Hey, we're going to get started with our next panel presentation on Scott Fidel, the Healthcare Services Analyst with Stephens. We're thrilled once again to have the Ensign Group with us, joining us. We've got the full team up here today with us. And I thought, you know, a lot to talk about here, Barry. I think, you know, what I'd like to do, though, like we typically do, would be maybe if we just want to kick it over to you to just give us sort of some high-level thinking here on sort of the state of the union with Ensign as we're sort of, you know, closing out another active year of growth and activity and sort of looking ahead to 2024. Just give you sort of a quick, you know, opportunity to sort of summarize some key points. And again, this is Barry Port, CEO.
And then we could sort of drill into the discussion.
Great. Yeah, we're glad to be here. We're certainly pleased with the progress we've made over the last many quarters. I think this year in particular is a year where we felt like kind of every lever is kind of working for us, particularly, you know, when it comes to our leadership pipeline. We talk about this a lot. We often kind of think of ourselves as more of a leadership company than a healthcare company. We spend a lot of time obsessing over the talent we attract and train, and that's at all levels. It's not just at the, you know, facility level. It's at our service center. It's our field resources. It's our clinicians and even our frontline staff, and there's been, I think, great progress made when it comes to the level of talent that we've been able to bring into the organization.
Also, the level of talent that's prepared now to help us grow. We've had some exciting growth this year. And we have a really full pipeline as we look towards next year. And so to have a kind of a full bench of strength that we're able to kind of pair with what looks to be some great opportunity ahead of us makes us enthusiastic about where we can head. You know, also, you know, certainly we look to the results we achieve with those things coming together too. I mean, now with the growth that we've had, about a third of our portfolio is either in that recently acquired or transitioning portfolio. So that now represents a tremendous amount of organic upside. Even if we didn't have a lot of acquisitions ahead of us, the opportunity there alone for us is exciting.
I think, you know, we've got what appears to be a regulatory-friendly White House and Congress. You know, there's pros and cons with Rs and Ds, you know, when it comes to, you know, our space. From a regulatory standpoint, especially as we've been faced with, you know, the staffing mandate and some other things that I think this shift represents a pretty significant positive for us and an opportunity to kind of unwind the staffing minimum regulation, which we saw as somewhat onerous and burdensome. You know, certainly we always look to the future and worry about maintaining that pipeline of leadership talent. I think, you know, we work hard to make sure that we focus on it a lot, like I mentioned. That's always going to be one of the limiting factors that we worry about when it comes to our ability to grow.
I think, you know, also, you know, as far as other concerns that we might have, the tightening of the reimbursement environment for the MCOs is certainly something we'll look closely at. We're in good shape at the moment, but there tends to be a trickle-down effect when they have pressure. That's something that we'll obviously be worried about. The good news is we have really solid relationships with most all of our managed care providers and an open dialogue. So anyway, overall, we feel really great about where we're headed for the year upcoming.
All right, great. Thanks, Barry. And yeah, I thought maybe we'll just sort of toggle off of some of the comments you were making toward the end there on the elections and definitely trying to, with each company, as we sort of kick off the conversations, talk about, you know, some of the specific permutations and relevant elements for each of the end markets. And obviously, you talked about the staffing mandate, you know, already and optimism there. Clearly, there's been, I'd say, a lot of sort of favorable momentum across a number of fronts around counteracting the mandate from the legislative and from the legal. And now we have, you know, more of the change of the administration. Yesterday, we had Addus here when we were talking about the 80/20 rule on the personal care side.
And they had mentioned how already they've gotten some pretty strong signals, feedback from the incoming Trump administration around their intention to likely reverse that ruling within the first year. So, curious, just I know you guys have had a lot of discussions underway. Anything in terms of, like, feedback where we stand so far on the staffing mandate side?
Yeah, I mean, look, you know, our industry had some meetings with the Trump administration before the election and we believe that we'll be a relatively, you know, quick priority when it comes to this, should it come to this? Well, having it reversed through executive order, but I feel like even maybe before that, we have a bill that's in the Senate that we have a pretty good chance of having action on that bill on the lame duck session, so even legislatively, it might preempt the need for, you know, the White House to do anything.
With the red sweep in Congress now.
Right. So it's certainly changed the landscape a bit. But I would say we feel as good as ever about it. And we're pretty certain that it's not going to be an ongoing issue.
Okay. And what about away from that sort of hot button issue when we think about other, you know, relevant dynamics as we transition, including the red sweep dynamic, where clearly that opens up some legislation type, you know, dynamics too? You know, thinking about, in general, the major focal areas for healthcare services investors around the elections have been the enhanced subsidies on the exchanges, which, frankly, I don't see as, you know, particularly relevant for Ensign given the population that you serve, and these are patients that will have coverage for the most part in Medicaid or something else. The Medicaid supplemental payments, you know, which overall have, you know, been on a robust trajectory over the last four years, but frankly, a lot more heavily weighted towards acute care hospitals.
But I do think maybe good opportunity, you know, for you all, Suzanne, maybe you want to share as well around just sort of how the supplemental payments, you know, sort of work on the Medicaid side for skilled nursing facilities and for Ensign. It is something we get questions about, you know, quite often. So maybe why don't we spend a moment just sort of laying the lay of the land on that as well.
Starting back with, like, the eligibility and Medicaid, that really didn't affect us when it got expanded, right? When the Medicaid expansion happened, we didn't see a whole new influx of people. What we did see is that most of those Medicaid offices had a lot of traffic, right? A lot of people who were slowed down because they just didn't have the staff to process just our normal Medicaid application processes. So we did see during that period of time that delay in reimbursement of just getting everything approved and then getting all the processing done, and so a little bit slowing in cash payments is really where we were affected, and so other than that, we didn't have any upside when it got expanded, and so now as people sort through this, we don't really see any downside of it not getting expanded.
Then flipping gears to the supplemental payment side of the house, we've had supplemental payments for a very long time, not just the last three or four years. This is just part of how states actually reimburse us. A lot of the states have taken their base rate and actually portioned it off and put it into a quality supplement. So it's really based upon the quality that we're providing and looking at, are we delivering a quality product? And then we get reimbursed based upon the quality of that product. And that's what we've seen. That states continue to expand that. Instead of maybe expanding their base rate, they're maybe taking a percentage or two of that base rate expansion and really putting it in the supplemental payment.
Got it. And then just one other area, I guess, that will be in focus will just be around, you know, thinking about overall program funding levels. And we've already had, you know, Trump has made some pretty clear statements about wanting to ring-fence around social security and Medicare and not look for cuts there. You know, it's been a little bit more open-ended, I would say, on the Medicaid, you know, side right now. And, you know, traditionally, what we've tended to see is under Democratic administrations, they're going to open up the floodgates and put a lot of money into Medicaid, you know, to expand coverage under various schemes.
And then under the GOP, it's not necessarily that they're going to cut absolute funding, but we probably go into a little bit more of a slower growth or sort of rate freeze type, you know, or funding freeze type framework. But, you know, I wanted to get, I guess, from you, obviously. It's early here and you're probably tracking the same thing we all, but, you know, your perspectives on how you're thinking about this and strategizing for, you know, sort of planning for the Medicaid funding environment, I guess, over the next, let's call it four years or so.
I'll start at the federal level. Maybe Suzanne can make comments at the state level. I think, look, Trump and his, you know, at least the nominee for HHS, RFK, and then Dr. Oz for CMS, these are not traditional Republicans or not Republicans at all. So your comments, Scott, about the fence around, you know, these entitlement programs, it's a little different mindset than traditional Republican mindset, which is a good thing, obviously, for us because, you know, obviously, you hear noise around things like block grants and other things that could emerge to try to, you know, cut funding to some of these entitlement programs or what they call entitlement programs, Medicare and Medicaid. I think, again, with this administration, it's a little bit different.
I think our overall take on it is that it's both a regulatory and rate-friendly White House and Congress and also, you know, governing administration agencies too. So I don't expect that we'll see anything draconian. It will probably be in line with what we're used to seeing under a Democrat-controlled kind of CMS and HHS. You want to comment on state level?
I would just echo that. I think it's going to be very consistent, maybe not with the last couple of years where we've seen kind of increases due to the cost-driving increases that the Medicaid states have tried to match, but more consistent kind of with that pre-COVID, smaller, you know, single-digit, low single-digit rate increases.
Got it. And maybe since we are sort of moved on to some of the state-level funding, Suzanne, maybe just an update on sort of visibility on sort of what you're seeing so far for FY25, you know, around, you know, in terms of what's been approved at various states, you know, for the state-level Medicaid, you know, funding in general for SNFs.
So really looking at that, I mean, a lot of our rates get reset at the end of Q2 and the beginning of Q3, and so a lot of those rates for the first half of 2025 are already in place, and so really looking, that would really only impact the second half of 2025. Again, kind of the same commentary on that. There's nothing indicating that we'd have a, you know, large increases or large decreases, but really kind of that more steady flow. With regards to some states like California, they've been delayed all year. They're still trying to get in their January 1st, 2024 rate increase and get that still finalized with both their supplemental program as well as their rate, and so what we do is we have an estimate of what we think that it is going to be.
And then we true it up as the information becomes known. So they've now released their rate amounts in Q4. So we'll do a true-up there. And then on the WQIP program, which is their supplemental program, that information has not been released yet. And so we'll have to look to when they release that either in December or next year and do a true-up compared to whatever comes out.
Got it. And the latest that we had seen was a December update around that. Are you hearing maybe a little bit even later than that, or?
We heard Q2, Q3, Q4, December. So yes, the latest news is December, but that's after it was supposed to be April, June, I think July, August, December.
Yeah, and I guess part of the issue is just capturing the MCO data correctly right into their system too, which is why it's a little bit hard, I guess, to pinpoint exactly when those systems will be updated properly, and then for the one-half 2025 rates to get visibility into, would you say that that sort of 3%-4%, it makes sense in terms of a general average or 3%?
Yeah. I mean, I think we've seen 2%-3% really is kind of maybe 4% in some of the states that are a little bit more, and then obviously, as the supplementals get defined, that's usually where we can sometimes capture more upside if we're at the 2%.
Okay. You know, I wanted to circle back just and ask Spencer maybe to comment on this. Spencer is the Chief Operating Officer for Ensign. And just around, obviously, as you've had to do a lot of, you know, sort of preparation for a scenario where the staffing mandate would potentially go into full effect. And that's probably act as a catalyst just to sort of review your operational approaches, staffing. What types of maybe, you know, sort of scenario planning or even operational planning would you say that this sort of, you know, clearly a significant hurdle if it went into effect has maybe galvanized in terms of, you know, future efficiencies around labor and staffing or, you know, potential benefits maybe in terms of how you approach this, even if ultimately you may not need to, you know, lever that because if the mandate doesn't go in?
Yeah, it's a great point. You know, we never, because of the time frames associated with the potential mandate, we never, you know, had our facility operators going and hiring RNs and putting them on the floor, right? There was always this timeline that had different benchmarks that had to be hit, and we're always hopeful that the mandate wouldn't happen. That said, we did put a lot of emphasis on things that we know are going to help us regardless of any mandate, things we should be focused on anyway. Reducing agency, you know, contract nursing labor, that was a big problem during the pandemic for everyone. It became a challenge for us too. You saw that. We've reduced that. We're at a quarter on our agency spend of what we were during the height of the pandemic, so we've seen excellent progress on that.
We continue to see progress on that. Hiring, retention, a lot of the quality incentive programs that you were mentioning with Suzanne are starting to incorporate an element of turnover measurement. So again, we get the benefit of doing the right thing. You get the benefit of doing the right thing, and you also get some reimbursement benefits in some cases and some cost control benefits. We're seeing good kind of moderation in our wage, the rate of wage acceleration over the past year. We're seeing good progress in, you know, incremental progress in turnover rates. And those are reported, you know, those are reported through PBJ now. So they're pretty universally apples to apples, which is kind of a nice thing to see versus everyone reporting what they want. We're seeing progress there.
That's Payroll-Based Journal, not peanut butter and jelly.
Right. Unfortunately, it's not nearly as exciting, and that's where we have to submit ours, and then CMS has those, and they use it for whatever studies they want to use, as well as for star ratings and for just making sure if there were a mandate, making sure that we were accountable to the mandate, so overall, I mean, I would just say the potential mandate was good. It did galvanize us around the things that we needed to do anyway, and we've gotten better in all of those areas. Like Barry said, it's been a good year for just operationally being able to pivot focus from COVID and staffing crisis to just doing what we like to do, which is trying, you know, improve existing, you know, operations and acquire and turnaround struggling ones.
Sure. And on that labor trend that has been normalizing, moderating as the rates, you know, have been moderating as well, can you sort of walk us through, you know, how would you say that sort of as the trajectory has been this year and where you're thinking about sort of your overall average, you know, wage trend sort of exiting, you know, 2024 as would be embedded in your 2024 guidance?
Yeah. I mean, you know, pre-pandemic, we were kind of seeing a 2%-3%, you know, wage inflation a year. And now I'd say we're probably more like 3% - 4% to maybe 5%. And that's, I would probably, you know, I think we all kind of think that's probably more of a steady state now. We might get lower, but I think, you know, that's kind of what we've been adjusted to the last several quarters.
Wanted to just in terms of recent developments as well, sort of address there was a, you know, a pretty hefty short report that was directed at another operator in the sector. Obviously, that's captured a lot of attention, a lot of focus for analysts, investors, and industry participants. And Ensign was referenced a number of times quite positively, actually, in the report in terms of how you approach the operations of your business. With that said, it's definitely, you know, we've had a lot of, you know, questions from investors and trying to, you know, sort of understand some of the allegations in there.
Wanted to maybe, you know, to the extent that you feel comfortable sort of, you know, from the Ensign perspective and maybe some of the what has been discussed in that report, you know, provide an overview of how you approach your operations and billing practices. I would say that probably one of the allegations in there that's more relevant to sort of current operations was around how that particular operator may utilize respiratory services across their buildings and how they bill for that for Medicare, and curious to the extent that you could share with us maybe that as an example of how you approach, you know, Medicare billings for those services, and then just anything else that you think would be relevant for, you know, investors to understand about how Ensign operates relative to what was included in that report.
Yeah. Well, first, we're not going to make any public comment on PACS and what they do and how they do things. We don't know them or their organization well enough to comment on how they operate. And certainly in that report, there's a lot of stuff to it. And, you know, what we'll comment on, though, is kind of what we do and how we do it to the extent that there's questions. I mean, you're asking about respiratory Part B services. And, you know, I don't know how deep we want to get into that, but I can tell you that, you know, we haven't billed a single dollar of Part B respiratory services in any one of our operations. It might be beneficial to have some context around what that is.
There are, you know, services you can bill for for long-term care patients that are there on a Medicaid stay through Medicare Part B. And I don't know, maybe Spencer, you want to give some context on what that program looks like and why it exists?
Sure. So I think many of you are familiar with, you know, in the long-term care post-acute space, you've got your short-term residents that are coming post-hospital stay. They're there generally for a short period of time, either under a Medicare Advantage plan or Medicare Fee-For-Service. And those are paid at an enhanced rate. And then if they do need to stay, you know, this becomes their living environment. Medicare is not a custodial, as they call it, payer. It becomes private pay or Medicaid or a long-term care insurance. And Medicaid is the vast majority of the long-term care patients' payer source.
But that said, while they're there, if there are skilled needs for certain services, say physical therapy, I mean, it's for years and years and years, if someone, let's say, starts suffering from decreased mobility, instead of saying, "Oh, well, let's just let them continue to decline until they fall and go to the hospital, have a surgery, and then come back under Medicare, then they can get their skilled services," we can provide and should provide, actually have the ethical mandate, I believe, to provide services that keep them at their highest functioning level. There was a Supreme Court case that many of you know back in the 2010s called Jimmo v. Sebelius that kind of defined that further, what those, you know, services could be. And they're paid for generally by Medicare Part B or a Medicare B replacement plan under a managed care organization.
So, you know, we've participated, and I think most skilled nursing operators, there's an element of this Part B billing that happens for these services that come up because of a clinical need. Respiratory is not something that, to my knowledge, has been billed under Part B historically. It's not something we've certainly ever done. And, you know, being in the industry, we haven't heard of that until very recently. We have researched extensively internally because we want to know if it's a service that can help patients, first of all, if it's medically necessary. We want to provide it and bill for it if possible. We haven't got to a point where, like Barry said, we've been able to do that yet. So we haven't billed for it.
But the way it could be done is similar to a PT, OT or a speech therapy where it's an enhanced service for long-term care residents. Now, the difference being PT, OT, and ST have been, we've had iterative cycles for decades where, you know, we bill, we have just your routine probes where the fiscal intermediaries push back and say, "Why are you billing for this?" And there's that feedback cycle that's existed over and over and over. There's also other organizations that will look at it. So we have a pretty good idea of what's okay to bill for and provide for Medicare, you know, physical therapy, occupational therapy, et cetera.
To our knowledge, there's not any of that that we've been able to find that's happened on the respiratory space, which is another reason why we've been very hesitant to get into it because we don't have that iterative, you know, this is how you define what is an appropriately billable service versus not.
All that to say, you know, with Part B respiratory services, it's a program that is fairly novel. It started with some organizations have jumped into it and seen it as an opportunity, you know, how it meets clinical necessity. And that's, you know, up to every company to define and justify when it comes to, you know, audits that invariably will come through their fiscal intermediary through Medicare. But, you know, again, to date, we have not. We often provide respiratory services in our facility, but what's most often the case is those services are covered under your Medicaid base rate, right? So there are things like breathing treatments and other respiratory services we provide. We just don't bill separately for it. So to date, we have not. We've not billed for that.
And I guess just one last thing, as you're defining, as Medicare is defining, because they ultimately are the decision makers, they set the parameters on this. For any skilled service that's done to be excluded from that routine Medicaid payment, there has to be a skilled need that's medically necessary, and there has to be a reasonable duration for the treatment. There are parameters that exist around that that if RT were a thing, those same parameters would exist. And so that's just important to understand throughout all this.
Yeah. And I think also what's important to probably point out too is that even for kind of routine PT, OT, and ST Part B services that we've provided for, you know, decades now, which are more commonplace in a skilled nursing setting, those are accompanied with, you know, not only a robust kind of audit cycle through the MACs that contract with Medicare to audit billing claims on behalf of Medicare, but also internally, we have a very structured and rigorous compliance department. It's comprised of over 70 people. It's like a four-to-one ratio, you know, of buildings to compliance people that audit claims. Every building gets audited every year, multiple times a year, to the extent that there's not documentation to support a medical need. This is again for routine Part B services, not respiratory, which we haven't done.
If we identify that there's weak documentation or a lack of medical justification, we'll proactively pay those claims back. And we've done that. We've had that practice for years and years and years. And you can do that when you have a large, robust compliance department, which we've had for quite a long time. So, I mean, that's how we do it, how others do it, and how PACS does it, you know, we really don't know.
Okay. I understood. Thank you. That was very helpful. I mean, it's obviously a lot of, you know, a lot of complexity always, you know, underneath the surface with these businesses. And, you know, there's right now, there's a lot of desire amongst all of us to have knowledge building and understand these dynamics. So that was really helpful. Let me take a pause here and just, I know we've jumped around to a few different topics. So just want to see around anything that we've talked about so far. Any questions or clarifications that anybody want anything or?
Just at a high level, what are your key points to differentiate?
Yeah. I mean, it's a good question. I mean, look, I think for us, what we feel sets us apart or what is important to us at our core is that we're a very mission-driven organization. And not to say there aren't others out there that are, but, you know, for us, we are a passionate group of people that are trying to attract other passionate, talented leaders into a space that we believe deeply in. We're in it for the long haul. This is, you know, not a short-term investment activity for a small group of people to have some exit, but a legacy business we're trying to build in order to affect an industry in a massively positive way. We represent a small part of the industry. We're just around 2%. So we know we've got a lot of work to do.
And to have the kind of impact that we want to have, we need to be at this for a while. Now, over time, that should scale and our ability to have more influence positively for the industry should increase. But that's number one. We're passionate about our business. We're also passionate. You heard me talk about this earlier about attracting other very talented people into this space. And I think we have a structure that's unique as well. We have an organizational model that is not dependent on a really sharp, smart management team, thankfully. But one rather that is very operations-driven, and it's operations and field-centric. So we give our operators a lot of freedom to make decisions at a local level that impact how they function in a healthcare continuum within a very specific market.
This business, the business of post-acute care, is very unique in that it is very market-specific and market-dependent. And if you try to apply kind of top-down principles in this kind of a setting, it's very difficult to be agile enough to meet all the varying demands and needs in all these kind of micro healthcare markets. So even from San Diego to LA, you would think there'd be a lot of similarities, but there really aren't. And they're very different. So you need a different CEO-caliber leader and leadership team that can understand the dynamic needs of a market and adapt to them. And so that changes who we try to bring into the space.
A lot of our leaders have come from outside the industry, and we train them on our business, but they're passionate about the idea of being in healthcare, and they've had success in other areas. And we try to teach them our industry and let them have that freedom. But it's coupled with, it's not autonomy, right? Because it's interdependent on these clusters that you're a part of. And these clusters are really kind of the magic of what Ensign is about because they have a financial tie to each other, but they also have, you know, there's checks on how compensation works based on how compliance and clinical outcomes look. But they are tied to each other financially. Their incentives are based on how the collective does in these clusters. They also, therefore, are an integral part of how we grow.
They often source local deals, or they are part of the underwriting process of how we acquire and add buildings into those local clusters. Or in alternative cases where they jump into new markets, you know, there's, you know, a program we have for new markets that's really similar. But because they have this ownership at a local level and accountability at a local level, it allows us the ability to scale our model without having to, you know, be again dependent on some really sharp management team. It's really driven organically by these local clusters and their ability to have ownership and say in both how we operate and then also how we grow and acquire talent. They're the ones that are also sourcing our administrators and training, our new directors of nursing and training.
That's where the training program really happens and where the acquisition of talent happens rather than us trying to post a bunch of jobs on Indeed, source them at the service, what we call our service center, not our corporate office, and then farm them out to different markets. So that operational kind of focused field-driven model, I think, is one of the key differentiators for us and one that has given us the ability to scale like we have over the, you know, the past 20+ years effectively.
I'll just add a few things to that. You know, certainly something that is. I mean, we've been doing this a long time and we've been a public company for 17 years. So, you know, the track record speaks for itself. But, you know, our acquisition program is very disciplined. It's so locally driven. It really is a scalable approach that isn't. You know, we don't see a spot where we're going to be where we're too big. And that's because it's that locally driven approach. And that's a really important factor. We've been growing, you know, in Colorado, for example. We did eight acquisitions, which, you know, is a bigger chunk for us. But because the way we structure it, it's actually two markets within the state of Colorado. So the way we've organized it was really only four acquisitions for two separate markets.
You know, as we kind of begin to grow into new states, you know, this approach that we've taken over the last, you know, 25 years is something that we can continue to do and look forward to doing. You know, the other thing, obviously, that is a really important factor is because we're disciplined in how we buy, we have the healthiest balance sheet that you could hope for. That's a really important thing, I think, to point out is, you know, we've got a significant amount of real estate ownership of the buildings we own, which is around 120+ buildings. 90 of them have zero debt at all. So there's a significant amount of value that is there sitting in those assets that we can draw upon if necessary. You know, we have, I think, zero funded debt currently in our revolver.
So, you know, we have around $1 billion of liquidity right now to spend on really accretive deals. We also don't, you know, set out in a year and set growth goals. You don't see us buying EBITDA or paying, you know, premiums for large portfolios. We've been able to grow, you know, steadily and consistently by doing, you know, small onesie-twosie deals, you know, mid-sized portfolios and think that that pathway, you know, still exists. This is a very, very fragmented business with, you know, we still represent, you know, around 1% of the industry with lots of opportunities. There likely isn't a deal that happens that we haven't seen. So we're able to be very selective in the stuff that we do acquire and are, I mean, fanatical about the fact that we are not going to overpay.
You know, the reason our balance sheet looks the way it does is because, you know, we're going to pay the price that's appropriate given the history of the building, the physical plant condition, you know, the clinical history, all of that has to be factored into the value we'll pay, and so sometimes, you know, we might get outbid on an acquisition. We're totally fine with that because we just know that there's many more deals coming and we want to make sure we save our dry powder for the right ones, so anyway, I think that's definitely something that, you know, we think makes us unique.
Start by saying that about a third of the portfolio is either recently acquired or transitioning. So what are the biggest changes that you make to acquiring facilities? Is it getting more revenue out of the box, or is it operational efficiency, increasing turnover? What are the biggest changes?
It's all of that for sure. I mean, first of all, I mean, that transition often represents a pretty big change in how that facility, along with its, you know, its maybe new leadership, but the existing leadership that sticks around and how they are expected to operate, right? So all of a sudden, there's full transparency where the leadership in that building can see not only everything that they do and spend, which is surprisingly unique in our space, but also how all of their peers across our entire portfolio are structured and spend and staff and what their revenue rates look like. And all the way down to the invoice level, you can see what one building, you know, across the portfolio, you know, is spending. So we give them data and tools and transparency. That's the start, right?
So now you have a full picture of what you're doing and how you're doing it. We're often very candid with the staff, you know, that, hey, look, we're not solvent. We have to figure out a path to solvency, and then, you know, leadership then, again, you know, I wouldn't say we have a playbook, but our model is one where local empowerment then takes over and scrutiny begins to form around, you know, what are we spending and where? How are we staffed? What kind of patients do we take? What are our outcomes with our current patients? Are they good? What's our star rating? Why? What's driving that? So it's really ownership of everything at every level. You would be surprised at the inefficiencies that can happen in just an individual skilled nursing facility.
You know, it's often the case where we go in and we find rooms full of rental equipment that are being rented, you know, on a monthly basis that aren't even in use and expenses for things that they didn't even know they were spending money on, and so I would say, you know, if you summarize the levers, they're pretty simple. One is when you analyze the capabilities of the facility, it's what's preventing us from, you know, taking more patients and the right kinds of patients and what can we be successful in the short term and long term about what that patient mix looks like and our ability to partner with our local hospitals in taking more or clearing whatever roadblocks there might be, whether they're reputational or outcome-based, so number one is a focus on census.
Number two is a focus on expenses and right-sizing and making sure all those cost inefficiencies are driven out right away. When you have an ownership-driven incentive plan as a leader, you're going to be a lot more detailed about what you're spending and why and involve your staff in that a lot more than had been done previously, and so right out of the gate, and also leveraging some of the economies that come with being a part of a large organization that we have with GPOs and other, you know, programs with vendors, we can leverage better spending and better spending habits right away.
And then it really revolves around integrating with that local healthcare market, meeting with those hospitals, meeting with the managed care plans, understanding what their needs are, figuring out where you're deficient, and then evolving a culture around how to shift and meet those needs. And that's something that it takes often months and years to do. So it's an evolution. A lot of our buildings, there's nothing magical about going from recently acquired to transitioning to same store. Hitting same store after three years doesn't mean you've somehow magically solved all the problems. Most of our same store buildings continue to improve over many, many, many years. And so, but that, you know, the evolution is an ongoing one. We usually make some pretty significant gains in the first, you know, five, six quarters with a lot of those things.
But I would tell you the evolution and the process of becoming more efficient and more profitable and having better outcomes and a better culture takes often years.
What are some of the constraints that tend to increase your skilled census? Sort of turn around the operation or improve the reputation?
Yeah. It sounds like it's something fairly easy and straightforward to do, but it's really pretty complicated, right? So, you know, I can tell you I can take a ventilator-dependent patient because I know there's a good payer source for it and a high rate. But the reality of the decision to take that patient is founded in, you know, a false notion that we can actually care for that patient and have them thrive in our building. So you have to be really thoughtful. The minute you start, you know, I guess, you know, changing who you say you accept as a patient, you have to be able to deliver the outcome pretty immediately. And if you don't, your hospitals and your managed care partners find out about it pretty quickly, right?
Not only do they get readmitted back to the hospital or potentially have a negative outcome, but, you know, you're responsible for the life of that patient. So you have to build in sustainable programs that allow you to achieve the clinical outcomes. And that's a very thoughtful effort by each leader and their clinical partner. And then assessing the capabilities of the staff. You certainly want to make that shift because these days there is a drive towards moving up that acuity chain further and further. Hospitals want us to take sicker and sicker patients. But you have to be able to deliver on the outcomes before you say yes to that. And often that's a daunting prospect for a lot of operations, right?
Like, you know, so the easy route is to say status quo and not really drive up the acuity chain because it's harder than it sounds because you have to add in capability and the right staff and the right training and the right systems around it. And it's easier said than done. So that's a long answer to say in order to be more acute, you have to put your money where your mouth is. So it's a pretty deliberate, thoughtful process on the part of every building and every leadership team to make sure that they understand both what the needs are, but then what they can align with to meet those needs in a really thoughtful and deliberate way. Now, the good news is when you can do that effectively, then you can build upon those programs and either expand them or add even additional ones.
Your facility becomes more and more adept at being able to take a higher acuity patient. But as you can imagine, it just takes time to build that in. It doesn't just happen overnight.
Right, because I hear some of the examples that you give on your conference calls with some facilities just have really, really high skilled mix. Yeah. Is it always just time that maybe some markets have something special?
Yeah, it's not necessarily time. Sometimes we inherit buildings that there's a really talented group of, you know, staff members that are already there, and it's just giving them the tools and the ability and the freedom to make those decisions. Sometimes they weren't able to do certain things before, but sometimes it is. It just takes time with training and making sure we, you know, you drive out agency before you're adding a complex program. If you've got 50% agency staffing in your building, it's a pretty risky venture to do, right, so you've got to get the staff aligned right and the culture right and the right people in place to build a long-term sustainable program.
Well, unfortunately, we're out of time. I've got around three more pages of questions.