Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Frank Morgan -Jefferies & Co.
Frank Morgan – Jefferies & Co.
You are off to a good start with improving the skill mix at those New Mexico acquisitions, but can you talk a little bit more about what you think the long-term potential there is and how long it really takes to get to that optimal skill mix to those facilities.
Also, I was hoping you could give us a little color just on the Medicaid outlook particularly in Texas and California which are important to you and then maybe some comments about what you are seeing on wage inflation.
Jose Lynch
On the skill mix in New Mexico, currently running 19% over 15% to start with the rest of the company being in the 25% range. I think with the quality of properties we have out there, I think that’s absolutely achievable over the long term. How quickly is yet unknown, but I think we have three express recovery units going in there over the next two quarters they will be developed. We are pretty optimistic about where that is going in skilled mix.
On the Medicaid front, Texas is still favorable. I am looking at a 3% increase in conjunction with a conversion to a RUG [inaudible] mix system. We are studying that new system as we speak. I mean it goes effective in September, so that is favorable. Then California, again what looks like we are going to be most likely frozen from any cuts that is currently happening in California, so the SNF should waive that. We have yet to recalculate how our new rates will show in August. Probably over the next quarter, we will have more view on that.
Again, overall with where California and Texas fall on the scale of the 50 states, I think we are still pretty positive that being in some of the lower reimbursed Medicaid states gives us the advantage come budget crunch time.
Frank Morgan – Jefferies & Co.
Wage inflation?
Jose Lynch
I am sorry. Wage inflation still is okay. Quarter over quarter, we are about 4% jump in wage inflation. I mean as the percentage of labor at the percentage of revenue, we saw a decline. Quarter over quarter, you know 59% in Q107 versus 57.3% company wide. Most of that is driven by our skilled mix, but wage inflation is still there, it’s not going away. The biggest challenge again has been RN’s, LPN’s and therapists predominantly. We are sticking right around the 4% growth rate.
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