Pennant Group Taking Coronavirus Cues from CMS, SNFs

The home health and hospice segment of The Pennant Group Inc. (Nasdaq: PNTG) has been a shining star ever since the company successfully spun off from The Ensign Group (Nasdaq: ENSG) about six months ago. But the coronavirus outbreak is now stealing some of the spotlight.

Pennant leadership discussed overall company growth and the potential impact of the coronavirus — COVID-19 — Thursday during a Q4 and year-end earnings call.

“We have been watching the development closely since the first cases were identified in China,” Daniel Walker, CEO and president of The Pennant Group, told investors and analysts during the call. “We’ve taken proactive steps to limit unnecessary travel and steps to enhance screening practices across the organization, in addition to emphasizing the fundamentals of good infection control practices while working closely with the CDC and local health departments.”

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As of Thursday, there were at least 11 deaths tied to coronavirus in the United States. The outbreak began spreading throughout a skilled nursing facility in Washington last weekend, prompting home health providers to ramp up their preparation plans.

When it comes to its strategy for the coronavirus, Walker said The Pennant Group is taking its cues from the U.S. Centers for Medicare & Medicaid Services (CMS) and the skilled nursing industry. CMS issued a memorandum refocusing survey inspections on infection control on Wednesday.

“Our approach has been to mirror the procedures that are being adopted by CMS in the skilled nursing setting,” he said.

In terms of financial results, Pennant leadership called 2019 “a record year” for home health revenue while suggesting that there’s still plenty of future upside. The company’s 2019 home health business was largely driven by an increase in total home health admissions.

“We are pleased with our collective quarter and full-year results,” Walker said. “We remain focused on what we must do to continue … the historical growth rate in our home health and hospice portfolio.”

Currently, that portfolio includes 65 home health and hospice locations. Pennant’s portfolio also features 53 senior living communities.

Overall, the company’s total 2019 revenue checked in at $338.5 million, an 18.3% increase from 2018. Total revenue for Q4 was $89.5 million, an 18.8% increase from the same period a year ago.

The home health and hospice side of the business brought in $206.6 million on the year, a 22.2% increase compared to 2018. Home health and hospice revenue for the quarter was $55.1 million, a 24.7% increase from Q4 2018.

Total home health admissions checked in at 5,914 for 2019, compared to 4,724 for 2018.

Looking ahead, The Pennant Group plans to deploy additional capital to its home health and hospice segment, with Walker noting the opportunity for high ROI in doing so.

“We expect the majority of our growth to be in the home health and hospice arena based on where our strongest performance is coming from,” he said. “We will invest where our strength is. Our home health and hospice operators have quite a bit of momentum.”

The Pennant Group also used Thursday’s earnings call as an opportunity to comment on its newly formed home health joint venture with San Diego-based Scripps Health, a nonprofit health system.

“Scripps was looking for a partner with proven results and was drawn to our locally focused operating model,” Walker said. “San Diego is an attractive market for a partnership with an acute care provider.”

While the JV model is often utilized within the industry, The Pennant Group will continue to focus on acquisitions going forward. The Scripps Health deal doesn’t represent a pivot from the company’s disciplined acquisition strategy, according to Walker.

In total, The Pennant Group acquired 11 operations across five states in 2019. Two of the acquisitions were home health-related.

While the company didn’t go into intensive detail regarding the Patient-Driven Groupings Model (PDGM), leadership did note that early indications have been positive under the payment overhaul. Additionally, Chief Investment Officer Derek Bunker said the model will likely present opportunities for Pennant to expand.

“We expect to see additional [acquisition] opportunities from PDGM present themselves over the course of the year,” Bunker said during the call. “And we believe our focus on preparing our leaders to carry the Pennant flag in the new markets and territories and expand our offerings within our existing footprint will allow us to be an active buyer throughout the year.”

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