Encompass Health Corporation (NYSE: EHC) on Wednesday offered additional insight into its plan to separate its home health and hospice segment later this year.
And while doing so, the Birmingham, Alabama-based company emphasized how hospice, in particular, will remain an important part of the spinoff’s future.
“Hospice is a smaller but rapidly growing business for us,” CFO Doug Coltharp said during a presentation at the Barclays Global Healthcare Conference.
The Encompass Health network consists of 145 freestanding inpatient rehabilitation facilities (IRFs), in addition to 251 home health locations and 96 hospice agencies. Its geographic footprint spreads across 42 states and Puerto Rico.
In December, Encompass Health revealed it was exploring strategic alternatives for its home health and hospice arm, including a potential sale, spinoff or merger. Eventually, the post-acute care giant confirmed a spinoff was its preferred plan.
In part, it came to that decision because it didn’t receive any offers to its liking. A recent report did suggest it’s still receiving interest from at least a couple major suitors, however.
“As we began the strategic alternatives review for this business, that segment, in December of 2020, … we did not believe that we were getting adequate appreciation for the home health business that we held within the confines of Encompass Health,” Coltharp said.
Currently, Encompass Health is the 12th-largest provider of hospice services in the U.S., according to the company. It had more than 13,000 hospice admissions in all of 2021, with a growth target of 10% to 15% from 2022 to 2026.
Overall, the home health and hospice segment – currently in the midst of a rebrand to “Enhabit Home Health & Hospice” – generated $1.1 billion in revenue last year. Due to the COVID-19 pandemic and challenges related to the Omicron variant, the hospice business’s revenue in the fourth quarter fell 2.8% to $52.1 million, compared to $53.6 million in the prior year’s quarter.
Encompass Health is planning to add upwards of 10 home health and hospice de novo locations in 2022.
“If you look specifically to the home health and hospice business, both of those businesses, particularly as we emerge from COVID, are benefiting as well from a preference amongst caregivers, patients and families to see an increasing number of services delivered in the home setting,” Coltharp said.
The rebranding effort began in February with the Dallas corporate office, which serves as an administrative hub for the home health and hospice segment. Encompass Health will begin rebranding field assets in the middle of April, with the hope of completing the majority of the rebrand by the end of the second quarter.
Timing wise, that would coincide with the Enhabit spinoff, which will require about $10 million to $13 million in one-time operating expenses.
“We are proceeding toward a spinoff of 100% of that business segment into a separate publicly traded company,” Coltharp said. “And that timeframe I just cited for attempting to complete the bulk of the rebranding activities coincides with the target date we have for completing that spinoff.”
Encompass Health initially expanded into home health and hospice services about seven years ago to improve clinical collaboration between settings. Roughly 60% of the patients discharged from its $4 billion IRF business need follow-on home health services, for example.
“In markets where we have both of our service lines, [we] try to use that for care coordination,” Coltharp said. “And to enhance the patient transition from one site of care to another, which historically has not been done well by any providers.”
Even after a spinoff, the company believes it can maintain a high level of clinical collaboration by bringing its internal processes to third-party partners.
“We’ve been able to see some of the same success with regard to the coordinated patient care journey, even when we don’t own the business,” Coltharp said.
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