Enhabit Inc. (NYSE: EHAB) leaders feel confident that the company will continue to scale. But they also recognize that forcing payer understanding on the value of home health care will have to be a painful part of that.
Earlier this year, Enhabit agreed to terms with nine Medicare Advantage and commercial plans. All of those were either regional or multi-state plans.
However, the large home health company is finding there are unique challenges to growing on a national scale.
“We do have, obviously, the scale to be able to be at the table and we are at the table with all the national payers,” Enhabit CEO Barb Jacobsmeyer said Monday at the BofA Securities Home Care Conference. “While I feel they understand the value proposition for home health, it is sometimes difficult for them to get past the unit cost of home health.”
Those nine new contracts, Jacobsmeyer said, cover about one million Medicare Advantage patients. The short-term goal for Enhabit is to get to know, and capitalize on, referral sources in new and existing markets – especially when it comes to the company’s growing MA base.
In the long run, Enhabit wants to prove to national payers that home health care is a long-term investment.
“If we are successful in negotiating a better contract or even negotiating a first-time contract with a national payer, that could make the home care unit costs go up [for them],” Jacobsmeyer said. “So it’s difficult for them to do that, even if they know that that could ultimately drive down other costs.”
What Enhabit has done to ease some of those worries is introduce regional, pilot programs to prove the value proposition.
Like many home health companies, the lower-paying Medicare Advantage plans have been a drag on Enhabit’s short-term financials. Despite sluggish returns thus far, Jacobsmeyer believes it can prove its worth to plans through outcomes to fight for better rate agreements.
Enhabit’s investments in MA is a reason why its leaders believe they can thrive on a national scale moving forward.
“One thing that is a benefit for us is that MA penetration,” Jacobsmeyer said. “MA is growing at such a fast rate right now. Where some of these plans could have been successful in the past when maybe they were the most penetrated in a market, they didn’t struggle with the member access that they’re currently starting to feel. I think as we’ve seen Medicare Advantage grow in these markets, that’s also put pressure on member access. Those that are going to be the slowest to the table in negotiating fair rates, I think, will continue to feel member access issues and that’s going to work in our favor.”
Jacobsmeyer sees an opportunity for Enhabit to have a successful 2023 for two main reasons: productivity management and the optimization of its staff.
“Where we have a real opportunity is optimization and making sure that we have staff working at the top of their license,” she said. “The other thing is that we’re getting more success with Medicare Advantage agreements. Frankly, it doesn’t take as much sales effort to be able to get Medicare Advantage patients. That’s going to allow us to look at the field structure and figure out how we can better align the sales needs in a local market.”
M&A growth, positive labor signs
As it stands now, Enhabit’s operations breakdown is 80% home health and 20% hospice. Enhabit COO Crissy Carlisle said that a majority of Enhabit’s M&A focus in the near-term future will likely be focused on hospice.
Early in 2022, Enhabit’s pipeline of M&A opportunities had slowed a little bit, Carlisle said. That was mainly due to the uncertainty around the Encompass Health’s (NYSE: EHC) strategic alternatives review and what the company was going to look like long term.
Now that a plan has been established, there’s a more clear focus on how the company wants to grow. It’s also worth mentioning that the company did complete a home health transaction last week, acquiring Southwest Florida Home Care’s home health agency located in Fort Myers, Florida.
“It’s still fair, though, to say the pipeline is skewed towards hospice,” Carlisle said. “We may be a little bit more biased towards those opportunities for a couple of reasons. One, there’s more reimbursement certainty around hospice than there is for home health. We’re also trying to have a little diversification of our total mix. Right now we are 80% home health and 20% hospice, and we’d love to see that change.”
Carlisle didn’t mention any specific targets but said Enhabit will be open to opportunities as they present themselves.
Looking back on 2021, Enhabit – still a part of Encompass Health at the time – experienced some quarters with negative net new hires. Although 2022 has been up and down, Jacobsmeyer believes that trend is pointing in the right direction.
“We have been fortunate that each quarter thus far has been positive,” Jacobsmeyer said. ‘We saw 30 new hires in Q1, 55 in Q2 and 55 in Q3. We saw some of that slowness around the summer, but the good thing is that we’ve already seen an increase in the candidate pool in October.”