Jay Duty, the newly appointed senior vice president and chief corporate development officer of Enhabit Home Health and Hospice (NYSE: EHAB), is spearheading the company’s ambitions for growth, including acquisitions and de novos.
Duty transitioned to Enhabit from Encompass Health (NYSE: EHC), where he served as vice president of strategy. Enhabit spun off from Encompass in July.
Enhabit has been intent on accelerating growth from day one. The company has pledged to deploy $50 million to $100 million on deals during 2022 and plans to open 10 new locations. Earlier this month, it acquired Caring Hearts Hospice in Texas for an undisclosed amount.
Hospice News sat down with Duty to discuss Enhabit’s game plan for achieving these objectives, how the company is maneuvering through industry-wide reimbursement concerns, and the larger economic forces that are pressing down on hospice and home health providers.
What drew you to the post-acute space?
In the industry now, everything is coming home. I was in the acute care hospital and realized there’s this whole other vast world out there that wasn’t really tapped into.
The way I got there was by being part of an Accountable Care Organization [ACO] and the ecosystem that was out there. I was doing network development strategy there, kind of figuring out how we eat the elephant as far as the total cost of care goes. It’s sort of incentivizing the higher-end, acute-care hospitals to trim down.
I was doing that from the accountable care side and then got the opportunity to sit on the other side of the table in the post-acute space.
Can you discuss Enhabit’s expansion plans for the hospice side of the business?
We have these three guiding principles that we’re going to stick with as we move forward — those three are scale, market density, and then our overlap strategy.
And the breakdown of those is that we want to scale and go into new markets that we’re not in today. We’re in 35 states now and about 350-plus locations if you combine both home health and hospice. So we’re going to make sure that we are going into new markets and have a really disciplined approach to go and do that before we make that leap.
The other would be to expand with that density strategy into adjacent or contiguous markets, or potentially even to a market we’re in today where we might need a little bit of a tuck-in to help serve the communities where our patients are. There might be opportunities to do that in our market-density strategy.
And then the last one is overlap. Traditionally, we’ve been under the umbrella of the Encompass Health Corporation. If we’d had this call a year ago, before our public spin-off, the idea was to cover that continuum of inpatient rehab to home health to hospice.
Today, that strategy is still in play, but what we found was that there was a really good opportunity for us to do a great job taking care of patients in the home and transitioning them from that setting of inpatient rehabs and coming down that continuum, all the while providing that home health and hospice overlap.
About 100 of our locations are hospice and about 250 are home health. The idea is still to provide that full continuum because we really do a great job serving those patients, and those transitions of care allow us to have some really good conversations with them and their families and transition them from home health to hospice.
I was considering some of the macroeconomic trends that are out there right now. We have rising interest rates, labor pressures, inflation — all the things. Do you see that affecting the M&A market, and if so, how is Enhabit navigating those issues?
We’ve committed that $50 [million] to $100 million worth of acquisitions this year, and we expect that we’re going to meet those. Even with all of those market pressures, we still think we’re poised to do that, but we’re going to have a disciplined approach on the diligence side to make sure that we’re always assessing that labor market. At the end of the day, we need those really good caregivers in homes with patients. They’ve got to be there.
There’s got to be a market where those caregivers are available to practice. That’s one of those big things. And then gas prices have affected the mobile workforce. Those are all things that we have to consider, whenever we’re taking a look at somebody we want to fold into the Enhabit team.
What kinds of M&A targets are most appealing?
There are a lot of home health and hospice companies where the idea is just to get bigger and put more dots on the map. We want to make sure we have kind of a very disciplined approach to that. So it’s more about assessing the market that we want to go into and where there are opportunities that we think we can proactively take a look at and then apply the strategy.
There are three prongs to that, so not just the scale density and overlap strategy. Is it most appropriate to go into the market with an acquisition? Is there an opportunity for a joint venture? Maybe the entry point is a really large health system that we can partner with to go into that market. Or do we deploy a de novo strategy?
We start by assessing the markets. You have to be available for what’s out there and what’s coming to market. But we really want to have that disciplined approach to say these are markets that we want to go into and figure out the correct strategy to get there.
With this trend of more care moving into the home, do you feel the infrastructure of the current health care system, perhaps Medicare itself, is set up to enable that care to be delivered in the home at the necessary volumes to meet patients’ needs?
During the pandemic, a lot of people learned that maybe there’s a way to tap into staying home in a way that I can connect with the health system differently.
There are ways to monitor patients and observe them, and work with providers and services that are making it into the home. I think there’s some infrastructure there, but as you’ve seen in the market people are taking an approach of really trying different things of how do we resource and wrap services around those patients where home is the setting across the continuum, and really takes care of keeping them there in that site.
I think the infrastructure is something that there are a lot of different organizations rapidly moving towards. Those might be things that we partner with versus something that we buy or build there too, looking for those players in different markets.
As different as every market is — with the scale, penetration, and density of those types of services — it’s difficult for them to be very pervasive. But where they are, we want to make sure that we’re partnering together with them.
I think many providers were disappointed by the 2023 reimbursement rates with cuts to home health and a hospice increase that many said were insufficient in today’s environment. Has Enhabit had to reexamine or change any aspects of its growth strategy as a result?
We’ve always been conscious of those pressures, and we’ve been very outspoken, working with our partnerships and working in DC with the legislators to make sure that they know the value of what those patients are getting within the home — and how cuts like that might be detrimental the service in genera.
It’s absolutely something we’re aware of, and we’re advocating for that. We stand strong on the quality of care that patients are getting in their homes from Enhabit. That’s the care that patients need, and we want to make sure that we provide the resources and get the caregivers in a place where we want those clinicians to practice.
We are making sure that we’re a best place to work. Those are the kinds of things we’re doing to attract talent to take care of patients out there in the home setting.
To your point about attracting talent, coming back to those staffing issues. Can you add some color around how those pressures factor into your acquisition decisions when you’re vetting a company?
When we’re vetting a company, we’re always making sure that they are culturally aligned, and that they are the type of team members that we want with us.
It’s not even just about the numbers being available, because, at the end of the day, those are the folks we trust to be in there taking care of patients.