A forthcoming hospice and home health spin off company from Encompass Health (NYSE: ENC) will be a publicly traded entity. Encompass announced last December that a strategic repositioning of the segment was in the cards. The transaction is expected to take place during the first half of 2022.
To ready themselves for a separation, Encompass has prepared audited carved-out financial statements for its home health and hospice business as well as a draft registration statement for the U.S. Securities and Exchange Commission, among other regulatory filings.
“Our objective is to position both of our businesses to optimize long-term value creation. This is a process that needs to be done right. It requires time and extensive resources,” CFO Doug Coltharp said in an earnings call. “We feel that we are very well-positioned and prepared to choose the best structure to fit the prevailing conditions at the time that we’re getting ready to go.”
The company’s home health and hospice segment struggled against pandemic-related headwinds during the third quarter, buoyed by strong results from its inpatient rehabilitation business.
The segment saw total admissions decline by 0.9% and same-store admissions by 2.7%. A reduction in hospice admissions was partially offset by the company’s acquisition of Frontier Home Health & Hospice in April for an undisclosed sum. The transaction brought 11 hospice and nine home health locations into the Encompass footprint.
Hospice revenues in particular rose 3.1% from the prior year’s quarter to $52.8 million, though its home health business took a 1% dip in earnings. The segment’s adjusted EBITDA fell 10.4% to $46.4 million.
“In the second quarter of 2021, our episodic commissions from patients receiving elective procedures and acute care hospitals had returned to historic levels,” Encompass CEO Mark Tarr said in the earnings call. “In Q3, this trend abruptly reversed due to the COVID surge and restrictions placed on these procedures by state governments and local health care systems.”
Encompass like many others has been plagued by workforce shortages, particularly among nurses. While this has been a longstanding problem for the industry, the COVID-19 pandemic has exacerbated the labor issue. The company estimated that it lost 2,500 potential admissions due to staffing pressures during Q3.
In addition to industry-wide workforce shortages, the number of employees who needed to be quarantined due to exposures to the virus also contributed to these issues. Encompass has been using higher amounts of contract labor and has raised its compensation levels for current employees and new hires, including implementation of sign-on bonuses.
The company’s greatest staffing need is additional nurses. The number of nurses Encompass hired during the third quarter rose to 435, compared to 306 in the prior year’s quarter. While these numbers are encouraging, they are not enough to pull the company out of the woods when it comes to staffing.
“While we’re making progress, these labor pressures are not expected to abate in the near term, and it takes time to onboard staff. On average, it takes 60 days before a new full time condition is operating at expected productivity levels, which results in higher cost per visit,” Tarr said. “It may take several quarters before we reach a point where we return to historic productivity levels, given our need to recruit and onboard staff.”
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