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Pennant CEO: Providing Senior Living, Home Health at Scale Gives Us An Edge

As CEO of Pennant Group (Nasdaq: PNTG), Danny Walker is leading an organization with about 50 senior living communities and 60 home health and hospice agencies — and he believes that this mixed portfolio will give the company a competitive advantage by enabling it to drive coordinated care.

Pennant officially came into existence at the beginning of this month. That’s when it spun off from Mission Viejo, California-based Ensign Group (Nasdaq: ENSG), which is left with 212 skilled nursing and other health care facilities. Eagle, Idaho-based Pennant and Ensign will continue to have a close relationship through a preferred provider network known as the Ensign Pennant Care Continuum (PCC).

“One of the advantages of Pennant and of the way we’ll work together in the EPCC is that we share the same cultural identity, we share the same approach from the innovative operating model standpoint of how we focus on health care and decision making at the local level, as close to the patient as possible,” Walker told Senior Housing News. “I think that’s what will set this continuum apart in the market.”

He and Pennant COO John Gochnour elaborated on the synergies they see between senior living and home health, and discussed other aspects of Pennant’s strategy and plans for growth, including its approach to compensating leaders. And Walker also shared a personal story about why he shifted his career trajectory from being a lawyer to leading a health services business.

A decade in the making

In 2007, Walker was working as a lawyer for Ensign Group, focused on the company’s impending initial public offering, when his son was born with Down syndrome.

“He spent a long time in the hospital and had open heart surgery a few times, and then came home after what I now know was a hospice conversation — you know, basically indicating there was nothing else they felt they could do,” Walker shared.

However, with the help of home health, his son survived, and Walker was inspired to shift from lawyering into health care operations. And he did not have to leave Ensign to accomplish this.

That’s because the company has a “standing offer” to its leaders that if they want to pursue an entrepreneurial venture, and they put together a solid plan, Ensign will back that venture in the form of capital and expertise, Walker said.

So, it was with the support of Ensign’s leadership that he began to create a portfolio of home health and hospice operations under the Cornerstone name and senior living communities under the Pinnacle name. The effort began with the acquisition of a home health agency in Idaho. 

Even at that early stage, the intention was to ultimately spin the portfolio out into its own company, Walker said, and the Cornerstone and Pinnacle businesses were structured accordingly, as a separate group with separate capital allocations.

Following that initial acquisition in Idaho, the portfolio grew through an acquisition strategy that blended opportunism with an eye toward creating meaningful footprints in specific markets.

In particular, expansion was fueled by a commitment to honoring the local identity of the businesses that joined the Cornerstone or Pinnacle stable. Acquired locations kept their own brand names, for example.

“We tend to be the favorite choice of your typical mom-and-pop operator because those leaders, they’ve built these businesses for 15 to 20 years, and this is their life, legacy,” Gochnour said. “When they sell it, they want to sell to an organization that’s going to retain that local community legacy and make sure that there’s decision-making abilities right at the local agency level, to make sure you take care of the staff that have been loyal and contributing to building that community reputation.”

Having achieved significant scale, the time finally came to separate from Ensign. The spin off was completed on Oct. 1, at which point Pennant Group became an independent entity trading on the Nasdaq, with a share price of $15.09. At the close of regular trading on Friday, shares were at $18.21.

Anticipated benefits

On a local level, the spinoff does not alter anything in how the company’s senior living communities or home health and hospice agencies are run, Walker said. But on a macro level, he identified two main anticipated benefits.

One is that it will open up broader opportunities to share equity with Pennant leaders, by which he means leaders at the local level, not just the C-suite.

Unlike most health services organizations, Ensign offers equity compensation programs — such as stock options and restricted stock awards — to positions such as administrators, office managers, directors of nursing and therapy leads.

“That’s been something for 20 years that Ensign has been able to effectively do, and that creates this stability that helps reduce turnover and helps those leaders think about long-term investment in the community,” Walker said.

Gochnour agreed that this approach to compensation is a pillar of the Ensign — and Pennant — culture.

“We hold really firmly to a set of core values within our organization, and one of those is ownership and sharing that ownership broadly,” he said.

Pennant should also have an enhanced ability to access capital, Walker said, by directly accessing the equity market as well as tapping banks and other sources of financing.

The capital will help fuel ongoing growth across both senior living and home health/hospice. The acquisition strategy will continue to reflect the Ensign approach, appealing to mom-and-pops and building out clusters in which Pennant and Ensign both have concentrations.

The clustering strategy is key to Pennant’s value proposition, which is to create more seamless, effective transitions and care coordination across the whole post-acute and senior care continuum. It will do this not only across its senior housing and home health/hospice locations, but in the care network with Ensign’s skilled nursing facilities.

Already, Pennant and Ensign have significant clusters in markets such as Southern California, Southern Utah, Phoenix, Dallas and the Puget Sound area. Going forward, Pennant will not work exclusively with Ensign, but could create partnerships with other provider organizations as well, Walker noted.

By excelling at care coordination, the expectation is that Pennant will enhance quality of life for its residents and patients, and keep costs down for the health system as a whole by reducing hospitalizations and supporting seniors’ health and wellbeing. This should make it an attractive partner for hospital systems and payers, including Medicare Advantage plans, Gochnour said.

“We work closely with payers … and we really do approach it on a community by community basis,” he said. “How do we meet the needs of that community, and then try to strategically enhance relationships with the payers who provide support to a number of beneficiaries in those communities, so that we can be a solution, and then work closely with those payers to do everything we can to provide extraordinary care at the lowest possible cost.”

Other senior living companies are pursuing similar strategies to control more of the care continuum, including by working more closely with payers or even launching their own Medicare Advantage plans. But few large-scale private-pay senior living companies also run a sizable home health business — one notable exception being industry giant Brookdale Senior Living (NYSE: BKD).

Although it’s early days for Pennant as a standalone entity, Walker and Gochnour are bullish about the future, and believe that their model is well aligned with where health care is headed.

“We think there’s opportunities on the senior living side to help folks age in place to have an extraordinary experience,” Gochnour said. “… As there’s more and more effort, by the government and by private payers, to bring costs down as much as possible while still producing extraordinary care and clinical outcomes that will benefit patients, we think we’re well positioned to benefit from those trends.”

Reporting contributed by Bailey Bryant

The post Pennant CEO: Providing Senior Living, Home Health at Scale Gives Us An Edge appeared first on Senior Housing News.

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