Encompass Health Building MA Momentum, Still Exploring ‘Strategic Alternatives’ for Home Health Business

Encompass Health Building MA Momentum, Still Exploring ‘Strategic Alternatives’ for Home Health Business

All eyes have been on Encompass Health Corp. (NYSE: EHC) since the company first announced it would be “exploring strategic alternatives” for its home health and hospice segment in December.

At the time, Encompass Health said it was exploring a number of options for its home health and hospice business. Specific options cited by the Birmingham, Alabama-based company included a complete or partial separation through an initial public offering, merger, spin-off or sale.

“Being one of the top providers in the nation, as measured by both our financial results and our quality outcomes, allows us to consider a wide array of transactions and structures,” Mark Tarr, president and CEO of Encompass Health, said during a Q4 earnings call on Wednesday.

Currently, Encompass Health delivers both facility-based and home-based care to patients across 137 hospitals, plus a combined 325 home health and hospice locations in the U.S.

Apart from that previous comment, industry insiders seeking more insight into Encompass Health’s future home health and hospice plans will have to wait a little longer for answers.

“The strategic review for our home health and hospice segment is ongoing,” Crissy Carlisle, the company’s chief investor relations officer, said during the call. “Our board of directors has made no decision. Accordingly, our 2021 guidance and our longer-term growth targets assume the continuation of the current structure of our business.”

Apart from exploring strategic alternatives, Encompass Health is also working on deploying a new quality-reporting tool for its home health operations while maintaining strong margins despite COVID-19 related challenges. It is likewise focused on the execution of a new national home health contract with UnitedHealthcare (NYSE: UNH).

Moving forward, the UnitedHealthcare contract should give the company more opportunities to increase volume, according to April Anthony, CEO of Encompass Health’s home health and hospice segment.

“I think in the long run, being part of that national contract is going to give us volume opportunities,” Anthony said during the call. “It’s going to give us better opportunities to serve patients coming out of our [in-patient rehabilitation facilities]. But historically, we have gotten … United business on more of a one-off fashion. And we’ve been paid episodically for that business.”

Encompass Health also has plans to build on the momentum it gained in 2020 when it comes to Medicare Advantage. In order to do this, the company will focus on getting more one-on-one meetings with local and regional MA medical directors.

“We’re really being very discerning about the contracts that we take,” Anthony said. “If there’s a pre-authorization requirement that’s going to become both burdensome in time and effort, we’re saying no to those. We’re looking for those right relationships, where we can be paid well, where we can be a trusted partner who doesn’t have to be ‘nickel and dimed’ on every visit allocation.”

There is specifically strong interest in partnering with Encompass Health on value-based arrangements, company leadership noted. The company’s Medicare Advantage rate increased to over 15% in 2020.

Home health admissions dip

Encompass Health reported total net operating revenues of about $1.21 billion in Q4 2020, a 2.5% increase compared to the $1.18 billion the company brought in during the same period a year prior.

Looking at the full year, the company brought in $ 4.64 billion, a 0.9% increase compared to $4.60 billion for 2019.

The company’s home health and hospice segment posted net operating revenues of about $281.3 million for the quarter, a 2.2% decrease compared to the $287.7 million it brought in during Q4 2019.

Encompass Health posted overall home health admissions of 40,830 in Q4 2021, down 2.3% compared to 41,781 in Q4 2019.

“Limitations on elective procedures — [along with] senior living and skilled nursing facility (SNF) access restrictions, and COVID surges in states where we have market concentrations — limited our growth in 2020,” Doug Coltharp, executive vice president and CFO of Encompass Health, said during the call.

Overall, the company’s home health admissions during the fourth-quarter declined 27% from senior living facilities, 36% from skilled nursing facilities and 12% from patients receiving elective procedures in acute care hospitals.

The company’s leadership believes that volumes will begin to increase more significantly beginning in the second half of 2021.

“In our home health and hospice segment, our primary focus in 2021 is on increasing institutional and early admissions with the return of elective procedures and expected normalization of the mix of patients,” Coltharp said.

When it comes to new initiatives, Encompass Health is collaborating with two home care organizations that provide personal care in order to support a SNF-at-home program. There is a growing need for such services in the company’s markets.

As for workforce-related developments, Encompass Health anticipates that nursing staff challenges across the country will lead to increased compensation rates for the home health nursing discipline. Currently, nursing visits comprise about 44% of its total visit volume.

To mitigate increased compensation, the company is optimizing the use of LPNs when appropriate while also leveraging improved care planning supported by predictive analytics company Medalogix.

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