Encompass Health (NYSE: EHC), will spin off its home health and hospice business as a separate publicly traded company branded as Enhabit Home Health & Hospice. The company expects to complete the spin off during the first half of 2022.

Encompass announced in Dec. that a strategic repositioning of the segment was in the cards. Current Encompass shareholders will own stock in both companies, tax free.

“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 a second quarter 2021 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.”

Encompass expects that spinning off the business will improve strategic and operational flexibility, increase the focus of each management team and allow each company to adopt a capital structure best suited to its business needs, according to a statement. 

Encompass Health’s home health and hospice segment operates close to 350 locations in 42 states. About 95 of those locations are hospices, seeing about 13,200 end-of-life patients annually.

The segment struggled against pandemic-related headwinds during 2021 but Encompass was buoyed by strong results from its inpatient rehabilitation business. The company saw total home health and hospice admissions decline by 0.9% and same-store admissions by 2.7%.

“While the long-term value proposition of home health care services remains intact, we are currently operating in a challenging environment, primarily due to COVID surge and industry-wide labor pressures,” Coltharp said in an Oct. 2021 earnings call.

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% in Q3 2021 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.

Encompass began building the spin off’s executive team early in 2021, including Barbara Jacobsmeyer as CEO of the home health and hospice business, with Crissy B. Carlisle, coming on as CFO. The previous CEO, April Anthony, stepped down June 18 in a planned departure.

When Encompass announced its decision to spin off the business, initial investor reaction was positive, according to Brian Tanquilut, equity analyst for Jeffries Financial Group. More recently, investors seemed to get frustrated by uncertainties about when the spin off would occur. This announcement should help alleviate those concerns.

“[Encompass Health’s] comments today reiterating their previously-stated intent to consummate a public, non-taxable spin-off of the company’s home health and hospice asset should be viewed positively, as it refutes investor concerns that emerged on the company’s Q3 [2021] earnings call about management’s commitment to the [first half of 2022] completion timeline that they had outlined,” Tanquilut indicated in a note.