MW Liberal lawmakers accuse nursing-home operators of greed
By Brett Arends
Lawmakers scrutinize nursing-home companies for executive pay, dividends and stock buybacks
Liberal members of Congress sent a letter this week to nursing-home operators, asking how they could be claiming penury while handing out hundreds of millions of dollars in executive pay, dividends and stock buybacks.
The backstory is that the Biden administration wants to impose strict minimum staffing levels on nursing homes, most of which depend on the U.S. taxpayer, via Medicaid, for their income. Nursing-home operators hate the idea, which they say is unaffordable and will result in the closure of facilities. They are vowing to fight the proposal.
"A new analysis conducted by my office reveals that the for-profit nursing home industry diverts hundreds of millions of dollars in cash away from nursing home staff and patient care, and into the pockets of company executives and shareholders," Democratic Sen. Elizabeth Warren of Massachusetts, the lead author, wrote in the letter. "This analysis reveals that three of the largest publicly traded nursing home companies have paid out nearly $650 million in dividends, buybacks, and compensation to top executives since 2018."
The letters were co-signed by Sen. Bernie Sanders, an independent from Vermont, and Sen. Richard Blumenthal of Connecticut, Rep. Lloyd Doggett of Texas and Rep. Jan Schakowsky of Illinois, all Democrats.
One of the three companies to get a letter, Brookdale Senior Living Inc. $(BKD)$, is hardly in the nursing-home business at all. Nearly all of its business comes from retirement and senior-living communities.
The other two companies are National Healthcare Corp. $(NHC.AU)$ and Ensign Group Inc. $(ENSG)$.
It's not enough, however, to know how much a company is spending on dividends and stock buybacks, or even executive pay, without some idea of the size of the company.
Based on the numbers cited in the letter and reported data from FactSet, National Healthcare spent 3.5% of total revenues over the past six years on stock buybacks and dividends, while Ensign spent 1%. National Healthcare spent less than 0.5% of revenues on executive pay, while Ensign spent 1%.
Are these figures egregious? You make the call.
The claim that these companies are diverting money away from staffing and patient care by paying out dividends and doing stock buybacks must come as a surprise to the investors, who assumed they were entitled to a return in exchange for risking their capital. This is another indication that it may be perilous to invest in companies that rely on the federal government for most of their revenues.
As investments, the stocks have been a mixed bag. National Healthcare shares have leapt 70% in the past year, but even with that rally they have done much worse than the overall stock market - as measured, say, by the Vanguard Total Stock Market exchange-traded fund VTI - over five and 10 years. Ensign, on the other hand, has produced spectacular returns of more than 900% over the past 10 years, far outpacing the overall U.S. stock market.
It's worth noting that little of this has come from wider profit margins, aka "greed." (The definition of greed, of course, is "a profit made by someone other than the person speaking.")
Ensign's stock performance has come from growth (sales have quadrupled) and the stock-market boom itself: The price-to-earnings ratio on the stock has risen by 50% over 10 years, from 20 times recent earnings to 30 times.
Ironically, the proposed staffing mandates would probably help big companies like Ensign more than they would hurt them. "This rule will have its largest impact on smaller and more thinly capitalized operators," Ensign CEO Barry Port told investors in the earnings call last week.
He didn't add, but could have: If the staffing mandates hurt small operators, those companies may end up getting bought out on the cheap by a big acquirer. Like, say, Ensign Group.
The proposed staffing mandates, announced last month, would sharply increase the required number of registered nurse hours and certified nurses' aide hours that nursing homes have to provide per resident.
The nursing-home industry says the mandate is heavy-handed and unaffordable. It also says there is a nationwide shortage of nurses. But the National Nurses United union says there is no such thing. Instead, they say, there is a shortage of nurses willing to work under bad conditions for too little pay.
"There is reason to believe over a million actively licensed RNs are not working at the bedside, likely due to the working conditions and business decisions driving nurses away from direct-care settings and creating high turnover rates," the union tells MarketWatch.
There is data showing that for-profit nursing homes have tended, on average, to provide lower quality of care, including this 2021 Government Accountability Office Report and this 2009 study published in the BMJ. There is also data showing that nursing homes with more staff tend to provide better care. On the other hand, averages can mask a lot of variation, and there may be other factors at play. And some of the data are quite old. It's hard to imagine that the technological revolutions of the past 30 years aren't changing the dynamics of care. They've changed the dynamics of pretty much everything else.
Ensign's Port doesn't think the mandates will ever be imposed - at least, not in the way that the administration is calling for. "Our industry representatives and their legal experts have been preparing to challenge this rule in the courts on several grounds and believe this rule is highly likely to be overturned in federal court," he said during the company's latest earnings call. Meanwhile, he added, "because this rule is being driven by political ideologies, its survival also depends on the outcome of several elections that will take place before the rule would be implemented."
In other words: A lot of this, like so much else, depends on what happens in November.
-Brett Arends
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May 09, 2024 14:28 ET (18:28 GMT)
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