Encompass Health Corp. (NYSE: EHC) saw its home health-related revenue jump in the first quarter of 2019, driven primarily by volume and pricing gains. The Birmingham, Alabama-based company expects more of the same moving forward — even as the home health industry marches toward the Patient-Driven Groupings Model (PDGM).
Overall, net operating revenues for Encompass Health totaled $1.12 billion in Q1 2019, a 7.5% increase over the $1.05 billion the integrated health care services provider recorded during the same period a year ago. Encompass Health’s footprint includes 130 hospitals, 221 home health locations and 59 hospice offices throughout 37 states and Puerto Rico.
“The first quarter was a good start to 2019,” Encompass Health President and CEO Mark Tarr said during a Friday call investor call.
In addition to its strong financial results, Encompass Health made substantial headway on its strategic and operational priorities during the first quarter, according to Tarr.
Most notably, that progress includes the company’s recently announced definitive agreement to acquire the assets of Alacare Home Health & Hospice for $217.5 million.
“We certainly had a presence in the state of Alabama, but we were not dominant in the state of Alabama,” April Anthony, CEO of Encompass Health’s home health and hospice segment, told HHCN when the agreement was first announced. “Now with the Alacare acquisition, this really gives us the opportunity to build a dominant presence there and to leverage those economies of scale and those reputational benefits that come with being a large player in the market.”
Expected to close in June, the Alacare acquisition will add several dozen Alabama home health and hospice locations to Encompass Health’s portfolio. The move is in-line with the company’s objectives of creating new overlap markets, adding density in its existing home health markets and building scale in its hospice business.
New overlap markets linked to the Alacare deal include Gadsen, Huntsville and Montgomery.
Home health, hospice results
Home health net operating revenues for Encompass Health checked in at $219.5 million in Q1 2019, an 18.5% increase over the $185.3 million the company netted in the same quarter in 2018.
Admissions for the segment increased by 12.1% on a year-over-year basis, with revenue per episode also climbing 4.2%. Some of that admissions growth is from more acute-care referrals, a point that bodes well for the company under PDGM, according to Tarr.
“We’re seeing an increase in admissions from acute-care hospitals, which is driving our expected impact from PDGM to be less negative than we had previously estimated,” he said.
Among its changes, PDGM classifies patients based on whether they’re coming to home health providers from community or institutional settings. Broadly, home health providers will receive higher reimbursement levels from CMS for taking care of patients following an in-patient hospital stay.
Revenue per episode increases were partly tied to an approximately $1 million Bundled Payments for Care Improvement (BPCI) reconciliation payment Encompass Health received during the first quarter.
Encompass Health executives’ comments on the Q1 earnings call provide “incremental confidence” in the company’s ability to grow EBITDA in 2020, contrary to buy-side fears, Jefferies analyst Brian Tanquilut wrote in a note.
Hospice continues to be a bright spot for Encompass Health as well.
Hospice net operating revenues were $34.4 million in Q1 2019 compared to $20.4 million in Q1 last year — an increase of more than 68%.
PDGM preparation
Encompass Health will be even better positioned for PDGM after the Alacare deal closes because the Alabama home health and hospice provider has a comparatively lower mix of therapy services, the Jefferies note points out.
Reimbursement for therapy services provided will no longer be predominately based on volume after PDGM goes into effect on Jan. 1, 2020.
Encompass Health’s PDGM preparation efforts also include working with Nashville, Tennessee-based predictive analytics firm Medalogix, Tarr said during the investor call.
“Our preparation for [PDGM’s] changes includes the continued use of technology to generate objective, evidence-based care plans — and to drive incremental efficiencies in administrative support functions,” he said. “We are working with Medalogix to further refine our care plans for all home health patients we serve.”
At $65.48 per share, Encompass Health stock was up 4.53% nearing end-of-day trading Friday.
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