Enhabit Inc. (NYSE: EHB) has seen mixed financial results with headwinds impacting its overall revenue amid hospice tailwinds propelling these services toward sustainable growth.

The home health and hospice provider formed when the company spun off from Encompass in 2022. The last year has been filled with various challenges alongside significant opportunities, said Enhabit President and CEO Barb Jacobsmeyer.

Case in point, the second quarter marked its third sequential period of growth, Jacobsmeyer stated. The period also marked the end of its strategic review that ultimately concluded with the Enhabit’s decision to remain a standalone company.

“Quarter 2 demonstrates the success of our strategies. Our team deserves praise for keeping a strong focus on operational performance amid many potential distractions,” Jacobsmeyer said in an earnings call on Wednesday. “The results are a testament to the tremendous job they’ve done. I also want to acknowledge the opportunity we’ve had over the past couple of months to discuss our strategies with many of our stockholders and the valuable feedback we received during those discussions.”

The consideration of a potential sale, merger or strategic alternative began last June amid pushback from a minority investor in the company, AREX Capital Management, and its affiliates. The consideration was in part driven by recent large-scale transactions in the home health and hospice space.

Since Enhabit’s decision to remain a standalone company, AREX has continued to call for changes to the board. In a recent election, the home health and hospice provider revamped its board to include eight new members proposed by Enhabit and one suggested by AREX.

Enhabit is also in the process of an executive change as CFO Crissy Carlisle announced yesterday that she’ll be stepping down from the role.

“We are grateful for Crissy’s important contributions to Enhabit,” Jacobsmeyer said. “She has played a large role in helping the company achieve stability across the business and position our organization for growth. I look forward to her continued leadership as we search for her successor.”

Headwinds vs. tailwinds

Enhabit brought in $260.6 million in revenue during the second quarter, a 0.6% decrease compared to last year’s same period. The Dallas-headquartered company has 112 hospice locations and 256 home health locations across 34 states.

The home health and hospice provider’s adjusted EBITDA rested at $25.2 million in Q2, seeing a 9.7% year-over-year increase. Enhabit also reduced its bank debt by $15 million during the second quarter.

The largest financial strain came from increased care delivery costs associated with patients’ medical supplies and equipment and pharmaceutical needs, Carlisle stated.

The company’s home health services represented the majority of its revenue at $210.2 million, which represented a 1.7% decline compared to Q2 in 2023. The drop was primarily due to lower Medicare recertification rates, according to Carlisle.

Enhabit’s hospice segment revenue saw a 3.9% year-over-year rise, reaching $50.4 million. Swelling patient volumes were a large revenue driver. The company’s average hospice daily census reached 3,517 patients during the second quarter, or a 2.7% year-over-year increase. Total hospice admissions hovered at 2,888, representing a 1.8% jump.

Hospice improvement

Improved recruitment, retention and clinical capacity were among the factors contributing to the hospice results, according to Jacobsmeyer. The company has added 243 full-time nurses to its ranks since the spinoff from Encompass, she stated. Enhabit also eased workforce challenges through improved case management and less reliance on contracted labor.

“[With] the hospice segment, we continue to make steady progress in growing our census,” Jacobsmeyer said. “In addition to the implementation of the case management model, which eliminated staffing constraints and contract labor, we also implemented a centralized admissions department to support each of our hospice sub-regions that allows for more efficient processing of referrals.”

Employing the centralized admissions strategy has helped facilitate earlier and more timely care, resulting in a 73% increase in hospice referral rates, she added. This has allowed Enhabit to enter new markets at lower costs, according to Jacobsmeyer.

The company is also focused on its payer innovation strategy. Nearly 71% of Enhabit’s patient admissions are in some type of combined Medicare fee-for-service and payer innovation contracts, a swell from 58% in the first quarter of last year. The home health and hospice provider is doing a “deep dive” examination across its locations to fine-tune its payer innovation toward sustainability, Jacobsmeyer said.

“We’ve established a project team to concentrate on retaining fee-for-service business,” Jacobsmeyer said. “Additionally, our scale and density within key markets, along with our reputation for strong clinical outcomes, continues to attract opportunities to collaborate with both legacy and new Accountable Care Organizations (ACOs). We are using this analysis and identified best practices to make meaningful changes across the company that we believe will result in overall stabilization.”

Future hospice outlook

Hospice and home health demand is projected to rise alongside patient preferences increasingly tipping toward home-based care, Carlisle indicated. This is largely due to the cost savings potential of home-based care.

De novos have been a standing part of Enhabit’s strategic growth plans since its inception, with the company planning to unveil about 10 new locations annually. It opened one new home health location in Melbourne, Florida in April, and has launched two hospice de novos thus far this year.

Hospice is a main focus of Enhabit’s de novo and acquisitions strategy, but progress in part hinges on local licensing and regulatory approval processes, Carlisle stated.

“We will be ready to open 10 [de novos] per year, it’s a matter of actually getting the licensing and the final touches for those to open,” Carlisle said. “In regards to acquisitions, we continue due diligence opportunities. Right now our credit agreement limits our ability to do that, as well as our leverage. But we’re not going to let that drive the long-term outlook.”