 2010.

The facility occupancy rate was up, and cash from facility operations increased 9.9%, to $66 million.

Kindred Healthcare Inc., Louisville, Ky. (NYSE:KND), is reporting $1.8 million in net income for the latest quarter on $1.5 billion in revenue, compared with $4.9 million in net income on $1.1 billion in revenue for the third quarter of 2010.

Although the company turned a profit, it notes that it took a $27 million charge to reflect the effects of a 11.1% cut in Medicare skilled nursing care reimburement rates and a change in group rehabilitation therapy services reimbursement rules that took effect Oct. 1.

Kindred believes the new Medicare rules could cut its nursing center Medicare rates by about 15% in 2012, and that this could reduce nursing center revenue by $95 million to $105 million. The changes also could reduce rehab revenue by $10 million to $15 million.

A company that focuses on providing long-term are, National HealthCare Corp., Murfreesboro, Tenn. (NYSE Amex:NHC), is reporting $15 million in net income for the third quarter on $197 million in revenue, up from $13 million in net income on $179 million in revenue for the third quarter of 2010.

The “per diem,” or daily pay rate, increased only slightly for private-pay patients, to $188, from $184.65. The average Medicaid per diem fell to $156.56, from $158.03. But the average Medicare per diem increased to $471.80, from $387.53.

Capital Senior Living Corp., Dallas (NYSE:CSU), is reporting $510,000 in net income for the latest quarter on $68 million in revenue, up from $481,000 in net income on $54 million in revenue.

Average monthly rent at its senior living communities increased 10% from the level recorded in the third quarter of 2010, to $2,924 per occupied unit, and average occupancy was also up.

Assisted Living Concepts Inc., Menomonee Falls, Wis. (NYSE:ALC), is reporting $5.8 million in net income for the latest quarter on $59 million in revenue, up from $4.6 million in net income on $58 million in revenue for the third quarter of 2010.

Assisted Living Concepts went ahead with a planned reduction in the number of units occupied by Medicaid residents, and that reduced earnings by $400,000.

But the company notes that, even though the Medicaid environment has been challenging, the weakness in the overall economy helped the company with at least one major activity: Hiring.

“General economic conditions enabled us to hire new employees at lower wage rates,” the company says.