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Encompass Health (EHC) Ties Up for Better Homehealth Care

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Zacks Equity Research
·4 min read
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Encompass Health Corporation EHC entered into a preferred provider deal with in-home care and assistance company Right at Home to provide better medical care to home health patients. The tie-up, effective since the fourth quarter of 2020, offers opportunities for value-based delivery models to meet the needs of patients.

On its last earnings call, management mentioned home care alliances related to SNF-at-home models and thus, this deal hasn’t come as a surprise. Both companies are working on developing tools that will help identifying patients who will cope with health issues via home care.

The combination of both companies is expected to result in better health outcomes owing to in-home care innovation and usage of data, which in turn, supports the needs of patients with complicated health problems. The strategic move is made at the right time when most patients prefer in-home care due to the COVID-led terror. However, combination of home care operators was seen in the pre-pandemic era as well. It mainly intends to serve patients with better home healthcare.

Right at Home is the perfect partner for this move as it has more than 500 home care offices in the United States apart from its wide presence in seven other countries.

Encompass Health provides facility-based and home-based patient care across its network of in-patient rehabilitation hospitals (IRFs), home health agencies and hospice points. As of Jan 26, the company had 241 home health agencies and 82 hospice locations in 31 states.

The company aims to fulfill demand for facility-based and home-based post-acute care services in the markets where it is not currently present by constructing or acquiring new hospitals and purchasing or opening home health and hospice agencies in those extremely fragmented industries.

Having said that, the company is looking at the alternatives to streamline its business. Management announced in 2020 that the company is exploring strategic options for selling its home health and hospice business. It is mulling over full or partial separation of the home health and hospice business from its parent company through an initial public offering, spin-off, merger, sale or other forms of transaction.

Though the company’s home health business is the fourth largest provider of Medicare-certified skilled home health services across the United States in terms of revenues, the same dipped 1.2% during 2020. With the spin-off of this unit, the company plans to focus and grow its core business — inpatient rehabilitation which is set to witness consistent growth, backed by its planned bed additions at a number of existing hospitals, acquisitions and construction of new hospitals.

The company currently has a Zacks Rank #5 (Strong Sell). Shares of the company have gained 21.6% in the past six months, outperforming its industry's growth of 6.2%.

Stocks to Consider

Some better-ranked stocks in the medical space are Tenet Healthcare Corporation THC, Select Medical Holdings Corporation SEM and Acorda Therapeutics, Inc. ACOR. While Select Medical sports a Zacks Rank #1 (Strong Buy), Tenet Healthcare and Acorda hold a Zacks Rank #2 (Buy), presently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tenet Healthcare, Select Medical and Acorda Therapeutics have a trailing four-quarter earnings surprise of 199.09%, 221.78% and 16.24%, on average, respectively.

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