Q3 2024 Enhabit Inc Earnings Call
Completing the transition of all branches to our centralized admissions departments. This year with the focus on timely responses to our referral sources has been a success.
Muscle as evident with both our increase in Michigan and an increase in our referral conversion rate from 74, 2% last year to 77, 4% this year.
So flat cost per day year over year is the outcome. We expected although increased census, offset the fixed cost that were added in 2023 to implement our case management model.
The build out of our business development team and their local strategies are finding the right balance of referral sources to increase admissions to inhabit and grow our average daily census.
Case management model and our use of technology ensures weird there throughout the patient's length of hospital stay and present when they need us most as evidenced by our visits in the last phase of life, which are 53, 2% higher than the national average.
Our case management model and our use of technology ensures we are there throughout the patient's length of hospice stay and present when they need us most, as evidenced by our visits in the last days of life, which are 53.2% higher than the national average.
Speaker Change: Our home Health segment, we are pleased with the progress of our team's successful yourself, Paul or manage our jobs right care plan.
For our home health segment, we are pleased with the progress of our team's successful use of PULSE to manage our Just Right Care Plan.
Speaker Change: Do you suppose allowed us to be more efficient with Medicare visits per episode declining from $14 nine a 14.4 from the same period a year ago, thus increasing revenue per visit.
Use of Pulse allowed us to be more efficient with Medicare visits per episode declining from 14.9 to 14.4 from the same period a year ago, thus increasing revenue per visit.
Speaker Change: In addition, leveraging predictive analytics bolsters, our ability to deliver a better way to care for patients in a more efficient manner without compromising patient outcome.
In addition, leveraging predictive analytics bolsters our ability to deliver a better way to care for patients in a more efficient manner without compromising patient outcomes.
Speaker Change: This improved visit utilization supported strong admission growth in the quarter of five 6% versus the one 6% last year.
This improved visit utilization supported strong emission growth in the quarter of 5.6% versus the 1.6% last year.
Speaker Change: The ability to utilize these additional visits for starts of care for new patients is a continued focus for our branch leaders.
The ability to utilize these additional visits for starts of care for new patients is a continued focus for our branch leaders.
Speaker Change: Medicare fee for service has stabilized at 44% of our home health admission over the past three quarters.
Medicare Fee-for-Service has stabilized at 44% of our home health admissions over the past three quarters. Growing Medicare Fee-for-Service continues to be a top priority for our leadership teams.
Speaker Change: Growing Medicare fee for service continues to be a top priority for our leadership team.
Speaker Change: While we saw a sequential decline in fee for service admissions, we continue to see improvement in trend.
While we saw a sequential decline in fee-for-service admissions, we continue to see improvement in trends. Fee-for-service admissions declined 2.5% from Q2 to Q3, compared to a 4.7% sequential decline in 2023.
Speaker Change: For service admissions declined two 5% from quarter to quarter, three compared to a four 7% sequential decline in 2023.
Speaker Change: Half of our branches had sequential improvement in quarter three over quarter two.
Speaker Change: We continue to focus on deploying best practices utilized by these branches to all of our branches in an effort to retain and grow our fee for service Medicare volume.
We continue to focus on deploying best practices utilized by these branches to all of our branches in an effort to retain and grow our fee-for-service Medicare volumes.
Speaker Change: We are actively evaluating consolidation or closure of branches that we believe will not reverse their fee for service Medicare decline and that are not producing acceptable returns for our shareholders I will discuss this more later in the call.
We are actively evaluating consolidation or closure of branches that we believe will not reverse their fee-for-service Medicare decline and that are not producing acceptable returns for our shareholders. I will discuss this more later in the call.
Speaker Change: Our pay renovation strategy continues to foster non Medicare growth non Medicare admissions grew 21% driving total admissions growth of five 6% year over here.
Our payer innovation strategy continues to foster non-Medicare growth. Non-Medicare admissions grew 20.1%, driving total admissions growth of 5.6% year-over-year.
Speaker Change: In the third quarter of 2023, 19% of our non Medicare visits when pair innovation contracts.
In the third quarter of 2023, 19% of our non-Medicare visits were in payer innovation contracts. That rate grew to 45% in the third quarter of 2024.
Speaker Change: That rate grew to 45% in the third quarter of 2024.
Speaker Change: In the third quarter of last year, 63% of admission when combined Medicare fee for service and payer innovation contract.
In the third quarter of last year, 63% of admissions were in combined Medicare fee-for-service and payer innovation contracts.
Speaker Change: In the third quarter of this year the percent of our admissions in Medicare fee for service and payer innovation contracts has grown to 73%.
In the third quarter of this year, the percent of our admissions in Medicare fee-for-service and payer innovation contracts has grown to 73 percent.
Speaker Change: Considering our termination notice with United We expect this shift to pair innovation contracts may accelerate.
Considering our termination notice with United, we expect the shift to pay renovation contracts may accelerate.
Speaker Change: I would like to provide an update on negotiations with United Health care.
Speaker Change: We have maintained an ongoing dialogue with United and Ed can we focus the conversation on the value of care that we provide them and their members.
Speaker Change: While we have not yet executed an agreement we have made significant progress on aligning terms with United that would be acceptable to us.
While we have not yet executed an agreement, we have made significant progress on aligning terms with United that would be acceptable to us.
Speaker Change: Until we have an executed agreement, we will maintain our strategy of replacing United fastest.
Until we have an executed agreement, we will maintain our strategy of replacing United Census.
Speaker Change: We are on track with our plan to replace this volume and in fact since getting notice on August 1st through October.
We are on track with our plan to replace this volume, and in fact, since getting notice on August 1st through October, our total payer home health census across all payer types grew by 884.
Speaker Change: Our total pay as a home health census across all payer types grew by 884, while our United patient census decline a thousand 22.
while our United Patients Census declined 1,022.
Speaker Change: Our teams are doing a great job, replacing these admissions with payers that recognize our strong clinical value.
Speaker Change: Our conversations with many of our other payers reinforced that their focus is on timely access to high quality home health providers in order to manage their overall costs.
Speaker Change: Despite all these positive trends related to admissions and growing okay renovation contract during the third quarter, our home health segment continued to see a decline in recertification.
Despite all these positive trends related to admissions and growing our payer innovation contracts, during the third quarter, our home health segment continued to see a decline in recertification.
Speaker Change: Several factors contributed to the decline.
Several factors contributed to the decline, but the primary drivers were an increase in admissions from acute care facilities with shorter predictable lengths of stay and the ongoing payer mix change within congregate living settings.
Speaker Change: But the primary drivers were an increase in admissions from acute care facilities with shorter predictable length of stay and the ongoing payer mix change within congregate living setting.
Speaker Change: The latter is particularly impactful because admissions in those settings typically recertify at a higher rate due to the combined effects of their age chronic illness burden and functional impairment level.
The latter is particularly impactful because admissions in those settings typically recertify at a higher rate due to the combined effects of their age, chronic illness burden, and functional impairment levels.
Speaker Change: We've already begun to mitigate these challenges and are focused on expanding and diversifying sources of referrals.
We have already begun to mitigate these challenges and are focused on expanding and diversifying sources of referrals.
Speaker Change: In regards to the final home health rule CMS finalized a permanent adjustment cuts that would result in a negative one 8% impact offset by a positive market basket update of three 2%.
In regards to the final home health rule, CMS finalized a permanent adjustment cut that will result in a negative 1.8% impact, offset by a positive market basket update of 3.2%.
Speaker Change: After productivity adjustments and fixed dollar loss ratio adjustment. The result is a 0.5% increase versus the proposed negative one 7%.
After productivity adjustments and fixed dollar loss ratio adjustments, the result is a 0.5% increase versus the proposed negative 1.7%.
Speaker Change: The continued cuts to home health reimbursement or be stable I think the home health landscape and are detrimental to larger policy goals, providing equitable high quality health care to seniors in their home.
Speaker Change: The continued cuts to home health reimbursement are destabilizing the home health landscape and are detrimental to larger policy goals of providing equitable, high-quality health care to seniors in their homes.
Speaker Change: On the advocacy brought the alliance for care at home, formerly Nab, The National Association for Homecare, and Hospice and P. T O H H the partnership for quality home Health care have continued to work with our congressional allies I'm relieved to include in a legislative vehicle.
On the advocacy front, the Alliance for Care at Home, formerly NAC, the National Association for Home Care and Hospice, and PQHH, the Partnership for Quality Home Health Care, have continued to work with our congressional allies on relief to include in a legislative vehicle. We remain actively engaged with our trade associations and the industry on these advocacy efforts.
Speaker Change: We remain actively engaged with our trade associations and the industry on these advocacy effort.
Speaker Change: Well other healthcare sectors are repeatedly receiving meaningful positive annual payment update. This is the third straight year, where the CMS home health rule establishes rates that failed to keep up with inflation and instead present, a significant headwind to revenue growth.
While other health care sectors are repeatedly receiving meaningful positive annual payment updates, this is the third straight year where the CMS Home Health Rule establishes rates that fail to keep up with inflation and instead present a significant headwind to revenue growth. This reality means we have to make some difficult decisions.
Speaker Change: This reality means we have to make some difficult decisions.
Speaker Change: Given the current pricing environment and mix shifts we have experienced we have undertaking a more exhaustive review of all of our home health and hospice branches.
Speaker Change: Given the current pricing environment and mix shift we have experienced, we are undertaking a more exhaustive review of all of our home health and hospice branches.
Speaker Change: While the operational performance review of each of our home health and hospice branches occurs on an ongoing basis.
While the operational performance review of each of our home health and hospice branches occurs on an ongoing basis, our current review has indicated that we should take steps to consolidate or close approximately eight to 10 underperforming branches by early 2025.
Speaker Change: Kind of review has indicated that we should take steps to consolidate or close approximately eight to 10 underperforming branches by early 2025.
Speaker Change: For branches that we do not close that are not performing as well as we expect we will further remediate their underperformance with additional corrective action.
Speaker Change: For branches that we do not close that are not performing as well as we expect, we will further remediate their underperformance with additional corrective actions.
Speaker Change: We will have more details on the number of branches and profit enhancement measures undertaken in our remaining locations along with the anticipated impact to 2025 EBITDA on our quarter four earnings call.
Speaker Change: We will have more details on the number of branches and profit enhancement measures undertaken in the remaining locations, along with the anticipated impact to 2025 EBITDA on our Q4 earnings call.
Speaker Change: With our focus on profitable revenue growth, we continue to strategically invest in our de Novo strategy.
Speaker Change: With our focus on profitable revenue growth, we continue to strategically invest in our de novo strategy.
Speaker Change: This strategy complements our organic growth strategy in both segments and allows us to enter a new market at a low capital cost we.
This strategy complements our organic growth strategy in both segments and allows us to enter a new market at a low capital cost.
Speaker Change: We do a thorough analysis of market, including Medicare CAGR, Medicare advantage penetration and access to clinical labor as we prioritize our de novo locations.
Speaker Change: We do a thorough analysis of markets including Medicare CAGR, Medicare Advantage Penetration, and access to clinical labor as we prioritize our de novo locations.
Speaker Change: In addition to the three de Novo locations already opened this year. We currently have three locations are waiting CMS approval and nine additional active projects.
Speaker Change: In addition to the three DeNovo locations already open this year, we currently have three locations awaiting CMS approval and nine additional active projects.
Speaker Change: The EBITDA from the de Novo that were opened in 2022 and 2023 is funding the 'twenty 'twenty four de novo projects year to date.
Speaker Change: Before I turn it over to Christy I want to thank our teams for their heroic efforts and teamwork, serving our patients and supporting each other during hurricane choline and Milton.
Speaker Change: 29 of our home health branches were impacted by Hurricane Helene and 21 were impacted by Hurricane Milton with 12 of those branches impacted by both.
Speaker Change: We will discuss the financial impact of these hurricanes more during our guidance update.
Speaker Change: Although the hurricane did impact us financially as well as impacting our team personally I am glad to report that all of the affected branches are Baptist serving patients in the affected areas.
Speaker Change: And now I will hand, it over to Crissy. Thanks, Barb consolidated net revenue was $253 6 million for the third quarter down $4 7 million or one 8% year over year.
Crissy: Consolidated adjusted EBITDA was $24 5 million up $1 3 million or five 6% year over year.
Crissy: In our home health segment, our payer innovation strategy continues to foster non Medicare growth non.
Speaker Change: Non Medicare admissions grew 21% driving total admissions growth of five 6% year over year with five 5% growth on a same store basis.
Speaker Change: 45% of non Medicare visits are now and pay your innovation contracts at improved rates.
Speaker Change: As Bob discussed, while our admissions are growing our recertification or declining is declining recertification was the primary driver of a $9 9 million or four 7%.
Speaker Change: Increase in home health revenue year over year as Bob mentioned, we have taken steps to remediate this issue.
Speaker Change: We also had a modest $1 million net increase to our home health revenue reserves during the quarter, which negatively impacted revenue and adjusted EBITDA. We are pleased with the progress we've made with our revenue cycle management well no assurances can be provided we expect our cash collection trends to continue to improve and result in a.
Speaker Change: A decrease in our reserve rate overtime.
Speaker Change: Adjusted EBITDA decreased $5 3 million or 12, 7% year over year, primarily due to the decrease in revenue.
Speaker Change: Cost per visit increased a modest one 1% on a year to date basis, our cost per visit is flat compared to the prior year.
Speaker Change: In our hospice segment revenue increased $5 2 million or 11% year over year due to an increase in patient days and increased Medicare reimbursement rates.
Speaker Change: We have grown our senses every month since January 2024, with our average daily census, increasing six 9% in Q3 compared to the prior year with 5% growth on a same store basis.
Speaker Change: With adjusted EBITDA increased $2 3 million or 29, 9% at year over year, primarily due to the increased revenue cost per day was flat year over year as we gained operating leverage against our fixed cost structure with increased volumes. We continue to expect patient volumes to increase without the need to have.
Speaker Change: A significant number of additional south.
Speaker Change: Our home office general and administrative expenses decreased $4 3 million year over year to eight 7% of consolidated revenue, primarily due to lower incentive compensation and the cost control initiatives. We undertook in the second half of 2023 and throughout 2024 now.
Speaker Change: Now I'll turn it over to Jeremy to discuss our balance sheet.
Jeremy: We don't focus this year on accelerating cash and pay down debt and our success can be seen in our results are.
Jeremy: Our leverage decreased for the third quarter in a row, we ended the third quarter with a leverage ratio of four eight times, our cash balance at the end of September a component of the ratio benefited by approximately $18 million from the timing of payroll.
Jeremy: In September we paid down $10 million of debt, including a voluntary 5 million dollar payment to reduce the outstanding balance of our revolving credit facility.
Jeremy: And due to the continued strong cash flow, we made an additional $5 million voluntary payment on our revolving credit facility in October.
Jeremy: Since year end, our available liquidity is drawn from approximately $61 million.
Jeremy: Proximately $94 million, which we believe is adequate to support our operations.
Jeremy: You know our de Novo strategy.
Jeremy: Our free cash flow remained strong for the year to date through September we generated approximately $59 million of free cash flow a free cash flow conversion rate of 79%.
Jeremy: Adjusted free cash flow in the year to date period of 2024 benefited from working capital changes primarily around accounts receivable and the timing of payroll.
Jeremy: Our free cash flow conversion target for the full year remains at approximately 50%.
Bob: I'll turn it back to Bob.
Bob: The devastation caused by Hurricane Helene began impacting our volumes the last week of September and continued impacting volumes well into October.
Speaker Change: Estimate we lost 125 to 150 admissions in the last week of September which would have made our quarter three 2020 for admission growth five 9% year over year.
Speaker Change: While the timing of these lost admissions had minimal impact on revenue in the third quarter. It resulted in a lower census entering October.
Speaker Change: The landfall of Hurricane Milton during the month of October put further pressure on our home health census through Lofton mission.
Speaker Change: Tobey, we estimate we lost an additional 425 to 450 admissions from the impact of those hurricanes.
Speaker Change: Our admission volumes are dependent on referral sources and patients returning to the impacted areas as well as doctors being able to reschedule procedures.
Speaker Change: All in we estimate the hurricanes will negatively impact our fourth quarter revenue and adjusted EBITDA by approximately $2 million.
Speaker Change: Based on the impact of lower re certifications in the third quarter and the impact from the Hurricanes, we revised our guidance ranges for full year 2024.
Speaker Change: Our outlook for net service revenue is now $1.031 billion to 1.046 billion and our outlook for adjusted EBITDA is now 98 million to $102 million.
Speaker Change: We expect to generate 47 to 55 million of free cash flow in 2024, and the full year normalizes for the impact of working capital changes in the third quarter.
Speaker Change: I want to now turn to some of our plans to reignite revenue growth, including some favorable trends in the environment.
Speaker Change: I will summarize actions either completed or in process that we expect will increase our profitability and margin profile going forward.
Speaker Change: Regarding revenue growth, we are seeing several positive trends within our space that should be tailwind for revenue.
Speaker Change: Approximately 20% of our revenue comes from hospice and effective October one we received an approximate 4% increase to our reimbursement rates for this revenue base user.
Speaker Change: Using our current sensors, we estimate this increase is worth approximately $8 million annually.
Speaker Change: Based on current trends and results from our investment in the case management model and the build out of our business development team. We currently expect hospice volumes and revenues to grow at a mid to high single digits in 2025.
Speaker Change: Within home health based on the final rule and the industry impact of the 0.5% net payment increase we estimate our Medicare revenue base will increase by approximately 2 million to 3 million annually or.
Speaker Change: Our analysis of the specific impact to inhabit is underway.
Speaker Change: As I mentioned earlier, our payer innovation strategy and shift of our patient census from lower paying Medicare advantage contracts to higher paying contracts is beginning to build a solid foundation for revenue growth.
Speaker Change: In regards to home health volume when we consider demographic trends are pay renovation strategy, our clinical capacity and the ability to continue to manage visits per episode as experienced in our 2024 trends. We expect to continue to grow home health admission at a mid to high single digit growth factor.
Speaker Change: Based on admissions and census growth Medicare pricing and continued shift to better paying Medicare advantage plan. Our target is to grow home health revenue by low to mid single digits in 2025.
Speaker Change: In addition to growing our revenue and related earnings through organic revenue growth. We're also focused on streamlining and reducing our current cost structure.
Speaker Change: Specifically, we have implemented several key profit improvement initiatives throughout the third quarter.
Speaker Change: We've restructured our care management Department and made changes to our regional leadership structure that in combination with restructuring changes implemented in the first half of 'twenty 'twenty. Four we expect will result in annual savings of approximately $3 million with the full benefit being realized in 2025.
Speaker Change: In addition, after the completion and positive results from our pilot it outsourcing our coding functions, we will move all branches off our centralized coding platform to this outside resource by the end of the first quarter of 2025.
Speaker Change: We expect this to result in an additional annual savings of approximately $2 million with approximately one and a half million realized in 2025.
Speaker Change: Identifying opportunities like these are critical as we face another year of price pressure from CMS, while we're not prepared to quantify the impact at this time, we continue to evaluate ways to use technology and AI to reduce inefficient and redundant task and believe more enhancements will happen in 2025.
Speaker Change: And as I mentioned earlier, we are actively evaluating closing or consolidating eight to 10 branches and improving the profitability of the remaining lower performing branches.
Speaker Change: We expect these actions to drive additional EBITDA and margin improvement in 2025.