Encompass Health (NYSE: EHC) is benefiting from rising hospice utilization as its health care services segment grows. The company has not yet reached a decision regarding the future of its hospice and home health business, which may be poised for a spin off, merger or sale.
While Encompass saw more hospice patients come under its wings during the first quarter with an 11.4% rise in admissions compared to Q1 2020, the company’s revenue was somewhat stunted due to a drop in lengths of stay.
“We’re off to an encouraging start in 2021,” said Encompass Health President and CEO Mark Tarr. “Our first quarter performance was characterized by promising volume trends that are contributing to solid revenue and EBITDA growth.”
The COVID-19 pandemic has impacted hospice length of stay industry-wide. During the outbreak many patients have tried to avoid institutional care such as hospitals and skilled nursing facilities for fear of contracting the virus. This resulted in decreased referrals from those sources, accompanied by a rise in referrals from outpatient settings such as physician offices.
While there are benefits to the shifting referral mix, one side effect is decreased length of stay, as patients who come to hospice from inpatient settings tend to receive services for a longer period of time.
Lengths of stay may rebound through 2021 as the availability of COVID vaccines and other factors bring patients back to hospitals and skilled nursing. Encompass is already seeing an uptick in referrals from post-surgical patients and others who have received high-acuity care.
“The combination of the return of our former market along with new referral sources we have added throughout COVID leave us very encouraged about the strong organic growth opportunities beginning in the back half of the year,” Tarr said in an earnings call.
The Encompass hospice segment brought in $50.6 million in revenues during the first quarter of the year, up 5.4% from $48 million in Q1 2020.
Encompass is moving forward with its established growth plans, despite the forthcoming repositioning. The company’s strategy of boosting admissions as the pandemic drives more care into the home is proving effective, but both hospice and home health acquisitions remain on the agenda.
Earlier this week Encompass purchased Frontier Home Health & Hospice, which has locations in five states. Frontier brought in nearly $36 million in revenues during 2020.
The company is considering further hospice transactions and plans to pick up more home health M&A activity as the fallout of the patient-driven groupings model (PDGM) subsides. PDGM, a new payment model for home health that launched in Jan. 2020, had investors cautious last year as they gauged potential disruption in that sector.
“There’s going to be good opportunities for us throughout the balance of the year to pursue some home health acquisitions, while continuing to look at hospice acquisitions to help us build our scale and density and market overlap,” Encompass Home Health & Hospice CEO April Anthony said.
Earlier this year Anthony announced that she would be stepping down from her role at Encompass this summer. Encompass has engaged a third party executive recruitment firm to identify potential candidates to take her place.
Encompass anticipates that they will have more information regarding the potential spin off or sale of their hospice and home health segment in July.
“We are following a rigorous and disciplined process and continue to evaluate and prepare for all scenarios including the full or partial separation of the segment through an initial public offering, spin off, merger, sale or other transaction,” Tarr said. “We are dedicated to identifying the best path forward for our company to generate value creation for our shareholders.”
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