Enhabit, Inc.

Good morning, everyone, and welcome to the Inhabit Home Health and Hospice's second quarter 2023 earnings conference call. At this time, I'd like to inform all participants that their lines will be in a listen-only mode. After the speaker's remarks, there'll be a question and answer period. If you'd like to ask a question during this time, please press star one on your telephone keypad. You'll be limited to one question and one follow-up. Today's conference call is be recorded. If you have any objections, you may disconnect at this time. I'll now turn the call over to Jordan Lloyd, Inhabit Home Health and Hospice Director of Investor Relations.

Thank you, Operator, and good morning, everyone. Thank you for joining Inhabit Home Health and Hospice second quarter 2023 earnings conference call. With me on the call today are Barb Jacobs-Meyer, President and Chief Executive Officer, and Chrissy Carlisle, Chief Financial Officer. Before we begin, if you do not already have a copy, the second quarter earnings release supplemental information and related Form 8K filed with the SEC are available on our website at investors.ehab.com. On page two of the supplemental information, you'll find the State of Harbor Statements, which are also set forth on the last page of the earnings release. During the call, we'll make forward-looking statements, which are subject to risks and uncertainties, many of which are beyond our control. Certain risks and uncertainties that could cause actual results to differ materially from our projections, estimates, and expectations are discussed in the SEC's company filings, including the Form 10-K and subsequent quarterly reports on Form 10-Q, each of which will be available on the company's website once filed. We encourage you to read them. Your caution is not to place undue reliance on the estimates, projections, guidance, and other forward-looking information presented, which are based on current estimates of future events and speak only as of today. We do not undertake a duty to update these forward-looking statements. Our supplemental information and discussion on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measure is available at the end of this supplemental information and earnings release. I would like to remind everyone that we will adhere to the one question and one follow-up question rule to allow everyone to ask a question. If you have additional questions, please feel free to rejoin the queue. With that, I'll turn the call over to Barb.

Thank you, Jordan. Good morning and thanks for joining us. While we continue to make progress with our strategic initiatives, the pace of the progress has not been fast enough in 2023 to meet our initial guidance. As we have consistently noted, the greatest sensitivity to our guidance is episodic volume. The market is shifting rapidly to Medicare Advantage. Last summer, CMS data pointed to 50% of Medicare eligibles enrolling in a Medicare Advantage plan by 2030. We reached the 50% mark in January 2023. CMS data now points to 70% of Medicare eligible enrolling in a Medicare Advantage plan by 2030. While our payer innovation progress has been strong, it has not been enough to overcome the negative impact of the continued erosion of Medicare episodic fee-for-service volume. To put this in perspective, as we mentioned on our quarter one call, every 5% move of non-episodic visits to one of our new national or regional payer innovation agreements improves adjusted EBITDA by approximately $2 million annually. Meanwhile, every 50 basis points decrease in Medicare fee-for-service volume negatively impacts adjusted EBITDA by the same amount. approximately $2 million annually. We are working diligently to combat the erosion of Medicare fee-for-service admissions. We know referral sources want providers who can serve all of their patients regardless of payer source. So while we can't slow the transition of Medicare eligibles to Medicare Advantage, we can strategically target referral sources who have strong Medicare fee-for-service market share and those we know send both Medicare fee-for-service and Medicare Advantage patients to us. We can also collaborate with our primary referral sources to identify other payers our payer innovation team should focus on to strengthen our preferred provider status with them. Our payer innovation team has demonstrated their ability to successfully prove our value proposition to Medicare Advantage payers both in terms of the number of contracts we've negotiated and the improved rates within these contracts. Since the inception of the payer innovation team last summer, they have successfully negotiated 37 new agreements. Let's talk more about our strategic initiatives, especially around payer innovation and recruitment of clinical staff and the success we are having with them. Our teams continue to provide high-quality care, as proven in our outcomes. Our 30-day hospital readmission rate is 370 basis points better than the national average and continues to be our primary value proposition and driver of conversations with payers. During the second quarter, we continued our progress with Medicare Advantage payers and successfully negotiated 10 new regional agreements. We are also pleased with the results our local home health teams produced in moving volume to our payer innovation agreements. During the second quarter, we admitted over 3,400 patients within these non-episodic new contracts. That's 150% sequential growth under these agreements, and we achieved this with our new national Medicare Advantage pricing and in the shift of our Medicare Advantage admissions to these improved payers. In addition to our success with our payer innovation contracting, we had continued success with our recruitment and retention of clinical staff with the highest net nursing hires since we started tracking this metric in 2021. We had 203 net new full-time nursing hires in quarter two, and we continue to hire for additional growth. With this success, we plan to eliminate substantially all contract labor by the end of the third quarter. For hospice, the implementation of the case management model has added critical resources driving our positive recruitment and retention. At the end of the quarter, we had only four locations with staffing constraints. The new staffing model has also improved our ability to accept patients from more diverse referral sources. with admissions from facilities increasing 6.1% year-over-year. With the rapid shift of Medicare eligibles into Medicare Advantage and the headwinds associated with Medicare reimbursement, we are working to find better ways to use our resources and control costs. For example, the new case management staffing model in hospice has increased our fixed costs due to the addition of triage nurses and dedicated on-call resources. With the case management model now fully staffed in all branches, we developed an updated back office staffing matrix that will allow us to eliminate positions or reduce the hours of certain roles and create annual savings of approximately $1 million to help offset the increased clinical cost. We have also identified opportunities for improved alignment within our home office departments that will reduce annual costs of an additional $3.2 million. Now let's touch on the home health proposed rule. As proposed, the overall impact to 2024 Medicare home health spending, including the additional PDGM permanent adjustment, would be a negative 2.2%. PDGM temporary adjustments are now calculated at a total of $3.4 billion for the industry. though CMS has not indicated when or how they would collect these clawbacks. It's important to remember this is the proposed rule with the final rule expected late October or early November. CMS may adjust or update payment components between now and then, including an updated market basket percentage, just as they did in other recent Medicare final rules. Nevertheless, legal and advocacy actions are underway to mitigate the impact of the proposals. The National Association of Home Care and Hospice, of which we are a member, filed a lawsuit against CMS in the U.S. District Court for the District of Columbia on Wednesday, July 5th, challenging the implementation of the PDGM pricing cuts. The NAC litigation argues that Medicare is required to implement the PDGM payment model changes in a budget-neutral manner rather than in a way that inflicts rate cuts on providers. And NAC, along with the Partnership for Quality Home Health Care, has already filed a joint preliminary comment letter calling on CMS to not finalize the proposed cuts. In addition, on the legislative front, on June 22nd, Senators Debbie Stabenow of Michigan and Susan Collins from Maine introduced legislation titled the Preserving Access to Home Health Act of 2023 that aims to prevent PDGM payment cuts to home health providers. And last week, companion legislation was introduced in the House by Terry Sewell of Alabama and Adrian Smith of Nebraska. We remain active with the industry in our advocacy efforts. With that, I'll turn it over to Chrissy to discuss more details on our quarter two results and our updated guidance. Thanks Barb.