As it nears its planned Enhabit spinoff, Encompass Health Corporation (NYSE: EHC) continues to see workforce improvements and a decreased reliance on costly staffing agencies. Its hospice business, however, remains in a difficult spot.
Encompass Health has taken a number of steps to improve its clinician recruitment and retention rates, including investing in upskilling programs, modifying its compensation structure and updating its mileage-reimbursement methodology. At least for its home health service line, that helped the Birmingham, Alabama-based company exceed its historical high point for admissions in the first quarter.
“On the home health and hospice staffing front, hiring started slowly in the quarter due to the Omicron surge, but accelerated as the quarter progressed,” CEO and President Mark Tarr said during a Thursday earnings call.
Though the company gained ground on hiring and onboarded 30 full-time nurses in the home health and hospice segment, hospice admissions declined during the quarter. Higher staffing costs additionally led to a 6.4% increase in hospice cost per day for Encompass Health, according to the company.
“The decline of hospice admissions was driven primarily by capacity constraints at some of our larger branches with historically high average daily census,” Tarr continued. “High staffing costs led to a 1.4% decline in segment adjusted EBITDA.”
Net operating revenues for Encompass Health totaled $1.33 billion in Q1 2022, up 8.4% compared to $1.23 billion in last year’s first quarter.
Home health net operating revenues were $224.9 million, up 2.3% compared to $219.9 million a year ago. Meanwhile, hospice net operating revenues were $49.4 million, a 2.4% decrease compared to $50.6 million in Q1 2021.
Overall, the home health and hospice segment, which has started to transition to the Enhabit Home Health & Hospice brand, has about 650 open nursing positions. That’s about 100 to 150 more than the normal baseline, according to the segment CEO Barb Jacobsmeyer.
“We’ve not seen that same progress on retention on the hospice side,” Jacobsmeyer said during the call. “We are piloting some new staffing models in a few of our markets.”
To boost hospice hiring, Encompass Health is looking at more ways to offer additional clinical education. Generally, its clinicians want specialized programming to build their knowledge base on topics like caring for stroke or orthopedics patients.
Encompass Health provides home health and hospice services across 252 home health locations and 99 hospice locations. The company also oversees the largest network of in-patient rehabilitation facilities (IRFs) in the U.S.
Updates on the spinoff
Encompass Health expects to execute the Enhabit spinoff on July 1, 2022, with the leadership team fully committed to that plan.
“We believe the establishment of Enhabit Home Health & Hospice as an independent company will provide a number of significant benefits, including enhanced management focus, separate capital structures and allocation of financial resources,” Tarr explained.
It will likewise offer better alignment of management incentives as well as the creation of independent equity currencies, he added. Rebranding to Enhabit began in April; a formal public filing is expected to come in mid to late May.
While spinoffs, sales or other types of transactions can lead to executive churn, Enhabit has been able to keep most of its senior executive team in place, Jacobsmeyer noted. The organization has even been able to add key positions, including a chief human resource officer.
“I’ve not had to replace any of the key executives,” she said. “We also were able to get commitment for the next level of senior executives that manage ops and sales in the field. So I think we’re in a good place, both as it relates to senior level and executive management.”
As for other hospice considerations, Encompass Health is watching for what the U.S. Centers for Medicare & Medicaid Services (CMS) decides to do in its final payment rule.
CMS released the 2023 proposed payment rule for hospice providers in March, with a 2.7% per diem rate increase. Broadly, hospice advocates say that figure doesn’t properly reflect the current operating environment, namely steep staffing costs and rising inflation.
“While the rate updates in the IRF and hospice proposed rules are directionally positive, they do not adequately compensate for the elevated staffing costs,” Tarr said. “We are hopeful that the final rules will provide greater relief.”
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