HealthSouth ‘Back on Track’ in 2016

One of the nation’s largest providers of post-acute health care services is “back on track” with its earnings after a less-than-stellar ending to 2015, according to the company’s executives.

HealthSouth Corporation (NYSE: HLS) seems to have found its footing after numerous acquisitions and aggressive expansion within the home health sector, reporting strong volume and revenue growth during the first quarter of 2016. The company reported 22.8% growth in net operating revenues during the first three months of 2016, compared to the first quarter in 2015. 

The post-acute services provider, which owns a portfolio of facility- and home-based post-acute services, has been on a buying spree over the last year. Following its whopping $750 million acquisition of Encompass Home Health and Hospice in 2014, HealthSouth acquired CareSouth Health System Inc. for $170 million last fall. CareSouth is a home health care and hospice company that added 45 locations to HealthSouth’s portfolio.

Management Structure Finds Success

After more than a year of working with Encompass, HealthSouth has experienced some successes after merging its hospital-based locations with Encompass.

“We operate Encompass as a joint venture relationship,” HealthSouth CEO and President Jay Grinney explained on a call with investors this week. “We had 25 Legacy HealthSouth hospital-based home health agencies that we integrated onto the Encompass platform. Additional captures [from] Legacy HealthSouth Home Health have now been folded into Encompass.”

Encompass was also recently named as one of the best places to work in health care by Fortune, nabbing the No. 2 spot for 2015. The business employs more than 8,1000 people and has 230 sites in the United States. This recognition reflects what executives say is a very positive workplace culture that bucks the harsh realities of high turnover and staffing shortages plaguing the industry.

“They have a very strong culture that is seen as highly desirable for individuals that have chosen home health as their career path,” said Douglas Coltharp, HealthSouth CFO and executive vice president. “They don’t have a situation where they are struggling to find people. It’s just the opposite. They are selective to get the right individuals. It’s something that is a real attribute of that company and one of the strong reasons we were so interested in establishing a partnership with them.”

The partner is also the vehicle for HealthSouth’s continued acquisition plans in the home health industry. The company is pursuing adding home health in markets where it already has a presence with its inpatient rehabilitation facilities (IRFs).

“The long-term goal would be to have home health in every market where we have an IRF,” Grinney said. “There’s a way to go about that, and we’re looking at acquiring that incremental home health capacity through Encompass, but that is the long-term goal. From a practical standpoint, some markets may take 5-10 years, others maybe 1-3 years. The development pipeline in Encompass is focused on the markets that don’t have a home health today.”

Receptive Audience in Reliant Markets

HealthSouth continued its expansion in 2015 with the $730 million acquisition of Reliant Hospital Partners, LLC, which operated a portfolio of more than a dozen inpatient rehabilitation hospitals and inpatient satellite locations in Texas, Massachusetts and Ohio.

“On the Reliant transaction side, that is going very nicely, very much on track with all the changes we had contemplated,” Mark J. Tarr, COO and executive vice president, said during a call with investors this week. “Our same-store business with the 2.8% volume growth is doing exceedingly well.”

The company, which operates IRFs and home health in 58% of its markets, is also focused on health system changes related to reimbursements, including its states there were affected by the new Comprehensive Care for Joint Replacement (CJR) bundled payment models.

“We’re working on some models in CJR markets with our hospitals about getting in there and absorbing some of that risk to set ourselves up as a preferred post-acute provider,” Tarr said. “We’re finding a receptive audience within the acute care space that the IRF is a better deal from a patient quality standpoint and readmission rate standpoint than other alternatives that may be available to them.”

There were a few things the company was keeping an eye on for the rest of the year, including its continued growth on the IRF side over the last few months and the bad debt that was accrued recently, Coltharp said. However, HealthSouth remains “guarded” in its expectations of that longevity, but executives remained confident that last year’s troubles were behind them.

“We are still conservative in our guidance,” Grinney said. “2015 was challenging because of one-time issues we had to deal with. We’re back on track.”

Written by Amy Baxter