Encompass Health (NYSE:EHC) Corp reported robust financial results for the third quarter of 2023, with revenues and adjusted EBITDA growing by 10.8% and 21.6% respectively. The company also reported a 7.3% increase in total discharges and a 4.3% rise in same-store discharges. Amid labor inflation and recruitment challenges, the company has managed to reduce contract labor and bonus expenditures significantly. Looking ahead, Encompass Health is optimistic about its future growth, updating its 2023 guidance to include higher net operating revenue and adjusted EBITDA.
Key takeaways from the call:
- The company is investing in capacity additions, planning to open two new hospitals in Q4, which will add 441 beds to its total capacity for the year.
- Encompass Health has reduced contract labor by 24% and sign-on and shift bonuses by 41% compared to Q3 2022.
- The company expects labor inflation to moderate in the coming year and has been successful in hiring new registered nurses (RNs) and reducing turnover.
- Encompass Health believes it has taken market share from skilled nursing facilities and is well-positioned to continue providing value to referral sources and payers.
The company discussed its recruitment efforts, particularly for registered nurses, and its initiatives to address staff shortages. It expects labor inflation to moderate next year and has been successful in reducing turnover among new RN hires. Encompass Health also expects volume growth to be influenced by the maturation of new hospitals and the addition of beds to existing hospitals.
In terms of patient categories, the company reported growth in areas like orthopedics, stroke, brain injury, and cardiac care. It also reported strong growth in Medicare Advantage (MA) discharges, particularly for stroke patients, and expects this trend to continue.
The company accelerated the opening of a hospital from 2024 to 2023 due to factors such as prefabrication, licensing, and staffing. The company also clarified a write-off of a de novo project, stating it was below the adjusted EBITDA line and an anomaly in terms of its size.
Looking ahead, the company expects similar ramp-up costs in 2024 as they plan to open more facilities. They are keeping an eye on regulatory and legislative developments, particularly regarding site neutrality and the Recovery Audit Contractor Demonstration program. Encompass Health continues to work on payer negotiations and is making progress in reducing the differential between fee-for-service Medicare and Medicare Advantage plans.
With a strong Q3 performance and proactive strategies to tackle labor and market challenges, Encompass Health remains optimistic about its future growth. The company updated its 2023 guidance to include net operating revenue of $4.77 billion to $4.8 billion, adjusted EBITDA of $940 million to $955 million, and adjusted earnings per share of $3.41 to $3.52.
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