Enhabit Inc. (NYSE: EHAB) has been active in the value-based care space. The company has a small – but growing – number of value-based contracts on the Medicare Advantage (MA) side, as well as Accountable Care Organization (ACO) partnerships.

“Typically these look like upside potential based on quality metrics that both parties agree to, and we try to pick those quality metrics that are going to lower the total cost of care of patients,” Debra Konjanovski, senior vice president of payor innovation at Enhabit, said last month during a panel discussion at Home Health Care News’ FUTURE conference. “If we perform, then we have an opportunity to have some shared savings in that.”

Dallas-based Enhabit has 256 home health locations and 112 hospice locations across 34 states.

For the past few years, payer innovation has been a major component of Enhabit’s overall strategy.

At Bayada Home Health Care, value-based care is another tool that allows the organization to deliver quality care, according to Sue Chapman Moss, managing director of payer and provider contracting and strategy at the company.

“There’s a tendency towards price suppression in our category, and so value-based care is a way to differentiate, and to be able to share the performance that we’re already creating for our patients in their homes,” Moss said during the discussion.

Bayada provides home health, home care and hospice services in 23 states, as well as in Canada, Germany, India, Ireland, New Zealand, South Korea and the U.K.

Currently, Bayada has value-based arrangement partnerships with payers, ACOs and health systems.

“We’re working with partners … that are willing to make an investment in our caregivers,” Moss said. “The contracting structure is probably the least interesting factoid of our value-based care. It’s how we’re spending the dollars, and investing in our workforce, that we’re most pleased with.”

Moss believes that not diving into value-based care would be a missed opportunity for Bayada.

“If you believe in your care model, what you’re doing in the home is creating value,” she said. “If you’re not working with your payers to secure a portion of that value, and you’re just taking fee-for-service rates, all of that value is dropping 100% to the bottom line of the payer, or the risk bearing provider. We view it as part and parcel to securing better value and being able to hire caregivers and invest in great training.”

Key metrics and navigating challenges

Though it varies depending on the payer, there are some key metrics that home-based care providers should be ready to present when trying to establish value-based care arrangements.

“If you’ve met one payer, you’ve met one payer,” Integrated Home Care Services CEO Chris Bradbury said during the discussion. “Even within the payer, depending upon the line of business, whether it’s [MA], managed Medicaid or the commercial line, the ranking of the priorities differ. [However], there are some things that cut across all of them. Timely access to quality of care is super important, no matter who you’re talking to within the payer, whether it’s the network folks, the clinical folks, the finance folks or the line of business leaders for [MA], manage Medicaid or commercial.”

Integrated Home Care Services is a driver of value-based care in the home. The company partners with health plans, providers and other risk-bearing provider organizations.

Bradbury noted that providers should also be prepared to present patient experience metrics.

“With the changes in star ratings, I know our health plan clients that participate in [MA] are far more attuned to the patient experience, and how what you do can either positively or negatively impact their brand,” he said. “It can have a material impact on their financials and their growth.”

Konjanovski pointed out that providers sometimes face the challenge of finding the right person to talk to within the organization that it is trying to establish a value-based arrangement with.

“At times, it’s hard to find the right person in the organization that you need to talk to that can actually make the decision, and then once the decision is done and it’s on paper, actually executing it is a very long process,” she said.

It’s important for providers to recognize when an organization isn’t ready to fully commit to entering a value-based arrangement, according to Moss.

“Not all payers are ready,” she said. “If they’re struggling to pay claims and focused on audits and utilization management, that does not signal an organization that’s ready for your team to invest a lot of time and energy into a value-based arrangement.”

Ultimately, it’s best for providers to enter arrangements with organizations that want to establish a long-term partnership.

“[Find] payers who are willing to make a multi-year commitment,” Moss said. “These are not easy, one-year deals, and so you need to find partners that are willing to put in the time and the energy. Value-based arrangements take some time to get right and to learn together. If you have an adversarial negotiation, sometimes that doesn’t necessarily lend itself to a collaborative relationship at the end, so you always need to keep that in mind as you’re going through the process.”

The post How Enhabit, Bayada Win Home Health Value-Based Care Arrangements appeared first on Home Health Care News.

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%.”

The post Enhabit CEO Explains The Decision To Walk Away From UnitedHealthcare appeared first on Home Health Care News.

There are certain headwinds affecting all home-based care providers right now, whether it be in payment, staffing or otherwise. Amid those challenges, the largest companies are all taking slightly different approaches to growth.

Enhabit Inc. (NYSE: EHAB), for instance, grabbed the attention of home health providers everywhere last week when it announced that it had terminated its contract with UnitedHealth Group’s (NYSE: UNH) UnitedHealthcare. That move fell in line with its overarching “payer innovation” strategy.

Aveanna Healthcare Holdings Inc. (Nasdaq: AVAH) is also focusing on its “preferred-payer” strategy, which includes drawing a hard line on rates – as Enhabit is doing – but also advocating for proper reimbursement from states in home- and community-based services (HCBS).

Leaders from Amedisys Inc. (Nasdaq: AMED) have been quiet over the last year, given the pending UnitedHealth Group acquisition. But, when it comes to its payer strategy, the company’s numbers tell a story worth paying attention to.

Elsewhere, Addus Homecare Corp. (Nasdaq: ADUS) is taking advantage of the headwinds. High interest rates and payment uncertainty across home-based care has led to a slow M&A market, allowing the company to pounce on acquisition targets with little competition.

The Pennant Group (Nasdaq: PNTG) has done the same.

All of the aforementioned companies’ strategies differ to some extent, and yet all are in place to achieve growth during a somewhat turbulent time for home-based care.

What’s behind those strategies is the topic of this week’s exclusive, members-only HHCN+ Update.

Finding the right payers

Aveanna and Enhabit are both trying to turn around their businesses. Each saw their share price tumble after going public, and each has addressed that issue – at least in part – by revamping their payer strategies.

Enhabit’s payer innovation strategy has been well documented, and I covered its decision to walk away from UnitedHealthcare in last week’s HHCN+ Update.

“After over nine months of unsuccessful negotiations with UnitedHealthcare, we submitted our termination notice on August 1,” Enhabit CEO Barb Jacobsmeyer said last week. “We will dedicate our clinical resources to fee-for-service Medicare patients, and those members of the 68 favorable contracts. We remain committed to providing our strong quality of care to UnitedHealthcare members, if at some point they decide to contract with acceptable rates.”

Similar to Enhabit, Aveanna is taking back its most vital resource: frontline workers.

“By focusing our clinical clinical capacity on our preferred payers, we achieve solid year-to-year growth in revenue and adjusted EBITDA,” Aveanna CEO Jeff Shaner said on the company’s second-quarter earnings call. “We also experienced improvement in our caregiver hiring and retention trends by aligning our efforts to those payers willing to engage with us on enhanced reimbursement rates and value-based agreements. While we continue to operate in a challenging labor and inflation environment, our preferred payer strategy allows us to return to a more normalized growth rate in our business segments.”

Aveanna posted solid year-over-year growth in all three of its segments – private-duty services, home health and hospice, and medical solutions – in the second quarter.

Enhabit has touted its 68 “favorable” non-Medicare agreements. Aveanna, too, is taking stock of the payers and states that are willing to pay it an adequate rate for home-based care services.

Aveanna said that no single payer makes up more than 10% of its business, which lends itself to a healthy business. At the same time, that means work is cut out for the company when it comes to renegotiating higher rates for services.

As seen above, Aveanna is set to triple and nearly triple its preferred payers and value-based care arrangements, respectively, by the end of 2024.

Traditionally, one concern in home-based care has been that at least one provider will be willing to accept substandard rates, making negotiations for the rest of providers tougher.

Now, though, the larger companies are leading by example.

“As we continue to grow, we are accelerating our preferred payer strategy and medical solutions by aligning our capacity with those payers that value our services and appropriately reimburse us for the care we provide,” Aveanna CFO Matt Buckhalter said on the call. “We continue to fight through a difficult labor environment while keeping our patients’ care at the center of everything we do. It is clear to us that shifting caregiver capacity to those preferred payers who value our partnership is a path forward.”

Amedisys is likely to be joining a payer itself by year end. But it has clearly been focused on winning better MA business over the last couple of years. In the second quarter, its non-Medicare home health revenue grew by 24% year over year.

Another study published this week suggested that MA members utilize home health care less than their traditional Medicare counterparts. While there’s likely a lot of reasons for that, it’s probably not a good long-term strategy for MA plans to cheap out on home health care, an essential and less costly service.

‘Bold’ M&A

One of the other most enlightening admissions of this past earnings season came from Addus, which suggested its recent M&A activity was partly made possible by less competition – particularly of the private equity variety.

Last year, Addus acquired Tennessee Quality Care for $106 million, enhancing its value-based care capabilities in the state. This year, it agreed to acquire Gentiva’s personal care assets for $350 million, allowing it to enter multiple new states.

Over the past two to three years, M&A has reached historical lows in the home-based care space. Activity across home health care, home care and hospice has fallen off a cliff since there was the flurry of activity in 2020 and 2021.

“Realistically, over the last 12 to 18 months, we’ve not seen a lot of competition out there,” Addus CEO Dirk Allison said on the company’s second-quarter earnings call. “There’s been the occasional smaller strategic player that’s bought a few deals on a localized basis. From a PE standpoint, it’s really been very slow as far as competition for the last bit. Now, obviously, if rates come down in September, as everybody’s expecting, there’ll be a point where PE will come back in and that’s fine. It’s been a market in which up until the last year or so, we’ve always operated with competition from those folks.”

The Pennant Group (Nasdaq: PNTG) has joined Addus in bucking the downward M&A trend. It has executed a slew of transactions over the past couple of years, including a large deal for Signature Healthcare assets in its current footprint, as well as a deal that will place it on the East Coast for the first time.

“This period of expansion provides insight into our potential as a provider of choice in our local communities, a best-in-class operator across our industries and a disciplined – yet bold – growth company with the sophistication and adaptability to become a key solution in the health care continuum,” Pennant Group CEO Brent Guerisoli said on the company’s second-quarter earnings call. “Since the beginning of the year, we have entered into the Muir Home Health joint venture; closed an additional two home health and two hospice transactions; initiated a management agreement with Hartford HealthCare; announced the largest acquisition in our history with the Signature transaction; and completed three senior living deals.”

Most of the largest home-based care providers recognize the need for two things in this market: better contracts with all managed care partners, and scale that will allow them to sustain success in the face of stroke-of-the-pen risk.

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Enhabit Inc. (NYSE: EHAB) CEO Barb Jacobsmeyer said Wednesday that the company would terminate its contract with the country’s largest Medicare Advantage (MA) payer, UnitedHealth Group’s (NYSE UNH) UnitedHealthcare.

UnitedHealthcare accounts for 9.4 million MA beneficiaries, or 29% of all enrollees, according to the Kaiser Family Foundation. Humana Inc. (NYSE: HUM), which is the second-largest MA payer, only owns 18% of the market, for context.

It’s hard to overstate how large of a strategic gamble this is for Enhabit. On one end, you can’t “negotiate” for better contracts if you’re unwilling to walk away from a bad one. On the other end, as Enhabit tries to build up its non-Medicare revenue (or MA revenue), reducing access to members of the country’s largest payer comes with inherent risks.

Broadly, Enhabit has been adjusting its revenue mix over the last couple of years to become a better partner to referral sources and set itself up for the future. When it spun off of Encompass Health (NYSE: EHC), close to 80% of its business was tied to traditional Medicare. Now, that number is closer to 60%.

As it takes on more MA – which now insures about 54% of Medicare beneficiaries – its goal is to mostly take care of patients under its improved (“payer innovation”) contracts. Over the last two years, Enhabit has been renegotiating contracts with MA plans, aiming to get higher rates, or at least higher-upside agreements.

UnitedHealthcare clearly fell short during negotiations.

“As we look to the future, the quickest way to get the majority of our non-Medicare business to the payer innovation contracts is to continue to focus on referrals within the payer innovation contracts, negotiate improved rates with non-payer innovation contracts, and, when necessary, terminate the lower reimbursing contracts,” Jacobsmeyer said Wednesday on the company’s second-quarter earnings call. “After over nine months of unsuccessful negotiations with UnitedHealthcare, we submitted our termination notice on August 1. We will dedicate our clinical resources to fee-for-service Medicare patients, and those members of the 68 favorable contracts. We remain committed to providing our strong quality of care to UnitedHealthcare members, if at some point they decide to contract with acceptable rates.”

Enhabit putting its foot down on UnitedHealthcare, and what it means for itself and the home health industry at large, is the topic of this week’s exclusive, members-only HHCN+ Update.

Putting a foot down

Enhabit said that moving away from UnitedHealthcare is squarely in line with its overall payer innovation strategy.

“In quarter one of 2023, 58% of admissions were in combined Medicare fee-for-service and payer innovation contracts, which left 42% of admissions in unfavorable contracts,” Jacobsmeyer explained. “In 2024, the percent of admissions in Medicare fee for service and payer innovation contracts has grown to 71%. This will continue to accelerate with the recent decision to terminate this national agreement.”

The Dallas-based Enhabit is one of the largest home health providers in the country. In total, it has 256 home health locations and 112 hospice locations across 34 states.

Capacity is the most cherished part of home health operations. Staffing is a barrier to growth, so what companies do with the staff they do have is of utmost importance.

It also happens to be providers’ best bargaining chip. Providers don’t want to leave home health-needy patients in the middle of contract wars, but MA members need home health access, and providers can take that away from plans.

With home health access dwindling – due to MA penetration and fee-for-service rate cuts – MA plans need reliable home health partners. They need to enable easy transitions from the hospital to the home, avoiding referral rejections when they can.

Enhabit’s termination of the UnitedHealthcare contract, and its coinciding public announcement of that, has drawn significant attention from Home Health Care News readers.

Providers have complained that, while UnitedHealth Group recognizes the value of home health care – considering its acquisition of LHC Group and its pending acquisition of Amedisys Inc. (Nasdaq: AMED) – it does not show it through UnitedHealthcare’s home health rates.

A move like this, from a provider as large as Enhabit, may serve as a wake up call to UnitedHealthcare. It will definitely serve as a point of reference and confidence for home health providers that are considering walking away from bad contracts themselves.

“As a regional provider of home health services, we had to look at those margins and how we best deploy our nurses and our therapists,” Jet Health’s then-CEO Stacie Bratcher said last January. “We were under water with one of our large providers. We had to decide, do we stay in-network with some really poor rates that were under what our per-visit rate was, or do we exit?”

Even if payers recognize the value of home health care, the departments that negotiate rates are sometimes incentivized to keep low rates in place. Jacobsmeyer has explained this dynamic on earnings calls before.

The current home health payment environment has providers turning every stone, looking for ways to keep a viable bottom line.

At some point, the juice is not worth the squeeze on bad MA contracts – both for struggling, smaller providers and for larger ones like Enhabit, which finally has better deals in place elsewhere.

“A year or so ago, we would not have been in the position to terminate that contract,” Jacobsmeyer said. “But now, with 68 agreements, including two national agreements, we feel confident that we’re going to be able to replace that census. Our current non-Medicare conversion rate is only at 48%, so we do have some non-Medicare that we don’t convert. So it’s really now going to be about replacing that census over this notice period.”

The post What Comes Next After Enhabit’s UnitedHealthcare Contract Termination appeared first on Home Health Care News.

That decision, and the recent home health proposed payment rule, were top of mind for Enhabit leaders on Tuesday.

Specifically, Enhabit President and CEO Barb Jacobsmeyer expressed the company’s support for the Preserving Access to Home Health Care Act, which would help stop payment cuts.

“The National Association for Home Care & Hospice and the Partnership for Quality Home Healthcare have continued to work with our congressional allies to streamline the focus of the bill and draft offsets that would provide pay-fors,” she said during the company’s second-quarter earnings call on Wednesday. “We understand that important committee stakeholders are working to score the legislation and pay-fors. We remain actively engaged with our trade associations, and the industry on these advocacy efforts.”

Dallas-based Enhabit has 256 home health locations and 112 hospice locations across 34 states.

The proposed payment rule, which was released at the end of June, includes a permanent prospective adjustment to the 2025 home health payment rate of -4.067%.

Aside from Enhabit’s focus on home health payment cut, payer innovation in MA continues to be a significant priority for the company. Jacobsmeyer credits its strategy in this area, as well as improved utilization of clinical resources, for the company’s 6.4% growth in total admissions.

“Our payer innovation strategy continues to succeed with our field team successfully shifting admissions out of historically lower paying contracts to better paying contracts that recognize our better way to care,” Jacobsmeyer said. “In quarter one of 2023, only 6% of non-Medicare visits were in payer innovation contracts. That rate grew to 43% in quarter two 2024. This shift into payer innovation contracts is driving an increase in non-Medicare revenue per visit, and equally as important, demonstrates our commitment to relationships with payers who understand the value of our care.”

Jacobsmeyer noted that the fastest way to get the majority of Enhabit’s non-Medicare business to the payer innovation contracts will be to continue to focus on referrals within the payer innovation contracts, negotiate improved rates with non-payer innovation contracts and to terminate lower reimbursing contracts when necessary.

With this in mind, Jacobsmeyer revealed that Enhabit has recently presented UnitedHealthcare with a termination notice.

“After over nine months of unsuccessful negotiations with UnitedHealthcare, we submitted our termination notice on August 1,” she said. “We will dedicate our clinical resources to fee-for-service Medicare patients, and those that are members of the 68 favorable contracts. We remain committed to providing our strong quality of care to United Healthcare members, if at some point they decide to contract with acceptable rates.”

Given that Enhabit has 68 agreements, including two national agreements, the company feels confident in its ability to replace this census, according Jacobsmeyer.

During the call, Jacobsmeyer also addressed Crissy Carlisle moving on from her role as Enhabit’s CFO.

“We are grateful for Crissy’s important contributions to Enhabit,” she said. “Since our spin-off from Encompass, I’ve enjoyed working side by side with her and witnessed firsthand her passion for Enhabit’s mission and her deep commitment to all our stakeholders. She has played a large role in helping the company achieve stability across the business and position our organization for growth. Most importantly, Crissy has been an incredible partner and true friend, and I look forward to her continued leadership, as we search for her successor.”

In Q2, Enhabit’s net service revenues were $260.6 million, a 0.6 % decrease compared to the same period last year.

Home health revenue saw a 12.7 % year-over-year decrease. The company’s home health revenue checked in at $121.7 million, compared to $139.4 million in Q2 2023.

The post Enhabit Walks Away From UnitedHealthcare After ‘9 Months Of Unsuccessful Negotiations’ appeared first on Home Health Care News.

Carlisle has been the chief financial officer of Enhabit since it spun off from Encompass Health Corp. (NYSE: EHC) in 2022. The company has initiated a search to find her replacement.

“Crissy has made important contributions to Enhabit since we became a public company just over two years ago,” Enhabit President and CEO Barb Jacobsmeyer said in a statement. “Her deep commitment to our employees, patients, partners and stockholders, as well as her insights and financial acumen, have contributed to the Company achieving stability across the business and positioning our organization for growth. I am grateful for Crissy’s partnership and look forward to her continued leadership as we search for her successor.”

Based in Dallas, Enhabit has 256 home health locations and 112 hospice locations across 34 states.

The company wrapped up a strategic review earlier this year, electing to remain a standalone, public company. Afterward, it received continued pressure from the activist investor AREX Capital Management, which has been displeased with its financial underperformance.

AREX Capital successfully got one board nominee elected to Enhabit’s board at the end of July.

“It has been a privilege to work alongside our leadership team and help lead Enhabit during its infancy as a public company,” Carlisle said in a statement. “I am proud of what we have accomplished together, including standing up a finance organization and enhancing and fortifying our control environment, all while delivering excellent care to our patients. Enhabit is well positioned for success and value creation. Having accomplished many of my professional goals here, I believe now is the right time to take on a new challenge. I look forward to supporting a seamless transition.”

Enhabit will present its second-quarter earnings results on Wednesday morning.

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To be the beneficiaries of an overwhelming amount of home health demand, providers have to take on a larger share of Medicare Advantage (MA) patients. In the short-term, that doesn’t come off as a financially shrewd strategy, but it makes sense from a long-term perspective.

Last week, I wrote about a potential “leveling off” of MA penetration across the U.S., which could offer a respite to providers. I made sure to mention, however, that a leveling off would not mean that providers are free from the changes that MA penetration has brought, and is bringing.

Even with MA penetration potentially leveling off, and even with MA rates being substandard, contemporary home health growth requires taking on a diverse group (by payer) of patients.

Leaders with Enhabit Inc. (NYSE: EHAB) has explained this reality ad nauseam, though their explanation has at times fallen on deaf ears. The company came onto the public market with the majority of its home health revenue – close to 80% – coming from Medicare fee for service. Since then, over the last two years, it has gotten that down to close to 60%.

That has hurt its bottom-line in the interim, given the aforementioned fact that MA plans pay less for services. But it was still necessary, or at least in line with a particular strategy.

“It became clear that patients were trending from traditional fee-for-service Medicare, the more profitable payer, to Medicare Advantage plans more quickly than the industry as a whole anticipated,” Enhabit wrote in defense of its payer innovation strategy recently. “At that time, traditional Medicare made up approximately 75% of Enhabit’s total Home Health revenue. Furthermore, referral sources needing to service a mix of Medicare and Medicare Advantage patients were seeking providers that would take all patients. As a result, not only were we not growing, but we were also losing Medicare fee-for-service business we had because we were not seen as ‘full service.’”

The company is not alone, either. If you look at the last two years, the largest home health companies have all demonstrated strong reactions to the MA problem.

In this week’s exclusive, members-only HHCN+ Update, I explain the Catch-22 that home health providers face when they take on more MA patient referrals.

The public market and MA

Enhabit has been at odds with the activist investor AREX Capital Management – which owns 4.9% of Enhabit’s outstanding common shares – for over a year now. One of AREX’s chief complaints was how quickly Enhabit took on more MA patients.

On Thursday, AREX Capital won a seat on Enhabit’s board.

But if Enhabit, after it spun off of Encompass Health (NYSE: EHC), tried to maintain a mix tilted heavily toward fee-for-service Medicare, it likely wouldn’t have been taken seriously as a referral partner in most markets moving forward.

As the company explained, referral partners don’t want home health partners that are picky and choosy about the patients they take.

“Rather than gradually normalizing its payer mix by growing Medicare Advantage volumes in a controlled manner while protecting its existing Medicare fee-for-service (‘FFS’) market share, Enhabit allowed a precipitous drop in its substantially more profitable FFS volumes,” AREX Capital wrote in June. “The sharp decline in FFS volumes was significantly out of proportion with any underlying decline in FFS beneficiaries. While FFS beneficiaries nationwide shrank by ~7% from 2021 to 2023, we estimate Enhabit’s FFS admissions declined by more than 20% during that period.”

AREX Capital also compared Enhabit’s performance to that of Amedisys Inc. (Nasdaq: AMED), which is largely unfair. Amedisys is a longtime independent and public home health company, while Enhabit still only has two years under its belt.

The activist investor certainly does have some warranted gripes, given the fact that Enhabit’s stock price has dropped by nearly 60% since its first day on the public market in the summer of 2022.

But when it comes to Amedisys, its non-Medicare revenue (not fee for service) revenue actually suggests that it is in line with Enhabit on the issue.

In its second-quarter earnings, Amedisys’ non-Medicare revenue increased by 24% year over year. Since the second quarter of 2022, Amedisys’ non-Medicare home health revenue has gone from $118.2 million to $161.3 million, an over 36% increase. Overall home health revenue, comparatively, has increased by just about 11%.

Amedisys is in the process of being acquired by UnitedHealth Group’s (NYSE: UNH) Optum. As tailwinds started at the back of the home health industry – before and after the pandemic hit – it planned to remain a standalone company and to benefit from those.

Two years ago, Amedisys changed its tune. That was likely due to not just fee-for-service cuts, but also MA penetration – and all that comes with it. Headwinds began competing with the tailwinds.

Amedisys followed in the footsteps of LHC Group, which was the largest home health provider left on the public market before it was acquired by Optum in February 2023.

Later on, Keith Myers, the longtime LHC Group CEO – and now CEO Emeritus and a senior advisor at Optum – admitted that the company was also feeling the pressures of those headwinds.

With more MA referrals coming its way, it wasn’t able to care for all of the patients it wanted to.

“The … growing number of patients that we weren’t able to provide care to,” Myers said, explaining why the deal made sense. “We recognized that more quickly than a lot of providers, just because of the referrals we got from hospitals. We had a much higher percentage of managed care referrals coming our way. And we didn’t have the resources to care for those patients, and we wanted to care for them. And the hospitals need us to care for them.”

That’s precisely what Enhabit is arguing. While it’s taking on more MA patients, it’s also fighting hard to get better rates. But, without taking on more MA patients, there’s limited referral partners to work with and limited room for growth.

“If you aren’t able to provide care — you can’t grow the company,” Myers added.

In most other industries, companies are going toward the money. In home health care, companies are in a unique position.

They need to go where the money is not, in order to survive.

The post Trapped In Medicare Advantage Catch-22, Home Health Providers Must Go Where The Money Is Not appeared first on Home Health Care News.

During Enhabit’s annual meeting of stockholders on Thursday, the company’s stockholders voted to elect eight of Enhabit’s director nominees, as well as Mark W. Ohlendorf, a nominee proposed by AREX Capital, the activist investor.

Current Enhabit CEO Barb Jacobsmeyer was also among the director nominees.

New York-based hedge fund AREX Capital owns 4.9% of Enhabit’s common shares. The hedge fund has been openly critical of Enhabit’s direction as a company.

Specifically, AREX Capital spoke out against the company’s board decision to remain an independent public company, and not to pursue a sale or merger, following its strategic review.

“We are disappointed that Enhabit’s strategic review process has concluded without a sale of the company,” AREX Capital wrote in a press statement in May. “We do not believe that this failure reflects Enhabit’s intrinsic value or strategic potential. Rather, this failure lies with Enhabit’s board.”

At the end of May, AREX Capital released a letter which reiterated its issue with Enhabit’s board of directors.

“We believe that it should be clear to the board that a significant reconstitution of its membership is required and warranted,” the hedge fund wrote. “A Board that has presided over a more than 60% decline in the company’s share price over a two-year period, in our view, should have the humility to acknowledge that it cannot and should not continue in its current form.”

Jacobsmeyer addressed this letter during her appearance at Leerink Partners Healthcare Crossroads conference in May.

“We have a strong, very experienced board of directors that have helped us navigate these waters over the last couple of years,” she said. “We’re really confident in the future and with the leadership of our board.”

In June, Enhabit defended itself again ahead of the annual meeting of stockholders.

“AREX’s public statements contain numerous mischaracterizations, cherry-picked time periods and misleading assertions, which we will address in future communications,” Enhabit wrote. “However, we wholeheartedly agree with AREX on the following: ‘The only thing that matters now is setting the Company on a path that will unlock Enhabit’s substantial value for all stockholders.’”

That same month, AREX Capital released a six-page letter in response.

“The last two years have not been easy for the home health and hospice industries, but Enhabit’s peers have demonstrated an ability to navigate these challenges without substantially reducing their profitability. While peers caught colds, Enhabit caught pneumonia,” AREX Capital wrote. “We believe Enhabit’s significant underperformance versus peers is a direct result of the Board lacking the necessary industry expertise to hold management accountable.”

In July, Institutional Shareholder Services (ISS) – an independent proxy advisory firm – backed AREX Capital, recommending that shareholders vote for three of AREX Capital’s nominees.

These nominees were Anna-Gene O’Neal, the previous president of Brookdale Senior Living’s (NYSE: BKD) health care services division, Mark W. Ohlendorf, former CFO of Brookdale, and Dr. Gregory S. Sheff, the previous head of home solutions at Humana Inc. (NYSE: HUM).

“We are pleased that a leading independent proxy advisory firm has recognized the lack of home health and hospice industry expertise on Enhabit’s Board and validated our case for meaningful boardroom change by recommending that stockholders vote for Anna-Gene O’Neal, Mark W. Ohlendorf and Dr. Gregory S. Sheff at the upcoming Annual Meeting,” AREX partners said in a press statement at the time. “We also appreciate that ISS has acknowledged that stockholders may wish to add a direct stockholder voice to the Board by voting for James T. Corcoran.”

Indeed, it’s been a rocky road to the Enhabit’s annual meeting of stockholders. One that’s not completely over just yet. The independent inspector of elections still needs to certify the results of the votes.

When the votes are finalized, directors will each serve a term of one year that is set to expire in 2025.

All in all, Enhabit avoided a takeover of its board. At the same time, AREX Capital was able to make a dent with its at least one of its board nominations.

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The company released an early snapshot of its second-quarter earnings on Monday, ahead of the full, audited release of earnings on Aug. 6.

Of Enhabit’s non-Medicare visits, 43% are now under payer innovation contracts at “improved rates,” according to the company. That’s a 5% increase from the first quarter, when just 38% of visits took place under revised, improved contracts with MA plans.

Additionally, Enhabit reported that EBITDA will fall in the range of $24.5 million to $25 million, and bank debt has been reduced by $15 million.

“The strong start to 2024 extended in Q2 as our teams successfully executed on our operational strategies,” Enhabit CEO Barb Jacobsmeyer said in a statement. “In our home health segment, our 6.4% year-over-year increase in admissions continues to be driven by non-Medicare admissions, and our teams are doing a good job managing our visits per episode and creating additional capacity for growth.”

Based in Dallas, Enhabit is one of the largest home health providers in the country. In total, it has 255 home health locations and 112 hospice locations across 34 states.

In 2024, Enhabit has been going back and forth with the activist investor AREX Capital Management, which is hoping to replace Enhabit’s current board.

Enhabit also said that it has achieved sequential growth in its hospice segment for five straight months.

“Overall, the second quarter of 2024 is on track to mark Enhabit’s third consecutive quarter of business stabilization and successfully positioning the Company for profitable growth,” Jacobsmeyer said. “This momentum underscores the strength of our strategy, disciplined approach to debt reduction and commitment to stockholder value creation.”

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AREX Capital Management – which owns 4.9% of Enhabit’s outstanding common shares – has been challenging Enhabit’s strategic direction for more than a year. Initially, the activist investor urged Enhabit to undergo a strategic review after financial underperformance.

After that strategic review ended without a sale, AREX Capital Management turned its attention to replacing Enhabit’s board. It subsequently put forth seven board nominees.

Enhabit, on the other hand, has urged shareholders to vote for its own board nominees at the August annual meeting.

On Thursday, Institutional Shareholder Services (ISS) – an independent proxy advisory firm – recommended that shareholders vote for three of AREX Capital’s nominees: Anna-Gene O’Neal, Mark W. Ohlendorf and Dr. Gregory S. Sheff.

Ohlendorf is the former CFO of Brookdale Senior Living (NYSE: BKD), and O’Neal was the president of Brookdale’s health care services division. Sheff previously was the head of home solutions at Humana Inc. (NYSE: HUM).

ISS sided with Arex Capital’s assertion that Enhabit’s current board needed more home health and hospice experience. It also argued that the company’s board needed more public company financial reporting experience.

“We are pleased that a leading independent proxy advisory firm has recognized the lack of home health and hospice industry expertise on Enhabit’s Board and validated our case for meaningful boardroom change by recommending that stockholders vote for Anna-Gene O’Neal, Mark W. Ohlendorf and Dr. Gregory S. Sheff at the upcoming Annual Meeting,” AREX partners said in a statement. “We also appreciate that ISS has acknowledged that stockholders may wish to add a direct stockholder voice to the Board by voting for James T. Corcoran.”

AREX Capital still urged shareholders to vote for its full slate of nominees.

Enhabit, on the other hand, continued to urge shareholders to vote for its own nominees.

In reality, ISS acknowledged some of AREX Capital’s gripes were valid, while also backing Enhabit on a few of its points of defense.

“The most apparent needs for the board include experience in home health and hospice, as well as additional financial expertise given the company’s issues with financial reporting and investor communications,” ISS wrote. “On balance, we find that the addition of three dissident nominees would allow for a strong contingent of new candidates with an outside perspective.

It then pointed to two recent and “promising” Enhabit quarters.

“The board has been receptive to investor input, reaching a settlement with two shareholders and adding two directors in 2023, and running a public sales process as requested by the dissident,” ISS continued. “The board has also demonstrated some openness to a settlement with the dissident. These factors, along with the dissident’s prior intense focus on a sale of the company, suggest that majority change at the board level may not be necessary at this point, even if the addition of industry-relevant expertise may be beneficial.”

Enhabit has released materials to shareholders explaining why it believes its current path should continue to be adhered to.

“Enhabit has just passed its two-year anniversary as a public company following its separation from Encompass Health Corporation,” the company wrote in a statement. “During that period, in the face of substantial industry and company-specific headwinds, our Board and management team stabilized Enhabit’s business and built the necessary infrastructure to enable stockholder value creation as a separate public company. We are pleased that ISS recognizes our performance over the last two quarters and agrees with the Company that shifting course now and handing control of the Board to AREX is not in the best interests of the Company’s stockholders.”

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