NOTE TO READERS
As used in this report, the terms “Enhabit,” “we,” “us,” “our,” and the “Company” refer to Enhabit, Inc. and its consolidated subsidiaries, unless otherwise stated or indicated by context.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (the “Annual Report”) contains historical information, as well as forward-looking statements (within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that involve known and unknown risks and relate to, among other things, future events, projections, financial guidance, legislative or regulatory developments, strategy or growth opportunities, our future financial performance, our projected business results, or our projected capital expenditures. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, the reader can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “targets,” “potential,” or “continue” or the negative of these terms or other comparable terminology. Any forward-looking statement speaks only as of the date of this report, and the Company undertakes no duty to publicly update or revise such forward-looking information, whether as a result of new information, future events, or otherwise. Such forward-looking statements are necessarily estimates based upon current information and involve a number of risks and uncertainties, many of which are beyond our control. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors which could cause actual events or results to differ materially from those estimated by the Company include, but are not limited to, our ability to execute on our strategic plans, regulatory and other developments impacting the markets for our services, changes in reimbursement rates, general economic conditions, our ability to attract and retain key management personnel and healthcare professionals, potential disruptions or breaches of our or our vendors’ information systems, the outcome of litigation, our ability to successfully complete and integrate de novo developments, acquisitions, investments, and joint ventures, and our ability to control costs, particularly labor and employee benefit costs and such other factors as discussed throughout Part I, Item 1A, “Risk Factors,” of this Annual Report.
ii
Part I.
Item 1. Business.
Our Business
We are a leading provider of home health and hospice services in the United States. We strive to provide superior, cost-effective care where patients prefer it: in their homes. For over twenty years, we have provided care in the low-cost home setting while achieving high-quality clinical outcomes. Over that time, we have grown to become the fourth-largest provider of home health services and a leading provider of hospice services nationally, measured by 2020 Medicare revenues. As of December 31, 2022, our footprint comprised 252 home health and 105 hospice locations across 34 states.
Our scale and density in targeted markets, our disciplined operating model emphasizing the use of technology, our clinical expertise, and our award-winning culture are key factors to our success. These competitive advantages enable us to outperform many of our competitors in both clinical quality and efficiencies, while positioning us as an attractive partner to health systems, payors, and other risk-bearing entities.
Our continued growth is underpinned by strong industry tailwinds, including an aging U.S. population, an increased focus on shifting care to lower-cost settings, and patients’ preference for home-based care. In 2019, there were 54.1 million people age 65 or older in the U.S. (compared to 39.6 million in 2009). The population of people age 65 or older in the U.S. is projected to reach 80.8 million by 2040 and 94.7 million by 2060. All but a small minority of this population live in non-institutional settings. This population is growing and is one of the fastest growing demographics in the country, creating a greater need for cost-effective in-home solutions. Furthermore, as of 2018, 70% of those over 65 had multiple chronic conditions and faced a higher incidence of chronic conditions than those under 65. Patients with multiple chronic conditions accounted for 94% of total Medicare spending and were associated with 99% of hospital readmissions. Home-based care is well-positioned to help manage these conditions in the aging population. Home-based care is also significantly more affordable than other care settings. We believe these trends, coupled with our competitive advantages, strongly position us for the future.
We operate our business in two segments: home health and hospice. Our home health agencies provide a comprehensive range of Medicare-certified skilled home health services, including skilled nursing, physical, occupational and speech therapy, medical social work, and home health aide services. Our patients are typically older adults with chronic conditions and significant functional limitations who require more than ten current medications. Our home health business benefits from a diversity of referral sources, with patients arriving from acute care hospitals, inpatient rehabilitation facilities, surgery centers, assisted living facilities, and skilled nursing facilities, as well as community physicians. We work closely with patients, families, caregivers, and physicians to deliver data-driven, evidence-based care plans focused on patient needs and goals. For the year ended December 31, 2022 our home health segment had 202,495 patient admissions and generated $877.1 million in Net service revenue, or 81.9% of Enhabit’s total Net service revenue.
Our hospice agencies provide high-quality hospice services to terminally ill patients and their families. Hospice care focuses on the quality of life for patients who are experiencing an advanced, life limiting illness while treating the symptoms of the disease, rather than treating the disease itself. Our dedicated team of professionals works together to manage symptoms so that a patient’s remaining time may be spent with dignity and in relative comfort, surrounded by their loved ones, typically in their own home. For the year ended December 31, 2022 our hospice segment had an average daily census of 3,519 patients and generated $194.0 million in Net service revenue, or 18.1% of Enhabit total Net service revenue.
We drive operating efficiency by leveraging our market density as our volumes increase, which also enables our clinicians to spend less time on the road and more time providing care. We believe our operating structure is more efficient than our peers and advantageously positions us to grow our home health admissions as the industry continues to expand. Despite our status as the fourth-largest provider of home health services, measured by 2020 Medicare revenues, our Medicare fee for service market share is only 4.3%. Given the high fragmentation of the industry, we believe there will be significant opportunities for consolidation.
We also believe our hospice segment will continue to have significant growth opportunities as we enhance our scale within the markets we currently serve and expand our hospice offerings into markets where we already have a strong home health presence.
Our operations are supported by an electronic medical records platform and a predictive analytics platform, which help us manage the entire business continuum from clinical patient workflow to operations, business development and compliance. We believe our history and familiarity with these platforms and other proprietary solutions enable us to help deliver superior clinical, operational, and financial outcomes.
We leverage both internally developed tools as well as third-party software to reduce our cost per visit, enhance our productivity and optimize the use of our nursing and therapy staff. This approach drives metric-driven decisions across our organization that yield better efficiency, quality, and employee satisfaction. We also invest significant time and training resources to teach our operators to utilize these tools to help drive timely decisions in the field, including the development of patient care plans. Our company culture emphasizes the use of analytics-based tools to make better informed decisions, providing the highest quality of care, while managing our cost of care.
Our scale and density combined with our disciplined operating model allow us to provide high quality care more efficiently than our publicly traded home health peer or peers. For the years ended December 31, 2022, 2021 and 2020, our average cost per visit ranged from 10.9% to 15.8% lower than the average of a subset of our publicly traded peer or peers that provide this information. Our lower cost per visit positions us to continue to operate profitably in the event of potential changes to the reimbursement model for our industry. | | | | | | | | | | | | | | | | | |
| Home Health Segment |
| Year Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Cost per visit | $89 | | $83 | | $84 |
| Public peer or peers* average cost per visit | $100 | | $99 | | $96 |
| Cost per visit vs. public peer or peers* average | (10.9) | % | | (15.8) | % | | (12.1) | % |
* Based on our publicly traded peer or peers that provide this information
Our disciplined operating model, coupled with a targeted and balanced acquisition strategy and new location (“de novo”) openings, has contributed to our financial performance over the last several years. Since 2015, we have deployed over $796 million of capital on 41 home health and hospice acquisitions, which we have fully integrated into our business and continue to grow. Over that same period, we have opened 33 de novo locations across 16 states, including 18 home health and 15 hospice locations. For more information and commentary on our history and financial performance, see “—Our History” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Annual Report.
Prior to July 1, 2022, we operated as a reporting segment of Encompass Health Corporation (“Encompass”). On March 7, 2022, we changed our name from “Encompass Health Home Health Holdings, Inc.” to “Enhabit, Inc.” On July 1, 2022, Encompass completed the previously announced separation of the Company through the distribution of all of the outstanding shares of common stock, par value $0.01 per share, of Enhabit to the stockholders of record of Encompass (the “Distribution”) as of the close of business on June 24, 2022 (the “Record Date”). The Distribution was effective at 12:01 a.m., Eastern Time, on July 1, 2022. Prior to the completion of the Distribution, we substantially completed rebranding initiatives across our operations. The Distribution was structured as a pro rata distribution of one share of Enhabit common stock for every two shares of Encompass common stock held of record as of the Record Date. No fractional shares were distributed. A cash payment was made in lieu of any fractional shares. As a result of the Distribution, Enhabit is now an independent public company, and its common stock is listed under the symbol “EHAB” on the New York Stock Exchange (the “Separation”). As part of the Separation, Enhabit and Encompass entered into certain agreements that provide a framework for our relationship with Encompass after the Separation and Distribution. For additional discussion of the Separation and Distribution, as well as our relationship with Encompass, see Item 1A, “Risk Factors —Risks Related to Our Recent Separation from Encompass,” in this Annual Report.