Encompass Health (NYSE: EHC) will continue to pursue hospice expansion as the company considers a strategic repositioning of its hospice and home health assets. Encompass announced in December that its leadership was pondering a spin off or other action for hospice and home health.
Other options under consideration include a potential merger, sale, initial public offering or other transaction. Encompass provides both facility-based and home-based patient care through inpatient rehabilitation hospitals, home health agencies and hospice. The company operates 137 hospitals, 242 home health locations, and 83 hospice locations in 39 states and Puerto Rico.
“Being one of the top providers in the nation, as measured by both our financial results and our quality outcomes, allows us to consider a wide array of transactions and structures,” said CEO Mark Tarr in the company’s fourth quarter earnings call. “Our strategic review is ongoing, and no timetable has been established for its completion. So we remain focused on the diligent execution of our strategy for both segments.”
The possibility of a sale as opposed to a spin-off is noteworthy, as hospice multiples have reached record highs, as much as 26x during 2020. Given recent sizable transactions such as the sale of St. Croix Hospice and the potential sale of Bristol Hospice, the market has few remaining large-scale operations available.
Senior housing operator Brookdale Senior Living (NYSE: BKD) is also considering selling off its home health and hospice businesses as the company seeks to regain financial ground after hits from COVID-19 headwinds.
Until a decision is reached, Encompass is moving forward with its established growth targets, seeking to boost admissions as the pandemic drives more care into the home and away from institutional settings. Encompass is also seeking acquisitions of both hospice and home health organizations.
For the company’s hospice business, same-store admissions growth of 16.1% resulted in a 5.5% increase in revenue. The rate of growth was tempered somewhat by decreased length of stay, partially attributable to the COVID-19 pandemic.
The Encompass hospice segment brought in $53.6 million in the fourth quarter of 2020, up from $50.8 million in the prior year’s quarter. Adjusted EBITDA rose 11% to $55.5 million, exceeding Q4 2019’s $49.6 million.
“We’re excited about home health and hospice — a strong demographic tailwind, a strong and increasing patient preference for in-home care, a growing number of seniors experiencing four or more chronic conditions and the cost effectiveness of treating those conditions in the home,” Tarr said.. “Reimbursement visibility is better than we’ve seen in a decade and accelerating opportunities for market share capture.”
Like virtually every health care provider a major priority for early 2021 is vaccination of clinical staff against COVID-19. The company has seen some staffing constraints in recent months due to the need for some personnel to quarantine. The industry has long contended with the need for a larger workforce as demand and the senior population continues to rise.
The number of staff needing quarantine has come down in recent weeks, relieving some of the pressure, according to Encompass CFO Doug Coltharp.
To date, about 1,600 Encompass employees have received an initial dose of vaccine, and a fraction of those have had their second dose. About 70% of the company’s employees indicated that they would like to be vaccinated.
“We’ll continue with that distribution process,” Tarr said. “There is a lot of volatility from state to state in terms of the effectiveness of getting it out to the marketplaces, but we continue to see progress.”