Home Health Payment Rule and Impact on Enhabit
The home health payment rule is a proposed regulation by the Centers for Medicare & Medicaid Services (CMS) that directly impacts the financial performance of companies providing home health services, such as Enhabit. The proposed 2025 rule includes a permanent adjustment of negative 4.06%, resulting in a net decrease of 1.7% in Medicare reimbursements. For Enhabit, this adjustment is estimated to have a negative 1.05% impact based on their current patient mix.
This payment rule is relevant to Enhabit’s performance as it could reduce the company’s Medicare revenue, which is a significant portion of its business. To mitigate this impact, the home health community is supporting the Preserving Access to Home Health Act, aimed at preventing further cuts by CMS. Enhabit is actively involved in advocacy efforts alongside industry associations like NAHC and PQHH to push for this legislation.
Additionally, Enhabit’s strategic focus on shifting admissions to higher-paying contracts through its payer innovation strategy is helping to counterbalance potential revenue losses from these cuts. By aligning with payers who recognize the value of their care, Enhabit is successfully increasing non-Medicare revenue per visit, which is crucial for sustaining and growing the business amidst regulatory challenges.
Operational Enhabit Strides
Enhabit has made significant strides in improving its operations across both its home health and hospice segments. In 2024, 71% of admissions now come from Medicare fee-for-service and payer innovation contracts, up from 58% in 2023. This growth reflects the company’s strategy to focus on higher-paying contracts, a trend expected to accelerate following the termination of an unfavorable national agreement. One-third of Enhabit’s branches reported year-over-year growth in Medicare fee-for-service admissions, and a dedicated project team is working to stabilize and grow this segment further.
The company’s collaboration with Accountable Care Organizations (ACOs) has also expanded, enhancing opportunities for value-based quality incentives. Enhabit’s use of technology, particularly the Medalogix Pulse tool, has optimized care plans, reducing visits per episode and increasing revenue per visit.
In the Hospice segment, the company has seen steady growth in its average daily census, supported by the implementation of a case management model and a centralized admissions department. The company’s strategic investments in new market entries, such as a new location in Melbourne, Florida, have bolstered its expansion efforts.
Enhabit’s success in recruitment and retention has eliminated nursing contract labor and increased its full-time nursing staff, supporting long-term growth. The company’s focus on career development has led to numerous internal promotions, fostering a culture of growth that aligns with its strategic goals.
Noteworthy Financial Developments from Q2
Enhabit recently came out with its Q2 results. The most important among these highlights are as follows:
- Consolidated net revenue for Q2 2024 was $260.6 million, a slight decrease of 0.6% year-over-year.
- Consolidated adjusted EBITDA rose to $25.2 million, reflecting a 5.4% increase from the previous year.
- Home Health segment revenue declined by 1.7% due to lower Medicare re-certifications, but non-Medicare admissions grew by 25.2%.
- Hospice segment revenue increased by 3.9% year-over-year, driven by higher Medicare reimbursement rates and increased patient days.
- The company’s leverage ratio decreased to 5.1x, with $40 million in debt reduction since the July 2022 spinoff.
- The company narrowed its full-year 2024 guidance, expecting net service revenue between $1.060 billion and $1.063 billion, and adjusted EBITDA between $100 million and $106 million.