The company recently announced plans to have its independent facilities assume operational control of 53 nursing home and senior living operations in eight states from Vancouver, Washington-based Prestige Care. A Pacs Group spokesperson said "the deal has not yet closed and no financial transactions have occurred." He did not provide details on how the arrangement would work once completed, but it is expected to increase Pacs Group's holdings to nearly 275 facilities in 14 states.
While Murray said the company is laser-focused on growth, he said it won't come at the expense of compromising company culture. This interview was edited for length and clarity.
Why decide to take the company public after 11 years?
We had grown to a size as a company where we had really outgrown specialty lenders. If we wanted to continue our mission, we had to have the capital to do that and the public markets seemed to be a great way for that to happen.
We felt like the public markets were a way for us to raise capital and do it in a way that maintains our identity. It wasn’t going to be a situation where we were bringing in private equity or [investors] that may have a different agenda than us. We felt that we could still be the captains of our destiny, and maintain and, hopefully, enhance our culture as a company.
The other reason is it provided us an opportunity to provide currency for our employees. It’s an incentive that we hadn’t had up until this point. It provided some stickiness [in retaining] our employees and gives us an opportunity to make some of their compensation tied to the equity in the company.
Do you think private equity is becoming a problem for nursing homes?
I’m not saying that all private equity is inherently bad, but I do think that if providers are not careful about how the capital is aligned with their mission as a company, then you can get into some dangerous situations. As the company tries to perform, they might not be at the level where the capital partner would like them to be, so the business plan changes. Whenever that business plan changes from patient care to a return on capital, it’s a losing scenario.
We’ve seen people in our sector take that capital and as they’ve done that, the care metrics have slipped. Then it becomes like this cycle where you see providers struggling to fill their buildings, census goes down and outcomes are poor. All of a sudden they can’t make rent and they can’t meet their obligations with that capital partner. They become overleveraged as the escalators on the leases continue to grow. It’s a recipe for disaster.
We weren’t interested in growing for growth’s sake. There were no financial hurdles we were trying to beat when we started the company. We did so with the notion that there is a better way to provide post-acute healthcare in the skilled nursing sector.
What is your strategy for growth and acquiring nursing homes?
First and foremost, we are very disciplined in the way that we grow. We want it to be the right situation as either a tuck-in or fold-in facility within our current portfolio or in a strategic market we have been studying for a long time and where we feel very confident that we can go in and add value in a community.
We have become very sophisticated in the way that we underwrite new deals. There are a series of data points that we look at. We look at things such as overall occupancy within a market. We look at the skill mix, the Medicare and commercial payers within that market. We look at the regulatory environment. We like to look at the different hospitals and acute care providers in a market and study what types of programs they have in place and how we might be able to support those programs.
As we analyze all of that, it distills down into a scorecard and we use that to grade certain areas, certain states and certain communities within those states. It allows us to appropriately prioritize deals, so that we can have the right deal as it aligns with our underwriting.
How do you work with hospitals in various markets?
Our administrators are the ones who create the business plans in the local markets where we operate. It’s up to them to work with the hospital systems who are the main drivers behind our referral sources. It is common practice throughout our company where our administrators work closely with hospital leadership to know what needs they have. Are there vents, tracheostomies, dialysis patients? What [patients] do they have that we can help support? And then we create a business plan around that. We work in tandem with the hospital to try to do that and demonstrate to them that we are willing to invest the capital on our side to make the facility a destination location for their patients.
How will your company be impacted by the federal staffing mandate?
We feel like we’re in a good position to absorb the mandate. Our business model is such that we take high-acuity patients. As we take higher-acuity patients, it requires us to staff our facilities at higher levels anyway to take those patients. As we’ve done that across our portfolio, we’ve naturally staffed higher than a lot of our peers. We feel like we are in a very good position because of the business model that we adopted, so the majority of our facilities comply with the requirement.
Will the mandate create buying opportunities for you?
We feel this is really going to impact those smaller providers across the country who may not be able to absorb or adapt to meeting this requirement. I think [sales] will be one of the unintended consequences of this rule if it is not changed. We’ll work with our state trade associations and national trade associations to change this because we think it’s the right thing to do for our sector. However, if it’s not changed and those smaller providers are not able to adapt, we absolutely see it as an opportunity to continue to find good deals.
