Hurricanes Inflict Pain on Encompass Health in Midst of Steady Growth

Encompass Health Corp. (NYSE: EHC), the nationwide post-acute care provider formerly known as HealthSouth Corp., posted another round of solid financial results this week for both of its major business segments. Encompass Health’s upcoming quarter may not be so steady, however, largely because of ongoing recovery efforts tied to Hurricanes Florence and Michael.

Fallout from the recent hurricanes, the company’s ongoing rebranding initiative and better care coordination between its business segments were among the points addressed by Encompass Health leadership during a Tuesday conference call with investors.

Headquartered in Birmingham, Alabama, Encompass Health oversees a network of in-patient rehabilitation hospitals, home health agencies and hospice providers. Combined, its 36-state footprint spans 130 hospitals, along with 273 home health and hospice locations.


Its home health and hospice segment is based in Dallas.

Encompass Health’s net operating revenues were roughly $1.07 billion in the third quarter of 2018, up 8.8% from $981.6 million compared to the same quarter last year.

Revenue growth was driven mainly by volume and pricing growth in the in-patient rehab segment. Volume growth in the home health and hospice business lines also contributed to revenue gains, according to Encompass Health leadership.


“The third quarter was another strong quarter for Encompass Health,” Mark Tarr, the company’s president and CEO, said during Tuesday’s conference call. “The operational and financial trends we experienced in the first half of the year continued in the third quarter.”

Thus far in 2018, Encompass Health has opened four new in-patient rehab hospitals, while adding 16 home health locations and 20 hospice locations to its portfolio.

The majority of those additions came via Encompass Health’s acquisition of privately owned Camellia Healthcare and its affiliated entities. The deal officially closed in May.

Encompass Health’s home health and hospice segment revenues were $242 million for the most recent quarter, up more than 22% compared to $198.1 million for the third quarter of 2017.

Hospice revenue, in particular, rose by 84.3% in Q3 2018 compared to the prior year’s third quarter. Hospice revenue increased primarily because of acquisitions and same-store admissions growth of about 21%, according to leadership.

Home health admissions and episodes also increased on a year-over-year basis.

“We remain pleased with the development pipelines for both of our business segments,” Doug Colthard, Encompass Health vice president and CFO, said during the call.

Improving care coordination

As of Sept. 30, 2018, Encompass Health had 77 overlap markets, or areas where its in-patient rehab operations overlap with home health and hospice locations.

Overall, the clinical collaboration rate between Encompass Health’s two main business segments improved to 34.3% on a year-over-year basis. Improved care coordination between in-patient rehab hospitals and home health teams has resulted in lower discharges to skilled nursing facilities, higher discharges to home settings and improved patient satisfaction, according to company leadership.

The near-term clinical collaboration rate goal for Encompass Health is between 35% and 40%.

In general, being able to a avoid skilled nursing facility (SNF) stays is an advantage in forming relationship with payer partners, as the home is typically seen as the lowest-cost setting.

“We’re finding that our payers are recognizing that — if the patient has the right home support and the right caregiver support — they can really accomplish … much the same outcomes as SNF stays for a lower cost,” April Anthony, CEO of Encompass Health’s home health and hospice segment, said during the call. “We’re seeing chronic, co-morbid patients who are frequent fliers to hospitals. Medicare Advantage plans are looking more to home health than nursing homes to solve those issues.”

Encompass Health’s rebranding efforts are proceeding smoothly, with 60% of hospitals and agencies transitioned to the new brand.

Hurricanes affecting hospital, home health operations

In September, Hurricane Florence became the first major hurricane of the 2018 season, devastating parts of the East Coast, especially North Carolina and South Carolina.

Hurricane Michael followed in October, killing at least 45 people across Florida, Georgia, North Carolina and Virginia. U.S. insurance damage estimates from Michael range between $8 billion and $11 billion.

Encompass Health was among the businesses affected by the natural disasters.

Other revenue for Encompass Health in Q3 2018 included $4.5 million of business interruption insurance recoveries related to 2017 hurricanes as well.

Eight home health locations were impacted by Florence, while three home health locations in the Florida Panhandle region were hit by Michael. In some cases, road closures, power outages, displacement of patients affected those home home services.

The weather events were far more costly to Encompass Health hospitals, according to the company. Seven hospitals stood in the path of Florence. A Panama City, Florida, hospital located in Hurricane Michael’s path is no longer operable and will be experiencing ongoing repairs for months.

Encompass Health estimates a negative impact to adjusted EBITDA of $4 million to $5 million in Q4 2018 associated with the ongoing effects of Hurricane Michael on operations in Panama City.

Encompass Health’s stock was down 5.74% end-of-day Tuesday, trading at $67.82.

Written by Robert Holly

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