Enhabit Leaders Dive Deeper Into Strategic Review Process, Fee-For-Service ‘Erosion’

On Wednesday — ahead of its earnings call with investors and stakeholders — Enhabit Inc. (NYSE: EHAB) announced plans to launch a strategic review process.

Specifically, the company is looking to take steps to satisfy the conditions of its Tax Matters Agreement with Encompass Health Corp. (NYSE: EHC).

Enhabit CEO Barb Jacobsmeyer shed more light on the announcement during the company’s second-quarter earnings call Thursday.


“The board expects that any potential review would consider a wide range of options for the company, including, among other things, a potential sale, merger or other strategic transaction,” she said. “That being said, there are no assurances that the conditions and the tax matter agreement will be satisfied, that Enhabit will initiate such a process, or that the process would result in Enhabit pursuing a particular transaction, or other strategic outcomes.”

The Dallas-based Enhabit has 253 home health locations and 107 hospice locations across 34 states. It spun off from Encompass Health Corporation (NYSE: EHC) in July of 2022.

While Enhabit leaders didn’t expand much on the biggest news of the day, they did provide further detail on the company’s current standing.


Medicare Advantage (MA) penetration, for instance, remains top of mind.

“The market is shifting rapidly to [MA],” Jacobsmeyer said. “Last summer, CMS data pointed to 50% of Medicare eligibles enrolling in a [MA] plan by 2030. We reached the 50% mark in January 2023. CMS data now points to 70% of Medicare eligibles enrolling in a [MA] plan by 2030. While our payer innovation progress has been strong, it has not been enough to overcome the negative impact of the continued erosion of Medicare episodic fee-for-service volume.”

The company is still working to counter the erosion of Medicare fee-for-service admissions.

“We know referral sources want providers to conserve all of their patients, regardless of payer source, so while we can’t slow the transition of Medicare eligibles to [MA], we can strategically target referral sources who have strong Medicare fee-for-service market share, and those we know send both Medicare fee-for-service and [MA] patients to us,” she said. “We can also collaborate with our primary referral sources to identify other payers our payer innovation team should focus on to strengthen our preferred provider status with them.”

Enhabit has seen some success in negotiating better rates or agreements with plans, however.

Since launching its payer innovation team last summer, Enhabit has been able to successfully negotiate 37 new agreements. The company negotiated 10 new regional agreements with MA plans this past quarter. The company has also seen improved rates within these contracts.

“We are confident in our ability to make continued improvements in [MA] pricing,” Jacobsmeyer said.

Another area where Enhabit is seeing improvement is in its recruitment and retention of clinical staff. The company saw its highest net nursing hire number since it began tracking the metric in 2021. It had 203 net new full-time nursing hires in Q2.

As a result, Enhabit plans to substantially reduce all contract labor by the end of the third quarter.

During the call, Enhabit also commented on the home health proposed payment rule.

“PDGM temporary adjustments are now calculated at a total of $3.4 billion for the industry,” Jacobsmeyer said. “CMS has not indicated when, or how, they would collect clawbacks. It’s important to remember this is the proposal, with a final expected late October or early November. CMS may adjust or update payment components between now and then, including an updated market basket percentage, just as they did in other recent Medicare final rules. Nevertheless, legal and advocacy actions are underway to mitigate the impact of the proposals.”

Jacobsmeyer referenced the National Association for Home Care & Hospice’s (NAHC) lawsuit against CMS and the U.S. Department of Health and Human Services (HHS). Enhabit is a member of NAHC.

She also noted NAHC and the Partnership for Quality Home Healthcare’s pre-comment letter addressed to CMS.

Sens. Debbie Stabenow (D-MI) and Susan Collins (R-ME) introduced the Preserving Access to Home Health Act of 2023 in June. Last week, companion legislation was introduced in the House by Reps. Terri Sewell (D-AL) and Adrian Smith (R-NE).

“We remain active with the industry in our advocacy efforts,” Jacobsmeyer said.

Overall, Enhabit’s net service revenue checked in at $262.3 million, a 2.1% year-over-year decrease.

The company’s home health net revenue for Q2 was $213.8 million, a 2.9% decrease compared to $220.2 million during the same period last year.

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