Before the start of the investor presentation Wednesday afternoon, Barb Jacobsmaier, CEO of Enhabit Inc (NYSE:EHAB), joked to the moderator at the Jefferies Healthcare Conference that the company may soon be the last pure home health company on the public market.
Kindred at Home – now CenterWell Home Health – is part of Humana Inc. (NYSE: HUM). LHC Group is now part of UnitedHealth Group (NYSE: OH) Optum.
The leaders of Amidisys Inc. (Nasdaq: AMED) touting their position as the last large-scale independent player in the space. Now, they could potentially be part of Option Care Health (Nasdaq: OPCH) or Optum in the near future as well.
Nobody knows if Enhabit can follow this trend and look for a buyer. But for now, Jacobsmaier believes that being an independent home health provider could give the company a boost.
“First and foremost, it enhances the value that taxpayers see in home health,” Jacobsmayer said. “I think, as we look forward, we feel kind of hopeful about the day when Humana wants Center Well to see all of their patients and maybe United LHC Group and maybe Amidisys wants [see theirs]because that would leave the service fee to us, and also give us an opportunity to sit closer at the table with other payers to conduct the negotiations.”
Dallas-based Enhabit provides home health and hospice services across 34 states. Its network includes 252 home health sites and 105 elderly solidarity sites.
Just as other public home health providers began to consolidate their efforts with larger entities, Enhabit was spinning off Encompass Health Corporation (NYSE:EHC) as its own standalone company.
Since then, Enhabit’s leaders have fought an uphill battle, namely in two areas: Medicare Advantage (MA) plan contracting and staffing. These two challenging areas are why many believe that even the largest home health care providers have been looking to join forces with affluent partners in recent times.
But Jacobsmaier believes her company is making much-needed progress.
“One of the things I’ve learned the most is how slow it’s progressed — as we’ve worked with managed care companies, particularly on the Medicare Advantage side,” Jacobsmeyer said. “It’s been nice to see progress, … but this certainly has come with a lot of work and a lot of time.”
Projections have long suggested that MA will penetrate the Medicare market enough to represent more than 50% of beneficiaries. This was supposed to be far in the future, perhaps in the year 2030.
Instead, the moving average has crossed 50% this year. Jacobsmeyer now believes there will be about 70% penetration by the end of the decade.
This will make the MA contracts that Enhabit has already made more necessary, but it will also make its innovation team drive an even more important part of the plan going forward.
On its first-quarter earnings call, the company announced that it has closed a deal with a national payer, effective May 1, as well as two backers with national footprints.
Now, she’s at least in a position where she can prioritize patients from the plans she’s already negotiated deals with.
“[With] “We can kind of lower the priority,” Jacobsmayer said [others] Until they feel the accessibility issues that make them take things more seriously.”
As to whether the exits of another generic home health company have already created a tailwind for the company, Jacobsmaier said she hasn’t seen it yet.
“I think a lot of that is due, again, to a fragmented industry, right?” She said. “So even though it’s big, it’s still — in any market — just one of a large number of different providers.”
future inorganic growth
Focusing on the business environment — which Enhabit said is improving — as well as MA contracts, inorganic growth has been somewhat affected.
On the M&A front, the problem was twofold: external market factors, but also the gap between buyer and seller’s price expectations.
“I believe that mergers and acquisitions remain an important part of our growth strategy,” said Enhabit CFO Crissy Carlisle. “We certainly have an active development department. We have inbound calls, we have outbound calls. But it’s about finding an attractive asset at an affordable price. And so we’re very disciplined in that regard.”
Enhabit completed the acquisition of the Evansville, Indiana-based home health care provider in March. I paid “about $3 million for it,” Carlyle said, and “got it at five times the EBITDA multiple.”
She continued, “This seller was very aware that we were willing to walk in, and that’s what happens when you have that friction and someone is in the market to sell it.”
In terms of the de novo strategy, Enhabit is more focused on dwelling there at the moment. This is because there are currently “less uncertainties” in hospice care than in home health care, according to Carlisle.
One such uncertainty is the looming proposed payment rule for CY2024 in home health care. This is expected to come within the month.
Jacobsmaier believes that the second half of the behavioral modification cut will be proposed for 2024. The first half was implemented for 2023 and was met with significant response from the home health industry.
In the proposed 2023 rule, the Centers for Medicare and Medicaid Services (CMS) also raised possible payment entitlements for past overpayments.
Jacobsmaier doesn’t think those refunds will be part of this year’s payment rules proposal.
“We see those that are potentially pushed out there a little bit, because it’s going to be a lot more for the industry to keep the other half of behavioral modification and any kind of offense going into 2024,” she said.
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