Encompass Health CEO: There’s Pent-Up Demand for Home Health Services

Encompass Health Corp. (NYSE: EHC) is actively evaluating ways to strategically reposition its home health and hospice segment, which also needs a new leader.

The search is under way for that new segment CEO, with current CEO April Anthony — its original founder — set to step down in June.

Even with all of that going on, however, Encompass Health is still eager to capitalize on future home health demand and a more fertile M&A environment.


“We do think there’s a chance that there’s pent-up demand out there,” Mark Tarr, the CEO of Encompass Health, said Tuesday during the Bank of America Securities Health Care Conference. “[Our seniors] probably won’t be the first group that goes back to elective procedures. But we do feel there’s growing confidence, and, with time, we expect them to get back in and have those elective procedures.”

Birmingham, Alabama-based Encompass Health offers a wide range of care in both facility and home-based settings. It has 138 hospitals, 241 home health locations and 82 hospice locations in 39 states and Puerto Rico.

In addition to pent-up demand, Tarr thinks that skilled nursing facilities (SNFs) and assisted living facilities gaining back volume will also help the company’s home health and hospice segment.


“We think that skilled nursing facilities’ and assisted living facilities’ volumes will increase with time, which ultimately impacts our home health volumes,” Tarr said. “There’s starting to be some anecdotal comments from some of the providers in those two spaces that they’re starting to see their populations come back. … So we think there’s a lot of momentum going into the second half of this year.”

According to data from CarePort Health, a WellSky company, SNF volume was at 91% of 2019, pre-pandemic baselines at the end of March. Home health volume, in comparison, was at 116% of 2019 levels.

Encompass Health executives also touted the company’s SNF-at-home capabilities and potential tailwinds from SNF diversion during the height of the pandemic.

“I think patients will start [returning] to the nursing homes, but you’re going to see different kinds of patients,” Tarr said. “I think you’re going to see patients that historically are able to receive active rehab — those short-term patients — go home to home health. Those more convalescent types of patients in a skilled nursing facility, they’ll still need that care provided to them.”

External data supports that claim as well. The Elixhauser Comorbidity Index for home health patients in 2021 is about half a point higher than in 2019, meaning individuals going to home health are generally sicker and more complex than in the past.

In terms of what to do with its home health and hospice segment, Encompass Health is considering all options, whether that be a sale, spinoff, merger or potential IPO. Tarr said that it entered the “comprehensive and complex” process with no bias whatsoever as to which path to take.

“I think the scale [of our home health and hospice business] is sufficient enough to accommodate any of the array of alternatives that are currently on the table,” Encompass Health CFO Doug Coltharp said on the company’s first quarter earnings call in April.

The company’s home health and hospice segment posted net operating revenues of about $270.5 million in the first quarter.

Given that nothing is settled, the company is still on the lookout for transaction opportunities within the segment.

“There wasn’t a lot of activity in the home health space in the second half of last year, which was at least partially attributable to the combined impact of the [Patient-Driven Groupings Model] and the pandemic,” Coltharp said Tuesday. “Adding to that was, of course, the fact that even a lot of the smaller providers received some form of aid. … We’re starting to see that free up right now, and we’re still under the anticipation that there’s going to be an accelerated level of consolidation activity.”

Encompass Health recently announced that it would be acquiring the home-based care assets of Frontier Home Health and Hospice, a provider that serves communities in Montana, Alaska, Colorado, Idaho, Washington and Wyoming. The financial terms of the deal were not disclosed.

Coltharp said that the deal was a “good indicator” of accelerated activity moving forward.

Companies featured in this article: