PACS Group Q1 2024 Earnings Call Transcript

There are 9 speakers on the call.

Operator

and welcome to PAX Group's First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After today's presentation and remarks, there will be an opportunity to ask questions. The call is being recorded and a replay of the call will be available on the PACS Group's Investor Relations website about an hour after the completion of this call. I'd now like to turn the conference over to Derek Abt, Chief Financial Officer.

Operator

Please go ahead.

Speaker 1

Thank you, and good afternoon, everyone. Thank you for joining us for our Q1 2024 earnings call. I'm joined today by Jason Murray, our Chairman and CEO and Josh Jurgensen, President and COO. Before we begin the prepared remarks, we'd like to remind you that yesterday PAX Group issued a press release announcing its Q1 2024 results. An investor presentation was published and is available on the Investor Relations section of packs.com.

Speaker 1

I'd also like to remind everyone that during the course of today's conference call, we will discuss certain forward looking information. 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. These statements are subject to risks and uncertainties that could cause actual results to materially differ from those expressed or implied on today's call. In addition to any risk highlighted during this call, you should carefully consider other important risk factors and disclosures that may affect PAX Group's future results as described in our quarterly report on Form 10 Q for the period ended March 31, 2024, and our other reports filed with or furnished to the SEC. Listeners should not place undue reliance on forward looking statements and are encouraged to review our SEC filings for a more complete discussion of factors that could impact our results.

Speaker 1

Expect as required by federal securities law, PAX Group and its affiliates do not undertake to publicly update or revise any forward looking statements where changes arise as a result of new information, future events, changing circumstances or for any other reason. Information discussed on this call concerning PACS Group's industry competitive position and the markets in which we operate is based on information from independent industry and research organizations. Other third party sources and management estimates, which are derived from publicly available information released by independent industry analysts and other third party sources, well as data from PAX Group's internal research and are based on reasonable assumptions and computations made upon reviewing such data and our experience and knowledge of our industry and markets. By definition, assumptions are subject to uncertainties and risks, which could cause results to differ materially from those expressed in the estimates. During this call, we will discuss certain non GAAP financial measures, including adjusted EBITDA and adjusted EBITDAR.

Speaker 1

These non GAAP financial measures should be considered as a supplement to and not a substitute for measures period in accordance with GAAP. For a reconciliation of non GAAP financial measures discussed during this call to the most directly comparable GAAP measures, please refer to the earnings release and the appendix included in the investor presentation, which are both published and available on the Investor Relations section of PACS Group's website. I'll now turn the call over to Jason.

Speaker 2

Yes. Thanks, Derek, and thank you all for attending. As many of you are aware, this is our first earnings call. We are very appreciative of those who have trusted in us and in our ability to execute on our mission as a company. We believe strongly in and are committed to our mission of delivering better post acute clinical care across the country.

Speaker 2

We recognize the honor and privilege it is to take care of America's most vulnerable and we take that responsibility very seriously. We're proud of the work our 34,000 employees across the country provide each day, and we're inspired by their commitment to quality and excellence. They are the foundation of our success. We had a very strong quarter, both clinically and financially, thanks to the hard work of our teams around the country. Our local leaders remain laser focused on our clinical measures and clinical outcomes, which have helped drive our overall performance.

Speaker 2

I'd like to share just a couple of quick anecdotes that illustrate our facility's dedication to quality. First, in March of this year, our Santa Rosa post acute facility in California had its first annual survey since early in the pandemic. They passed with 0 regulatory deficiencies and a follow-up CMS survey confirmed those remarkable results. Additionally, presidential post acute at Marion, Ohio has now had 3 annual surveys in a row without a single deficiency and has gone almost 5 years with only 1 survey deficiency. As some of you may know, a 0 deficiency annual survey is a relatively rare achievement and it's a testament to a lot of hard work and commitment by the staff.

Speaker 2

So we're very proud of the staffs Santa Rosa and Presidential and for the dedication they have to their residents. And so these are just a few of many examples throughout our company that point to the commitment of our teams to patient safety, clinical excellence and operational integrity. Clinically, our teams continue to excel in caring for their residents. This is illustrated by 158 of our skilled nursing facilities having achieved a 4 or 5 star CMS quality measure rating. Our facilities and teams are always committed to working towards a 5 star quality rating.

Speaker 2

This kind of effort is the most important factor in our financial strength and revenue growth year over year of 32% or $226,500,000 Our revenue was driven higher by several factors when compared with the same quarter last year. In addition to increasing occupancy, we also saw revenue per patient day increases. For example, our average daily Medicare rates increased by 11% for the 3 months ended March 31, 2024 compared to the Q1 of 2023. And our average Medicaid rates over the same time period increased 5.3% due to state reimbursement increases and our participation in supplemental Medicaid payment and quality improvement programs. Both increases come from our efforts to keep healthcare local by recognizing and serving patients' acuity needs locally.

Speaker 2

This also allows us to properly meet the continuing shift of higher acuity patients being discharged from acute care settings into skilled nursing facilities. Outlook for continued growth remains strong with a robust acquisition pipeline and continued improvement both clinically and financially in the operations we've recently acquired. As many of you know, the demographics remain strong for increased demand for skilled nursing care across the country. We'll continue to seek out the right facilities in the right markets for acquisition to expand our operational reach. And skilled nursing care represents approximately 43% of total CMS spending on post acute care and we're confident we can continue to play a vital role in our country's health care continuum.

Speaker 2

So next, as we turn to the CMS new minimum staffing rule, we support CMS' intent to enhance quality care for its seniors as it aligns directly with our mission as a company to provide better clinical outcomes to our patients across the country. However, we do share the sentiment as many in the industry that the rule in its current form presents a number of significant challenges to the industry, particularly for the many smaller providers who make up the majority of the nursing homes in our country. The way we see it, there are 2 major hurdles with the current staffing mandate that need to be overcome. First, there's a significant lack of caregivers to fulfill the workforce shortage within the skilled nursing sector. Data shows almost 250,000 nursing home workers left the industry during the pandemic and while some have returned, the industry is still about 125,000 workers short.

Speaker 2

2nd, without additional funding, the mandate will impose significant cost burden, which many providers will be unable to shoulder. In light of the legislative and other opposition to the new rule, we can't predict whether the new staffing requirements will in fact ultimately take effect in their current form. However, our operating teams are planning for and taking the necessary steps to prepare. Keep in mind that the new minimum requirements are scheduled to take effect 2 to 3 years from now. So with that said, assuming the new rule is ultimately implemented in current form, we believe we are in a good position as a company to adapt to the requirements.

Speaker 2

Due to our operating model and caring for so many acuity patients, the majority of our facility staff over the 3.48 nursing hours per patient day, which is a key metric adopted by CMS in the new role. It's also worth noting that currently a significant number of our operations are in California, where existing minimum staffing requirements are in many ways already similar to the new federal rules. Turning to growth prospects, we are continually evaluating new markets where we feel our model will add value to the local healthcare system. Our leadership model allows us to be nimble and ensure we're prepared to flex and adapt in order to support expansion in existing and new markets, while maintaining sound clinical care and business performance. To support future growth, we continue to focus efforts on our robust administrator and training program, where we have a pool of talent ready to take on leadership roles at new facilities quickly.

Speaker 2

The AIT program success includes roughly 200 PACS AITs hired since our founding, with 157 of those still employed with us in licensed administrator or other leadership positions, a retention rate of about 75%, which we're very proud of. And we currently at the moment have 35 AITs in our program to help facilitate further strengthening existing facilities and to support our growth. So in addition to training new leaders, the PACS leadership model allows our local leaders to make operational decisions as close to our patients and employees as possible, which is ultimately better for the residents and the communities in which they live. With support from PAC Services, our back office clinical compliance and business support team, our teams are able to stay laser focused on providing quality clinical care, while creating a culture that attracts the best employees to our sector. Impacts use a several technology and data enabled resources that allow our clinicians and administrators to make decisions more quickly with a higher positive impact on our patient care.

Speaker 2

The real time data guides our local teams to prioritize factors that in the end lead to more consistent clinical outcomes and better financial performance. So as we've been able to focus on improving key clinical and operational metrics, our overall CMS star rating has improved across the portfolio and readmissions back to the hospitals have declined. This has resulted in our ability to attract and care for higher acuity patients, which is reflected in our average skilled mix of 32.5% in our mature facilities in Q1 of 2024. So we look forward to the rest of 2024, the improvements we have planned and the growth opportunities that we see. The quality of our people helps ensure we stay in strong business position moving forward.

Speaker 2

With that, I'll turn the call back over to Derek to cover our financial highlights for the quarter.

Speaker 1

Thank you, Jason, and thanks to our teams for ensuring we meet our mission of excellence in serving our patients, residents and the communities with where they operate. Since the close of the Q1 on March 31, we successfully completed our IPO, which resulted in net proceeds of $423,000,000 Here are a few financial highlights for the quarter. We had $934,700,000 of revenue for the 3 months ended March 31, 2024, a 31.9% increase over prior year period. Adjusted EBITDA was 152,500,000 EBITDA was $88,500,000 respectively for the 3 months ended March 31, 2024. And last, our earnings per share for the quarter was 0.38 dollars which showed an increase of 31% over the prior year on $49,100,000 of net income for the 3 months ended March 31, 2024.

Speaker 1

Our total facilities occupancy was 91.1% during the Q1 of 2024 compared to an industry average of 78.4%. Specifically, our ramping and mature facilities occupancy increased 1.8% and 1.4% respectively over the prior year quarter, while our new facilities ended the quarter with 83.3 percent occupancy. Historically, this occupancy improves to 90 plus percent during the 1st 3 years of PACS operations. We attribute our revenue growth to the adding 5,194 beds to the company over the year, which represents 35.3 percent increase in patient days. Additionally, we realized a meaningful improvement on our revenue per patient day over the same time period.

Speaker 1

We continued the growth of our overall bed count into the Q1 of this year with adding 10 new operations. Our local teams have been making clinical improvements, which is leading to increased occupancy and stabilization of the financial performance of these facilities. Additionally, our average Medicare revenue per patient day remained strong through Q1 at both our ramping and mature facilities at $9.69 $9.38 respectively, compared to 'twenty three where our average Medicare revenue per patient day at ramping and mature was 836 and 846 respectively. Finally, we continue to execute on our strategy to acquire more real estate, adding 6 real estate assets to our portfolio in the Q1. In connection with our real estate acquisitions in the quarter, we added $39,800,000 to our total long term debt during the 3 months ended March 31.

Speaker 1

Of the $39,800,000 $34,700,000 $1,000,000 was assumption of HUD mortgages as part of one of our acquisitions in Missouri, which included 3 facilities. The mortgages have interest rates ranging from 2.9 percent to 3.6 percent in terms of 24 to 26 years remaining on the mortgage. The addition of these three facilities together with our exercising

Speaker 2

3

Speaker 1

purchase options in

Speaker 3

the quarter bring our total owned facilities to 35. We currently

Speaker 1

own or have joint venture real estate interest and purchase options on 33.7% of our beds with a long term goal of owning 50% of our portfolio. Of our facilities that we lease, we have an average of 14 years remaining on the initial term of those leases. Now turning to guidance. We look forward to a strong 2024 and our guidance for the full year is as follows. We expect annual revenue to be between $3,650,000,000 $3,750,000,000 The midpoint of this is a 19% increase over 2023 revenue and we expect adjusted EBITDA to be between $351,000,000 $361,000,000 I'll now turn the call back over to Jason.

Speaker 2

Yes. Thanks, Derek. And with that operator, we're ready to take question. And as a reminder to the group, we do have in the room with us Josh Jorgensen, our Chief Operating Officer Derek and myself who will be fielding questions. So with that, we'll turn it back to you, operator.

Speaker 2

Thank

Operator

Our first question today comes from David MacDonald of Truist. Please proceed with your question.

Speaker 4

Hey, good afternoon guys. Couple of quick questions. First, just on quality. I was wondering if you could just talk quickly about how often when you guys are in contracting discussions, you're able to kind of meaningfully leverage that. You talked about readmissions back to the hospitals have declined.

Speaker 4

Any opportunity or how do you think about longer term potentially participating in some of the improvement in quality and just kind of how you think about contracting relative to that with the payers?

Speaker 3

David, thanks for the question. This is Josh Jorgensen. I'm our President and COO. Great question. For us, as we talk about often, quality really for us is the leading indicator.

Speaker 3

Care is our product. It's what we do. And we emphasize that to our teams. We're heavily invested in making sure that we're focused on some of the key metrics that we should care most about and obviously our partners in the community care most about. As we know, as we're looking at contracting opportunities, part of our model is to have strategic high density end markets that we serve, so that we can truly be a great partner to those that are looking to find placement for their patients.

Speaker 3

And in those conversations, quality always comes up. As a part of most negotiating in those contracts, one of the key gating items is ensuring that the facility has a high enough star rating to meet the minimum of that particular health plan. That star rating is usually a 3 star overall ranking. And so that's an area that we focus on. Rehospitalizations is probably another area that they focused on most.

Speaker 3

And so as we mentioned, as we dedicate ourselves to the quality of care in the facilities that we have responsibilities in, we've seen those rehospitalization numbers go down. And that is a direct result of the coordinated care efforts that are made by our local teams, our decentralized leadership model, which we feel really shines when it comes to clinical performance. And as we do those things, we believe there's a direct correlation to our ability to not only contract, but our ability to drive census and higher occupancy rates. And so we'll continue to focus on quality and we feel that that ultimately will be a competitive advantage to us moving forward.

Speaker 4

And then guys, I guess just 2 other quick ones. 1, when I think about the timing around your ramping bucket, I believe a handful of those facilities have been are pretty close to moving into mature. But just any general comments about just the strength in ramping? I mean, the numbers look really strong in the ramping bucket. And then I guess the second question is with regards to minimum staffing, when we think about what you guys tend to target in terms of M and A, I would think the custodial facilities are going to be a further spread away from those staffing levels.

Speaker 4

Is there any reason to think if the rule were to move forward as written that you wouldn't have likely a meaningful acceleration in the pipeline of opportunities you would take?

Speaker 1

Yes, Dave, thanks. This is Derek. So on the ramping bucket, you are right. There's quite a few in the ramping bucket. I think it's just north of 70 facilities that are nearing the end of their time in the ramping moving to mature.

Speaker 1

That consists of a large acquisition in California we did in 2021, the Plum acquisition. And then additionally, we acquired a large portfolio in South Carolina around the same time. And both of those are performing exceptionally well. That South Carolina portfolio as a whole actually has the highest occupancy in our entire portfolio. And then additionally, as you look at the other key KPIs that we run through the cohorts, the large California Plum acquisition had quite a few buildings and higher wage index areas, which is driving that revenue PPD slightly higher for the ramping than the mature.

Speaker 1

But we're overall excited that those buildings are maturing faster than we had historically experienced. And I think it's just proof in the pudding for our model and our local leadership. The second point on the minimum staffing, how it's going to affect M and A pipeline. I think Jason laid it out well, our overall thoughts from a company perspective that look, we support it. We think it's good to provide better care to more of our seniors across the country.

Speaker 1

But there's a couple of key caveats, which ultimately I think leads to your question and it's the funding and the ultimate burden on those custodial care facilities that the smaller operators are going to struggle with being able to absorb. And the way we look at it is ultimately, I don't think we're going to shy away from looking at any building or we're going to turn down buildings if it's a long term custodial care, depending on how it scorecards. I think we look through a scorecarding method and we look at the overall rates at the different states, we look at the labor dynamics. And if the building still checks those boxes, even if it's long term custodial, we believe there's always a path to deliver better quality care locally. And if we think we can evolve that model from a custodial care at a certain facility in a certain state, then we're still going to pursue that acquisition, even though they might be further away on the labor side.

Speaker 1

If there's a path to get the right mix of patients and payers there, then we're going to be able to make it an attractive acquisition.

Speaker 5

Okay. Thanks, guys.

Operator

The next question is from Scott Fidel of Stephens. Please proceed with your question.

Speaker 6

Great. Hi. Thanks. Hi, everyone. First question, just wanted to follow-up on that theme that David asked about around the ramping bucket in particular and then the new where we did see very strong KPIs in the Q1 around that bucket, which would lead me to think that you certainly are sort of moving forward on harvesting on that embedded EBITDA opportunity of the $80,000,000 to $100,000,000 plus that you've talked about off of acquired facilities.

Speaker 6

Maybe along sort of that context, can you give us some visibility into sort of the, I guess, the achievement towards that target in terms of what you executed on in the first quarter and sort of how you're thinking about continuing to execute against that target over the balance of the year?

Speaker 1

Yes, great question, Scott. I think for the embedded EBITDA of $80,000,000 to $100,000,000 of our overall portfolio, Look, we're harvesting some of that, but we also have added additional buildings already in Q1, as I mentioned, 10 facilities came on in Q1, which ultimately continues to build that embedded EBITDA. So as we look through the year for our guidance, we haven't changed the guidance. We still believe there's upside as you see in the EBITDA from the 'twenty three to our guidance for the 'twenty four EBITDA. And our range is still kind of holding in that $80,000,000 to $100,000,000 at the high end on embedded EBITDA growth from the portfolio moving forward.

Speaker 6

Okay. And then just for my follow-up question, I'll try to sort of put 2 numbers questions into it. One, just in terms of thinking about any call outs that you would want to give us around thinking about trends on the EBITDA margins in terms of seasonality or other dynamics just for 2Q over the balance of the year relative to the 9.5% that you reported in the Q1? And then similarly on operating cash flow, just hoping to get some thoughts on the full year view on that. Looks like in the Q1, you were at right around 65% EBITDA operating cash flow conversion.

Speaker 6

Wondering if that's a good stat for us to think about modeling for the full year or whether you'd have any additional context for us there? Thanks.

Speaker 1

Yes, certainly. Thanks, Scott. Two great questions. I think both of them from my perspective specifically tie back to M and A. Last year, we saw a little compression in our margin from 'twenty two and ultimately that's driven from the acquisitions and last year in 'twenty three being a little lumpier acquisition.

Speaker 7

As we think of seasonality through this

Speaker 1

year, we don't anticipate any margin compression with seasonality. Don't see much seasonality in overall occupancy. Skilled mix does vary seasonality and that's ultimately due to respiratory in more skilled patients maybe coming in with respiratory issues, whether that's influenza or COVID as we had it. But ultimately, those seasonality things we don't anticipate. Ultimately, what drives the margin impression and expansion is the growth and then the maturing of the facilities.

Speaker 1

And that really dovetails in further to your question on the free cash flow. And ultimately, with Q1, the free cash flow was strong from our perspective and in growing, and that's really from growing and maturing the new buildings that we had brought on last year. Free cash flow takes a hit when you ultimately acquire in the type of transactions that we do, because there's a little bit of delay in collecting that cash flow from operations. But as we say slow growth or there's not lumpy acquisitions, that free cash flow is going to continue to expand as the margin expands. And so as we look through the year, I don't have anything to point to that says that free cash flow is not going to stay steady to expand.

Speaker 5

Okay, great. Thank you.

Operator

The next question comes from Ben Hendricks of RBC Capital Markets. Please proceed with your question.

Speaker 7

Thank you very much and congratulations guys. Just wanted to get a little commentary on 11% in Medicare Advantage growth. You guys mentioned a number of drivers already. But just wanted to kind of think about that 11% in the breaking that up among skilled mix increases? Was there a component of it that had to do with contracting specifically or addition of new facilities that kind of contributed to that 11%?

Speaker 7

Just want to

Speaker 6

get the building blocks. Thanks.

Speaker 3

Yes, thanks for the question. This is Josh again. This is always a focus of ours. I touched on quality a little bit and contracting in general. But this is an area where we feel, again, our model shines.

Speaker 3

As we invest specifically on the care, the efforts and the systems that we put in place, adding quality personnel, we believe our facilities become more equipped to take a more clinically acute patient. And as Jason's referenced in his comments that he made, the acuity so long as they can take care of those patients and do it well. They can reduce rehospitalizations. They can ensure that the care that those patients need ultimately is met. And that's where we feel we our model is such that it allows us to run a higher skill mix and higher acuity.

Speaker 3

There is some seasonality, as Derek mentioned, that happens during specific times that allows us to run a higher skilled mix as more patients are in the acute setting and needing post acute discharge to continue their care. And so there is an element of that, but we continue to make efforts and see a lot of substantial progress both in additional contracts and improved rates in the contract because of the quality metrics that we have across the organization.

Speaker 7

Great. Thank you. And just my last one on guidance, the EBITDA guidance. Can you talk about the swing factors that get you from the low end to the high end? And what considerations we should be thinking about in how you set your range?

Speaker 7

Thanks.

Speaker 1

Yes, certainly. That's a great question, Ben. The biggest factors ultimately come back to we just grew by 10 for the year and seeing how those start maturing if they're going to be additive to the bottom line or if they follow the similar trend in the first 12 months to 18 months of low EBITDA margins. And the range there is really ultimately said, if they follow some of our stronger maturing facilities, then we're going to push to the high end of the range versus being at the low end of the range as it comes to the newest acquisitions that we folded into the portfolio.

Speaker 7

Thank you very much, guys.

Operator

The next question comes from Jason Casorla of Citi. Please proceed with your question.

Speaker 5

Great. Thanks. Good afternoon and congrats on the quarter. Maybe just on occupancy, obviously a strong result in the quarter, mature and ramping cohorts covering around 95%. There's some seasonality to consider, but maybe can you just help frame the sustainability of occupancy in those at those mid-90s levels?

Speaker 5

And then just for

Speaker 2

the new cohort, how should

Speaker 5

we think about the occupancy upside for those facilities at this point? I guess you're up to 24 guide or you noted in your prepared remarks a target of over 90% over time, but I'm just curious on the timing of that trajectory to get there. Thanks.

Speaker 3

Yes, we acknowledge Q1 was strong from an occupancy percentage and I feel like I continue to re harp on some of the same things. But for us, we truly believe that to be the best partners for hospitals and discharge planners for the communities that we serve, we have to have ultimately great quality outcomes. And we feel that that is the leading indicator to our ability to run high occupancy numbers. Derek referenced this already, but when it comes to seasonality, which naturally we felt some of that in Q1 and we'll see as that varies throughout. We haven't seen major changes in our occupancy.

Speaker 3

And again, this is where our model as our teams that are so locally based and able to make decisions locally for what's best for their communities can adapt and be nimble to ensure that occupancy even during that seasonality doesn't decrease. And so we feel very confident in that model and our ability to continue to maintain strong occupancy as we head through the remainder of 'twenty four. One of the things that you did acknowledge kind of moving on to the second part of that is the new cohort. When we take over facilities, they're generally underperforming or distressed. Their ability to run a care model similar to ours where they feel comfortable to be able to take more clinically acute patient.

Speaker 3

And another main factor in that is their ability to staff their buildings appropriately and recruit and retain staff to take care their patients limits their ability to run occupancy or skilled numbers similar to ours. As we go into these facilities, the first item of business for us is to make sure that we have the right people in the right places and make sure that there's good care systems in place so that we can be a good provider in the community. That takes time and that's exactly why you see these cohorts grouped into new and ramping and mature. It's no surprise to us and I'm sure not to you that these new facilities run a lower occupancy and lower skilled mix. We believe as we continue to move forward and with time and our leadership model and our care model are deployed, we feel that there's a lot of opportunities for these new facilities to move and trend towards ramping and mature historical occupancy and skilled mix numbers.

Speaker 5

Okay, great. Thanks. And maybe just as a follow-up, I wanted to ask about kind of the recent developments in California that's looking to implement healthcare spending caps. I think it's 3.5% for 2025 and 2026. It sounds like there's more detail and clarity from the state that's coming.

Speaker 5

But I guess just any thoughts on the announcement, perhaps if you see this as an opportunity to drive your value proposition further in the state or how you're thinking about like the developments there around the spending caps and your positioning? Thanks.

Speaker 3

Yes. Again, Josh here. California, as you know, we have a large presence in the state. There's a number of things that get discussed in any state in which we operate. And healthcare is always a key component of those discussions.

Speaker 3

And there's a number of different things that are discussed that could or could not potentially impact our space. I mean, you see that when it comes to budgets or other sorts of things that we keep a close eye on. Again, we kind of returned to and we don't want to generalize the concept, but we have a very strong presence. We have great leadership. We have great clinical outcomes in the State of California.

Speaker 3

And we believe that regardless of the various changes that may come up, we feel we're well positioned in the state because of our density, our ability to contract with key providers that give us access to taking more patients. We believe again with that with the strength in the State of California and our quality outcomes that the ability to kind of weather any different changes that are made in the reimbursement environment are such that that's why we've been able to continue to have that success. So we continue to stay close to the changes that are proposed and may be proposed. And as we do that, we again feel that we're well positioned in the state to adapt and to continue to have success in that state.

Operator

The next question is from Kyle Storink of JPMorgan. Please proceed with your question.

Speaker 8

Yes. Hi. Thanks for the question and congrats on the quarter. I wanted to get your thoughts on the rate environment, specifically the preliminary Medicare notice, just how that compared versus your initial expectations and I guess versus what you have built into the model? And then same question on Medicaid, just anything to call out in terms of what you're seeing in terms of rates in the states?

Speaker 1

Yes, great question, Kyle. And appreciate. So what we have the Medicare rate that came out is overall higher than we had in our model. Partly a slight uptick on that rate announcement helps to push to the higher end of our guidance. That's one point.

Speaker 1

The other point to bring up on the rate environment is we've seen healthy increases from most Medicaid programs that we operate in those states. And we're also seeing some continued strength, specifically in one of our states out east has an announcement that the rate is going up July 1. And so we think there's potential upside more for stronger rate environment versus what we had modeled, because typically we model to the long term average on the rate increases. In long term average, we look back 10 to 15 years by state and by the federal to make sure that as we roll forward and also in the M and A pipeline, we're not over promising what the potential rate would grow to.

Speaker 8

Okay, great. Thank you.

Operator

That concludes today's question and answer session. I'd like to turn the call back to Jason Murray for closing remarks.

Speaker 2

Yes. Thank you, operator. And again, thanks for everyone for taking the time to join us today. We hope this was helpful and have a great rest of your day.

Earnings Conference Call
PACS Group Q1 2024
00:00 / 00:00