Rising volume in its hospice business helped deflect the impact of COVID-19 headwinds on Brookdale Senior Living’s (NYSE: BKD) Health Care Services Segment in the second quarter, which saw a sharp decline in home health admissions.
Home health admissions have been falling off industry-wide during the pandemic due to widespread limitations on elective procedures and hospital discharges. For Brookdale, a decline in occupancy among the company’s senior living facilities contributed to a dropping home health census, also attributable to the outbreak.
“As expected COVID-19 continues to have a significant impact on our performance, including closing our communities as necessary to visitors and movements to better protect our residents,” Brookdale President and CEO Lucinda Baier said in an earnings call. “Our focus continues to be charging a fair price for high-quality care. Move-ins were lower on a year over year basis, but we saw improvement as we progressed through the second quarter.”
The company was on a more positive trajectory through January and February but the hits started coming as the pandemic exploded in March. Brookdale in 2019 committed to growing its hospice operations primarily through de novo activity and same-store admissions. The company opened hospices in Detroit, Portland, Ore., and Sacramento, Calif last year. Patients do not have to be residents of Brookdale’s senior living facilities in order to receive hospice care
The company’s home health business —which along with hospice and outpatient therapy comprises their Health Care Services segment — suffered as a result of the transition to patient-driven grouping model (PDGM) payment structure for home health.
Effective Jan. 1, 2020 Medicare began reimbursing home health care providers through PDGM, which classifies patients into payment categories based on clinical characteristics and other patient information, and shifts the home health payment model to a 30-day payment period rather than the 60-day episode.
Uncertainties shadow the company’s outlook for the rest of the year stemming from the unpredictability of serving the vulnerable senior population during a pandemic.
“With the recent elevation in the U.S. coronavirus growth rate in the South and Southwest, it’s too early to speak definitively about exactly when our business will return to a new normal. At its core, our business is essential and primarily needs-based,” Baier said. “Our low percentage of positive COVID cases highlights our competitive advantage of quality care for our residents and patients.”
The company’s hospice revenues grew 3% in the second quarter, though the overall Health Care Service segment saw a 21% drop. Brookdale did see a strong boost through it’s restructuring with Ventas (NYSE: VTR), a Chicago-based real estate investment trust.
The two companies initiated a new master lease agreement in July through which Brookdale will receive as much as $500 million in rent reduction during the next five years. Ventas through the deal acquires a potential equity stake in Brookdale.
Despite lingering questions about the rest of the year, Brookdale was able to stave off the worst of the pandemic-induced financial damage due to cost cutting, more than $33 million of CARES Act grants, Medicare- and Medicaid-related grants and a $119 million increase in working capital. The company stands a solid chance for a third and fourth quarter rebound, according to industry observers.
“Given the cash flow enhancing provisions and continued focus on balance sheet improvement efforts like the master lease transactions recently negotiated with Ventas, we believe [Brookdale] should be on good footing to weather remaining COVID headwinds,” Frank Morgan, analyst for RBC Capital Markets, indicated in a note shared with Hospice News.
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