Encompass Health’s (NASDAQ: EHC) hospice segment has proven resilient to pandemic-related headwinds compared to the company’s other business lines. Hospice saw revenue and census growth during the third quarter of 2020 even as the company’s home health operations saw some declines due to reduced referrals and fallout from the patient-driven groupings model (PDGM).
The company is poised for further hospice growth with acquisitions in its pipeline for the fourth quarter and into 2021, as well as plans for de novo activity.
“Many uncertainties still exist, but our company is well-positioned to drive long-term growth. We have a proven track record of adapting to and working through challenges, including this pandemic,” Encompass CEO Mark Tarr said in an earnings call. “Our business fundamentals aren’t changing. In fact, the pandemic has created an even stronger awareness of the high level of care we provide in our inpatient rehabilitation hospitals and the value of our home health and hospice service lines. And as the population ages, the demand for a high quality care will increase.”
While falling volumes and pricing — along with PDGM disruption — caused a drop in home health revenue, the Encompass hospice business line saw a 1.6% revenue increase driven by a nearly 16% rise in same-store admissions. However, the hospice operations did take a hit from decreased lengths of stay caused by a change in patient mix.
The number of hospice patient days dropped 2.1% because of a trend seen across much of the industry. Hospice providers, including Encompass, have seen fewer referrals from senior living facilities due to COVID-19 restrictions. Even though hospice referrals from institutional settings were up, those patients tend to have shorter lengths of stay than those who come in from senior living.
All told, the hospice business line brought in $51.2 million during Q3, up from $50.4 million in the prior year’s quarter. The overall Home Health & Hospice segment saw a decline of 5.1%, or $14.8 million, largely due to issues on the home health side.
The company took hits in March and April due to the pandemic, which brought on declining referrals and skyrocketing costs for personal protective equipment and expenses for telehealth and employee paid leave. Encompass at the end of Q1 was implementing staff furloughs and changes to employee compensation in some business segments.
Revenue gleaned from the 2019 acquisition of Alacare Home Health & Hospice for $217 million contributed to positive Q1 and Q2 results for its hospice segment, which saw an 39.5% increase from the prior year. That hospice growth trend continued into the third quarter.
The company expects to move forward with hospice and home health acquisitions during the remainder of 2020 and into 2021, despite some delays in transactions that occurred earlier this year due to the outbreak.
The company’s CFO Doug Coltharp indicated in the earnings call that transactions could be forthcoming in the fourth quarter.
“We have seen a pickup in the acquisition pipeline. There’s some activity that’s out there right now; it’s more heavily oriented toward hospice than it is home health,” Coltharp said. “But this reflects perhaps a degree of optimism that we’re going to be able to get a deal or two done in the fourth quarter.”
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