This article is part of the HHCN+ membership
The Medicare CY2026 interest rate proposal rules have caused a storm of anxiety throughout the home health care industry. Some large providers said they expected their company to be largely unaffected by the rule, but only one reported that they expected growth opportunities if the final rule was similar to the proposed one.
I was surprised that any company expected to benefit from such a large rate reduction in the face of the largest proposed reduction the home health care industry has ever faced.
EnHabit (NYSE:EHAB) leaders said at the Jefferies Healthcare Services Conference that they recognize the potential for upside from the disruption that would result if the rule were passed as is.
In this week's members-only HHCN+ update, I share my analysis of Enhave's predictions and provide the following analysis and key takeaways.
– What are the expected growth opportunities for Enhave?
– Why company statements are surprising
– How will the industry change if leading home healthcare companies take advantage of these opportunities?
Inahab's prophecy
At Jefferies, EnHavit Chief Financial Officer Ryan Solomon highlighted the company's tactics to protect its earnings from the impact if the final rule includes a proposed 6.4% rate cut, saying EnHavit could meaningfully offset interest rate headwinds.
Still, company executives are concerned about pressure from lower interest rates. At HHCN's FUTURE conference last month, Bud Langham, Enhabit's general counsel and former executive vice president, said the proposed rules were his biggest concern for the industry.
“Such significant reductions are highly disruptive to the industry for a variety of reasons,” Wrangham said. “It's not just a margin issue. At the end of the day, it's a patient access issue. There's no debate. That's the issue we have to find.”
While the company certainly doesn't seem happy with the final rule, it does see a potential silver lining.
“If the final rule is anything like the proposal, I think it could potentially create some disruption and create more growth opportunities for our home health platform than we've seen so far this year,” Solomon said.
Although Solomon couldn't paint a clear picture of what kind of growth the company expects due to the interest rate turmoil, it's not hard to guess what he meant.
Deep rate cuts would hit small businesses and local providers the hardest.
Marisa Crecelius, deputy general counsel for Pennant Group (Nasdaq: PTNG), previously told HHCN that “the agency will be closed.”
As a result, large companies like EnHavit are poised to buy up struggling health care providers en masse or open their own branches in areas where local health care providers have closed and home health care services have just disappeared.
Why Enhave is hoping for a windfall amid interest rate turmoil
One reason I was surprised by Mr. Solomon's comments is that EnHavit is one of the most Medicare-dependent publicly traded home care companies.
According to a recent presentation from Avianna (Nasdaq: AVAH), Enhabit's payer mix consists of 66% Medicare reimbursement. The only company mentioned with a higher Medicare payout ratio is Amedisys (currently not publicly traded), which has a 2% higher Medicare mix.
Avianna emphasized payer and segment diversification in its presentation, contrasting it with companies like EnHabit, which has a more singular focus. It's worth remembering that Avianna's data doesn't distinguish between home health care and hospice. In other words, EnHabit's segment structure is more diverse than shown in the chart above.
To me, it's no surprise that EnHabit is hoping to be protected from the headwinds of a rate cut. With 249 home health locations and 114 hospice locations in 34 states, we have the scale to invest in technology, engage in meaningful payer negotiations, and innovate at scale. But with a payer mix so dependent on Medicare, it's still a little shocking that the company is the only one to see an opportunity, or at least talk about it publicly, in a widely criticized proposed regulation.
This single-minded approach may set the company up to do what it does best: home health care and hospice, and expand its clear vision. Given that the company has doubled down on home health agency acquisitions despite industry headwinds, I expect Pennant to make similar acquisitive moves. It recently implemented this strategy by spending $146.5 million to acquire 54 home health and hospice agencies that were sold as part of UnitedHealth's acquisition of Amedisys.
Overall picture of the industry
The bottom line for publicly traded home health companies is that their businesses can survive even with the biggest cuts in Medicare reimbursement rates in history. Without a cushion of scale, smaller providers may not be able to do so, creating opportunities for significant consolidation. We're going to see a giant grow with this rate cut.
Consolidation is already occurring in the home health care industry, but a rate cut could dramatically accelerate this trend, which could be a cause for concern for patients.
A study published in May in Health Services Management Research examined the impact of home health agency acquisition on quality of care using a sample of 10,184 agencies in the United States. Of the sampled institutions, 169 were acquired during the study period. The researchers found that process metrics improved “modestly” by 1.07% among the acquired institutions, but there were no significant changes in outcomes or patient experience metrics.
“These findings suggest that while integration may slightly improve the efficiency of home care processes, there is little benefit to patients,” the researchers wrote.
Still, the only way to maintain access to care may be for large providers without the resources to withstand such drastic price cuts to acquire smaller providers. Without these acquisitions, smaller institutions could potentially collapse, leaving gaps in access to care.
I expect these mega-providers will continue to change their approach to business as usual through diversification and more targeted growth. Without a reimbursement cushion, providers are likely to target geographic areas with a more reliable patient and worker base, rather than betting on rural areas. Therefore, it may be even less likely that access to care will significantly improve in typically underserved areas.
Unless the final rule differs materially from the one proposed, one thing is clear. The face of home health care will undergo significant and permanent changes.
