Encompass Health Corp. shared additional details Thursday about plans to spin off its Dallas-based home health care and hospice business before the end of the summer.
The deal is expected to close on July 1, at which point it will become publicly traded and independent of Birmingham-based Encompass Health, the company said in a release. It plans to raise $400 million with the public offering, according to a filing.
Encompass decided to spin the business unit off because it has unique management, finance and M&A needs compared with the overall company. It believes the deal will “allow investors to more clearly understand the separate business models, financial profiles and investment identities of the two companies,” it said in a filing.
Investors will own stock in both companies when the deal is completed.
Enhabit’s business included 252 home health locations and 99 hospice locations nationwide at the end of March. It operates in 34 states.
By Medicare expenditures, the company said its home health business ranked among the largest in the nation in 2020. Its hospice business accounted for just 1% of the Medicare hospice market that same year.
“Although we entered hospice more recently than home health, we expect hospice to generate significant growth in the business going forward and to contribute to ongoing efforts to grow scale and density,” the company said in a filing with the U.S. Securities and Exchange Commission.
Home health care makes up roughly 80% of the company’s revenue, while hospice services make up the other 20%.
The home health care portion of the company had net revenue of $1.1 billion in 2021, up from $507 million in 2015, according to a filing. The hospice business generated $209 million in revenue in 2021. Medicare and Medicare Advantage plans are Enhabit’s largest source of income.
Since 2015, Encompass spent $760 million to acquire 38 companies in the home health and hospice industry, and it opened 29 new locations across 15 states.
The company boasts in a filing that its lower than average cost per home health visit for patients allows for more efficiency and higher profitability compared with its peers.
And Enhabit sees that growth continuing, citing an aging U.S. population and the relative affordability of home-based health care. The number of residents in the U.S. aged 65 years or older is expected to total 73 million by 2030, up from around 54 million in 2019.
As of 2020, soon-to-be Enhabit’s home health care and hospice business was the No. 1 provider of home health and hospice services in eight states, including Texas, Oklahoma, New Mexico and Colorado.
As the new company gets ready to welcome investors, it noted in filings that its business does not come without some risk. Risk factors to Enhabit’s operations include regulation, potential delays in Medicare claim collections, staffing shortages, the COVID-19 pandemic and potential complications with the separation from Encompass, according to a filing.
After the split from Encompass, Enhabit will have its own management and board of directors.
Enhabit announced it had appointed nine members to its board, including board chair Leo I. Higdon Jr., Enhabit president and CEO Barbara A. Jacobsmeyer, former Mayo Clinic vice president Jeffrey W. Bolton, Yvonne M. Curl, corporate governance expert Charles M. Elson, Aetna vice president Erin P. Hoeflinger, former Morehouse School of Medicine CEO John E. Maupin Jr., Gregory S. Rush and former independent counsel to the NYSE board of directors L. Edward Shaw Jr.
“This announcement is another exciting step as Enhabit embarks on our next chapter as an independent, public company,” Jacobsmeyer said in a statement. “We have a comprehensive transition plan in place and are confident that the board’s diverse background and experience will help guide us into the future as we work to expand what’s possible for patient care at home.”
Encompass originally announced the spinoff deal in January. It comes eight years after Encompass acquired the home health care business with a similar name to its own in 2014 for $750 million in cash and rollover equity. Encompass Health founder April Anthony is being sued by both Encompass Health and Encompass Health Corp. for allegedly violating a non-compete agreement when she left the company to begin a competing business last year.