Just before the beginning of an investor presentation on Wednesday afternoon, Enhabit Inc. (NYSE: EHAB) CEO Barb Jacobsmeyer joked to the moderator at the Jefferies Healthcare Conference that the company may soon be the last pure home health player on the public market.
Kindred at Home – now CenterWell Home Health – is a part of Humana Inc. (NYSE: HUM). LHC Group is now a part of UnitedHealth Group’s (NYSE: UNH) Optum.
Amedisys Inc. (Nasdaq: AMED) leaders used to tout their standing as the last independent, at-scale player in the space. Now, they will likely be a part of Option Care Health (Nasdaq: OPCH) or Optum in the near-term future as well.
No one knows if Enhabit could follow this trend and look for a buyer. But, for now, Jacobsmeyer does think that being an independent home health provider could give the company a leg up.
“First and foremost, it reinforces the value that the payers see in the home health space,” Jacobsmeyer said. “I think, as we look forward, we’re kind of hopeful for the day that Humana wants CenterWell to see all of their patients and maybe United wants LHC Group and potentially Amedisys to [see theirs], because that would leave the fee for service for us, and would also give us opportunity to sit even closer at the table with the other payers for negotiations.”
The Dallas-based Enhabit provides home health and hospice services across 34 states. Its network includes 252 home health locations and 105 hospice locations.
Just as other public home health providers were beginning to join forces with larger entities, Enhabit was spinning off of Encompass Health Corporation (NYSE: EHC) to be its own standalone company.
Since then, Enhabit leaders have been fighting an uphill battle, namely in two areas: Medicare Advantage (MA) plan contracting and staffing. Those two challenge areas are also why many believe even the largest home health providers have been looking to join forces with deep-pocketed partners of late.
But Jacobsmeyer believes that her company is making necessary headway.
“One of the things I’ve learned the most is how slow progressing it is – as we have worked with the managed care companies, particularly the Medicare Advantage side of things,” Jacobsmeyer said. “It’s been nice to see the progress, … but that certainly has come with a lot of work and a lot of time.”
The forecasts suggested for a long time that MA would penetrate the Medicare market enough to represent more than 50% of beneficiaries. That was supposed to be far in the future, though, perhaps in 2030.
Instead, MA eclipsed that 50% mark this year. Jacobsmeyer now believes that there will be closer to 70% MA penetration by the decade’s end.
That will make the MA contracts that Enhabit has made already even more necessary, but will also make its payer innovation team an even more crucial part of the plan moving forward.
On the first quarter earnings call, the company announced that it had struck a deal with a national payer, effective May 1, as well as two conveners with national footprints.
Now, it is at least in a position where it can prioritize patients from plans that it has already negotiated deals with.
“[With] us making progress with some of the other payers,” Jacobsmeyer said. “We can kind of deprioritize [others] so that they feel access issues that really get them to take things more seriously.”
As for whether other home health public company exits have resulted in tailwinds for the company already, Jacobsmeyer said she had not seen that yet.
“I think a lot of it is because, again, it’s such a fragmented industry, right?” she said. “So even though they’re large, it’s still – in any given market – just one of a large number of different providers.”
Future inorganic growth
With the focus on the labor environment – which Enhabit said is improving – as well as MA contracts, inorganic growth has been somewhat backburnered.
On the M&A front, the issue has been two fold: external market factors, but also a gap between buyer and seller price expectations.
“I think that M&A continues to be an important part of our growth strategy,” Enhabit CFO Crissy Carlisle said. “We certainly continue to have an active development department. We have incoming calls, we have outgoing calls. But it’s a matter of finding an attractive asset at an appropriate price. And so we’re being very disciplined in that regard.”
Enhabit did complete an acquisition of an Evansville, Indiana-based home health provider in March. It paid “about $3 million for it,” Carlisle said, and “got it at a 5x EBITDA multiple.”
“That seller was very aware that we were willing to walk, so that’s what happens when you have that friction and somebody is really in the market to sell,” she continued.
In regards to de novo strategy, Enhabit is more focused on hospice there for the time being. That’s due to there being “less uncertainties” right now in hospice compared to home health care, according to Carlisle.
One of those uncertainties is the looming proposed payment rule for CY2024 in home health care. That is expected to come within the month.
Jacobsmeyer believes that the second half of the behavioral adjustment cut will be proposed for 2024. The first half was applied for 2023 and was met with great pushback from the home health industry.
In the proposed rule for 2023, the Centers for Medicare & Medicaid Services (CMS) also teased potential payment clawbacks for past overpayments.
Jacobsmeyer does not believe those clawbacks will be a part of this year’s payment rule proposal, however.
“We see those potentially being pushed out there a little bit, because it would be a lot for the industry to sustain the other half of the behavioral adjustment and any sort of clawbacks in 2024,” she said.
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