Encompass Health Focused on Home Health Hiring, Medicare Advantage Relationships

Encompass Health reported a strong financial first quarter for 2022 despite continued staffing constraints in its home health business.

On Wednesday, Encompass Health reported total revenue of $1.33 billion for Q1 2022, up 8.4% compared to $1.23 billion in Q1 2021. Its home health revenue checked in at $224 million, up 2.3% from $220 million a year ago.

The Birmingham, Alabama-based company’s average daily home health census grew in the first quarter to an all-time high of 7,330 patients. There was a 4.9% growth in home health admissions year over year, though the average cost per visit increased from $77 to $83.

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“As was the case for much of 2021, the home health admissions growth we generated in Q1 came predominantly under our Medicare Advantage (MA) and managed care contracts,” Encompass Health President and CEO Mark Tarr said during a Thursday morning earnings call.

Even though the home health slice of Encompass Health’s bottom line was positive, the company announced it lost an estimated 2,150 home health admissions in the first quarter of 2022 due to staffing constraints.

That translated to about $7 million in lost revenue. Higher staffing costs led to a 7.8% increase in home health cost per visit and a 6.4% increase in hospice cost per day.

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The Q1 loss was due to a combination of the staffing constraints and open positions in the home health and hospice side, Barb Jacobsmeyer, Encompass Health’s CEO of home health and hospice, said during the call.

Jacobsmeyer also said that was due to employees being quarantined, which is a much better situation today.

“At one point, we hit a peak of over 1,300 quarantined employees [in the first half of 2021],” she said. “That was the highest that we saw throughout the entire pandemic. So the good news there is we are down to 20 as of this morning.”

In order for Encompass Health’s home health and hospice segment to reach its goal of 500 new hires in 2022, it needs to make up for those losses and pick up the pace.

“We do need to have some strong quarters like we had in the third and fourth quarter [of 2021] with adding 100-plus new full time [staffers],” Jacobsmeyer said. “Quarter one, we were [at] the 30-plus, and the good news is here in April, we’re feeling confident we’re going to end the month with higher net new hires than we had in the whole first quarter.”

The Enhabit spinoff

Overall, Encompass Health’s home health and hospice segment makes up about 20% of its total business. The in-patient rehabilitation facility (IRF) operator – the largest in the country, by far – is in the process of rebranding the segment to “Enhabit Home Health & Hospice.”

The plan to separate the $1.1 billion home health and hospice segment into a standalone business is in the works and is scheduled to happen on July 1.

Financially, establishing Enhabit as a stand-alone entity is expected to result in an estimated $27 million of incremental annualized general and administrative costs for Encompass and a $5 million to $10 million reduction in annual expenses.

“We believe the establishment of Enhabit Home Health & Hospice as an independent company will provide a number of significant benefits, including enhanced management focus, separate capital structures and allocation of financial resources,” Tarr said.

A new focus on MA relationships

Over the past few years, Jacobsmeyer and the Encompass home health team have noticed a shift due to increase in accessibility due to Medicare Advantage.

Encompass Health’s conversion rates for episodic patients has historically been between 73% to 75% and about 42% to 44% for non-episodic. Those figures have remained stable, but referrals for non-episodic patients are starting to increase.

From the fourth quarter of 2019 to the second quarter of 2021, the Medicare fee-for-service enrollees in Encompass Health’s markets decreased by 6.4%, but Medicare Advantage enrollees increased by 19.1%.

“We know we need to have a focus on this,” Jacobsmeyer said. “What we’ve done recently is we’ve restructured certain aspects of our MA team to focus more on strategic relationships [and have focused on] really selling our value proposition.”

Jacobsmeyer also highlighted Encompass Health’s “industry-leading low rehospitalization rates,” which will be critical to the company’s MA plans as it seeks more episodic payment plans in the near future.

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