When looking back at the bumpy road that has been the last couple of years, Enhabit Inc. (NYSE: EHAB) views the formation of its payer innovation team as one of its most critical moves.

“Not only did we have a higher amount of fee-for-service, but the Medicare Advantage mix that we did have paid us with a significant discount, and so it was really important to get out there to get more and better contracts,” Enhabit CEO Barb Jacobsmeyer said Wednesday during a discussion at Leerink Partners health care crossroads conference. “[I] have been very pleased with the results of that team.”

Dallas-based Enhabit has 255 home health locations and 112 hospice locations across 34 states.

Currently, Enhabit has 64 contract agreements. The majority of these are regional, but the company has two national agreements under its belt.

Prior to the formation of the payer innovation team, the majority of the rates the company was getting were per visit, at about a 40% plus discount.

“With the payer innovation, we made a concerted effort to say, ‘We’re not going to really take anything more than 25% discount,’” Jacobsmeyer said.

The company is at 10% – or less – discount when it comes to regional episodic agreements. On the per visit front, the company is at a 20% to 25% discount compared to Medicare fee-for-service.

Jacobsmeyer also noted that its recent national agreement, which went into effect in January, was more layered.

“It is an episodic agreement, where we’ve aligned incentives with us and the payer to really help them be able to move patients out of institutional settings, and therefore our payment is better,” she said.

Enhabit considers this a win for itself and the payer.

“It really aligns their incentives with ours,” Jacobsmeyer said. “We want to be paid better, but we also want to help them where their pain points are, and that is having a timely and efficient movement of patients in institutional settings [back into the] home.”

Despite moving the needle on payer innovation, Enhabit still believes that providers sometimes face resistance from payers when negotiating contracts.

“The most resistance is when you find that they’re siloed within their negotiating departments,” Jacobsmeyer said. “If it is the group that handles just home health, frankly, what we’ve learned is that they have a bonus, or incentive, to keep their unit cost in place. If they’re not talking across the hall with those that are focused on emergency room visit cost, acute care utilization costs, that’s where we see the barrier. All they see is, ‘Well, if I pay you more, my unit cost goes up.’ That’s the biggest barrier we have to work through, which is why some of these take the amount of time that they’ve taken.”

During the discussion, Enhabit also provided an update on the current state of labor at the company.

Overall, the company was able to increase its candidate pool by roughly 30% in the first quarter.

Jacobsmeyer pointed to a greater awareness of the Enhabit brand among job seekers as one of the reasons behind this growth in candidates.

As a result, the company has been able to eliminate all contract labor.

However, Enhabit is still working to ensure that the company is making “the right hire upfront.” The company plans to utilize its data warehouse to accomplish this.

“What we do see is with our turnover today, it tends to be within that first six to nine months,” Jacobsmeyer said. “Once somebody is with us for a year or two, our retention is really strong, so it’s really [about] using the data to say, ‘Which are the most successful?’ Is it a certain nurse coming from a certain setting? Now that our candidate pool has increased, how can we be smarter on the selection side up front, so that we can continue to improve that retention?’”

AREX Capital Management addresses Enhabit’s board of directors

Enhabit’s appearance at the conference coincides with the release of another letter from the New York-based hedge fund AREX Capital Management.

AREX Capital owns 4.9% of Enhabit’s common shares.

In the letter, AREX Capital criticized Enhabit’s board of directors and the “abysmal experience” that the company’s stockholders have endured.

“We believe that it should be clear to the board that a significant reconstitution of its membership is required and warranted,” the hedge fund wrote in a letter. “A Board that has presided over a more than 60% decline in the company’s share price over a two-year period, in our view, should have the humility to acknowledge that it cannot and should not continue in its current form.”

AREX Capital also stated that the board didn’t make an effort to engage with it “in good faith.”

“We believe Enhabit’s stockholders have suffered from the board’s failure to adequately supervise the Company’s inexperienced management team, which has struggled both to navigate industry challenges as dexterously as peers and to communicate effectively with investors,” AREX Capital wrote. “What the board was, in fact, overseeing was the enormous destruction of stockholder value on an absolute basis and dramatic underperformance versus peers and the market in general.”

Ultimately, AREX Capital expressed disappointment that Enhabit wasn’t sold, but the hedge fund believes in the value of the company.

During the discussion, Jacobsmeyer briefly responded by expressing her faith in the board’s ability to help the company move forward.

“We have a strong, very experienced board of directors that have helped us navigate these waters over the last couple of years,” she said. “We’re really confident in the future and with the leadership of our board.”