Enhabit, Inc.

good morning everyone and welcome to inhabit home health and hospices third quarter 2023 earnings conference call at this time i would like to inform all participants that their lines will be in a listen-only mode after the speaker's remarks there will be a question and answer period if you would like to ask a question during this time simply press star 1 on your telephone keypad you will be limited to one question and one follow-up today's conference call is being recorded If you have any objections, you may disconnect at this time. I will 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 third quarter 2023 earnings conference call. With me on the call today are Barb Jacobsmeyer, President and Chief Executive Officer, and Chrissy Carlisle, Chief Financial Officer. Before we begin, if you do not already have a copy, the third 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 safe 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 filing under 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 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 the supplemental information and earnings release. I would like to remind everyone that we will adhere to one question and one follow-up. 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. Let me open by thanking our 11,000 employees. This is an incredibly dynamic operating environment, and I'm so proud of our staff remaining focused on providing a better way to care for our patients, their families, and each other. We are excited to be listed as number 42 in the U.S. News Best Healthcare Companies to Work For. U.S. News ranked the top 379 publicly traded companies spanning 20 industries, analyzing publicly available employee sentiment and other data that demonstrates how a company supports the everyday experience of its workers. Recognitions like this are important and reflect our commitment to our team and their commitment to our patients. I want to remind everyone that the purpose of today's call is to discuss our financial and operational results and outlook. As previously announced, we commenced a strategic review process. Our board is conducting a thorough process with the assistance of our advisors, and discussions with interested parties are ongoing. We will not be commenting beyond that, and so we ask that you keep your questions focused on our business and our results. We have a lot of important updates to discuss with you today, including the final home health rule, continued improvements in labor recruitment, retention and cost, and progress with payer innovation. Let's begin our updates with the final home health rule. CMS finalized a permanent adjustment cut that will result in a negative 2.6% impact, offset by a positive market basket update of 3.3%. After productivity adjustments and fixed dollar loss ratio adjustments, the result is a positive 0.8% versus the proposed negative 2.2%. The continued march of these cuts, where the home health community does not know what to expect from Medicare year after year, is not helpful in creating a stable home health landscape. In fact, it is detrimental to larger policy goals of providing equitable, high-quality healthcare to seniors in their homes. While this final rule means we will be receiving less of a cut than under what was proposed, it does not restore home health reimbursement to where it should be. We know for a fact that CMS's market basket projections have missed actual market basket increase figures by more and more each of the past few years. Between 2021 and 2022, CMS's final market basket projections missed the actual market basket increase by a combined 5.2%, but no corrective action has been taken. We anticipate this year's update ultimately will also fall short of the actual market basket cost increase. Importantly, the advocacy efforts that we and the entire home health community are presently undertaking with Congress, the administration, and in the courts will not stop merely because Medicare decided to cut home health marginally less than what was proposed. While the cut amounts are concerning at any level, the bigger issue is the fact that the permanent cuts and the ongoing threat of future temporary cut clawbacks create a damaging overhang on the industry and adversely affect the availability of home health care services. While our payment update does not cover our inflationary costs, we are working diligently to remain competitive for our highly skilled workforce. We will continue to manage our resources as efficiently as possible to meet the needs of our patients and the needs of our partners in the care continuum. Turning now to an update on staffing, we are very pleased with the continued success of our recruitment and retention of clinical staff. Recall that during the second quarter of this year, we had 200 net new full-time nursing hires. During the third quarter, we added another 166 net new home health full-time nurses, and we continue to hire for additional growth. With this success, we have eliminated all hospice nursing contract labor and are on track to have substantially all home health nursing contract labor eliminated by the end of the year. Our home health team continues to do a great job managing productivity and optimization of our clinical staff. Our cost per visit increased 1.1% year over year as improved nursing productivity and optimization offset the impact of merit and market increases for clinical staff. For hospice, the implementation of the case management model and industry standard provides Inhabit with a platform for growth driving positive recruitment and retention, and addressing capacity constraints. This platform will allow us to grow and control our average daily cost per day. While cost per day increased year over year, it has now been stable over the past three quarters. With our hospice locations now fully staffed, we hired three new business development leaders with a combined 50 years of experience working with other hospice companies in the industry. We are pleased to be able to turn our focus to growth versus managing capacity challenges and are optimistic as we head into 2024. And now let's talk about our continued success with payer innovation. The strongest value proposition in our negotiations with payers continues to be our low 30-day hospital readmission rate, which is 20% better than the national average. Our payer innovation team has continued to succeed in demonstrating this value proposition to Medicare Advantage payers. We had another strong quarter, negotiating 11 new contracts. 10 of the 11 are episodic agreements. Since the inception of the payer innovation team last summer, we have successfully negotiated 48 new agreements. Two-thirds of these are at episodic rates. Our home health business development and branch operation teams have been successful in moving volume to our payer innovation agreements. During the third quarter, we admitted over 6,000 patients within our new contracts. That's 72% sequential growth in admissions under these agreements. Remember that in quarter two, our new 2023 national agreement was effective for only two months. In the second quarter of this year, 10% of our non-episodic visits were in the new payer innovation contracts. In the third quarter, this grew to 22% of our non-episodic visits. We continue to estimate that every 5% of visits that shift from previous non-episodic payer contracts to new non-episodic payer innovation contracts represents an approximate $2 million increase to revenue and adjusted EBITDA annually. We are confident in our ability to make continued improvement in Medicare Advantage pricing and in the shift of our Medicare Advantage admissions to these improved payers. Some payers are now recognizing the variation of quality results within the industry and are willing to pay for access to high quality providers like Inhabit. Our success in staffing and nursing productivity in implementing the hospice case management model in our ongoing payer innovation contracting, and in building on the quality of our services are examples of our continuing investment for the future to meet the growing needs of home health and hospice services. I will now turn it over to Chrissy to further discuss this quarter's results, guidance, and the 2024 outlook.