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Edited Transcript of GEN earnings conference call or presentation 27-May-20 12:30pm GMT

Q1 2020 Genesis Healthcare Inc Earnings Call

FOOTHILL RANCH Jul 1, 2020 (Thomson StreetEvents) -- Edited Transcript of Genesis Healthcare Inc earnings conference call or presentation Wednesday, May 27, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* George V. Hager

Genesis Healthcare, Inc. - CEO & Director

* Lori Mayer

Genesis Healthcare, Inc. - VP of IR, Brand Management & Marketing Communications

* Richard A. Feifer

Genesis Healthcare, Inc. - Senior VP of Genesis HealthCare & Chief Medical Officer of Genesis Physician Services

* Thomas DiVittorio

Genesis Healthcare, Inc. - Executive VP & CFO

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Conference Call Participants

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* Caleb Benjamin Harris

Crédit Suisse AG, Research Division - Research Analyst

* Frank George Morgan

RBC Capital Markets, Research Division - MD of Healthcare Services Equity Research & Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and Welcome to the first quarterly earnings call. (Operator Instructions)

I would now like to hand the conference over to your speaker today. Ms. Lori Mayer. Ma'am, please go ahead.

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Lori Mayer, Genesis Healthcare, Inc. - VP of IR, Brand Management & Marketing Communications [2]

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Good morning, and thank you for joining us today. We issued our press release earlier today. This announcement is available in the Investor Relations section of our website at genesishcc.com. A replay of this call will also be available on our website for 1 year.

Before we begin, I would like to quickly review a few housekeeping matters. First, any forward-looking statements made today are based on management's current expectations, assumptions and beliefs about our business and the environment in which we operate, including statements about the impact of the COVID-19 pandemic. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from those expressed or implied on today's call. Listeners should not place undue reliance on forward-looking statements and are encouraged to review our SEC filings for more -- for a more complete discussion of factors that could impact our results except as required by Federal Securities Law. Genesis Healthcare and its affiliates do not undertake to publicly update or revise any forward-looking statements or changes that arise as a result of new information, future events, change in circumstances or for any other reason. In addition, any operation we mention today is operated by a separate independent operating subsidiary that is owned -- sorry, that has its own management, employees and assets. References to the consolidated company and its assets and activities as well as the use of the terms we, us, our and similar verbiage are

(technical difficulty) to imply that Genesis Healthcare has direct operating assets, employees or revenues or that any of the various operations are operated by the same entity.

Our discussion today and the information in our earnings release and in our public filings include references to adjusted EBITDAR, EBITDA, adjusted EBITDA, which are not -- which are non-GAAP financial measures. We believe the presentation of non-GAAP financial measures provides useful information to investors regarding our results because these financial measures are useful for trending, analyzing and benchmarking the performance and value of our business, but such non-GAAP financial measures should not be relied upon at the exclusion of GAAP financial measures. Please refer to the company's reasons for non-GAAP financial disclosures and its GAAP to non-GAAP reconciliations contained in today's earnings release.

And with that, I'd like to turn the call over to George Hager, CEO of Genesis Healthcare.

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George V. Hager, Genesis Healthcare, Inc. - CEO & Director [3]

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Thank you, Lori.

Good morning, and thank you for joining us today. I have a number of members of the Genesis senior management team on the call today including Dr. Richard Feifer, Genesis Healthcare's Chief Medical Officer; Dr. JoAnne Reifsnyder, Genesis Chief Nursing Officer; as well as Tom DiVittorio, our Chief Financial Officer.

Given the unprecedented nature and gravity of the COVID-19 pandemic, we are going to focus our formal comments this morning on the pandemic. Dr. Richard Feifer will address the impact of COVID-19 on our operations and our continued response. Tom will focus his comments on our very strong first quarter results. But more importantly, he will discuss the financial implications of the pandemic, both before and after the first quarter, including the impact of government-sponsored financial relief commitments and programs we have accessed to date.

Before I turn the call over to Dr. Feifer, I would like to make a few opening remarks. The last time we spoke to the investment community was March 17, 2020 when we reported our results for the fourth quarter and fiscal year ended 2019. The evening before that earnings call, we learned that we had a single confirmed case of COVID-19 in one of our facilities. Our focus living up to that day and our focus now is concentrated on protecting the health and safety of the patients and residents in our care as well as the staff who care for them. Since that first case 71 days ago, 187 of Genesis' 361 facilities have reported one or more positive cases of COVID-19 among patients and residents. Many of these facilities have cleared their outbreaks and are now accepting new admissions. Over 84% of our positive COVID-19 cases among patients and residents occurred in just 5 of the 25 inpatient states where we operate, New Jersey, Connecticut, Massachusetts, Pennsylvania and Maryland. Clearly, some of the hardest hit community outbreak areas across the entire country.

Since our first case, we have witnessed the incredible heroism, resolve and sacrifice of our frontline caregivers and workers fighting the pandemic. We have seen extraordinary leadership ingenuity, creativity and teamwork among our regional and corporate staff, who are supporting the efforts on the ground. Most importantly, we have and will continue to uphold our greatest responsibility, the provision of compassionate care to our patients, our fellow employees and their respective families. I'm extremely proud and humbled by the way our employees have risen to the occasion, of the leadership role Genesis is playing in partnership with the President's administration, public health officials at the federal state at local levels, our peers and partners in the industry as well as the academic community.

And now I'll turn the call over to Dr. Feifer.

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Richard A. Feifer, Genesis Healthcare, Inc. - Senior VP of Genesis HealthCare & Chief Medical Officer of Genesis Physician Services [4]

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Thank you, George.

It goes without saying that the safety and well-being of our patients, residents and employees is our highest priority. We are learning as a nation how incredibly challenging it is to prevent the spread of COVID-19, particularly once it enters a nursing home environment, regardless of how restrictive and rigorous the prevention efforts have been. Even before the pandemic became apparent, our medical and clinical teams implemented enhanced infection precautions at our centers. We've been following recommended protocols and guidelines from the CDC and CMS and in some cases, getting out in front of them. And in many cases, we have instituted even more stringent infection practices than recommended. Quite often, we have suggested protocols that were later adopted by public health officials.

Despite the unconceivable challenges facing our centers, Dr. Reifsnyder and I are pleased to report that of the 224 focused infection control surveys conducted during the pandemic by state and federal officials at our centers nationwide, 95% achieved a 0 deficiency rate. That is an incredible statistic, and I want to commend the entire interdisciplinary team across the Genesis family for their diligence and success. You may ask, how do these impressive infection control scores correlate to having so many of our centers report at least one positive case of coronavirus. Well, unfortunately, this virus does not discriminate. It has impacted 5-Star and 1-Star centers alike. In fact, new research out of Brown University, Harvard University and the University of Chicago, show that there are actually only 2 key factors that determine whether the virus enters and spreads in a nursing home. First is the size of a facility. The larger it is, the more traffic in and out, no matter how many restrictions are in place.

And second, it's location, whether the surrounding community is a high-density area heavily affected by COVID-19. These 2 factors correspond to our experience. In addition, recent research by the University of Exiter in England and the University of Connecticut underscores the difficulty in managing an outbreak in buildings with dementia patients. Dementia patients are among the most vulnerable to infection and precautions and restrictions are very difficult to enforce. It's sometimes not possible to confine patients who are cognitively impaired to their rooms as they are prone to wandering. They are also often frightened by the personal protective equipment like masks, face shields and goggles and often remove them.

Around the globe, we've learned that COVID-19 is a complex virus that is hard to detect and can take weeks to present itself. By the time you have a positive test result, many may have already been exposed. When the White House called on state Governors, earlier this month, to test all nursing home residents and staff for COVID-19, it was welcome news. We have been advocating for this step since the start of the pandemic. Governors and public health officials in Massachusetts, Rhode Island and New Hampshire, to name a few, should be praised for leading the charge, and we have been grateful for the support we've received from these states. Many other states are further behind in implementing a clear testing plan, and some states had planned just one round of testing, which is completely insufficient.

At the root of this testing challenge is the continued shortage of testing availability, specifically swabs and a lack of sufficient lab capacity to quickly process the current volume of tests, let alone the staggering number of tests that will be needed to run nationwide every couple of weeks. The importance of regular and repeated testing with quick turnaround times cannot be underestimated. It allows us to separate those who are positive from those who are negative, saving lives. It is one of the best weapons to manage and limit the virus' spread, which is why we continue to advocate aggressively for a sensible, nationally directed and funded approach to frequent universal testing in nursing homes.

In coordination with public health officials and local hospitals and often at they're urging, we will continue to be resourceful and creative in adapting our operating model to combat the pandemic market to market. In April, we worked with local and state officials to develop our first COVID-only dedicated facility at our Powerback Rehabilitation facility in Piscataway, New Jersey. Since that time, we've established 8 additional COVID-19 dedicated facilities located in Colorado, Connecticut, Maryland, New Jersey, New Mexico and Pennsylvania.

As we turn the corner toward recovery, we are also adapting our operating model to function for the long-term in a COVID environment. In April, we established admission quarantine units in order for admissions and readmissions to be under infection control, precautions and observation for 14 days prior to being transitioned to the general population within the facility. Patients requiring medically necessary transfers out of the center for outpatient procedures such as dialysis and chemotherapy are also placed on the admission quarantine unit. Finally, I would like to say that although we are not out of the woods, so to speak, we have seen a clear flattening of the curve over the past 2 weeks. Despite increased testing and therefore, an expectation of more reported positive cases, the number of our centers reporting new cases of COVID-19 among patients, residents and employees is decelerating. While we are encouraged by this trend, we are in no way letting our guard down. Due to the vulnerable nature of our patients and residents, many of the current restrictions must continue at our facilities, even as federal, state and local, stay-at-home and social distancing orders and recommendations are relaxed.

Before I hand the call back to George, I want to assure all of our stakeholders that we have been and will continue to work around the clock to protect the health and safety of our patients, residents and employees.

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George V. Hager, Genesis Healthcare, Inc. - CEO & Director [5]

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Thank you, Rich.

Genesis is truly fortunate to have Dr. Feifer and Dr. Reifsnyder leading our efforts to protect our patients, residents and caregivers at the bedside during this time of unprecedented risk and exposure. They have shown tremendous skill and leadership throughout this crisis, and we are grateful for their valuable collaboration with CDC and CMS officials and everything they are doing for seniors and care workers across the [division]. We are also thankful and appreciative of the swift and significant financial support provided to our industry by the President and his administration as well as many state governments. In particular, I would like to thank Health and Human Services Secretary Azar and Deputy Secretary [Harding] for engaging with industry leaders, to better understand our needs on the ground as we fight this deadly virus together. It is no secret that this industry has been chronically underfunded for decades. And was in a frail financial state before the onset of coronavirus, largely through programs created or expanded under the CARES Act. We have received and have been able to access the resources needed to pay for the escalating cost and lost revenue caused by the pandemic. As the effects of the pandemic evolve in the coming months, we will continue to work closely with our industry advocates, elected officials and the President's Administration to thoughtfully articulate the resource needs of our industry. So that collectively, we can continue our fight against COVID-19 and continue to fulfill our responsibilities to our seniors and our health care workers.

Before I hand the call off to Tom, I'd like to make a few brief comments about the first quarter. Despite the challenges of preparation and response to the pandemic, we reported very solid performance this quarter. Even in the face of COVID pressures, same-store occupancy continued to show strength, growing 30 basis points as compared to the first quarter last year, marking the sixth consecutive quarter of same-store occupancy growth. We estimate the pandemic negatively impacted earnings by approximately $8 million in the quarter. Excluding the impact of COVID-19, same-store net revenue and same-store adjusted EBITDAR grew 5% and 3.2%, respectively, over the first quarter of 2019. Our ancillary businesses also showed resilience in the face of COVID-19. In particular, I would like to highlight the strategic value of our staffing subsidiary, CareerStaff Unlimited and deploying critical caregiving resources to our affiliated Genesis facilities and third-party staffing customers during this pandemic.

Looking ahead, obviously, the second quarter is going to be significantly impacted by both the ongoing effect of the pandemic and the financial relief extended through the end of the quarter. As we round out the month of May, I am encouraged by a flattening of our overall occupancy, an improvement in the availability of critical staff. We are hopeful to see a steady rebuilding of occupancy from pent-up demand and our ability to adapt to this new environment.

In concluding my comments this morning, I would like to move away from numbers, basis points and financial results. I would like to focus on something far more important, our frontline caregivers. I would like to express my sincere admiration and gratitude to the 60,000-plus Genesis frontline caregivers as well as their 1.4 million colleagues across the nation, serving in our nursing homes. They are the true heroes. They're providing compassionate care to our frail and vulnerable seniors who have been isolated from their family and loved ones. They have improved hundreds of thousands of lives in ways that could never be measured by numbers and statistics. They have valiantly fought and continue to fight this deadly virus. They have earned our respect. We cannot lose sight of their enormous personal sacrifice. Please accept this heartfelt thank you for your selfless acts of care and compassion.

As was the case before the pandemic, the 15,000-plus nursing facilities across the country provide a vital service to our nation. More than ever, we see the skilled nursing industry offering important solutions to this nation's population health needs and strategy.

I will now turn the call over to Tom DiVittorio, our Chief Financial Officer.

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Thomas DiVittorio, Genesis Healthcare, Inc. - Executive VP & CFO [6]

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Thank you, George.

I'll provide a few additional highlights on the first quarter. Then I'll provide more detail around the financial impact of COVID-19 on our business. First on the first quarter and then its impact thus far on the second quarter. I'll also outline the various government-sponsored financial relief commitments and programs we have access to date. Finally, I will provide an update on liquidity.

As George mentioned, despite the impact of COVID-19, same-store occupancy grew 30 basis points in the first quarter of 2020 as compared to the first quarter of 2019. We estimate that the same-store occupancy growth was tracking at approximately 60 basis points over the prior year before COVID-19 began impacting new admissions. This occupancy trend, along with strong reimbursement rate growth across all payers and good expense control fueled same-store revenue and adjusted EBITDAR growth of 5% and 3.2%, respectively. Starting in late February, our occupancy began to decline in response to efforts by referring hospitals to cancel or reschedule elective procedures in anticipation of COVID-19 cases in their communities. Beginning in March, occupancy was further impacted by implementation of self-imposed admission bans in those facilities having exposure to positive cases of COVID-19, among patients, residents and/or employees. These self-imposed restrictions on admissions were instituted to limit the risk of potential spread of the virus in the facilities. Overall, we estimate that the net revenues in the first quarter of 2020 were not materially impacted by the pandemic because revenue lost from the decrease in occupancy was offset by changes in payer mix and the recognition of approximately $6 million of COVID-19 related Medicaid relief provided by several states. We did not recognize any revenue in the first quarter of 2020 from the federal relief programs.

With respect to operating expenses, beginning in March, we began to incur incremental costs as a result of the pandemic, with more dramatic increases occurring at facilities with positive COVID-19 cases. During the March quarter, we incurred approximately $8 million of operating expenses to prepare for and respond to the pandemic. Increases in cost primarily stemmed from elevated labor costs, including increased use of overtime and bonus pay as well as significant increases in both the cost and usage of personal protective equipment, food service supplies for staff, enhanced cleaning and environmental sanitation costs and the impact of utilizing less efficient modes of providing therapy in order to avoid the grouping of patients.

Moving now to the second quarter. The decline in occupancy continued through late May 2020, resulting in our skilled nursing facility occupancy decreasing from 88.2% in the first quarter, to 81.9% for the month ended April 2020. We estimate occupancy for the month ended May 2020 will be approximately 76%. As George mentioned, we are very encouraged by a flattening of occupancy as we end the month of May. Incremental operating expenses from the pandemic also escalated in April and May 2020. In April, we estimate that our operating expenses grew on a net basis, approximately $21 million as a result of the pandemic. We expect at least this level of elevated costs in the month of May 2020.

Now moving to the federal and state relief programs. In March 2020, a number of legislative actions were taken by the federal government to provide regulatory and financial relief to the health care -- to health care providers impacted by the pandemic. Several of these actions have and are expected to continue to provide the financial support necessary to address the escalating costs and lost revenue caused by the pandemic. These actions include temporary suspension of the 3-day qualifying hospital stay, various elements of the CARES Act and an accelerated and advanced payment program for Medicare.

In addition, provisions in the Families First Coronavirus Response Act provided a temporary 6.2% increase to each qualifying state Medicaid's Federal Medical Assistance Percentage, often referred to as FMAP. A number of states in which we operate have extended incremental FMAP-related funding and other forms of support to skilled nursing providers. Through yesterday, the company received approximately $180 million of federal relief grants from the CARES Act.

In addition, the CARES Act temporarily suspends the 2% reduction of Medicare reimbursement, often referred to as sequestration, from May 1, 2020, to December 31, 2020. We estimate the suspension of sequestration will have a positive impact on our revenue of approximately $8 million in 2020. To date, the states in which we operate have committed approximately $27 million of incremental FMAP funding, $6 million of which was recognized in the first quarter of 2020. In total, to date, the 3 previously noted grant programs have provided approximately $215 million of financial commitments.

In addition to these important commitments, the company has accessed two additional sources of relief capital in the form of government-sponsored advances and loans. Specifically, during April 2020, we requested and received $158 million under the Medicare accelerated and advanced payment program administered by CMS. The advances, which will be recorded as a liability are interest free. Repayment will begin in August 2020 and the advances will be completely repaid before the end of 2020.

In addition to these advances and pursuant to the CARES Act, we have elected to defer payment of the employer portion of social security taxes incurred from March 27, 2020, to December 31, 2020. We estimate this deferral will preserve approximately $90 million of cash in 2020, also on an interest-free basis. The deferred payroll tax amount will be classified as a liability. 1/2 of the payroll tax deferral will become due on each of December 31, 2021 and December 31, 2022. The payroll tax deferral election and the extended repayment term provides us with a significant source of no cost liquid capital to further backstop any near-term shortfalls that may occur between government-sponsored relief funds and the impact of the pandemic on our business. The company's liquidity position at March 31, 2020, was $94.4 million.

With the inclusion of the relief funds, advances and payroll tax deferrals received to date, offset by the impact of the pandemic thus far, the company's current liquidity position is approximately $320 million. As George said, we are very appreciative of the significant support provided to date through the CARES Act and other programs. These programs are providing us the resources and visibility we need over the next number of months.

As you can imagine, given the unprecedented nature of the COVID-19 pandemic, it is very difficult to predict, with high confidence, the longer-term financial impact of the virus on our business. The outcome will depend on a number of factors, including the number of impacted facilities located in hard hit geographies, the pace of recovery in those and other markets, the cost of frequent universal testing in all of our centers as well as future support from public and private entities. We will continue to evaluate the impact of the pandemic on our business and work closely with industry advocates, elected officials and the President's administration to articulate resource needs as we fight this deadly virus together.

With that, operator, I'd like to open the line for any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of A.J. Rice.

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Caleb Benjamin Harris, Crédit Suisse AG, Research Division - Research Analyst [2]

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So this is Caleb Harris on for A.J. Just to start on the grant funding. Some post-acute providers have sort of indicated that they're not 100% confident that they'll be able to keep all of the grant funds that they've received based on the attestations that are required and so forth. Do you have any thoughts on that?

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Thomas DiVittorio, Genesis Healthcare, Inc. - Executive VP & CFO [3]

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Caleb, this is Tom. The way we're looking at it, and quite frankly, the way the revenue recognition principles work with this as well is we see the CARES Act federal funding as the true backstop here. It's meant for one purpose and one purpose only to help fight the pandemic. And so to the extent that we can demonstrate that we have incurred the costs and we have the lost revenue we fully expect that we'll be able to keep every dollar of the CARES Act funding that we received.

To the extent, when the dust settles, however, many months from now, that we ended up receiving more funds than what was necessary to address those escalating costs and the lost revenue, then I think there is certainly the expectation that those monies would be returned.

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Caleb Benjamin Harris, Crédit Suisse AG, Research Division - Research Analyst [4]

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Okay. That makes sense. Have you gotten any sort of assurance from the administration or regulators in terms of how long of a period of time you have to incur the costs and before you have to do some sort of true-up and decide we owe x dollars back?

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Thomas DiVittorio, Genesis Healthcare, Inc. - Executive VP & CFO [5]

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No, Caleb, not at this stage.

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George V. Hager, Genesis Healthcare, Inc. - CEO & Director [6]

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Caleb, I think there's still a long way to go here in fighting the pandemic, even though we're obviously happy to see some stabilization and some flattening of the curve and stabilization of census. But still the cost of the continued fight as well as I think, growth in cost around things like universal testing programs are still to be borne by the industry.

So we have a long way to go in this fight. It's clearly not -- we're not in the 8th or 9th inning at this point, that's for sure.

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Caleb Benjamin Harris, Crédit Suisse AG, Research Division - Research Analyst [7]

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Sure. That's fair. Just on the occupancy trends. I know you said that occupancy, obviously, was lower in May at 76% and you said that started to stabilize. I know the commentary from hospitals in recent weeks has been that elective procedures are starting to come back, at least to some extent. So just as you look at occupancy, your admissions trends towards the back half of May, are you seeing more than just a stabilization? Are you seeing that start to improve at all? Or just any color you can add there?

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Thomas DiVittorio, Genesis Healthcare, Inc. - Executive VP & CFO [8]

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Yes, Caleb, we're definitely, in the past 2 weeks, beginning to see in certain markets that haven't been nearly as impacted, we're seeing some, I would say, more routine admission flow that we might not have seen in the earlier parts of May and certainly in April. The fact that we have established COVID dedicated buildings also is counterbalancing some of the previous decline in admissions and in occupancy. So that's been a stabilizing force, and we expect it will continue to be. And look, as we've adapted our operating model to function in a COVID environment, and we've developed these admission quarantine units too. That gives us a real opportunity to begin accepting admissions on a routine basis as well.

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George V. Hager, Genesis Healthcare, Inc. - CEO & Director [9]

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Caleb, I'd also add that when you think about census trends that we continue to have a significant number of buildings still operating under self-imposed admission bans. We will continue to be very conservative with regard to when we opened centers up for new admissions. When there is an outbreak of the virus, we will ensure that, that outreach has been controlled and confined to our satisfaction before we open facilities up for admission. So we're still operating with a significant number of centers. As you can tell by the stats, the week throughout over half of our buildings have been impacted by the virus. And still a substantial number of them are operating with self-imposed admission bans.

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Caleb Benjamin Harris, Crédit Suisse AG, Research Division - Research Analyst [10]

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Sure. That makes sense. And then flipping over to the therapy, under PDPM, one of the sort of benefits was the amount of group therapy that you might be able to do with the Medicare fee-for-service population. Obviously, in a COVID environment, that's more difficult, and there's probably a lot more one-on-one therapy, and you sort of alluded to that in the prepared remarks. Can you just speak a little bit to that how the therapy environment is different given COVID and whether or how much that can set you back in terms of the PDPM plans around group therapy?

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George V. Hager, Genesis Healthcare, Inc. - CEO & Director [11]

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No question that the rules around the provision of therapy have changed dramatically. Obviously, our group and concurrent modes of therapy have been completely eliminated. Not only that, the use of a [congregate] therapy gymnasium in the center is also no longer available for use. Most therapy today is being provided one-on-one typically in a patient's room to preserve the appropriate isolation protocols that we are operating under. So the productivity of the rehab function has clearly been impacted. It is an incremental cost -- part of the incremental cost that Tom discussed. I do think though, once we are comfortable that we are operating in a safer environment without presence of the virus, I think we'll be able to return to normal operating practice at that point in time for the Therapy division.

I will say, Genesis Rehab Services, both to their internal customers and their external customers, have been an invaluable resource. And as this industry has suffered with staffing levels because of the number of healthcare workers that have also been impacted by the virus, the therapist has to work outside scope of practice in appropriate ways where they can assist our nursing staff and other clinical staff to provide necessary services to our patients, including dining, feeding, other activities where they can be helpful and working out of scope of practice.

So they've been a very valuable part of the interdisciplinary care team in our centers.

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Operator [12]

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Our next question comes from the line of Frank Morgan.

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Frank George Morgan, RBC Capital Markets, Research Division - MD of Healthcare Services Equity Research & Analyst [13]

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George, I'd like to go back to your -- the self-imposed admission holes. Is it fair to say that roughly half those buildings of your entire portfolio would be under a self-imposed admission ban? Is that...

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George V. Hager, Genesis Healthcare, Inc. - CEO & Director [14]

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Well, it's -- you're saying half of the buildings affected, right?

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Frank George Morgan, RBC Capital Markets, Research Division - MD of Healthcare Services Equity Research & Analyst [15]

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Just half of your portfolio. Because I mean you had -- if you've got COVID in, basically, half you're building, either testing positive or staff is testing positive, I was just trying to get a context about how big of your portfolio would be affected by this admission ban. Am I over extrapolating there to say it would be as much as half?

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George V. Hager, Genesis Healthcare, Inc. - CEO & Director [16]

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It's not quite -- yes, it's not quite half. Tom will give the exact number, but it's a substantial portion, still operating under self-imposed mission bands.

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Thomas DiVittorio, Genesis Healthcare, Inc. - Executive VP & CFO [17]

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Rich, I answer with more specificity, if you'd like. Currently, we have 133 of our 361 centers that have an admission ban, and each day, we're learning that others can come off of that selectively. So that trend is actually improving.

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Frank George Morgan, RBC Capital Markets, Research Division - MD of Healthcare Services Equity Research & Analyst [18]

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Good. That was actually my next question, which was what is the criteria for -- on the buildings that you've cleared, what is that -- what gives you the confidence to clear the building for admissions?

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Thomas DiVittorio, Genesis Healthcare, Inc. - Executive VP & CFO [19]

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Well, initially during the pandemic, we would look for a total clearance of the virus so that there were no new cases in the center that was being very conservative as we still had a lot to learn about the virus and the pandemic. As time has gone along, and we've learned that it is possible in many cases to actually control the spread within one of our centers, what we look for then is that the virus is confined to either one or just a few units within the center. And that confinement is limited to not too many cases, and we look for no further spread. And in those cases, where things are very stabilized and controlled, then we will look to open up admissions to the naive unit so that there's no exposure of new admissions to the COVID-positive cases. But this is done on a case-by-case, a center-by-center basis. Each one has decided separately based upon the individual risks of the center.

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Frank George Morgan, RBC Capital Markets, Research Division - MD of Healthcare Services Equity Research & Analyst [20]

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And what do the referral sources say, when -- I mean, maybe they don't have a problem now since the COVID cases didn't really fill up the acute care hospitals. But what's the reaction from your referral sources when these admission bans come into place. And once they're lifted or you're clear, how long does it take to really start to see some patient flow back into your building?

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Richard A. Feifer, Genesis Healthcare, Inc. - Senior VP of Genesis HealthCare & Chief Medical Officer of Genesis Physician Services [21]

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Well, I'd continue with that. This is Rich Feifer again. I'd say that, that's -- it's variable. Initially, in the pandemic early on when hospital surge was one of the greatest concerns for the healthcare system and for hospitals, there were some tough discussions over the need to offload hospitals as well as the need to protect the COVID naive residence of nursing homes. We found solutions like creating dedicated facilities and dedicated units, as we spoke about earlier, but over time, and as that surge in most markets has not materialized, hospitals have been very understanding as have public health officials.

And so we've been able to work with them to find solutions. In some cases, those solutions have led to referral patterns that are a little bit different from normal scenarios. For example, there might be one of our centers in a market that is in a better position to accept referrals than the usual center. And so the referral stream might go to a different center and because of our geographic concentration, we've been able to be nimble in that regard, working with the hospitals.

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Frank George Morgan, RBC Capital Markets, Research Division - MD of Healthcare Services Equity Research & Analyst [22]

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Got you. And maybe a Tom question. The mention of the $21 million of incremental cost, I think, was in -- for April, sort of that your fully loaded quarter. Just to be clear, that $21 million, you're saying that the $21 million of incremental cost is going to stay in place. There's not -- it's not another $21 million or not incremental dollars that the $21 million incremental that you saw in in April, that's the run rate of higher costs. Is that clear?

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Thomas DiVittorio, Genesis Healthcare, Inc. - Executive VP & CFO [23]

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Yes. The $21 million in April is specific to April, and I would describe it as incremental costs that we wouldn't have incurred were it not for the pandemic. And our expectation is to see a similar level of elevated costs in the month of May.

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Frank George Morgan, RBC Capital Markets, Research Division - MD of Healthcare Services Equity Research & Analyst [24]

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Okay. So the $21 million of extra cost stay -- that continues into May?

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Thomas DiVittorio, Genesis Healthcare, Inc. - Executive VP & CFO [25]

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Correct. Yes.

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Frank George Morgan, RBC Capital Markets, Research Division - MD of Healthcare Services Equity Research & Analyst [26]

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Okay. And maybe for George, are there any -- you mentioned that you have -- some of your key states have actually -- thanks to FMAP, have provided some additional funding dollars to you. Are there any states that you're waiting on that perhaps have not given an indication yet of what they're going to do with that FMAP or any other kind of funding?

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George V. Hager, Genesis Healthcare, Inc. - CEO & Director [27]

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Yes, there's still -- I mean, there's still some activity that we are expecting in a number of states, in some of our big states. I know there is pending legislation in the state of Pennsylvania. I think it's been passed by one body of the governance in Pennsylvania, not passed by the second body or signed by the governor at this point. New Jersey as a state, also. We're hopeful that we will see some support from the state of New Jersey going forward. There are a number of other states also, Frank, that we do not have any commitments, at this point, and Tom has not included in his -- the information he's provided as far as committed incremental funding at the state level.

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Frank George Morgan, RBC Capital Markets, Research Division - MD of Healthcare Services Equity Research & Analyst [28]

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And of the states that you've gotten the funding. Are any of those permanent or are those temporary? Is it kind of like the sequester where it's like May to December?

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Thomas DiVittorio, Genesis Healthcare, Inc. - Executive VP & CFO [29]

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Frank, they're generally temporary. They -- each one has its own flavor of timeline, but it's generally tied to states of emergency in those various states.

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Frank George Morgan, RBC Capital Markets, Research Division - MD of Healthcare Services Equity Research & Analyst [30]

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Got you. Let me see, you mentioned several times the positive either by patients or employees. And I'm just curious, how big a deal is that? I mean like when you talk about employees, in a building that's more of a problem facility, how big of an issue is it of actually keeping the employees healthy? And what kind of positive COVID rates have you seen there?

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George V. Hager, Genesis Healthcare, Inc. - CEO & Director [31]

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Rich, you want to take that one? We can all add to that.

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Richard A. Feifer, Genesis Healthcare, Inc. - Senior VP of Genesis HealthCare & Chief Medical Officer of Genesis Physician Services [32]

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Sure. I'd be glad to. Over the entire organization and over those 100-plus facilities that we described as having cases, we've had several thousand, over 2,500 employees and clinical staff who've had COVID. So this is a very serious and common issue. And that's because those employees live in the communities surrounding the centers, and they catch COVID in the surrounding community. As to the percent of staff that are affected, that actually varies widely. And we're learning more and more about that every day as we're doing wide-scale screening tests even for asymptomatic staff.

In some cases, even in a community where it's prevalent and even where we have patients who might be affected, in some cases, we have very few staff who turn out to be positive. In other cases, the percent positive can be even higher in the 20% range. So there's wide variability and in all of those cases, as we're doing those tests, we need to develop and go into that testing strategy with a replacement staffing plan. And so that's why it was so important, as was alluded to earlier, that we have backup plans like CareerStaff Unlimited and others to ensure that we have safe and appropriate staffing.

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Frank George Morgan, RBC Capital Markets, Research Division - MD of Healthcare Services Equity Research & Analyst [33]

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Got you. Last one, and I'll hop. Speaking of testing, how much does that cost? I mean -- and is that something that you would expect to get some federal funds to help pay for. So I mean, if you could do everything exactly the way you wanted to do it with testing, like how much is that costing a 100 bed building?

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George V. Hager, Genesis Healthcare, Inc. - CEO & Director [34]

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Frank, we'll give you sort of some ability to do the math. I mean you have 100 patients and 150 are just keeping -- that's easy, 100 employees and 100 staff that theoretically should be tested at a minimum every other week. So that's 400 tests, and pick a round number, $75 a test. The issue, the cost of testing has been handled in very different ways at the state level. Some of those costs have been funded by the state. In some cases, the states have brought in the National Guard and other resources to test, and they have covered those costs. But I think the availability, as Rich said in his formal comments of adequate lab capacity and testing supply, they will continue to be an issue as we significantly increase the number of tests. I mean the guidelines to open up nursing homes to universally and proactively test residents and staff, I think is still -- and the cost of that, I believe, will continue to be one of the ongoing issues that we discussed, both with state and local legislators as well as with the administration.

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Operator [35]

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There are no more phone questions. You may continue.

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George V. Hager, Genesis Healthcare, Inc. - CEO & Director [36]

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Well, we'd like to express our appreciation to everyone who got on the call to us this morning. We apologize for the delay in our reporting this quarter. But I think everyone can understand our reasoning behind that. We assure you that we are continuing to do everything humanly possible to protect our residents, our patients and our caregivers and hopefully all of our constituents and all of our stakeholders appreciate the efforts of the frontline staff of Genesis and the entire nursing home industry.

Again, we appreciate your time with us this morning, and we'll be available, even though we are all in separate locations, to respond to any questions you might have after the call. Thank you very much. Stay safe, and hopefully, we'll see the end of this pandemic relatively soon. Thank you, everyone.

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Operator [37]

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This concludes today's conference call. You may now disconnect.