Enhabit Battles Labor, Capacity Constraints With Hospice Deals in the Wings

Enhabit Home Health & Hospice (NYSE: EHAB) is running against the wind right out of the gates due to labor and capacity constraints — but remains poised for hospice acquisitions as the rest of this year unfolds.

Enhabit completed its split from Encompass Health (NYSE: EHC) last month, becoming its own separate, publicly traded company on the New York Stock Exchange. The company has indicated that it would would waste no time when it comes to expansion into home health and hospice.

As the company formulates its growth strategies, hospice is at the forefront of its acquisition pipeline, according to Enhabit President & CEO Barbara Jacobsmeyer.

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“We are seeing more hospice in the pipeline than we are in home health at this point,” said Jacobsmeyer during an earnings call. “We’re seeing a little bit higher hospice potential development projects in the pipeline compared to home health. On the hospice front, we continue to want to increase the overlap of our hospice where we have home health as we look at opportunities that allow us to have those tuck-ins. There are markets that we could benefit from our productivity and optimization by adding home health locations to build out a territory.”

Enhabit currently operates 99 hospice locations and 252 home health locations across 34 states. The company has set its sights on hospice expansion through de novos and acquisitions as a key to its long-term strategies.

The company’s deal pipeline has experienced “strong growth” in the past few months, according to Jacobsmeyer.

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Enhabit has opened three de novo hospices year-to-date, working towards a goal of 10 overall by the end of 2022. The company has allocated $50 to $100 million for acquisitions for the remainder of the year, Jacobsmeyer stated.

“We remain very confident in the long-term growth potential for home health and hospice,” she continued.

Similar to many home health and hospice providers, staffing has remained a sore spot for Enhabit, Jacobsmeyer added. Industry-wide labor shortages have limited capacity for patient volume during Enhabit’s first three months as a standalone company.

Total patient admissions for Enhabit’s hospice segment during Q2 fell by 14% year-over-year, while home health patient volumes dropped an overall 2.4% year-over-year. The company averaged 3,447 in its daily hospice census in the second quarter, but saw a positive trend toward the latter half.

Contributing factors included a rise in employees’ use of paid time off coupled with reduced availability among nurses, according to Jacobsmeyer.

Enhabit’s overall revenue reached $268 million in the second quarter, a 6.3% dip compared to the same period last year — when the provider was still the home health and hospice segment at Encompass. Its hospice business brought in $47.8 million alone during Q2, an 11.2% drop from the prior year. The return of Medicare sequestration resulted in a $400,000 drop in hospice revenue, executives reported.

These capacity constraints and workforce challenges are the hospice segment’s biggest headwinds thus far in 2022, according to Crissy Carlisle, Enhabit’s CFO.

“We had an increased use of contract staff and market rate increases for nurses. In hospice, the risk is around patient volume and controlling costs,” said Carlisle. “ We must manage those costs while also ensuring we can recruit and retain staff to service the volume demand in our markets.”

The company’s retention strategies have included updated mileage reimbursement, keeping paid contracting premiums low or at flat rates, and increased hiring salary incentives, the company indicated in its Q2 earnings report.

Incorporating more flexible work schedules for staff has been another tactic. Enhabit recently began implementing a new staffing model aimed at improving patient caseload management and workforce costs.

Through the model, the company is offering “premium pay” for staff providing after-hours and on-call care, though Enhabit will have to balance this with associated cost increases for hospice patient visits, Carlisle stated. Salaries and benefits represented 60% of Enhabit’s cost-per-day in hospice during Q2, she detailed in the earnings call.

Rebranding issues following the Encompass spinoff also contributed to the declines in admissions and revenues, according to Jacobsmeyer. The company’s electronic referral system that connects patients with providers hit a technical snag as it redirected patients under the Enhabit brand.

This led to a temporary impact on referral conversions from facility-based health care providers. The systems have since been updated and referral rates began to normalize starting in June, Jacobsmeyer continued.

“Challenges early in the quarter with rebranding impacted e-referral systems and a general decline in admissions from acute hospitals,” she said during the earnings call.

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