Enhabit Inc. (NYSE: EHAB) has a new CFO and a somewhat new strategy. It still faces a lot of the same problems.

On Thursday, CEO Barb Jacobsmeyer said the company would be closing or consolidating certain locations that are underperforming, specifically when it comes to traditional Medicare business in home health care.

While its payer innovation strategy is still intact, that’s largely a departure from its goal of moving more toward Medicare Advantage (MA) revenue over the last couple of years. Specifically, the company has been trying to diversify its revenue mix to become a better partner to referral sources and adjust to a more MA-dominated future.

But now, after a strategic review and a battle with the activist investor AREX Capital, it seems to be re-focusing on fee-for-service revenue from traditional Medicare.

“We continue to focus on deploying best practices … to all of our branches in an effort to retain and grow our fee-for-service Medicare volume,” Jacobsmeyer said on the company’s third-quarter earnings call. “We are actively evaluating consolidation or closure of branches that we believe will not reverse their fee-for-service Medicare decline and that are not producing acceptable returns for our shareholders.”

Based in Dallas, Enhabit operates 256 home health locations and 112 hospice locations across 34 states.

When Enhabit spun off of Encompass Health (NYSE: EHC), its home health revenue mix was dominated by traditional Medicare. With referral sources and MA penetration in mind, it worked to diversify its revenue mix, while also re-negotiating MA contracts to improve either rates or upside risk opportunity.

The company will continue to work on its MA contracts, but appears to be prioritizing traditional Medicare once again. Traditional Medicare – despite recent rate cuts – generally pays far better for home health services than MA plans do. MA plans often fail to even cover the cost of care with their reimbursement.

“We don’t have all the details on [consolidation or closings], but we will have those by the time we get to the fourth-quarter call,” Jacobsmeyer continued. “Because there are some [locations] that we would be looking to consolidate, versus close. We’re looking at all of that and kind of saying, ‘Well, what volume do we believe we could pull for the consolidated versus the closed?’ Those are going to be important details, and we have to talk about admissions, revenues and those sorts of things.”

Specifically, Enhabit is looking to close eight to 10 locations by early 2025. Those locations will be closed based on an “exhaustive review of all of home health and hospice branches.”

Hurricanes Helene and Milton also adversely impacted Enhabit, which has a strong presence in the Southeastern U.S. Helene, in particular, impacted the final days of the third quarter. The fallout from both storms will likely impact fourth quarter admissions and revenue.

Jacobsmeyer also commented on the Centers for Medicare & Medicaid Services (CMS) final home health payment rule, which was released last week.

“The continued cuts to home health reimbursement are destabilizing the home health landscape and are detrimental to larger policy goals of providing equitable, high-quality health care to seniors in their homes,” she said.

In the third quarter, Enhabit’s net service revenue totaled $253.6 million, a 1.8% year-over-year decrease. Home health revenue came in at $201 million, a 4.7% year-over-year decrease.

Non-traditional Medicare admissions increased by 20.1%, which helped drive up total admissions by 5.6% year over year. About 45% of those non-Medicare admissions are now through contracts that have been improved, according to the company.

The company also said that its average daily census has increased sequentially every month since the beginning of the year.

Also announced was its new CFO, Ryan Solomon, who will begin his new role on Dec. 9. Solomon takes the place of Crissy Carlisle, who has served as CFO since the company spun off from Encompass Health.

Solomon was formerly the CFO of AccentCare, another one of the largest home health providers in the country. Most recently, he served as the CFO of Aspirion, a revenue cycle management company.

Updates on UnitedHealthcare contract

In August, Jacobsmeyer announced that Enhabit had terminated its contract with UnitedHealth Group’s (NYSE: UNH) UnitedHealthcare, the largest MA administrator in the country.

“After over nine months of unsuccessful negotiations with UnitedHealthcare, we submitted our termination notice on August 1,” she said at the time. “We will dedicate our clinical resources to fee-for-service Medicare patients, and those that are members of the 68 favorable contracts. We remain committed to providing our strong quality of care to United Healthcare members, if at some point they decide to contract with acceptable rates.”

On Thursday, Jacobsmeyer provided an update on those negotiations.

“We have maintained an ongoing dialog with United and have diligently focused the conversation on the value of care that we provide them and their members,” she said. “While we have not yet executed an agreement, we have made significant progress on aligning terms with United that would be acceptable to us. Until we have an executed agreement, we will maintain our strategy of replacing the United census.”

One point of strength that Enhabit has regularly pointed to is its readmission rate. Specifically, its 30-day hospital readmission rate in home health care is 23.3% better than the national average, according to the company.

“We do feel really good about where we are with the negotiations with United,” Jacobsmeyer continued. “I would say that … we are very close to coming to terms.”