The vision of Enhabit Home Health & Hospice – the soon-to-be standalone company after a spinoff from Encompass Health Corporation (NYSE: EHC) – is becoming clearer by the day.
Over the past two weeks, Encompass Health has given the public a look-in at its organized thoughts regarding Enhabit, which has been a long time coming at this point. In fact, Encompass Health locations have been being transitioning into Enhabit locations since February.
This is after the company first announced in December of 2020 that it was exploring “strategic alternatives” for its home health and hospice business, which included a sale, spinoff or merger. A spinoff was determined as the best option later on in 2021, but not without pushback.
First, the investment firm Jana Partners – which owns more than 2% of Encompass Health stock – was urging the company to reconsider options, and specifically a merger. Then, rumors surfaced that there could be other buyers willing to purchase the business segment, including private equity firm Advent International and in-home care provider Aveanna Healthcare Holdings (Nasdaq: AVAH).
But finally, the spinoff is full-speed ahead, and the industry will gain another home health-specific peer once again on the public market. According to a recent Form 10 registration with the U.S. Securities and Exchange Commission, Enhabit now plans to fully separate by next month, barring customary regulatory approvals and conditions.
On Monday, a slide-deck overview of Enhabit was displayed in a 8-K filing from Encompass: a home health and hospice provider with a top-5 market share, including 252 home health locations across 34 states and 99 hospice locations across 22 states.
Combined, those represent over $1.1 billion in annualized revenues. The company will also have over 10,000 workers, not including corporate-office employees.
Enhabit CEO Barb Jacobsmeyer told Home Health Care News in February that the biggest adjustment to her new role was dealing with a mobile workforce, but that she was also bullish on the company’s staffing situation.
“The learning curve has definitely, for me, been about dealing with a mobile workforce,” Jacobsmeyer said. “That’s really different than being able to make the rounds with all of your employees within a few hours. But coming from the hospital side has helped me in that I know what I always expected from home health as a provider for my patients. And so I know what our team should take pride in and what we do really well in.”
Jacobsmeyer was formerly the leader of Encompass Health’s in-patient rehab business. She’s joined at the helm of Enhabit by Crissy Carlisle as CFO, who is the former head of investor relations for Encompass Health.
“We’ve had a successful couple of quarters here,” Jacobsmeyer continued. “It makes me excited that we can kind of turn the page, quit talking about turnover and talk about retention. I think that that’s where it’s at. And it’s not meant to make it sound easy. I don’t think it’s easy at all. I think it’s really, really hard. But I think it’s doable.”
The slide deck overview also included the fact that 80% of the company’s home health revenue is from Medicare fee for service.
Encompass Health leaders also addressed that contention between juggling fee-for-service Medicare referrals and Medicare Advantage (MA) referrals on a recent earnings call, particularly pointing to favoring fee for service given the rate disparities, especially when dealing with staffing shortages.
“I think home health, in the past, [it] has been a bit exploited because it’s been a very fragmented industry,” Encompass Health CEO and President Mark Tarr said at the BofA Securities 2022 Healthcare Conference. “And so there’s been an element of treating it like a commodity by some of the payers, knowing that if one agency wouldn’t care for the patient, well, there’d be others that would be willing to step up.”
But in the slide deck, Enhabit did say that it wanted to expand its MA focus, given the market trends that will make MA the dominant insurer type for Medicare beneficiaries, likely by the end of the decade.
Expected growth
Two weeks ago, Encompass also laid out Enhabit credit agreements, including a $400 million term loan A facility as well as a $350 million revolving credit facility.
As it gears up to be on its own, Jacobsmeyer and Carlisle will take over as the sole decision makers of growth plans, whereas everything went through Encompass Health during this limbo period.
In 2022, Enhabit noted that it plans to spend anywhere from $50 to $100 million on strategic acquisitions, while also driving organic growth. It also expects to open 10 de novo locations.
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