Awesome. Good morning and welcome again to the 2025 Jefferies Healthcare Services Conference. I'm Brian Tanquilut, Healthcare Services Analyst here at Jefferies. With us next is Enhabit, one of the larger operators of home nursing, providers of home nursing services in the United States. Joining us this morning are Barb Jacobsmeyer, Company CEO, and Ryan Solomon, Company CFO. Barb, thanks for being here. Ryan, thank you. Thank you. Barb, maybe let's start with a little bit of a State of the Union as well as an intro to Enhabit. I think some folks in the audience are not very familiar with Enhabit's story. Sure. Enhabit actually was part of Encompass and spun out into our own independent public company July 1 of 2022. We have 249 home health locations and 114 hospice locations in 34 states. I would say when you think about when we spun out, it was kind of towards the end of the pandemic, and our big focus was on recruitment and retention. We didn't really have a payer strategy, so implementing a payer strategy with so much shift to MA and focused on hospice and stabilizing and then working to grow. I think Q2 was a great example of those things coming all together. Yeah, so maybe a few things to hit on there. Let's start first with Q2 and sort of that recovery that we're starting to see in this story. If you can walk us through, like, yeah, what's been going on with volumes, what's been going on with pricing and your mix, I think people would appreciate the story even more. Sure. From the home health side of things, it's really been about getting contracted with the majority of the home health, with the Medicare Advantage plans. As more and more beneficiaries are choosing MA, we know to be considered a full service provider to our referral sources, we have to be able to take the majority of the payers. That has been about a two and a half year, really, staying at it and at the table negotiating to get contracts that are willing to pay us fairly for the services we provide. I think we're seeing the results of that both from a growth perspective as well as we look at improving that revenue per visit, particularly on the non-Medicare side of things. Barb, maybe let's start with Medicare. A lot of folks here in the room who are familiar with home health are worried about what the CMS proposal would do to the industry. 6% cut, pretty sizable. How are you thinking about it? How are you preparing for it? Any updates you could share with us in terms of what you're seeing or hearing out of D.C.? Sure. I'll touch a little bit on what we're seeing and hearing from D.C., and then I'll have Ryan talk a little bit about some of the things that we're working on as we look to mitigate whatever sort of impact we'll have. On the D.C. front and frankly on the CMS front, it really is about talking about their methodology, right? Everything of this is coming from the behavior neutrality that was expected after PDGM, which was the new payment system that home health moved to in 2020. Like you said, this year is probably the most significant cut that's being proposed. It's actually a 9% cut, and then it's offset by the market basket adjustment, but 6.4% is extreme. There was a bill introduced in the House a couple of weeks ago for the stabilization for home health, and what that legislative ask would be would be to have a two-year pause. For those that have not read both our comment letter as well as the comment letter from the Alliance, which is our largest trade association, there's a lot of data in those comment letters that show that not only has the methodology been flawed, but there's a lot of fraudulent data, particularly from L.A. County, that's included in some of that. Really to say this industry needs a two-year pause. We need positive regular market basket updates for a couple of years so that the industry can work with CMS on what should the data really look like, what should the impact to home health really look like from a budget neutrality perspective. All that being said, we all know that those things we still have to prepare as if kind of the worst happens. I'll let Ryan kind of touch a little bit on what we're doing to prepare. Yeah, and I think, you know, broadly as we think about potential impact there on an unmitigated basis, in some of our previous disclosures, we've estimated that at about a $35 million- $40 million headwind. As we think about that, there is no silver bullet, if you will, around the approach. One area we are very focused on is around our visits per episode and VPE. That's an area that we're piloting through Q3, and we think there's potentially some meaningful value as to how we think about that while balancing our clinical quality at the same time. Separate from that, there are areas of cost and kind of G&A, and some of that area is an area that we've been very focused on through Q3, making sure that we're preparing, as Barb Jacobsmeyer touched on, should the proposed rule look, or the final rule look more like the proposed. There's also elements of growth. I'd remind many here we have had substantial growth in our hospice platform. Should the final rule look more like the proposed, I think there will be potentially some disruption that could create some growth opportunity above and beyond what we have seen this year in our home health platform, particularly as we think about the second half of the year. There are elements there that are finer tuned in paraprofessional optimization and other aspects of the business that we've looked to continue to optimize. We believe that we can meaningfully offset any of the rate headwind that may come out of the final rule. There's an awful lot of focus and efforts through Q3 to prepare for that. Ryan, if I think about VPE or visits per episode, just for the audience, right? How are you thinking about that in terms of clinical, from a clinical perspective, the levers you can pull to do that methodically, whether it's systems, benchmarking, and when we look at the national average or these averages that we're seeing for visits per episode, it seems like you have room to bring it down, right? Just curious how you guys are strategizing around that and then quantifying how much of an offset you can get out of that initiative. Yeah, so I think how we're, you know, the initial pilot is how do we think about, you know, a very strong adherence to the, to the Medalogics Pulse tool, which is technology that we use that provides a visits per episode recommendation and adherence to that. We really want to see how does that, if at all, impact the quality to a large degree, which we would measure through what we call TIFs or transfer to inpatient type settings. We really want to balance that. We do believe there's a meaningful opportunity as you touched on. If you look at some of the, you know, some of our other peers that have public information, they too tend to hover in that kind of 12 visits per episode range. If you look at our most recent performance, we're just under 14. We think there's a meaningful opportunity there. We've sized that, for each half of a visit per episode, to be valued at roughly $5 million - $8 million annually of benefit. The range there is really informed by a couple different elements. How we think that would manifest itself is we free up that capacity and carry additional patient load with that current clinical capacity. There's a question of, as you free that up, how much efficiency or leakage would we potentially see? If we free up 10 visits, can we, you know, turn 8, 9? What is the efficiency level that we can turn those into new patient or visits on revenue producing patients? The second is then, what is the unit revenue around that? That really creates the range. Meaningful opportunity, at a very high level, still early innings, we'll be able to provide more guidance or communication on our Q3 call in that regard. We think there's a meaningful opportunity there and how we think about it is kind of in a few different dimensions. Barb, maybe just to take a step back from this topic, right? If you're at 14 visits per episode, industry average is like right around 12. Is there an explanation for that delta? I mean, is it the kinds of patients that you're seeing, the diagnoses, and then what do you need to do to bring that from 14 to 12? Sure. It is about, you know, we've always worked with our teams to balance, you know, one of our greatest value propositions to the payers and to our referral sources has been our really industry low readmission rates, right? We've said to our team members, listen, you're going to get a visit recommendation, you look at that visit recommendation, and then you determine, does the patient actually need a little bit more, based on that patient's acuity? We've always said, you know, this uses as a guidance, but use your clinical judgment. What we're doing in this new pilot is we actually have a team of individuals that is reviewing the Medalogics Pulse recommendation and frankly putting it into the system that you will do these number of visits. The only way to go beyond that is for the clinician to work with this team to explain why the variance. It is really kind of that higher level of review that we're doing. As Ryan said, monitoring the impact. We've been really clear, even in our comment letter to CMS, we can't commit that there will be zero impact. Frankly, the industry's kind of pushed us into the, or CMS has kind of pushed us into this corner, if you will. We're going to balance it as well as we can, but we're going to be much more prescriptive in following that recommendation. That makes a lot of sense. Maybe, Brian, as I think about G&A, you alluded to G&A savings opportunities as well. What areas are you looking at, or have you set a goal for G&A reduction targets? We haven't given a specific guidance or target in that regard. You know, there's natural areas that you'll look at. As you think about some of the administrative and kind of support functions, it's really more around efficiency that we would see there without impacting capability. We really want to be thoughtful in how we approach that because there are areas that you can take on cost savings, but may actually have unintended consequences on the business. We haven't given specific guidance there. That's something that I think, as we get into the Q4 period, and we've spent an awful lot of time in the last month plus understanding what the opportunities are. Some of those we've already actioned. Some of those I would characterize as more bullpen, and we want to continue to assess. Some of that may be informed by where the final rule goes as well. A lot of effort and activities, it's more of your traditional cost type review and exercise efforts, be broad-based and both be external and then any of our vendor spends or otherwise that we have might have an opportunity on. This next question, normally I'd be asking Barb this, but since she's retiring here soon, I'll ask Ryan the question. Ryan, if the rule goes through as proposed, I think there'll be a lot of disruption, maybe consolidation, distress in the industry. You've been generating much improved cash flows. How do you balance or how do you make that decision between debt pay down to bring to a target leverage ratio versus taking advantage of that disruption in the industry to consolidate and get bigger? Yeah, great question. I think we think there's an awful lot of value in consistency in how we think about our debt, prepayments, and continuing to reduce our leverage. We've made an awful lot of progress. You may have seen in some of the materials that we posted as part of the 8K in advance of the session here how much we've been able to move the dial on leverage. We've taken a full turn out since Q3 of 2023. Actually, through Q3, some additional disclosure here, we made an additional $10 million of prepayments in Q3 to date, and that brings the total to about $85 million of prepayments since that period of time. That's reduced, to your point, our annualized interest expense by just over $17 million. That cash flow gives us some flexibility. We think there's an awful lot of value in consistency there, consistency in investing in our de novo strategy. We've continued to deploy roughly 10 new de novos each year and then be more balanced and strategic as to how we think about M&A and technology and investments. That cash flow or that capability and being consistent on the other fronts, we think will continue to provide flexibility in the short and medium term. We believe we're positioned well regardless of where the final rule goes. I think the focus and consistency here will continue to provide us flexibility to capitalize on any opportunities that may be out there in the future. Barb, can I circle back just one to the pilot that you're running? Anything you can share with us in terms of early insights on the clinical outcomes that you're seeing out of the VPE initiative? What I would say is, the pilot is with 11 of our branches, and it just kicked off in August, and you only touched that on the start of episode. By the time we do our third quarter call, almost all that census of those 11 will be touched by it, but it's still a little bit too early to comment on the progress with it. It did kick off on time. Okay. No, totally understand. Shifting gears, pricing on the Medicare Advantage side. Obviously when you were spun off out of Encompass, that was a pain point or one of two key pain points. Where do we stand today and what are those conversations looking like with Medicare Advantage plans? Sure. We are certainly in a much better position, right? We really do consider ourselves as a full service provider now that we are contracted with all the major payers. I think we've done a really good job on being able to convince most of the payers to look at an episodic arrangement, mainly because that episodic then allows us to really manage those visits based on the patient acuity versus auth for, you know, same number of visits for patients regardless of the acuity. Allowing us to be able to not only negotiate better rates, but then have an ability to manage what that rate looks like based on your visits per episode. It has really been about us sitting with the payer and explaining to them that, you know, if they want access to our high quality of care, they have to be willing to pay for it. We explain why episodic is so important to us versus the per visit. I would say the other piece for us has really been about understanding where their pain points are, right? If they are having a bigger issue in getting patients out of the hospitals, how can we create an area where there's an opportunity where we win-win if we're able to get those patients out of the hospitals in a timely manner. It has really been about sitting and understanding their pain points and then meeting with them where they are. Again, in a much better place as far as being a full service provider now. You brought back one of the largest, if not the largest, payers out there into the fold. How's that looking? Yeah, so that's been really good. It was an important payer to be considered a full service provider because of how much market share they have. I think really, we had a very painful August through December last year, right? We had to give notice. We started discharging a lot of patients off census, had to communicate that we couldn't take those patients. It's painful not only for the patients, but frankly for our team members because we explained to the team members that we didn't create this challenge, the payer did. It's painful to go through. In the end, we're in a better place with the payer. That was important to be seen as that full service provider. Makes sense. Ryan, shifting gears here quickly, as I think about volumes, right? You've seen some improvement in the Medicare fee for service side of the business. Anything you can point to in terms of whether that's share gains, company initiatives that are driving that improvement, and where do you see that going? Yeah, and to build off of Barb Jacobsmeyer's comments, I mean, I think, you know, it's a very methodical approach. I mean, the payer innovation strategy has really positioned us as a full service provider and making sure our sales teams are equipped with the Medicare messaging around that. You know, and then really setting up our incentives and our sales incentive programs to make sure that we incentivize or align incentives in that regard. You know, with that is an awful lot of training and kind of messaging to make sure that we're optimizing our mix to referral providers that do provide a balanced mix of overall patients in that regard. It's been a very focused effort. It starts with do we have, what do we have, on the menu, so to speak, for our sales teams to be able to offer? How do we make sure we galvanize that messaging? How do we make sure we align our incentives and then ultimately set up our territories and kind of, you know, use the data to drive us into the areas where we feel like there's more opportunity. The outcomes that we've seen where we've cut the rate of decline materially was a key objective this year. We've been able to execute on that, and it's not just happenstance. It's really a focused effort across the organization as to how we drive that type of outcome. Barb, maybe just sticking to the topic of volumes. As we see changes in hospital acuity rates, I mean, you were a hospital executive at one point, right? We're seeing acuity go up in the hospital setting. You've got joint replacements moving to outpatient. Are you seeing any changes in the composition of your patient mix and the demand for home care as a whole? Yeah, I would say that we'll definitely continue to see that demand for the home care. The hospital settings in particular are having patients sit a lot longer waiting to be accepted, particularly on the Medicare Advantage side. I mean, if we think about it, fee for service has a lot of different avenues to go leaving the hospital, right? It's a lot easier to get them into an IRF or a SNF, whereas a lot of your MA want to really be able to not have those costs of a higher post-acute settings. There are a lot of patients on the hospital side, Medicare Advantage, that need to be moved out. It kind of ties to what Ryan was saying. That's why our messaging is so important. Listen, we want to be your full service provider, but we need a healthy payer mix. We have to spend some time educating the discharge planners at the hospitals that we want to take your all, but it means your all. It doesn't mean just this portion because that puts us upside down. Yes, there continues to be a greater need for patients and it's taking them longer, which is why our timely initiation of care has also been an important message to our referral services. Not only can we take the patients, but we can take them very timely. One other item to build on that is the ability to gas clutch break when we bring that full service provider capability. You may have heard on our Q2 call where we were also successful in negotiating a large national payer into a double-digit rate increase. We can also use that to kind of play more volume versus kind of a mix game at certain points. I think it's really important for our referral providers, but it's also a flexibility within the business to really, as I call it, kind of gas clutch break around how we think about the business and some of the volumes. Gas, clutch, brake. I haven't heard that in a long time. I've dated myself maybe a little bit. I want to pass it on to the audience. If there are questions, please raise your hand and we'll get you a mic. Yes, sir. the Centers for Medicare & Medicaid Services guy, you know, one of the things that we've heard is that we're going to basically take the extreme approach to get Congress to do something, but we're not going to be able to ask them to do legislation in the same spouse. It's not going to be with the Centers for Medicare & Medicaid Services. I I think last month, I'm just going to see if we have the all right to talk about. The question is around legislation being an answer to, for Centers for Medicare & Medicaid Services' proposed rule. Yeah, I mean, I think the piece that's difficult is that CMS actually themselves has the authority to make this decision themselves, right? They have authority to do things in the time and in the manner in which they deem necessary. They do have the authority to do that. To your point, does it make more sense for CMS to continue down the path they've been on and then create this opportunity for there to be some sort of legislative fix? It's why there's two things happening right now. There's a lot of work, a lot of meetings happening with CMS, the comment letters, but we can't wait for that. We have to be prepared with potentially a legislative fix. [audio distortion]. The question is on labor and what they're seeing on trends and impact from immigration. Yeah, we are really not seeing the impact from an immigration perspective, but what I would say, you know, we have in a much better situation as it relates to our labor force today than if you look back a few years ago. We always have certain markets that are challenging. For example, the Northeast for therapy is a challenging piece for us right now, but nothing across the country as far as a challenge. I would say one of the opportunities we have seen as of late is that, you know, we have a lot of peers out there that are staring down these potential cuts that do not have the visits per episode as a lever for them. They've already frankly probably squeezed out as much as they can without impacting quality. We have heard in many of our markets of some of these companies moving to paying per visit versus salaried, changing some of their benefit plans. I will tell you, in those situations, we are taking advantage of making sure that people know and our own team knows focusing on any kind of changes that impact our employees is not on, you know, is this not part of our plan? Our plan is really this focus on G&A expenses, growth, and the visits per episode. Just kind of as more of an opportunity for Enhabit at this point. You spoke about Medalogics. What Medalogics do you need to do to justify their business? Or do you need any other technology or? Really, Medalogics has been the most key place now that we did move to the Medalogics Pulse tool. In the past, the tool that we used was called Care, and it was more of kind of looking at a one snapshot of a patient and making the initial recommendation, and there'd be no changes. The Pulse tool actually updates every time clinicians are adding information. A patient can move from a low risk to a medium to a high risk or the other way. It really helps you kind of consistently look at those visits that have been recommended and change if you need to, maybe moving visits from somebody that now is really low risk to someone that for some reason had moved high risk. Again, with that goal of managing your best visits per episode plan, but really making sure that you continue to provide that high quality of care. Ryan, maybe I'll ask you a quick question. As I think about just capital deployment, the question on technology has popped up. M&A, what are the areas or how are you thinking about capital deployment over the next two years or so? Yeah, I think there's a value uncertainty as to how you think about the return that would benefit the business. If you think about, okay, clear and present value around consistency in our debt and pay down approach, we think about de novo expansion, the certainty and value around that. I think the M&A, for the reasons we've talked about, with rate uncertainty, there can be some challenges in trying to kind of solve for buyer-seller imbalance on some of the M&A front. There's probably a little less certainty. That may change here in the near future, depending upon where the Centers for Medicare & Medicaid Services goes and some of the rate setting methodology. That's how, generally, I've thought about it. As you touched on, I think we've had some really strong performance. We've generated an awful lot of cash flow. Where can we deploy that and create consistency and return for our shareholders? As you kind of go down through that lens, that's how we generally have thought about it. Technology is an area that, when you think about that relative to strategic and investments, there's areas that, and not necessarily at the point to share, but there's a lot of other aspects that are interesting that could really impact our clinicians' ability to, whether it be documentation, efficiency in that regard. There's a lot of areas there that could be quite interesting that would require some investment, both in kind of capital deployment, but then also just change management across the organization that we're really focused on. As you kind of put it down through that filter, I think technology is probably somewhere in between, call it the leverage and de novo expansion and some of the high certainty. I think technology and what we're seeing there actually is something that we feel like Enhabit can differentiate ourselves around, invest in, and create a differentiated outcome for our patients, but then also a real talent acquisition tool as we think about making the clinicians' day-to-day life a bit easier in documentation or within the home and things of that sort. That makes a lot of sense. There are no questions from the audience, so I'll keep asking. Hospice. You've delivered real good growth in hospice. What are you doing differently this time, or is that just the macro environment for hospice that's helping you? No, I would say I give full credit to our team for what's happening with us with hospice. This has been, we've been on a journey, as you all know. The biggest thing we had to focus on initially was making sure we had the right care management plan in place on how we had our, how we structured our care team. I had heard loud and clear when I first joined the company that we ran hospice like home health. We had very high turnover on our hospice, and we had a lot of capacity constraints. We spent about a year investing in a new care team and how we handled things from triage and on-call and those sorts of things. That significantly helped our recruitment, our retention, and really eliminating all capacity constraints. Once we knew we really had that in a strong position, we moved to, okay, what do we need to be doing different from a business development standpoint? Built out a team of the business development folks that really came with experience on how to diversify those referral sources. They're the ones that really gave the intel on we need to have these admission departments. We have to be able to give an answer quickly. We can't have that be a local branch director balancing a bunch of things. We have to have a team that can get the referral, assess, and give an answer. I think those things collectively have driven the results that we've seen over the last 18 months. Barb, this is the last question. It's going to be a loaded one. Oh, thanks for the heads up. No, it's more of the, what do you think right now is underappreciated by investors as it relates to the Enhabit story? Maybe I'll just throw this in there. You're obviously retiring here soon. What do you think are the opportunities for the next management or for the next CEO to build on for the future of Enhabit? Sure. I guess I'll call out the two things I think are most underappreciated. One is the length of time that it takes on these payer contracts. We have to be willing to walk away, but that causes disruption. We saw that just in the last quarter, right? We had to be willing to walk away. We saw an immediate decrease in census from a certain payer, but that is what it took to get the double-digit increase. I think that's underappreciated, that kind of work that it takes. Hospice, I think it's underappreciated, the sum of the parts. When you think about it, I think people still think of hospice as it was when we spun and not the value that hospice is today. I don't think there's enough emphasis put on the sum of the parts for the company. I would say, you know, to me, what's exciting for the next leader is that Enhabit is in a wonderful place. We are in a place to differentiate. As Ryan touched on, I think looking at some of the technology and innovation and really differentiate ourselves from a clinical experience, because if we can pull more clinicians, frankly, we're going to pull more market share. I think there's a lot of opportunity for Enhabit as we look to the future. I think the next leader will be in a great place. Good luck on improving the golf game, as you said. No, but with that, I want to say thank you to Barb and Ryan. Good luck to both of you guys, and thanks to everyone for being here today. Thank you.