The 3 Strategic Considerations Enhabit Has As It Grows Its Home Health Business

After completing its spinoff from Encompass Health Corporation (NYSE: EHC) in July, Enhabit Inc. (NYSE: EHAB) is full speed ahead on expanding its home health operations.

To do that, Enhabit has three guiding principles for its strategy moving forward — those are “scale, market density, and then overlap strategy,” Jay Duty told Home Health Care News.

Duty was recently appointed Enhabit’s senior vice president and chief corporate development officer.

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For Enhabit, entering new markets is still a priority, but one that’s considered with caution.

“We’re 35 states now and about 350+ locations, if you combine both home health and hospice,” Duty said. “So we’re going to make sure that we are going into new markets and have a really disciplined approach before we just make that leap and get bigger. So [we’re] assessing those markets.”

Since Enhabit’s second guiding principle pertains to market density, the company has set its sights on expanding into adjacent or contiguous markets.

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Finally, Enhabit will leverage its service line overlap strategy. The strategy is a holdover from its days within Encompass.

“Traditionally, we’ve been under the umbrella of the Encompass Health Corporation,” Duty said. “There, obviously the idea was to have that continuum of inpatient rehab to home health to hospice — covering that entire continuum. Today, that strategy is still in play. We found that it’s a really good opportunity for us to do a great job taking care of patients in the home.”

The company has certainly committed to growth and M&A is one of the avenues to achieve this. Specifically, Enhabit has earmarked $50 to $100 million towards acquisitions this year.

Despite headwinds, such as rising interest rates, labor pressures and inflation, Duty believes Enhabit is still on track to reach this M&A goal.

Even so, indiscriminate growth is far from the goal.

“There are a lot of home health and hospice companies where the idea is just to grow, get bigger and expand, put more dots on the map,” Duty said. “[For us], it’s more about assessing the market that we want to go into. Considering where are the opportunities that we think we can proactively take a look at — and then applying that strategy.”

Part of the disciplined approach to M&A also means figuring out if buying a company is even the right strategy in the first place.

“Is there an opportunity for a joint venture, [for instance]” Duty said. “Maybe the entry point is a really large health system that we can partner with to go into that market, or do we deploy a de novo strategy?”

With health system partnerships in particular, Duty noted that Enhabit is considering those as a potential opportunity in the future.

“I think there are a lot of health systems we encounter that realize the complexity of going to the home, the tough regulatory environment, all the pieces that go along with that,” he said. “Some of them are saying, ‘[home-based care] isn’t a service line that I feel most comfortable with operating. Can I work with a market leader that’s doing that?’”

Medicare Advantage (MA) is also top of mind for Enhabit. Currently, the company’s payer innovation team is looking into ways to best partner with plans.

However, one roadblock has been receiving a fair rate for services.

“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,” Enhabit CEO Barb Jacobsmeyer, previously told HHCN. “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.”

Part of improving this issue has been emphasizing Enhabit’s value proposition as a selling point.

“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,’” Jacobsmeyer said. “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.”

Looking ahead, Enhabit is also considering what new service lines might make sense for their business.

“We want to be open to hospital-at-home, SNF-at-home, monitoring patients in the home, partnering with organizations that are incentivized from a value-based standpoint to keep patients in the home … because, simply, patients want to be home,” Duty said. “Our eyes are open to look for those opportunities, we’re just going to have that same kind of disciplined approach.”

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