Enhabit CEO Barb Jacobsmeyer: Company Gearing Up For Increased Consolidation, Payer-Innovation Opportunities

Enhabit Inc. (NYSE: EHAB) CEO Barb Jacobsmeyer has been waiting to helm her own entity for a while now.

After a long period of Encompass Health (NYSE: EHC) exploring strategic alternatives for its home health and hospice segment – which became Enhabit – Jacobsmeyer and her co-leaders are finally on their own.

Jacobsmeyer was formerly the head of Encompass Health’s inpatient rehab business. Now she’s leading Enhabit, which has 251 home health locations and 100 hospice locations across 34 states.

But it also just so happens that less than two weeks before the spinoff from Encompass Health was set to be completed, one of the worst home health proposed payment rules in the last half decade was released by the Centers for Medicare & Medicaid Services (CMS).

At the same time, pandemic-related issues are still hindering home health agencies, as is inflation. On top of all that, recruiting and retaining talent is as hard as it’s ever been.

In Home Health Care News’ last Q&A with Jacobsmeyer in February, she offered up the perspective of a new CEO who was about to take on the challenge of leading her own company.

Now she is in the thick of that challenge. And last week, HHCN sat down with her again to catch up on how things are going for the brand new company, industry issues and a lot more.

The conversation is below, edited for length and clarity.

HHCN: The first question, Barb, is regarding the elephant in the room, which is the home health proposed payment rule. If the final rule is the same as the proposed rule, or close to it, what will that mean for your home health business? What plans will change and how will you have to adjust your operations?

Jacobsmeyer: That’s when it is helpful to be the size that we are. Because I do think, unfortunately, one of the biggest impacts that could happen is consolidation could continue to accelerate.

When you look at all the things that home health has been dealing with – and then you put wage inflation, gas price increases and all of those things on top – if the proposed rule does become final like it is written today, I just don’t know how some of those smaller agencies can stay in business.

Some people think that home health M&A is going to slow down because there’ll be less money for transactions. But at the same time, like you said, there could be more companies up for acquisition because of the squeeze on margins.

Yeah, I definitely think that’s the path that it will go down. I think the opportunity that it will create is the increased potential for consolidation.

And how bullish are you on the legislative and advocacy efforts that are going right now with that proposed rule?

You know, I’ve been really impressed. I’m new to the industry. So we’re very involved, not only with the Partnership for Quality Home Healthcare (PQHH), but we are also now members of the National Association for Home Care & Hospice (NAHC).

I’ve just really been impressed with how quick the reaction has been. We’ve been on weekly calls as CEOs to talk about this. And to see how quickly the bills came in, both from the Senate and the House, I think was also impressive. It speaks to the fact though that there are ears to be heard in Washington, D.C. We are the lowest-cost setting. So it’s like, why would you pick the lowest-cost setting to do this to? How is that going to help you drive all the other initiatives to work on saving the trust fund? This is just not the industry to attack for that.

I think now it’s in the grassroots efforts stage for everybody to be reaching out. We’ve started that here with our employees, to reach out to our senators and congressmen and women to really say how important these bills are to protect the access to home health.

In your experience, what have been some of the benefits and challenges of taking the helm of a new company that emerged from a spinoff? It seems like a unique experience for a leadership team.

Yeah, it is a unique experience. It’s been a great experience getting ready for it, and probably even more exciting now that we’re on the other side of the spin. Because what it allows us to do is really have that complete identity as a wholly owned company focusing on care in the home.

If you think about some of the strategies that you work on — when you’re part of a larger company that is hospital-based — some things can kind of come in conflict. We’re trying to really recruit staff and talk about the benefits of the flexibility of working in home health and hospice and what that does for an individual clinician. You’re careful how much you can talk that up when you’re part of that company because you’re almost going against the employees that are inside of a facility base.

So the exciting part for us is just really focused on care in the home as it relates to home health and hospice.

Is there a continued relationship with Encompass, even if it’s on a referral-partner basis?

When you look at the eight years that home health and hospice were part of the facility-based company, we worked really hard on the home health side to create those care models that are so needed for those rehab patients coming out of the rehab hospitals. That usually has a higher intensity of therapy.

So you do need nursing, but also physical, occupational and speech therapy. We’ve done a lot of work making sure that we have the services to support those rehab patients. And so that clinical collaboration, that work with the inpatient rehab facilities (IRFs), is continuing.

But it also then is going beyond the Encompass Health IRFs now to other IRFs, and to other settings like skilled nursing facilities. We’re taking what we’ve learned in our time with Encompass Health and really bringing that to a broader market.

Before the spinoff was completed, Enhabit released some interesting info around the future of the company. One particular note mentioned getting into adjacent service lines. What adjacent service lines do you have in mind?

The main focus is about evaluating those adjacent service lines – whether it’s palliative, hospital at home or SNF at home – and watching the whole reimbursement and regulatory side. And then waiting until we would say, ‘“Do we want to get in into them?”

I will say though, in like SNF at home, there are some small pilots that we’re involved in with some of the Medicare Advantage (MA) plans – we’re calling it “home health plus” – and we help work with them on trying to alleviate patients needing to go to SNFs, so that we can learn from those to say, “Hey, if someday SNF at home moves forward and Choose Home passes, or there’s some sort of reimbursement and regulatory structure change, we can be ready then to make that more of a widespread service that we would offer.” So we just want to keep a pulse on all of it and know that we’d be ready to enter that, if there is more support for those models.

Now being your own entity, how have the relationships at the outset been with the MA plans?

That’s probably one of the things where I feel like my past experience has been helpful, because it took us a long time to be able to work with MA plans for them to understand the value proposition for the inpatient rehab hospitals.

I think that in the past, a lot that had been done here was more on just that contract-negotiation side. Whereas now, what we’ve created is actually a payer innovation team, where we’re taking some of the talent that we had that work with some of our ACOs and our DCEs – where you really have to sell your value proposition – and having them take the lead on the Medicare Advantage side. Because it’s not just about contracting; it’s about them realizing that we want to be partners with them. We want to help close gaps in care and that we have a really low readmission rate compared to the industry.

So we have to sell our value proposition so that we’re not at the table just saying, “Pay us more,” but instead, “Pay us more, and here’s why.” And so I am encouraged by some of the initial discussions that we’ve had. The MA payers are recognizing they need better access for their members and better timely access.

Frankly, we’ve been transparent to show them that, again, with wage inflation and gas prices, they were actually forcing us to deprioritize their patients. And we don’t want to be in that situation. But we need them to pay us fairly so that we can proactively take those patients. So I’m encouraged by the initial discussions, but obviously, we can only move as fast as they’re willing to move.

You mentioned on the last earnings call that PTO usage was up, do you have any idea why that was?

We’ve just heard anecdotally from the field that individuals, over the last couple of years, have sadly had to use more of their time off for either themselves while being sick or on quarantine, or for a family member being sick. And there was great excitement, both between spring break time and summertime, to actually finally be able to have fun and travel.

Enhabit has invested quite a bit in its workforce last year and this year, with flexible work schedules, premium pay for after-hours staff and a few other initiatives. Are you able to share anything about the results you’re seeing?

Sure. Another one to add to that is our mileage reimbursement methodology. We found earlier in the year from our town halls; we asked our talent acquisition team to tell us what questions candidates are asking.

What we found is that mileage reimbursement is actually a key component to the total compensation package, particularly for the clinicians in the field, and we were not as competitive as we needed to be. So we did make changes to our reimbursement methodology.

Between that and gas prices, we are anticipating it’s going to be almost an $8 million increase year over year if we drove the exact same miles. One of the things we are seeing from that is that we have had every quarter since last year we’ve had positive net new hires.

Basically, this is looking and saying, ‘Do we have net more nursing folks today than we did last quarter this time?’ Starting quarter three of last year, we started making momentum on the net new nursing hires. And so we felt that’s a combination of lowering turnover and improving hiring. And that’s what we need to do to be able to make any progress.

When we spoke in February, you were one of the only people bullish on the staffing situation improving. Have things gotten generally better over the past six months now that you’ve been able to be more hands on?

I think so.This year was the first time ever for our employee medical benefits, where they either were flat for their portion that they had to pay or their premiums went down, depending on which plan they chose. These types of things are in response to the information that we’re getting from our employee engagement surveys.

So I do think that that is making an impact both on recruitment and retention. Now, that being said, those things – I don’t want to say they’re easier, because obviously they’re costly – are easier to do than some of the tougher things that I think we need for long-term momentum and that’s leadership development and onboarding. The things that really make a difference above and beyond compensation, because someone can always chase the higher dollar. But true retention is when they feel committed to their local leader.

Reuters reported earlier this year that some parties were interested in acquiring Enhabit. I’m sure you can’t comment on anything specific. But are you able to say generally, if the company is open to discussions of a potential sale?

We have to remember that the entire strategic alternative review process was done by Encompass Health, and then the Encompass Health board of directors.

While I was part of Encompass Health, I came here to take this role and to lead this organization no matter what the ultimate outcome was. Then it was the board that made the ultimate decision on what was in our best interest for the long-term success of the company.

Outside of staffing and the proposed rule, what would you say is the biggest priority or focus for home health right now at Enhabit?

The Medicare Advantage piece is a critical one. And not just because of the current reimbursement, but also because that’s where we’re seeing the seniors go, those numbers are growing in Medicare Advantage and going down in fee for service. So MA is critical.

Is there anything else that’s been a benefit of standing alone now operationally?

Certainly the capital allocation piece. If you look at our development pipeline, we can look at it wholly for us as Enhabit.

On the hospital side, that was very capital intensive. So to be able to have our focus be completely on our development pipeline, and our capital allocation, is helpful.

And the other thing I would say is that it also helps us as we are looking at piloting technologies, looking at things from an innovative perspective. We can look at that solely on how that supports us both today and in the future.