Encompass Health (NYSE: EHC) has begun transitioning its home-based care segment to a separate, publicly traded entity branded as Enhabit Home Health & Hospice, even as the company contends with falling hospice revenues, admissions and staffing pressures attributed to the pandemic.

The spin off will complete in the second quarter of 2022, according to statements by Encompass. The Encompass home health and hospice segment, soon to become Enhabit, cared for nearly 213,700 patients during calendar year 2021. Of those, 13,700 were in hospice. The segment employs close to 11,000 workers in 347 locations, 96 of which are hospice sites spread across 22 states.

“The board has considered an array of alternative strategies and structures and dynamic market environment with the advice of our financial advisors and legal counsel and with input from shareholders and taking into account various factors including execution risk, tax efficiency, and capital structure,” Encompass CEO Mark Tarr said in an earnings call.

Encompass announced the strategic repositioning in December 2020. Current Encompass shareholders will own stock in both companies, tax free. Transition-related expenses will include development of the business infrastructure within Enhabit, expected to total an estimated $26 million to $28 million.

Overall, the segment generated $1.1 billion in revenue during 2021. COVID, particularly the emergence of the Delta and Omicron variants, created challenges for Encompass last year, though strong results in its rehabilitation hospice business buoyed the company’s overall financial performance.

The company’s hospice business saw a 2.8% decline in revenue during the fourth quarter of last year, falling to $52.1 million from $53.6 million during the prior year’s quarter.

The spin off is expected to be a boon for Encompass. The move will reduce the company’s operating expenses by approximately $10 million and will likely benefit shareholders.

“Separation of the company’s two segments should unlock value, especially as the higher-growth, higher-multiple home health business is separated from [Encompass] and sees higher growth as it pursues a more aggressive, accretive M&A strategy,” Brian Tanquilut, equity analyst for Jeffries Financial Group, indicated in a note.

During 2021, Encompass closed nearly $102 million dollars in home health and hospice acquisitions and opened three de novo locations. The company anticipates 10 de novos during 2022.

The Enhabit rebrand will commence this month beginning in the Dallas office. Branch locations will begin rebranding in April, with completion expected by the end of Q2. Rebrand costs are expected to cost $10 million to $13 million in one-time operating expenses, as well as capital expenditures ranging from $3 million to $5 million.

Labor pressures plaguing the industry continue to impact Encompass. The company attributed a 3.7% drop in hospice admissions in Q4 to staffing constraints, predominantly in larger branches with historically higher average daily census, according to CFO Doug Coltharp.

The company reported a “strong quarter” when it came to hiring, bringing on 133 full-time nursing employees in Q4, adding to the 127 hires in Q3.

“On the hospice side, I will say that staffing constraints have been the majority of the issue there,” Tarr said. “We’ve had 80 branches in three key states that have accounted for about 73% of that same-store [admissions] decrease.”

Encompass saw close to $30 million in additional costs due to the need to increase utilization of contract nurses.

Barbara Jacobsmeyer, CEO of the home health and hospice business, created a new chief human resources officer position as well as a vice president of talent acquisition to help bolster the company’s recruitment and retention efforts.

Despite these pressures, Tarr voiced optimism that the market would normalize as the year proceeds.

“I think the supply issues on the labor side and the supply demand imbalance that’s been related to COVID are going to improve as we get through the course of the year,” Tarr said