Encompass Health Rebounds After First Quarter COVID-19 Slump

Encompass Health (NASDAQ: EHC)  in the second quarter overcame the financial onslaught brought on by the COVID-19 pandemic, despite millions of dollars in increased costs for personal protective equipment (PPE), supplies, and increased paid time off and paid leave for staff.  

Things started to look up for Encompass in Q2, propelled by demographic tailwinds and rising demand.

The company did post positive results in the first quarter largely due to volume growth from the company’s $271.5 million acquisition of the hospice and home health provider Alacare. About 75% of the hospice revenue growth during Q1 stemmed from the Alacare purchase. Nevertheless, the company pursued market-specific staff furloughs and some changes to employee compensation in some business lines due to surging costs and decreased referrals stemming from the ongoing outbreak.

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“Through February, our operating performance was strong in both business segments,” said President and Chief Executive Officer of Encompass Health Mark Tarr. “Beginning in March, we experienced lower volumes and higher operating expenses related to the COVID-19 pandemic. While we expect these lower volumes to continue in the near term, we view them as temporary and remain confident in the intermediate and long term growth prospects for our company based on the increasing demands for the services we provide to an aging population.”

Revenues for the company’s hospice segment revenue rose 39.5% from the prior year’s quarter. Encompass’ hospice operations brought in $48 million in Q2 compared to $34.4 million in the second quarter of 2019.

The Alacare transaction accounted for the lion’s share of this growth. By comparison, the company’s home health business grew by 2.4%, and its inpatient rehabilitation hospital segment revenue was up 5%.  

Through the purchase of Birmingham, Ala.-based Alacare, Encompass Health gained 23 hospice and 23 home health locations in Alabama, which collectively earned $117 million during 2018. This acquisition, funded with cash on hand and borrowings under its revolving credit facility, marked the entry of Encompass Health into the Alabama hospice and home health market.

The company’s patient volume also rose or exceeded pre-pandemic levels across each of its business lines, Tarr indicated in a second-quarter earnings conference call.

“Our patient volumes in both business segments have substantially rebounded from the low point experienced in April at the end of June in patient rooms. The census had rebounded to 95% of pre-pandemic levels, and home health starts of care and rebounded to pre pandemic levels. These positive volume trends have continued in July,” Tarr said in the earnings call. “Volume disruptions caused by the pandemic vary by market. Most of our markets have seen a meaningful level of recovery. Factors that have impacted our volumes include the number of COVID-19 cases in a community, the status of operations at acute care hospitals, the number of exposed or positive staff and quarantine delays in obtaining COVID-19 test results or patients and employees and capacity limitations created by semi private rooms in some of our hospitals.”

While remaining optimistic about performance in the second half of the year, Tarr added the caveat that some disruption may occur in markets that have become new COVID hotspots, such as Texas, Arizona and Florida.

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