Executives at Encompass Health (NYSE: EHC) are confident that the company can continue increasing home health admissions over the next three years. This would continue an ongoing trend for the Dallas-based provider, which has 237 home health and hospice operations in 36 states.

In the fourth quarter of 2017, Encompass’ same-store admissions for home health and hospice increased 10.1% year-over-year. Growth in same-store admissions has averaged 12.4% over the last eight quarters, as illustrated in an updated investor handbook released Wednesday. The company failed to hit double-digit same-store growth in only one of those quarters, due to hurricane impacts.

Industry peers — such as Lafayette, Louisiana-based LHC Group (Nasdaq: LHCG), Baton Rouge, Louisiana-based Amedisys (Nasdaq: AMED), and Louisville-based Kindred Healthcare (NYSE: KND) — also have posted organic growth in home health admissions, but Encompass’ numbers compare favorably. LHC Group had 10.7% growth in organic admissions for fiscal 2017 and 9.3% growth in 2016. Amedisys had 2% same-store admissions growth in both 2016 and 2017. Kindred’s same-store home health admissions increased 1.6% between 2016 and 2017.

Over the next three years, Encompass should be able to keep growing admissions in this range of low double digits, Executive Vice President and CFO Doug Coltharp said Tuesday, speaking at the Barclays Global Healthcare Conference in Miami.

There are three reasons that this level of growth is sustainable, he said.

One reason is Encompass’ clinical collaboration model. In addition to its home health locations, Encompass operates 127 inpatient rehabilitation facilities (IRFs). It is strategically trying to create market overlaps between its IRFs and home health, defining a market as a 30-mile radius. Currently, 60% of its IRFs have a complementary home health agency, driving synergies and enabling Encompass to more closely manage patient care through the continuum.

As of the fourth quarter of 2017, 55% to 60% of IRF patients in overlap markets were going to receive home health, and 31.7% of them went to an Encompass agency, Coltharp said. There’s a goal to increase that to more than 35% within two years.

Another reason for confidence is demographics. The average age of an Encompass patient, across its IRFs and home health, is 77, while the “vanguard of the baby boomer generation” has just turned 72, Coltharp said.

“So that tailwind is still in front of us and … we believe for the next 10 years or so we’re going to see demand for these services in both our segments increase at a greater rate of supply,” he said.

Finally, there’s the lack of consolidation across the home health industry.

Out of about 12,300 licensed home health agencies in the United States, about 95% have revenue of $500 million or less. Margins are being squeezed as Medicare rates have been cut at the same time cost control has been hard, given more robust regulatory compliance needs, Coltharp noted. As a result, agencies that are not as well-capitalized as Encompass—which had $3.9 billion in 2017 net operating revenues and a leverage ratio of 3.1x, with no near-term debt maturities—could struggle in the coming years.

“So, there are going to be pressures on capacity coming out of the system just as demand is increasing,” Coltharp said. “And so our ability to also take market share is going to contribute to growth.”

As for how the company is planning to expand its market share through acquisitions in 2018, it expects to have adjusted free cash flow this year of $325 million to $425 million, with the majority of that earmarked for growth opportunities in both IRFs and home health.

Written by Tim Mullaney