Enhabit Bullish On Managed Care Agreements, ‘Extremely Disappointed’ In Final Rule

Yet another large home health company is touting its agreements with managed care plans. This time, it’s Enhabit Inc. (NYSE: EHAB).

Last week, it was Amedisys Inc. (Nasdaq: AMED) unveiling its agreement with CVS Health’s (NYSE:CVS) Aetna.

Between contract agreements and easing labor pressures, Enhabit leaders believe that two of their largest pain points are softening.

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“As our labor constraints began to ease in the quarter, we were able to accept the increasing number of referrals,” Enhabit CEO Barb Jacobsmeyer said on a third quarter earnings call Wednesday. “Our 31.5% non-episodic home health admission growth drove our 2.7% total admission growth year over year.”

On the home health side, revenue per episode increased 3.2% year over year. At the same time, cost per visit increased 5.7% year-over-year due to a higher cost to pay staff, increased costs in mileage reimbursement and other factors.

Although the lower-paying MA plans have been a drag on Enhabit’s short-term financials, like Amedisys, Enhabit believes it can prove its worth to plans through outcomes to fight for better rate agreements.

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“We are focused on short-term rate enhancements and longer-term innovation via case rates, episodic agreements and other value-based opportunities,” Jacobsmeyer said. “In the third quarter, we agreed to terms with nine Medicare Advantage and commercial plans. Three are in effect now and six are in credentialing with estimated effective dates by the end of this year. All of these contracts are regional or multi-state plans.”

Each successful agreement, Jacobsmeyer said, creates access for patients to Enhabit’s home health care. It also is an avenue to the data that the company needs to reinforce its value proposition.

Year over year, Enhabit’s revenue fell 3% to $265.7 million in the third quarter.

“As the percentage of admits coming from MA plans goes up, Enhabit will see margins erode given the wide reimbursement gap between Medicare and these MA plans,” a note from the investment banking firm Jeffries read. “As such, we believe Enhabit should take advantage of tight capacity for high quality post-acute care and seek improved reimbursements from MA plans to compensate for elevated staffing costs and drive acceptable/sustainable contract-level margins going forward.”

Meanwhile, the resumption of sequestration, inflation and Hurricane Ian all impacted Enhabit’s bottom line in the third quarter.

Operationally, Jacobsmeyer estimated Enhabit lost about 200 home health admissions during the last week of September due to Hurricane Ian.

Staffing changes

Some staff members were personally affected by the hurricane, but Jacobsmeyer outlined some positive staffing trends from the third quarter that she believes are sustainable moving forward.

By implementing pay rate increases for caregivers and a virtual onboarding process, Enhabit has been able to curb some employment restraints.

Enhabit added 55 net new full time nurses in quarter three and nursing turnover was 10% lower year over year. The company has been able to do that by putting a concerted effort into recruitment and retention, Jacobsmeyer said.

“This strategic fix has resulted in an uptick in our percentage of PRN nurses year over year, from 36% last year to approximately 41% this year,” Jacobsmeyer said. “With this shift, we need to ensure our wage rates are competitive so that these nurses choose to work for us. As we examined our rates, we noted we were below market and adjusted those rates to be more competitive.”

At Enhabit, PRN rates have increased over 7% in the third quarter while the number of visits conducted by PRN staff were down 5%.

“Visits did increase almost 14% sequentially, which helped drive our volume and growth in the third quarter,” Jacobsmeyer said.

As a way to better understand why some nurses were coming and going, Enhabit dug deep into its exit survey data and found that there was a lack of thorough and consistent onboarding for new clinicians.

Orientation was suffering because of it, resulting in higher turnover.

In April, Enhabit started to pilot virtual clinical orientation, giving preceptors a more efficient way to get new hires up to speed.

“This takes the burden off the local branches and ensures consistent training,” Jacobsmeyer said. “We started with 17 branches and have now expanded to 40 branches. Today we have 123 clinicians that have completed or are currently in our virtual clinical orientation and we are pleased with the initial results.”

Reaction to the final rule

In June, the U.S. Centers for Medicare & Medicaid Services (CMS) proposed a 4.2% aggregate decrease for home health in 2023, a cut the industry felt would be devastating.

Under the final rule, CMS will still usher in other cuts and permanent adjustments related to the rebalancing of the Patient-Driven Groupings Model (PDGM). But then it came with an increase in the aggregate by 0.7%, or $125 million compared to 2022.

Jacobsmeyer said Wednesday that Enhabit was “extremely disappointed” that CMS still planned to go ahead with a permanent 7.85% cut to Medicare home health services, which is even higher than the proposed behavioral adjustment.

“The temporary adjustments still loom,” she said. “CMS has not changed their methodology at all, which is very problematic for the industry. 2023 now has a slight reprieve with provisions in its final rule, resulting in an estimated net increase in home health payments of 0.7%. The industry does not view this as a win and we will work with our industry partners to determine next steps.”

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