Enhabit Inc. (NYSE: EHAB) revealed last month that it had submitted a termination notice to UnitedHealth Group’s (NYSE: UNH) UnitedHealthcare.
Now, members of Enhabit’s leadership team are divulging more details about how the company, ultimately, came to this strategic decision.
“It’s important to remember that the reason we created are payer innovation strategy, about two years ago, was because at that time we had United as a large payer and then a few regional smaller contracts that had come along with acquisitions over the years,” Enhabit CEO Barb Jacobsmeyer said during a discussion at the 2024 Wells Fargo Healthcare Conference Thursday. “Those combined contracts had us at about a 40% discount to Medicare. Obviously, that’s not sustainable. We started the payer innovation strategy to have more and better contracts.”
Dallas-based Enhabit has 256 home health locations and 112 hospice locations across 34 states.
Jacobsmeyer explained that the reason Enhabit was able to walk away from UnitedHealthcare was because its payer innovation strategy positioned them to land 68 new contracts, two of which are large national contracts.
The company had been attempting to negotiate with UnitedHealthcare since last year.
“Our contract was up for renewal in February this year,” Jacobsmeyer said. “It auto-renews without notice. Unfortunately, after that amount of time and being unsuccessful, we made the decision, because frankly, now we do have the ability and the access to fill that capacity with better-paying contracts.”
Enhabit leaned on its high-quality outcomes, particularly the company’s low rehospitalization and readmission rates, to negotiate with payers and land better rates, according to Jacobsmeyer.
“Those are successfully negotiated at a zero to 25% discount versus that historic 40% discount,” she said.
During the conversation, Jacobsmeyer also touched on the potential impact of the proposed payment rule for home health care, and Enhabit’s exposure to Medicare reimbursement pressure in 2025 and beyond.
“If you look at today, the proposed rule for 2025 actually comes out with about a -1.7% pricing for home health for the industry next year,” she said. “Based on our patient mix and the wage index impact for us, we’re estimating about -1% for next year. If history repeats itself, we do anticipate that the final rule will be better, meaning a better market basket adjustment, and maybe cutting that permanent adjustment in half.”
Additionally, Jacobsmeyer shared how Enhabit has been navigating the current labor market.
Enhabit’s focus on recruitment and retention enabled the company to eliminate all contract labor for home health and hospice nursing by the end of last year.
“We’re kind of back to almost normal, of about a 3% wage increase,” Jacobsmeyer said. “Now we do have some markets that we will need to do market adjustments. The Northeast in particular has been kind of a challenging market this year, but we feel even with those market increases in some markets, we’re going to be able to manage around that 3%.”
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