Enhabit Inc at Bank of America Home Care Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Joanna Gajuk - BofA Global Research - Analyst : So I think that we should start with the couple of different disclosures in the last, I guess, week or so. So first, the 8-K that the company filed last week, a couple of slides in that as well. But I guess the disclosure that was of note was that the company reached a new multiyear agreement with UnitedHealthcare. So can you share a little bit more details about this update?

Question: Joanna Gajuk - BofA Global Research - Analyst : So just a follow-up. So you said this is not, I guess, a fully innovation contract. But can you give us a little bit of sense of the rates? I mean, it sounds like if you agreed to renew this contract, the rates must have been much better. So just a sense of where you are on these rates, if you can give us -- without maybe disclosing the details. But how close, I guess, it's to the episodic type rate versus the per visit rate.

Question: Joanna Gajuk - BofA Global Research - Analyst : And also in the slides -- I know you had them here up here, but you talk about the $11 million to $13 million pricing increase in '25 in home health. So it sounds like you're not willing to share the details, but that number includes -- I guess, you previously talked about Medicare rate out there, right? That's going to be about $2 million, $3 million increase year over year. And this $11 million to $13 million assumes some continued improvement in some of these contracts. So because of the United size, is it fair to assume that they are a big chunk of that number? Or is there some other numbers that we should consider here? What's included in that $11 million, $13 million? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 2:00PM, EHAB.N - Enhabit Inc at Bank of America Home Care Conference (Virtual)

Question: Joanna Gajuk - BofA Global Research - Analyst : Okay. That's great. And I guess maybe staying on the slides because there's a couple of other comments which I guess you had made previously. But on the hospice volumes, right? So clearly, there was a nice improvement in the third quarter, and you talked about the expectation for the growth to be mid- to high single digits. So I just want to clarify, is it organic? Or does it include de novos and maybe acquisitions? And also to that end, can you talk about what gives you

Question: Joanna Gajuk - BofA Global Research - Analyst : This is great. And thanks for that color as well. And I guess similarly, you have this disclosure here on home health, right, admissions to grow mid to high single digits. And I guess on the third quarter call, you talked about revenues to grow low to mid-single digits. So that still implies some negative mix shift that's going on. Is that the way to think about it?

Question: Joanna Gajuk - BofA Global Research - Analyst : And I guess another recent disclosure, I guess, outside of this 8-K was around the opinion that was issued, I'm going to say, maybe more than a week ago from Delaware Chancery Court. It was regarding the litigation that involved VitalCaring and then to private equity firms, right? So can you walk us through the decision as -- because like it sounds like plaintiffs are entitled to 43% of ongoing profits, but also there's reimbursement for legal fees. So how should we think about this? And specifically, any help you can give us in terms of the breakout? Because obviously, Encompass and Enhabit were part of that lawsuit, I guess. So how would this -- how we should think about splitting, I guess, the 43% of ongoing profits that was disclosed here?

Question: Joanna Gajuk - BofA Global Research - Analyst : Okay. So I guess we should ask you a little bit later, but I think I should ask now. But thank you for that. But going back to fundamentals, I don't think it's in this slide deck, right, because it's very short. But on the call, right, you also -- so we talk about the volumes. You touched on the pricing, but you also talked about cost savings, right? So you continue to make very nice progress there. So you talk about, for next year, right, I would say, $3 million from overhead. And there's $1.5 million from outsourcing. And I guess we can see in third quarter, G&A ratio came down. So can you talk about a little bit more about these different cost savings areas and how we should think about heading into next year and going forward in terms of the G&A ratio? Because obviously, the ratio came down very nicely. So is it a good starting point that we should think about?

Question: Joanna Gajuk - BofA Global Research - Analyst : And moving on to home health rate outlook. So like you mentioned, the final rate was 0.5% for the industry. So thanks for clarifying that. For the company, it's actually better because of the wage adjustments there. But still, the 1% is well below what the wage inflation is, I would assume. So maybe, can you talk about the wage inflation you would expect heading into next year? And also, what are some ways that you could try to close that gap, so to speak, between the rate update and the wage growth? I mean, you touched on the cost savings, but is there anything else you want to add to that?

Question: Joanna Gajuk - BofA Global Research - Analyst : And in that regulation, the behavior adjustment was reduced, right? But the CMS keeps talking about the recruitments, which -- a pretty meaningful number, right, over $4 billion. So that will be over 25% of the annual spending on the industry. So very, very big numbers we're talking about here. So how -- what are your expectations? How the government is going to try to either implement this or postpone it or spread it out? Any thoughts on that large recruitment that CMS keeps talking about?

Question: Joanna Gajuk - BofA Global Research - Analyst : And since you mentioned new administration, that was my other question, too. Any other comments about implications to your businesses post elections, anything you expect to come out that could impact your businesses?

Question: Joanna Gajuk - BofA Global Research - Analyst : Right, exactly. And I guess switching a little bit to the Medicare Advantage contracting, right? So you guys have been on that for a couple of years now and making very nice progress, especially with the United, I guess, though, it's not innovative contract. But can you give us a state of the union where you are right now on this? What percent of your MA book is in those per visit contracts versus the more innovative episodic type contracts? And can you also touch on the rates? Because I guess by our math, non-Medicare revenue per visit, so that includes different contracts in there. But it's still 29% below the Medicare rate per visit. So what needs to happen to be able to narrow that gap, I guess, over time? Or is that even possible?

Question: Joanna Gajuk - BofA Global Research - Analyst : So is there a a targeted timeframe in mind where you would be able to narrow the gap? I mean, is there a way that -- or is there a path that you can actually close the gap entirely? Or is there's always going to be some discount because I guess that's what Medicare Advantage plans try to do? They try to pay a little bit less than the prevailing rate would be. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 2:00PM, EHAB.N - Enhabit Inc at Bank of America Home Care Conference (Virtual)

Question: Joanna Gajuk - BofA Global Research - Analyst : Because also on the flip side Medicare Advantage plans are seeing their own rate pressure, right, in '24 and then into '25, also star rating pressure. So do you see this being an obstacle for your innovation team as in -- is it getting harder to get these contracts moved or the rates improved because the plans themselves are seeing pressure?

Question: Joanna Gajuk - BofA Global Research - Analyst : And the other area around payers, right, has been providers complaining about these prioritizations, utilization management, so are you seeing any changes there? Because like you mentioned at some point, those plans are faced with just high rejection rates, right, or just not able to access the care that they would need for their members. So what are your observations more recently around these activities from the health plans? Is it getting worse, better or the same?

Question: Joanna Gajuk - BofA Global Research - Analyst : Right, exactly. And there were specific comments. I mean, less from the home care providers, but more from some of the acute care hospital providers about increasing denials in third quarter. So have you seen that?

Question: Joanna Gajuk - BofA Global Research - Analyst : Right. Exactly. And maybe you can also touch bases because MA or the Medicare Advantage sense has been growing nicely, but I guess the Medicare

Question: Joanna Gajuk - BofA Global Research - Analyst : So is there any color you have from these markets where you're losing share? Sort of who's the -- I guess who's gaining and like why it's happening? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 2:00PM, EHAB.N - Enhabit Inc at Bank of America Home Care Conference (Virtual)

Question: Joanna Gajuk - BofA Global Research - Analyst : And I guess -- so you mentioned some more pressure, I guess, on recertifications from some of these payers. And I guess when you talk about your outlook for the year, you reduced the guidance. And I guess you called out $2 million from the hurricane headwind, but also you mentioned lower recertifications. So can you flesh it out a little bit more for us when it comes to the latter, what's driving that dynamic?

Question: Joanna Gajuk - BofA Global Research - Analyst : And I guess that's a nice segue, you said the growing census because obviously, the biggest constraint has been for a couple of years now, right, the labor, right? So can you talk about the hiring and retention? And we've seen nice improvement there. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 2:00PM, EHAB.N - Enhabit Inc at Bank of America Home Care Conference (Virtual) So this is great, but what's the state of labor in Home Health right now and how you're thinking about this going forward. Because obviously, like you mentioned with the rate out, they're only being 1%, that's still not matching where this nurse wage growth would be, right? So how are you thinking about managing through that? And where is the status of the labor pool in Home Health?

Question: Joanna Gajuk - BofA Global Research - Analyst : And I guess on your other business in hospice, can you also comment on the similar? So we've seen the hospice census. We just mentioned at the beginning of the conversation that was improving nicely through the year and actually grew -- the census grew year over year in third quarter. So can you talk about your labor situation, I guess, in hospice as well?

Question: Joanna Gajuk - BofA Global Research - Analyst : I would think that it's -- the rate environment helps, right? Because I guess, the hospice rate out there has been much better. So what is it for the company? Because I guess there's some adjustments there versus the industry, some companies talking about much higher hospice rate update. Do you have an update for --

Question: Joanna Gajuk - BofA Global Research - Analyst : So still very, very nice update there. And I guess talking about hospice and census growth, so obviously, nice improvement, but still there's some of your competitors where the growth has been really very, very strong, high single to even low double digits. So is this something that you could be striving for? I know you're guiding to more small numbers, which are solid, so I'm not saying it's bad. I'm just asking -- trying to figure out like how sustainable is the growth from this other providers? Can other companies -- other hospice providers grow as fast?

Question: Joanna Gajuk - BofA Global Research - Analyst : And in hospice rate updates, like you mentioned, are pretty good or I guess, much better than home health. And I understand it's not fully covering the entire cost inflation that the industry has experienced in the last few years, but nevertheless, a pretty good updates relatively speaking. But then on the flip side, in hospice, there are more changes, I guess, on oversight, right? So can you talk about this a little bit? How are you thinking those changes could impact the company? Because obviously, there's this -- a special program that's supposed to launch the targeting providers, but there's also more audits and other things. So can you give us your views of those changes in hospice and how those could impact the company?

Question: Joanna Gajuk - BofA Global Research - Analyst : And I guess there was also this proposal that was, I guess, put out by one of the congressmen that outlined a very detailed, I guess, changes or potential reforms in hospice that included even switching from per diem rate to per visit rate. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 10, 2024 / 2:00PM, EHAB.N - Enhabit Inc at Bank of America Home Care Conference (Virtual) But it also included some other provisions that were more around like oversight and increased scrutiny a little bit more on hospice provider. So any commentary on that proposal, whether this -- you're hearing any traction in D.C. on that?

Question: Joanna Gajuk - BofA Global Research - Analyst : Exactly. And I guess couple of, I guess, like summarizing questions that I've been asking all the presenters during our conference. So when you look out into 2025, I understand you don't have a guidance. You've outlined some of the elements which are helpful, but as you look out to the next year, what are the -- some of the biggest changes you expect to see for the industries for home health and hospice?

Question: Joanna Gajuk - BofA Global Research - Analyst : And I guess, the very last question. In one word, how would you describe the outlook for your industries?

Question: Joanna Gajuk - BofA Global Research - Analyst : Great. That's a very nice way to end this session. So thank you so much, Barb. Ryan, Jobie, thank you so much for joining us. And I guess, thanks, everyone, for listening. And this is not the end of the day yet. We just started. So please stay tuned for the rest of the day for additional sessions.