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What changed in Enhabit, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Enhabit, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+452 added−460 removedSource: 10-K (2024-03-15) vs 10-K (2023-04-14)

Top changes in Enhabit, Inc.'s 2023 10-K

452 paragraphs added · 460 removed · 350 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

150 edited+35 added−58 removed85 unchanged
Biggest changeThe following table identifies the sources and relative mix of our revenues for the periods stated for our consolidated business: For the Year Ended December 31, 2022 2021 2020 Medicare 78.4 % 81.9 % 83.1 % Medicare Advantage 14.2 % 10.6 % 10.8 % Managed care 6.1 % 5.9 % 4.4 % Medicaid 1.2 % 1.4 % 1.4 % Other 0.1 % 0.2 % 0.3 % Total 100.0 % 100.0 % 100.0 % Medicare Reimbursement Medicare is a federal program that provides hospital and medical insurance benefits to persons aged 65 and over, qualified disabled persons, and persons with end-stage renal disease.
Biggest changeFor the year ended December 31, 2023, revenues from Medicare and Medicare Advantage represented 90.5% of total Net service revenue . 7 The following table identifies the sources and relative mix of our revenues for the periods stated for our consolidated business: For the Year Ended December 31, 2023 2022 2021 Medicare (1) 71.5 % 78.4 % 81.9 % Medicare Advantage 19.0 % 14.2 % 10.6 % Managed care 8.2 % 6.1 % 5.9 % Medicaid 1.2 % 1.2 % 1.4 % Other 0.1 % 0.1 % 0.2 % Total 100.0 % 100.0 % 100.0 % (1) The decline in Medicare revenue as a percentage of our home health Net service revenue and corresponding increase in Medicare Advantage revenue is primarily the result of continued national enrollment increases in Medicare Advantage plans by Medicare beneficiaries.
In accordance with Medicare laws and statutes, CMS makes annual adjustments to Medicare payment rates in 8 prospective payment systems, including the HH-PPS and Hospice-PS, by what is commonly known as a “market basket update.” CMS may take other regulatory action affecting rates as well.
In accordance with Medicare laws and statutes, CMS makes annual adjustments to Medicare payment rates in prospective payment systems, including the HH-PPS and Hospice-PS, by what is commonly known as a “market basket 8 update.” CMS may take other regulatory action affecting rates as well.
For additional discussion of the regulatory risks associated with our business, see Item 1A, “ Risk Factors—Risks Related to Our Business—Other Regulatory Risks .” Licensure and Certification Healthcare providers are subject to numerous federal, state, and local regulations relating to, among other things, the adequacy of medical care, equipment, personnel, operating policies and procedures, infection control, and maintenance of adequate records and patient privacy.
For additional discussion of the regulatory risks associated with our business, see Item 1A, “ Risk Factors—Risks Related to Our Business .” Licensure and Certification Healthcare providers are subject to numerous federal, state, and local regulations relating to, among other things, the adequacy of medical care, equipment, personnel, operating policies and procedures, infection control, and maintenance of adequate records and patient privacy.
Accordingly, we cannot assure that every relationship complies fully with the Stark law. Health Insurance Portability and Accountability Act ( “ HIPAA ”) —Anti-Fraud Regulations The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) broadened the scope of certain fraud and abuse laws by adding criminal provisions for healthcare fraud offenses.
Accordingly, we cannot assure that every relationship complies fully with the Stark law. Health Insurance Portability and Accountability Act ( “ HIPAA ”) —Anti-Fraud Regulations The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) broadened the scope of certain fraud and abuse laws by adding criminal provisions for certain healthcare fraud offenses.
Federal relief funding, including funds distributed under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”), the Paycheck Protection Program and the Medicare Accelerated Advanced Payment Program, as well as the payroll tax deferral permitted by the CARES Act, has temporarily delayed the potentially negative effects of PDGM for those home health agencies that accepted relief funding.
Federal relief funding, including funds distributed under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”), the Paycheck Protection Program and the Medicare Accelerated Advanced Payment Program, as well as the payroll tax deferral permitted by the CARES Act, temporarily delayed the potentially negative effects of PDGM for those home health agencies that accepted relief funding.
The federal and state governments establish payment rates as described in more detail below. We negotiate the payment rates with non-governmental group purchasers of healthcare services that are included in “Managed care” in 7 the table below, including private insurance companies, employers, health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), and other managed care plans.
The federal and state governments establish payment rates as described in more detail below. We negotiate payment rates with non-governmental group purchasers of healthcare services that are included in “Managed care” in the table below, including private insurance companies, employers, health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), and other managed care plans.
The IMPACT Act requires PACs to report: (1) standardized patient assessment data at admission and discharge; (2) quality measures, including functional status, skin integrity, medication reconciliation, incidence of major falls and patient preference regarding treatment and discharge; and (3) resource use measures, including Medicare spending per beneficiary, discharge to community and hospitalization rates of potentially preventable readmissions.
The IMPACT Act requires PACs to report: (1) standardized patient assessment data at admission and discharge; (2) quality measures, including functional status, skin integrity, medication reconciliation, incidence of major falls and patient preference regarding treatment and discharge; and (3) resource use measures, including Medicare spending per 15 beneficiary, discharge to community and hospitalization rates of potentially preventable readmissions.
The models stratify the patient population based on hospitalization risk and use interactive voice response technologies to increase touch points with high-risk patients. The models also identify home health patients who are potentially better suited and eligible for hospice care, ensuring that our patients receive care from the service line best matching their care needs.
The models stratify the patient population based on hospitalization risk and use interactive voice response technologies to increase touch points with high-risk patients. The 17 models also identify home health patients who are potentially better suited and eligible for hospice care, ensuring that our patients receive care from the service line best matching their care needs.
We believe this creates loyalty for physicians and facilities, generating greater consistency in 17 future referrals. Additionally, a web-based portal allows referring physicians to easily monitor the care and progress of patients and to sign orders electronically. We also work with a predictive analytics platform to improve our data analysis of patient care.
We believe this creates loyalty for physicians and facilities, generating greater consistency in future referrals. Additionally, a web-based portal allows referring physicians to easily monitor the care and progress of patients and to sign orders electronically. We also work with a predictive analytics platform to improve our data analysis of patient care.
Many states have experienced shortfalls in their Medicaid budgets and are implementing significant cuts in Medicaid reimbursement rates. Additionally, certain states control Medicaid expenditures through restricting or eliminating coverage of some services. Continuing downward pressure on Medicaid payment rates 11 could cause a decline in that portion of our Net service revenue .
Many states have experienced shortfalls in their Medicaid budgets and are implementing significant cuts in Medicaid reimbursement rates. Additionally, certain states control Medicaid expenditures through restricting or eliminating coverage of some services. Continuing downward pressure on Medicaid payment rates could cause a decline in that portion of our Net service revenue .
One type of audit contractor, the Recovery Audit Contractors (“RACs”), receives claims data directly from MACs on a monthly or quarterly basis and is authorized to review previously paid claims. CMS has authorized RACs to conduct complex reviews of the medical records associated with home health reimbursement claims.
One type of audit contractor, the Recovery Audit Contractors (“RACs”), receives claims data directly from MACs on a monthly or quarterly basis and is authorized to review previously paid claims. CMS has authorized RACs to conduct complex reviews of the medical records associated with home health and hospice reimbursement claims.
We invest significant time and training resources teaching our operators to utilize the informatics of our technology to help drive timely decisions in the field. Our pairing of technology with a culture that includes substantial training resources and well-established operating protocols helps us deliver superior 4 results.
We invest significant time and training resources teaching our operators to utilize the informatics of our technology to help drive timely decisions in the field. Our pairing of technology with a culture that includes substantial training resources and well-established operating protocols helps us deliver superior results.
Congress is not obligated to adopt MedPAC recommendations, and, in previous years, Congress has frequently chosen not to adopt MedPAC’s recommendations. However, MedPAC’s recommendations have, and could in the future, become the basis for subsequent legislative or, as discussed below, regulatory action. The Medicare statutes are subject to change from time to time.
Congress is not obligated to adopt MedPAC recommendations, and, in previous years, Congress has frequently chosen not to adopt MedPAC recommendations. However, MedPAC recommendations have, and could in the future, become the basis for subsequent legislative or, as discussed below, regulatory action. The Medicare statutes are subject to change from time to time.
These safe harbors exempt specified activities, including bona-fide employment relationships, contracts for the rental of space or equipment, personal service arrangements, and management contracts, so long as all of the requirements of the safe harbor are met. 13 Physician Self-Referral Law .
These safe harbors exempt specified activities, including bona-fide employment relationships, contracts for the rental of space or equipment, personal service arrangements, and management contracts, so long as all of the requirements of the safe harbor are met. Physician Self-Referral Law .
To further aid in employee development, we have invested in what we believe to be best-in-class technology to offer on demand learning and development programs, including podcasts and a broadcast studio for enhanced virtual learning. Another important aspect of employee development is succession planning.
To aid in employee development, we have invested in what we believe to be best-in-class technology to offer on demand learning and development programs, including podcasts and a broadcast studio for enhanced virtual learning. Another important aspect of employee development is succession planning.
People and Award-Winning Culture Through our employee-first culture, we undertake significant efforts to ensure our clinical and support staff receive the education, training, support, and recognition necessary to provide the highest quality care in the most cost-effective manner.
People and Award-Winning Culture Through our employee-first culture, we undertake significant efforts to ensure our clinical and support staff receive the education, training, and support necessary to provide the highest quality care in the most cost-effective manner.
The federal law commonly known as the “Stark law” and CMS regulations promulgated under the Stark law prohibit physicians from making referrals for “designated health services” including separately billable physical and occupational therapy, and home health services, to an entity in which the physician (or an immediate family member) has an investment interest or other financial relationship, subject to certain exceptions.
The federal law commonly known as the “Stark law” and CMS regulations promulgated under the Stark law prohibit physicians from making referrals for “designated health services,” including separately billable physical and occupational therapy, and home health services, to an entity in which the physician (or an immediate family member) has an investment interest or other financial relationship, subject to certain exceptions.
Our home health business benefits from a diversity of referral sources, with patients arriving from acute care hospitals, inpatient rehabilitation facilities, surgery centers, assisted living facilities, and skilled nursing facilities, as well as community physicians. We work closely with patients, families, caregivers, and physicians to deliver data-driven, evidence-based care plans focused on patient needs and goals.
Our home health business benefits from a diversity of referral sources, with patients referred from acute care hospitals, inpatient rehabilitation facilities, surgery centers, assisted living facilities, and skilled nursing facilities, as well as community physicians. We work closely with patients, families, caregivers, and physicians to deliver data-driven, evidence-based care plans focused on patient needs and goals.
We have been recognized for seven consecutive years by Fortune magazine as a ‘Top 20 in Healthcare’ in the United States and for ten consecutive years by Modern Healthcare as a ‘Best Place to Work.’ We believe our award-winning culture is an important component to attracting and retaining talent as demand for our services continues to grow.
We have been recognized for nine consecutive years by Fortune magazine as a ‘Top 20 in Healthcare’ in the United States and for ten consecutive years by Modern Healthcare as a ‘Best Place to Work in Healthcare.’ We believe our award-winning culture is an important component to attracting and retaining talent as demand for our services continues to grow.
In response to the public health emergency associated with the pandemic, Congress and the President suspended sequestration through April 1, 2022, as discussed further below. On February 9, 2018, President Trump signed into law the Bipartisan Budget Act of 2018 (the “2018 Budget Act”), which includes several provisions affecting Medicare reimbursement.
In response to the public health emergency associated with the pandemic, Congress and the President suspended sequestration through April 1, 2022, as discussed further below. On February 9, 2018, President Trump signed into law the Bipartisan Budget Act of 2018 (the “2018 Budget Act”), which included several provisions affecting Medicare reimbursement.
The Congressional Budget Office has estimated that the American Rescue Plan Act will result in budget deficits that will require a 4% reduction in Medicare program payments for 2022 under the Statutory Pay-As-You-Go Act (“Statutory PAYGO”) of 2010 unless Congress and the President take action to waive the Statutory PAYGO reductions.
The Congressional Budget Office estimated the American Rescue Plan Act would result in budget deficits that will require a 4% reduction in Medicare program payments for 2022 under the Statutory Pay-As-You-Go Act (“Statutory PAYGO”) of 2010 unless Congress and the President take action to waive the Statutory PAYGO reductions.
However, for the year ended December 31, 2022 Medicaid payments represented only 1.2% of our consolidated Net service revenue . In certain states in which we operate, we are experiencing an increase in Medicaid patients, partially as a result of expanded coverage consistent with the intent of the 2010 Healthcare Reform Laws.
In certain states in which we operate, we are experiencing an increase in Medicaid patients, partially as a result of expanded coverage consistent with the intent of the 2010 Healthcare Reform Laws. However, for the year ended December 31, 2023 Medicaid payments represented only 1.2% of our consolidated Net service revenue .
The 2010 Healthcare Reform Laws amended the federal Anti-Kickback Law to provide that proving violations of this law does not require proving actual knowledge or specific intent to commit a violation. Another amendment made it clear that Anti-Kickback Law violations can be the basis for claims under the FCA.
The 2010 Healthcare Reform Laws amended the federal Anti-Kickback Statute to provide that proving violations of this law does not require proving actual knowledge or specific intent to commit 13 a violation. Another amendment made it clear that Anti-Kickback Statute violations can be the basis for claims under the FCA.
Our Competition We are the fourth-largest provider of Medicare-certified skilled home health services and a leading provider of hospice services in the United States, measured by 2020 Medicare revenues. Our primary competition varies from market to market. Providers of home health and hospice services include both not-for-profit and for-profit organizations.
Our Competition We are the fourth-largest provider of Medicare-certified skilled home health services and a leading provider of hospice services in the United States, measured by 2022 Medicare revenues. Our primary competition varies from market to market. Providers of home health and hospice services include both for-profit and not-for-profit organizations.
U.S. Department of Health and Human Services Office for Civil Rights (“HHS-OCR”) implemented a permanent HIPAA audit program for healthcare providers nationwide in 2016. As of December 31, 2022, we have not been selected for audit. HIPAA—Administrative Simplification and Privacy HIPAA and related U.S.
U.S. Department of Health and Human Services Office for Civil Rights (“HHS-OCR”) implemented a permanent HIPAA audit program for healthcare providers nationwide in 2016. As of December 31, 2023, we have not been selected for audit. HIPAA—Administrative Simplification and Privacy HIPAA and related U.S.
We believe we are an attractive partner for patients transitioning from a facility-based setting due to the quality of our outcomes, data management, scale and market density, and proven ability to safely transition high acuity and/or chronically ill patients to the home.
We believe we are an attractive provider for patients transitioning from a facility-based setting due to the quality of our outcomes, data management, scale and market density, and proven ability to safely transition high acuity and/or chronically ill patients to the home.
For example, in March 2010, President Obama signed the Patient Protection and Affordable Care Act. With respect to Medicare reimbursement, the 2010 Healthcare Reform Laws provided for specific reductions to healthcare providers’ annual market basket updates and other payment policy changes.
For example, in March 2010, President Obama signed the Patient Protection and Affordable Care Act (“2010 Healthcare Reform Laws”). With respect to Medicare reimbursement, the 2010 Healthcare Reform Laws provided for specific reductions to healthcare providers’ annual market basket updates and other payment policy changes.
For example, home health and hospice agencies are required to submit quality data to CMS each year, and the failure to do so in accordance with the rules will result in a 2% reduction in their market basket annual payment update.
For example, home health and hospice agencies are required to submit quality data to CMS each year, and the failure to do so in accordance with the rules will result in a 2% and 4% reduction, respectively, in their market basket annual payment update.
Because we furnish thousands of similar services a year for which we are reimbursed by Medicare and other federal payors and there is a relatively long statute of limitations, a billing error, cost reporting error or disagreement over physician medical judgment could result in significant damages and civil and criminal penalties under the FCA.
Because we furnish thousands of services a year for which we are reimbursed by Medicare and other federal payors and for which there is a relatively long statute of limitations, a billing error, cost reporting error or disagreement over physician medical judgment could result in significant civil damages under the FCA and penalties under criminal fraud equivalents.
Also, the charters of our Audit Committee, Compensation and Human Capital Committee, Compliance/Quality of Care Committee, Finance Committee and Nominating/Corporate Governance Committee, our Corporate Governance Guidelines, Standards of Business Conduct and Ethics, Insider Trading Policy, Recoupment Policy, Amended and Restated Bylaws, Certificate of Incorporation and information regarding certain of our investor presentations, press releases and shareholder communications are available through our website.
Also, the charters of our Audit and Finance Committee, Compensation and Human Capital Committee, Care, Compliance, and Cybersecurity Committee, Nominating/Corporate Governance Committee, our Corporate Governance Guidelines, Standards of Business Conduct and Ethics, Insider Trading Policy, Incentive Compensation Recoupment Policy, Amended and Restated Bylaws, Certificate of Incorporation and information regarding certain of our investor presentations, press releases and shareholder communications are available through our website.
In addition, HIPAA created new enforcement mechanisms to combat fraud and abuse, including the Medicare Integrity Program, and an incentive program under which individuals can receive a monetary reward for providing information on Medicare fraud and abuse that leads to the recovery of at least a portion of the Medicare funds. Violating HIPAA results in civil and criminal monetary penalties.
In addition, HIPAA created new enforcement mechanisms to combat fraud and abuse, including the Medicare Integrity Program, and an incentive program under which individuals can receive a monetary reward for providing information on Medicare fraud and abuse that leads to the recovery of at least a portion of the Medicare funds. Violating HIPAA may result in civil and criminal penalties.
Patients are generally not responsible for the difference between established gross charges and amounts reimbursed for such services under Medicare, Medicaid, and other private insurance plans, HMOs, or PPOs, but patients are responsible to the extent of any exclusions, deductibles, copayments, or coinsurance features of their coverage.
Patients are generally not responsible for the difference between established gross charges and amounts reimbursed for such services under Medicare, Medicaid, and other private insurance plans, HMOs, or PPOs, but patients are responsible to the extent of any exclusions, deductibles, co-payments, or coinsurance features of their coverage.
Regulation The healthcare industry is subject to significant federal, state, and local regulations that affect our business by controlling our reimbursement rates, requiring operational licenses or certification, regulating our relationships with physicians and other referrals, regulating our properties, and controlling our growth.
Regulation The healthcare industry is subject to significant federal, state, and local regulations that affect our business by controlling our reimbursement rates, requiring operational licenses or certification, regulating our relationships with physicians and other referral sources, regulating our properties, and controlling our growth.
Our dedicated team of professionals works together to manage symptoms so that a patient’s remaining time may be spent with dignity and in relative comfort, surrounded by their loved ones, typically in their own home.
Our dedicated team of professionals works together to manage symptoms so that a patient’s remaining time may be spent with dignity and in relative comfort, surrounded by loved ones, and typically at home.
Our industry leading capabilities and clinical results, including our low acute care hospitalization and hospital readmission rates, position us to bring value to Medicare Advantage payors, who are focused on managing, and reducing, the total cost of care.
Our industry-leading capabilities and clinical results, including our low acute care hospitalization and hospital readmission rates, position us to bring value to all payors, who are focused on managing and reducing the total cost of care .
CMS has also established contractors known as the Uniform Program Integrity Contractors (“UPICs”). These contractors conduct audits with a focus on potential fraud and abuse issues. Like the RACs, the UPICs conduct audits and have the ability to refer matters to the HHS-OIG or the United States Department of Justice (“DOJ”).
CMS has also established contractors known as the Uniform Program Integrity Contractors (“UPICs”). These contractors conduct audits with a focus on potential fraud and abuse issues. Like the RACs, the UPICs conduct audits and have the ability to refer matters to the HHS-OIG or the U.S. Department of Justice (“DOJ”).
Governmental Review, Audits, and Investigations Medicare reimbursement claims made by healthcare providers, including home health and hospice agencies, are subject to audit from time to time by governmental payors and their agents, such as Medicare Administrative Contractors (“MACs”) that act as fiscal intermediaries for all Medicare billings, auditors contracted by CMS, and insurance carriers, as well as the HHS-OIG, CMS, and state Medicaid programs.
Governmental Review, Audits, Surveys, and Investigations Medicare reimbursement claims made by healthcare providers, including home health and hospice agencies, are subject to audit from time to time by governmental payors and their agents, such as MACs that act as fiscal intermediaries for all Medicare billings, auditors contracted by CMS, and insurance carriers, as well as the HHS-OIG, CMS, and state Medicaid programs.
The federal government has become increasingly aggressive in asserting that incidents of erroneous billing or record keeping represent FCA violations and in challenging the medical judgment of independent physicians as the basis for FCA allegations. Relationships between Physicians and Other Providers State and Federal law regulates relationships between physicians and certain healthcare providers.
The federal government has become increasingly aggressive in asserting that incidents of erroneous billing or record keeping represent FCA violations and in challenging the medical judgment of independent physicians as the basis for FCA allegations. Relationships between Physicians and Other Providers State and federal laws regulate relationships between physicians and certain healthcare providers.
Volunteers provide day-to-day administrative and direct patient care services in an amount that, at a minimum, equals 5.0% of the total patient care hours of all paid hospice 10 employees and contract staff. A nurse or other professional conducts an onsite visit every two weeks to evaluate if aides are providing care consistent with the care plan.
Volunteers provide day-to-day administrative and direct patient care services in an amount that, at a minimum, equals 5.0% of the total patient care hours of all paid hospice employees and contract staff. A registered nurse conducts an onsite visit every two weeks to evaluate if aides are providing care consistent with the care plan.
Civil Monetary Penalties Law Under the Civil Monetary Penalties Law, HHS may impose civil monetary penalties on healthcare providers for a variety of prohibited conduct including, but not limited to, knowingly presenting, or causing to be presented, false or fraudulent reimbursement claims for services; knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim for payment under a federal healthcare program; transferring remuneration or offering to transfer remuneration that the provider knows or should know will induce a beneficiary to use a particular provider or service; and knowing of an overpayment and failing to report and return such overpayment as required.
Civil Monetary Penalties Law Under the Civil Monetary Penalties Law, HHS may impose civil monetary penalties on healthcare providers for knowingly presenting, or causing to be presented, false or fraudulent reimbursement claims for services; knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim for payment under a federal healthcare program; transferring remuneration or offering to transfer remuneration that the provider knows or should know will induce a beneficiary to use a particular provider or service; and knowing of an overpayment and failing to report and return such overpayment as required.
As of December 31, 2022, approximately 32% of our home health and hospice locations are in states that have certificate of need laws. Certificate of need laws require a reviewing authority or agency to determine the public need for additional or expanded healthcare agencies, locations, and services.
As of December 31, 2023, approximately 33% of our home health and hospice locations are in states that have certificate of need laws. Certificate of need laws require a reviewing authority or agency to determine the public need for additional or expanded healthcare agencies, locations, or services.
We focus on the following strategic human capital imperatives: • maintaining competitive compensation and benefit programs that reward and recognize employee performance; • fostering a strong culture that values diversity, equity, inclusion and belonging; and • emphasizing employee development and engagement to attract talent and reduce turnover. Compensation and Benefits.
Human Capital Imperatives We focus on the following strategic human capital imperatives: • maintaining competitive compensation and benefit programs that reward and recognize employee performance; • fostering a strong culture that values diversity, equity, inclusion and belonging; and • emphasizing employee development and engagement to attract and retain talent.
To achieve this growth, we (1) educate healthcare providers about the scope and benefits of our services, (2) position our agencies to add value in their communities by avoiding unnecessary hospitalizations, (3) focus on high-quality care and related outcomes for our patients, (4) identify related products and services needed by our patients and their communities, and (5) provide a superior work environment for our employees.
To achieve this growth, we (1) educate healthcare providers about the scope and benefits of our services, (2) position our agencies to add value in their communities by avoiding unnecessary hospitalizations, (3) focus on high-quality care and related outcomes for our patients, (4) identify related products and services needed by our patients and their communities, and (5) provide a superior work environment for our employees as part of our focus to recruit and retain our clinical staff.
As of January 2023, the last publicly reported Star ratings, our QoPC Star Rating and Home Health Care Assessment of Healthcare Providers and Systems (“HHCAHPS”) Patient Survey Star Rating averaged 3.7 and 3.7, respectively, higher than the national averages of 3.2 and 3.5, respectively.
As of January 2024, the last publicly reported Star ratings, our QoPC Star Rating and Home Health Care Assessment of Healthcare Providers and Systems (“HHCAHPS”) Patient Survey Star Rating averaged 3.5 and 3.7, respectively, higher than the national averages of 3.0 and 3.5, respectively.
State and local healthcare regulation may cover additional matters such as nurse staffing ratios, healthcare worker safety, marijuana legalization, and assisted suicide. These laws and regulations are extremely complex and, in many instances, the industry does not have the benefit of significant regulatory or judicial interpretation.
State and local healthcare regulation may cover additional matters such as nurse staffing ratios, healthcare worker safety, marijuana legalization, and medical aid in dying. These laws and regulations are extremely complex, and, in many instances, the industry does not have the benefit of significant regulatory or judicial interpretation.
False Claims The federal False Claims Act imposes liability for the knowing presentation of a false claim to the United States government and provides for penalties equal to three times the actual amount of any overpayments plus up to approximately $27,000 per claim. Federal civil penalties will be adjusted to account for inflation each year.
False Claims The federal civil False Claims Act (“FCA”) imposes liability for the knowing presentation of a false claim to the U.S. government and provides for penalties equal to three times the actual amount of any overpayments plus up to approximately $27,000 per claim. Federal civil penalties will be adjusted to account for inflation each year.
Currently, state health authorities in 11 states where we operate require a certificate of need in order to establish and operate a home health care center, and state health authorities in five states where we operate require a certificate of 12 need to operate a hospice care center.
Currently, state health authorities in 11 states where we operate require a certificate of need in order to establish and operate a home health care center, and state health authorities in 5 states where we operate require a certificate of need to operate a hospice care center.
Managed care contracts typically have terms between one and three years, although we have a number of managed care contracts that automatically renew each year (with pre-defined rates) unless a party elects to terminate the contract. In 2022, typical rate increases for our home health and hospice contracts ranged from 0-3%.
Managed care 11 contracts typically have terms between one and three years, although we have a number of managed care contracts that automatically renew each year (with pre-defined rates) unless a party elects to terminate the contract. In 2023, typical rate increases for our renewed home health and hospice contracts ranged from 3-5%.
In 2022, approximately 40% of our home health patient admissions were from physician offices or other community referral sources, and approximately 60% were from facility-based sources, including acute care hospitals, long-term care facilities, skilled nursing facilities, or rehabilitation hospitals. Our home health services are provided by nurses, physical, occupational and speech therapists, medical social workers, and home health aides.
In 2023, approximately 38% of our home health patient admissions were from physician offices or other community referral sources, and approximately 62% were from facility‑based sources, including acute care hospitals, long-term care facilities, skilled nursing facilities, or rehabilitation hospitals. Our home health services are provided by nurses, physical, occupational and speech therapists, medical social workers, and home health aides.
HHS-OIG and other regulators have also increasingly interpreted laws and regulations to increase exposure of healthcare providers to allegations of noncompliance. For additional discussion regarding the risks related to HIPAA and HITECH Act compliance, see Item 1A, “ Risk Factors—Other Operational and Financial Risks—Other Regulatory Risks ,” in this Annual Report.
HHS-OIG and other regulators have also increasingly interpreted laws and regulations to increase 14 exposure of healthcare providers to allegations of noncompliance. For additional discussion regarding the risks related to HIPAA compliance, see Item 1A, “ Risk Factors—Risks Related to Our Business—Other Operational and Financial Risks ,” in this Annual Report.
Over that time, we have grown to become the fourth-largest provider of home health services and a leading provider of hospice services nationally, measured by 2020 Medicare revenues. As of December 31, 2022, our footprint comprised 252 home health and 105 hospice locations across 34 states.
Over that time, we have grown to become the fourth-largest provider of home health services and a leading provider of hospice services nationally, measured by 2022 Medicare revenues. As of December 31, 2023, our footprint comprised 255 home health and 110 hospice locations across 34 states.
The Health Information Technology for Economic and Clinical Health (“HITECH”) Act modifies and expands the privacy and security requirements of HIPAA. The HITECH Act applies certain of the HIPAA privacy and security requirements directly to business associates of covered entities.
The Health Information Technology for Economic and Clinical Health (“HITECH”) Act modified and expanded the privacy and security requirements of HIPAA. The HITECH Act applies certain of the HIPAA privacy and security requirements directly to business associates of covered entities.
Similarly, penalties increased from $59,527 to $63,231 for knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim.
Similarly, penalties increased from $63,231 to $68,128 for knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim.
We did not accept any CARES Act funds. The United States Congress (“Congress”) mandated that the Secretary of Health and Human Services make assumptions about potential behavior changes within the Medicare home health industry related to the implementation of PDGM and make ongoing adjustments to the reimbursement system to ensure budget neutrality.
We did not accept any CARES Act funds. The United States Congress (“Congress”) mandated that the Secretary of Health and Human Services make assumptions about potential behavior changes within the Medicare home health industry related to the implementation of PDGM and make one or more adjustments to the reimbursement system to achieve overall budget neutrality.
Maintaining competitive compensation and benefit programs that reward and recognize employee performance furthers our goal to attract, retain, and motivate employees who will help us deliver high-quality patient care. We are also committed to providing comprehensive benefit options that will allow our employees and their families to live healthier and more secure lives.
Compensation and Benefits Maintaining competitive compensation and benefit programs that reward and recognize employee performance furthers our goal to attract, retain, and motivate employees who will help us deliver high-quality patient care. We strive to provide comprehensive benefit options that will allow our employees and their families to live healthier and more secure lives.
Violators of the Stark law and regulations may be subject to recoupments, civil monetary sanctions (up to $27,750 for each violation and assessments up to three times the amount claimed for each prohibited service) and exclusion from any federal, state, or other governmental healthcare programs. The statute also provides a penalty of up to $185,009 for a circumvention scheme.
Violators of the Stark law and regulations may be subject to recoupments, civil monetary sanctions (up to $29,899 for each violation and assessments up to three times the amount claimed for each prohibited service) and exclusion from any federal, state, or other governmental healthcare programs. The statute also provides a penalty of up to $199,338 for a circumvention scheme.
The 2023 HH Rule will, among other changes, implement a net 4.0% market basket increase (market basket update of 4.1% reduced by 0.1% for a productivity adjustment) and a 5% cap on wage index decreases, update the case-mix weights and fixed-dollar loss ratio for outlier payments, and update the LUPA thresholds.
The 2023 HH Rule implemented a net 4.0% market basket increase (market basket update of 4.1% reduced by 0.1% for a productivity adjustment) and a 5% cap on wage index decreases, updated the case-mix weights and fixed-dollar loss ratio for outlier payments, and updated the LUPA thresholds.
Hospice care focuses on the quality of life for patients who are experiencing an advanced, life limiting illness while treating the symptoms of the disease, rather than treating the disease itself.
Hospice care focuses on the quality of life for patients experiencing an advanced, life limiting illness by treating the symptoms of the disease, rather than the disease itself.
In addition to standard federal criminal and civil sanctions, including imprisonment and penalties of up to $100,000 for each violation plus tripled damages for improper claims, violators of the Anti-Kickback Law may be subject to exclusion from the Medicare and/or Medicaid programs. Federal civil penalties will be adjusted to account for inflation each year. U.S.
In addition to standard federal criminal and civil sanctions, including imprisonment and penalties of up to $100,000 for each violation plus treble damages for improper claims, violators of the Anti-Kickback Statute may be subject to exclusion from federal health care programs like the Medicare and Medicaid programs. Federal civil penalties will be adjusted to account for inflation each year. U.S.
Since 2015, we have opened 33 de novo locations across 16 states, 18 of which are home health locations and 15 of which are hospice locations. Because our existing footprint includes states that do not have certificate of need (“CON”) laws, there are significant opportunities for us to open de novo locations.
Since 2015, we have opened 41 de novo locations across 20 states, 21 of which are home health locations and 20 of which are hospice locations. Because our existing footprint includes states that do not have certificate of need (“CON”) laws, there are significant opportunities for us to open de novo locations.
By promoting employee development and engagement, we believe we can increase our ability to attract and retain nurses, therapists, and other healthcare professionals in a highly competitive environment where staffing shortages are not uncommon. We support the long-term career aspirations of our employees through education and professional development. • Education opportunities.
Employee Development and Engagement By promoting employee development and engagement, we believe we can increase our ability to attract and retain nurses, therapists, and other healthcare professionals in a highly competitive environment. We support the long-term career aspirations of our employees through education and professional development.
Within each territory there are team members allocated to all aspects of the referral and patient onboarding process. We believe this high touch approach enables our business development teams to develop deep rooted relationships and build density in the markets they serve, ultimately increasing the patient referrals to our home health and hospice agencies.
Business Development We have teams allocated to all aspects of the referral and patient onboarding process. We believe this high touch approach enables our business development teams to develop deep rooted relationships and build density in the markets they serve, ultimately increasing patient referrals to our home health and hospice agencies.
For example, in March 2022, penalties increased from $21,113 to $22,427 for knowingly presenting or causing to be 14 presented false or fraudulent claims, offering or transferring remuneration to induce beneficiaries to use particular providers or services, and knowing of an overpayment and failing to report and return such overpayment.
For example, in 2023, penalties increased from $22,427 to $24,164 for knowingly presenting or causing to be presented false or fraudulent claims, offering or transferring remuneration to induce beneficiaries to use particular providers or services, and knowing of an overpayment and failing to report and return such overpayment.
We cannot provide any assurance we will continue to receive increases in the future. Our managed care staff focuses on establishing and renegotiating contracts that provide equitable reimbursement for the services provided.
We cannot provide any assurance we will continue to receive increases in the future. Our Payor Innovation team focuses on establishing and renegotiating contracts that provide equitable reimbursement for the services provided.
The system features rules-based algorithms that ensure accountability by escalating tasks and notifying management when processes are delayed. Our information management system also provides real-time market intelligence to members of our sales team, allowing them to quickly identify the most valuable referral sources. Specialty programs integrate individual physician protocols into the system.
The system features rules-based algorithms that ensure accountability by escalating tasks and notifying management when processes are delayed. Our information management system also provides real-time market intelligence to members of our sales team, allowing them to prioritize particular referral sources to align with strategic directives. Specialty programs integrate individual physician protocols into the system.
Our therapists coordinate multi-disciplinary treatment plans with physicians, nurses, and social workers to restore patients’ basic mobility skills, such as getting out of bed, walking safely with crutches or a walker, and restoring range of motion to specific joints.
Our therapists coordinate multi-disciplinary treatment plans with physicians, nurses, and social workers to restore patients’ basic mobility skills, such as getting out of bed, walking safely (with assistive devices if needed), and restoring range of motion to specific joints.
We are a leading home health provider in many of the states where we operate, measured by 2020 Medicare revenues. Our 34-state footprint represented approximately 69% of the total U.S. home health Medicare revenues in 2020. Our presence in these markets helps us increase operating efficiency and brand awareness.
We are a leading home health provider in many of the states where we operate, measured by 2022 Medicare revenues. The 34 states where we operate accounted for approximately 66% of total U.S. home health Medicare revenues in 2022. Our presence in these markets helps us increase operating efficiency and brand awareness.
Our Competitive Strengths We believe we differentiate ourselves from our competitors based on many factors, including the quality of our clinical outcomes, the scale and density of our footprint, our consistent and disciplined operating model, and our people and award-winning culture.
Our Competitive Strengths We believe we differentiate ourselves from our competitors by the quality of our clinical outcomes, the scale and density of our footprint, our consistent and disciplined operating model, and our people and award‑winning culture, among other factors.
For the year ended December 31, 2022 our home health segment had 202,495 patient admissions and generated $877.1 million in Net service revenue , or 81.9% of Enhabit’s total Net service revenue . Our hospice agencies provide high-quality hospice services to terminally ill patients and their families.
For the year ended December 31, 2023, our home health segment had 207,448 patient admissions and generated $850.1 million in Net service revenue , or 81.2% of Enhabit’s total Net service revenue . • Our hospice agencies provide high-quality hospice services to terminally ill patients and their families.
Any additional downward adjustment to rates or limitations on reimbursement for the types of agencies we operate and services we provide could have a material adverse effect on our business, financial position, results of operations, and cash flows.
Congress, MedPAC, and CMS will continue to address reimbursement rates for a variety of healthcare settings. Any additional downward adjustment to rates or limitations on reimbursement for the types of agencies we operate and services we provide could have a material adverse effect on our business, financial position, results of operations, and cash flows.
The Medicare cost per day in a home health and cost per patient per day in a hospice setting is $50 and $150, respectively, compared to a skilled nursing facility of $540 per day, highlighting the savings potential for the healthcare system.
The Medicare cost per day in home health and cost per patient per day in hospice is $67 and $180, respectively, compared to a skilled nursing facility of $556 per day, highlighting the savings potential for the healthcare system.
The 2021 Hospice Rule implemented a net 2.4% market basket increase from October 1, 2020 through September 30, 2021. On July 29, 2021, CMS released its final rulemaking for fiscal year 2022 for hospices under the Hospice-PS (the “2022 Hospice Rule”).
On July 31, 2020, CMS released its notice of final rulemaking for fiscal year 2021 for hospice agencies under the Hospice-PS (the “2021 Hospice Rule”). The 2021 Hospice Rule implemented a net 2.4% market basket increase from October 1, 2020 through September 30, 2021.
We also believe our competitive strengths discussed below give us the ability to adapt and succeed in a healthcare industry facing continuing regulatory changes focused on improving outcomes and reducing costs. Scale and Density Our current footprint is the result of our multi-decade effort to establish scale and density in key markets with attractive demographic and regulatory profiles.
We also believe our competitive strengths allow us to adapt and succeed in a healthcare industry facing continuing regulatory changes focused on improving outcomes and reducing costs. 3 Scale and Density Our current footprint reflects our multi-decade effort to establish scale and density in key markets with attractive demographic and regulatory profiles.
Although Medicare Advantage billings and collections are more labor intensive and the discount for services is greater than that given to Medicare patients, we believe growth with these payors is important given that more Medicare eligibles are choosing Medicare Advantage plans.
Although Medicare Advantage billings and collections are more labor intensive than with traditional Medicare, and Medicare Advantage generally involves a discount for services relative to traditional Medicare, we believe growth with these payors is important given that more Medicare eligibles are choosing Medicare Advantage plans .
We drive operating efficiency by leveraging our market density as our volumes increase, which also enables our clinicians to spend less time on the road and more time providing care. We believe our operating structure is more efficient than our peers and advantageously positions us to grow our home health admissions as the industry continues to expand.
We drive operating efficiency by leveraging our market density as our volumes increase, enabling our clinicians to spend less time on the road and more time providing care. We believe our operating structure positions us to increase our home health admissions as the industry continues to expand.
If a patient remains eligible for care after the initial period as certified by a physician, a new treatment period may begin. There are currently no limits to the number of home health treatment periods a Medicare patient may receive assuming there is eligibility for each successive period. PDGM also reduced the early payment opportunity available through RAP in 2020.
If a patient remains eligible for care after the initial period as certified by a physician, a new treatment period may begin. There are currently no limits to the number of home health treatment periods a Medicare patient may receive assuming there is eligibility for each successive period.
In any state where we are subject to a certificate of need law, including any of the certificate of need states where we do not currently operate, we must obtain it before acquiring, opening, reclassifying, or expanding a healthcare facility, starting a new healthcare program, or opening a new home health or hospice agency.
In any state where we are subject to a certificate of need law, we must obtain such certificate before acquiring, opening, reclassifying, or expanding a healthcare facility, starting a new healthcare program, or opening a new home health or hospice agency.
For regulatory relief during the pandemic, CMS adopted a series of waivers, including expanding the definition of “homebound” to include patients needing skilled services who are homebound due solely to their COVID-19 diagnosis or patients susceptible to contract COVID-19 and limiting and delaying certain quality reporting requirements.
For regulatory relief during the pandemic, CMS adopted a series of waivers, including expanding the definition of “homebound” to include patients needing skilled services who are homebound due solely to their COVID-19 diagnosis or patients susceptible to contract COVID-19 and limiting and delaying certain quality reporting requirements. 9 As of January 1, 2020, Medicare began reimbursing home health providers under PDGM.
Our home health services are prescribed by a physician, typically following an episode of acute illness or surgical intervention, an exacerbation or worsening of a chronic disorder, or a patient’s discharge from a hospital, skilled nursing facility, rehabilitation hospital or other institutional setting.
As of December 31, 2023, we operated 255 home health agencies in 34 states. Our home health services are prescribed by a physician, typically following an episode of acute illness or surgical intervention, an exacerbation or worsening of a chronic disorder, or a patient’s discharge from a hospital, skilled nursing facility, rehabilitation hospital or other institutional setting.
We believe these best practices and protocols, when combined with our technology and well-trained, mission-motivated clinicians, help ensure the delivery of consistently high-quality healthcare services, reduced inefficiencies, and improved performance across a spectrum of operational areas.
Clinical Expertise and High-Quality Outcomes We have extensive home-based clinical experience from which we have developed standardized best practices and protocols. We believe these best practices and protocols, when combined with our technology and well-trained, mission‑motivated clinicians, help ensure the delivery of consistently high-quality healthcare services, reduced inefficiencies, and improved performance across a spectrum of operational areas.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSequestration resumed on April 1, 2022 but with only a 1% payment reduction through June 30, 2022, at which time the 2% reduction resumed. Additional Medicare payment reductions are also possible under Statutory PAYGO. Statutory PAYGO requires, among other things, that mandatory spending and revenue legislation not increase the federal budget deficit over a five- or ten-year period.
Biggest changeAdditional Medicare payment reductions are also possible under Statutory PAYGO. Statutory PAYGO requires, among other things, that mandatory spending and revenue legislation not increase the federal budget deficit over a five-or ten-year period. If the Office of Management and Budget (the “OMB”) finds there is a deficit in the federal budget, Statutory PAYGO requires OMB to order sequestration of Medicare.
Working capital management, including prompt and diligent billing and collection, is an important factor in our financial position and results of operations and in maintaining liquidity.
Working capital management, including prompt and diligent billing and collection, is an important factor in our financial position, results of operations, and in maintaining liquidity.
In an integrated delivery payment model, hospitals, physicians, and other care providers are incentivized to coordinate healthcare on a more efficient, patient-centered basis. Providers are paid based on the overall value and quality, rather than the number, of services provided.
In an integrated payment delivery model, hospitals, physicians, and other care providers are incentivized to coordinate healthcare on a more efficient, patient-centered basis. Providers are paid based on the overall value and quality, rather than the number, of services provided.
Federal regulation may impair our ability to consummate acquisitions or open new agencies. Changes in federal laws or regulations may materially adversely impact our ability to acquire home health agencies or open de novo home health agencies. For example, CMS has adopted a regulation known as the “36 Month Rule” that is applicable to home health agency acquisitions.
Federal regulation may impair our ability to open new agencies or consummate acquisitions. Changes in federal laws or regulations may materially adversely impact our ability to open de novo home health agencies or acquire home health agencies. For example, CMS has adopted a regulation known as the “36 Month Rule” that is applicable to home health agency acquisitions.
Failure to maintain proper function, security, or availability of our information systems or protect our data against unauthorized access, or the failure of one or more of our key partners, vendors, or other counterparties to do these things, could have a material adverse effect on our business, financial position, results of operations, and cash flows.
Failure to maintain proper function, security, or availability of our information systems or to protect our data against unauthorized access, or the failure of one or more of our key partners, vendors, or other counterparties to do these things, could have a material adverse effect on our business, financial position, results of operations, and cash flows.
The net carrying value of intangible assets represents the fair value of certificates of need, licenses, noncompete agreements, trade names, internal-use software, and other acquired intangibles as of the acquisition date or subsequent impairment date, if applicable, net of accumulated amortization, if applicable.
The carrying value of Intangible assets, net represents the fair value of certificates of need, licenses, noncompete agreements, trade names, internal-use software, and other acquired intangibles as of the acquisition date or subsequent impairment date, if applicable, net of accumulated amortization, if applicable.
Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation (an “interested stockholder”) shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following 30 the date on which the person became an interested stockholder, unless (i) prior to such time, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock; or (iii) after our board of directors approves the business consideration, it is authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of our outstanding voting stock not owned by the interested stockholder.
Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation (an “interested stockholder”) shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which the person became an interested stockholder, unless (i) prior to such time, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock; or (iii) after our board of directors approves the business consideration, it is authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of our outstanding voting stock not owned by the interested stockholder.
If any of the facts, assumptions, representations, statements or undertakings underlying the private letter ruling or the opinion of counsel are, or become, inaccurate or incomplete, or if either Encompass or we breach any of the applicable representations or covenants contained in the separation and distribution agreement and certain other agreements and documents or in any documents relating to the private letter ruling or the opinion of counsel, the private letter ruling or opinion of counsel may be invalid and the conclusions reached therein could be jeopardized, which could materially and adversely affect our business, financial condition and results of operations. • Notwithstanding receipt of an IRS private letter ruling and an opinion of counsel, there can be no assurance that the IRS will not assert that our separation from Encompass does not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge.
If any of the facts, assumptions, representations, statements or undertakings underlying the private letter ruling or the opinion of counsel are, or become, inaccurate or incomplete, or if either Encompass or we breach any of the applicable representations or covenants contained in the Separation and Distribution Agreement and certain other agreements and documents or in any documents relating to the private letter ruling or the opinion of counsel, the private letter ruling or opinion of counsel may be invalid and the conclusions reached therein could be jeopardized, which could materially and adversely affect our business, financial condition, and results of operations. • Notwithstanding receipt of an IRS private letter ruling and an opinion of counsel, there can be no assurance that the IRS will not assert that the Distribution does not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge.
For additional discussion of the reviews, audits, and investigations to which we are subject, see Item 1, “ Business—Governmental Review, Audits, and Investigations ” in this Annual Report. The HHS-OIG also conducts audits and has included various home health agency and hospice payment and quality issues in its current workplan. Additionally, private pay sources reserve the right to conduct audits.
For additional discussion of the reviews, audits, and investigations to which we are subject, see Item 1, “ Business—Regulation—Governmental Review, Audits, and Investigations ,” in this Annual Report. The HHS-OIG also conducts audits and has included various home health agency and hospice payment and quality issues in its current workplan. Additionally, private pay sources reserve the right to conduct audits.
To the extent we are attempting to integrate multiple businesses at the same time, we may not be able to do so as efficiently or effectively as we initially anticipate. The failure to successfully integrate on a timely basis any acquired business could have an adverse effect on our business, financial position, results of operations and cash flows.
To the extent we are attempting to 29 integrate multiple businesses at the same time, we may not be able to do so as efficiently or effectively as we initially anticipate. The failure to successfully integrate on a timely basis any acquired business could have an adverse effect on our business, financial position, results of operations, and cash flows.
In addition, the use of sub-regulatory guidance, statistical sampling, and extrapolation by CMS, Medicare contractors, HHS-OIG, and DOJ to deny claims, expand 23 enforcement claims, and advocate for changes in reimbursement policy increases the risk that we could experience reduced revenue, suffer penalties, or be required to make significant changes to our operations.
In addition, the use of sub-regulatory guidance, statistical sampling, and extrapolation by CMS, Medicare contractors, HHS-OIG, and DOJ to deny claims, expand enforcement claims, and advocate for changes in reimbursement policy increases the risk that we could experience reduced revenue, suffer penalties, or be required to make significant changes to our operations.
Conveners offer patient placement and care transition services to those 20 payors as well as bundled payment participants, ACOs, and other healthcare providers with the intent of managing post-acute utilization and associated costs. Conveners may influence referral source decisions on which post-acute setting to recommend, as well as how long to remain in a particular setting.
Conveners offer patient placement and care transition services to those payors as well as bundled payment participants, ACOs, and other healthcare providers with the intent of managing post‑acute utilization and associated costs. Conveners may influence referral source decisions on which post-acute setting to recommend, as well as how long to remain in a particular setting.
Further, it generally is more time and labor intensive to bill claims with Medicare Advantage, meaning our collection cycle will lengthen as we grow the number of Medicare Advantage networks in which we participate. The expansion and growth of Medicaid resulting from the 2010 Healthcare Reform Laws have increased the number of those patients coming to us.
Further, it generally is more time and labor intensive to bill claims with Medicare Advantage, meaning our collection cycle will lengthen as we grow the number of Medicare Advantage networks in which we participate. The expansion and growth of Medicaid resulting from the 2010 Healthcare Reform Laws have increased the number of Medicaid patients coming to us.
While many of the stated goals of other federal and state reform initiatives are consistent with our own goal to provide high-quality and cost-effective care, legislation and regulatory proposals may lower reimbursements, increase 22 the cost of compliance, decrease patient volumes, promote frivolous or baseless litigation, and otherwise adversely affect our business.
While many of the stated goals of other federal and state reform initiatives are consistent with our own goal to provide high-quality and cost-effective care, legislation and regulatory proposals may lower reimbursements, increase the cost of compliance, decrease patient volumes, promote frivolous or baseless litigation, and otherwise adversely affect our business.
In addition, supply chain disruptions caused by a pandemic or a future public health catastrophe could increase our expenses for necessary equipment, pharmaceuticals, and medical supplies, including without limitation, personal protective equipment (“PPE”). All of these potential effects would have a negative impact on our business, financial condition, and operations results.
In addition, supply chain disruptions caused by a pandemic or a future public health catastrophe could increase our expenses for necessary equipment, pharmaceuticals, and medical supplies, including without limitation, personal protective equipment. All of these potential effects would have a negative impact on our business, financial condition, and operations results.
The initial suspension period may be up to 180 days. However, the payment suspension period can be extended almost indefinitely if the matter is under investigation by the HHS-OIG or the DOJ. Any such suspension would adversely affect our financial position, results of operations, and cash flows.
The initial suspension period may be up to 180 days. However, the payment suspension period can be extended almost indefinitely if 22 the matter is under investigation by the HHS-OIG or the DOJ. Any such suspension would adversely affect our financial position, results of operations, and cash flows.
Concerns held by federal policymakers about the federal deficit, national debt levels, or healthcare spending specifically, including solvency of the Medicare trust fund, could result in enactment of further federal spending reductions, further entitlement reform legislation affecting the Medicare program, and further reductions to provider payments.
Concerns held by federal policymakers about the federal deficit, national debt levels, or healthcare spending specifically, including solvency of the Medicare trust fund, could result in enactment of further federal spending reductions or limitations, further entitlement reform legislation affecting the Medicare program, and further reductions to provider payments.
A compromise of our network security measures or other controls, or of those businesses or vendors with whom we interact, which results in confidential information being accessed, obtained, damaged or used by unauthorized persons or unavailability of systems necessary to the operation of our business, could impact patient care, harm our reputation, and exposes us to significant remedial costs as well as regulatory actions (fines and penalties) and claims from patients, financial institutions, regulatory and law enforcement agencies, and other persons, any of which could have a material adverse effect on our business, financial position, results of operations and cash flows.
A compromise of our network security measures or other controls, or those of businesses or vendors with whom we interact, which results in confidential information being accessed, obtained, damaged or used by unauthorized persons or unavailability of systems necessary to the operation of our business, could impact patient care, harm our reputation, and expose us to significant remedial costs as well as regulatory actions (fines and penalties) and claims from patients, financial institutions, regulatory and law enforcement agencies, and other persons, any of which could have a material adverse effect on our business, financial position, results of operations, and cash flows.
We cannot predict the impact any claims arising out of the travel, the home visits or the care being provided (regardless of their ultimate outcomes) could have on our business or reputation or on our ability to attract and retain patients and employees.
We cannot 26 predict the impact any claims arising out of the travel, the home visits or the care being provided (regardless of their ultimate outcomes) could have on our business or reputation or on our ability to attract and retain patients and employees.
We expend significant capital to protect our information systems and the data maintained within those systems from security breaches, including cyber-attacks, email phishing schemes, malware, and ransomware, and we periodically test the adequacy of our security and disaster recovery measures.
We expend capital to protect our information systems and the data maintained within those systems from security breaches, including cyber-attacks, email phishing schemes, malware, and ransomware, and we periodically test the adequacy of our security and disaster recovery measures.
In addition, the following risks exist following our separation from Encompass: • We are a smaller and less diversified company with a narrower business focus and may be more vulnerable to changing market conditions than we were before the separation. • The separation from Encompass was structured as a transaction that was generally tax-free to Encompass and its stockholders pursuant to Section 355 of the Internal Revenue Service Code, and it was supported by a favorable private letter ruling from the IRS and an opinion of outside counsel.
In addition, the following risks exist following our separation from Encompass: • We are a smaller and less diversified company with a narrower business focus and may be more vulnerable to changing market conditions than we were before the Separation. • The Distribution was structured as a transaction that was generally tax-free to Encompass and its stockholders pursuant to Section 355 of the Internal Revenue Service Code (the “Code”), and it was supported by a favorable private letter ruling from the IRS and an opinion of outside counsel.
If we fail to implement and maintain effective internal control over financial reporting, we may be 28 unable to accurately or timely report our financial condition or results of operations, which may adversely affect our business, results of operations, financial condition and stock price.
If we fail to implement and maintain effective internal control over financial reporting, we may be unable to accurately or timely report our financial condition or results of operations, which may adversely affect our business, results of operations, financial condition, and stock price.
If any of the risks below or other risks or uncertainties discussed elsewhere in this Annual Report are actually realized, our business and financial condition, results of operations, and cash flows could be adversely affected.
If any of the risks below or other risks or uncertainties discussed elsewhere in this Annual Report are realized, our business and financial condition, results of operations, and cash flows could be adversely affected.
In addition, CMS has instituted a Star rating methodology for home health agencies to meet the 2010 Healthcare Reform Laws’ call for more transparent public information on provider quality.
In addition, CMS instituted a Star rating methodology for home health agencies to meet the 2010 Healthcare Reform Laws’ call for more transparent public information on provider quality.
Moreover, an adverse review, audit or investigation could result in: • required refunding or retroactive adjustment of amounts we have been paid pursuant to the federal or state programs or from private payors; • state or federal agencies imposing fines, penalties, and other sanctions on us; • loss of our right to participate in the Medicare program, state programs or one or more private payor networks; or • damage to our business and reputation in various markets.
Moreover, an adverse review, audit or investigation could result in: • required refunding or retroactive adjustment of amounts we have been paid pursuant to the federal or state programs or from private payors; • state or federal agencies imposing fines, penalties, and other sanctions on us; • loss of our ability to participate in the Medicare program, state programs or one or more private payor networks; or • damage to our business and reputation in various markets.
The billing and collection of our accounts receivable from payors is subject to numerous and complex administrative processes and requires a significant amount of time and effort, including, but not limited to, the assessment of patient eligibility, the process of pre-authorization, the recording and collection of provider documentation, the timely and complete submission of claims for reimbursement, the application of cash receipts to patient accounts, the timely response to payor denials, and the conduct of collection activities.
The billing and collection of our accounts receivable is subject to numerous and complex administrative processes and requires a significant amount of time and effort, including, but not limited to, the assessment of patient eligibility, the process of pre-authorization, the recording and collection of provider documentation, the timely and complete submission of claims for reimbursement, the application of cash receipts to patient accounts, the timely response to payor denials, and the conduct of collection activities.
In recent years, HHS has been studying the feasibility of bundling, including conducting a voluntary, multi-year bundling pilot program to test and evaluate alternative payment methodologies. CMS’s voluntary BPCI Advanced initiative runs through December 31, 2023 and covers 29 types of inpatient and three types of outpatient clinical episodes, including stroke and hip fracture.
In recent years, HHS has been studying the feasibility of bundling, including conducting a voluntary, multi-year bundling pilot program to test and evaluate alternative payment methodologies. CMS’s voluntary BPCI Advanced initiative ran through December 31, 2023 and covers 29 types of inpatient and three types of outpatient clinical episodes, including stroke and hip fracture.
Our amended and restated certificate of incorporation and amended and restated bylaws contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions consistent with Delaware law that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover.
Our board of directors will make any determination to issue shares of preferred stock on its judgment as to our and our stockholders’ best interests.
Our board of directors will make any determination to issue shares of preferred stock based on its judgment as to our and our stockholders’ best interests.
If any of our home health or hospice agencies fail to comply with the Medicare enrollment requirements or conditions of participation, that agency could be subject to sanctions or terminated from the Medicare program. Each of our home health and hospice agencies must comply with extensive enrollment requirements and conditions of participation for the Medicare program.
If any of our home health or hospice agencies fails to comply with the Medicare enrollment requirements or conditions of participation, that agency could be subject to sanctions or terminated from the Medicare program. Each of our home health and hospice agencies must comply with extensive enrollment requirements and conditions of participation for the Medicare program.
In addition, there are increasing pressures, including as a result of the 2010 Healthcare Reform Laws, from many third-party payors to control healthcare costs and to reduce or limit increases in reimbursement rates for medical services. Our relationships with managed care and nongovernmental third-party payors, such as HMOs and PPOs, are generally governed by negotiated agreements.
In addition, there are increasing pressures, including as a result of the 2010 Healthcare Reform Laws, from many third‑party payors to control healthcare costs and to reduce or limit increases in reimbursement rates for medical services. Our relationships with managed care and nongovernmental third-party payors are generally governed by negotiated agreements.
Failing to maintain satisfactory Star rating scores could affect our rates of reimbursement and patient referrals and have a material adverse effect on our business and consolidated financial condition, results of operations, and cash flows.
Failing to maintain satisfactory Star rating scores could affect some of our reimbursement and patient referrals and have a material adverse effect on our business and consolidated financial condition, results of operations, and cash flows.
For Medicare providers like us, the 2010 Healthcare Reform Laws include reductions in CMS’s annual adjustments to Medicare reimbursement rates, commonly known as a “market basket update.” 18 The 2010 Healthcare Reform Laws also require market basket updates for home health and hospice providers to be reduced by a productivity adjustment on an annual basis.
For Medicare providers like us, the 2010 Healthcare Reform Laws included reductions in CMS’s annual adjustments to Medicare reimbursement rates, commonly known as a “market basket update.” The 2010 Healthcare Reform Laws also require market basket updates for home health and hospice providers to be reduced by a productivity adjustment on an annual basis.
As a public company, we will be required to document and test our internal control over financial reporting in order to satisfy the rules and regulations of the SEC, which will require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm that addresses the effectiveness of internal control over financial reporting.
As a public company, we are required to document and test our internal control over financial reporting in order to satisfy the rules and regulations of the SEC, which require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm that addresses the effectiveness of internal control over financial reporting.
A shortage may require us to enhance wages and benefits to recruit and retain qualified personnel or to contract for more expensive temporary personnel. Our failure to recruit and retain qualified medical personnel could cause the quality of our services to decline or our ability to grow may be constrained.
A shortage may require us to enhance wages and benefits to recruit and retain qualified personnel or to contract for more expensive temporary personnel. A failure to recruit and retain qualified medical personnel could cause the quality of our services to decline or constrain our ability to grow.
Because Medicare comprises a significant portion of our Net service revenue , failure to comply with the laws and regulations governing the Medicare program and related matters, including anti-kickback and anti-fraud requirements, could materially and adversely affect us.
Because Medicare payments comprise a significant portion of our Net service revenue , failure to comply with the laws and regulations governing the Medicare program and related matters, including anti-kickback and anti-fraud requirements, 23 could materially and adversely affect us.
There can be no assurance that all of our agencies will meet quality reporting requirements or quality performance in the future, which may result in one or more of our agencies seeing a reduction in its Medicare reimbursements.
There can be no assurance that all of our agencies will meet quality reporting requirements or quality performance expectations in the future, which may result in one or more of our agencies seeing a reduction in its Medicare reimbursements or patient referral volume.
Risks Related to Our Recent Separation from Encompass We may not realize some or all of the anticipated strategic, financial, operational, marketing, or other anticipated benefits from our separation from Encompass, or the realization of such anticipated benefits may be delayed by a variety of circumstances outside of our control.
We may not realize some or all of the anticipated strategic, financial, operational, marketing, or other anticipated benefits from our separation from Encompass, or the realization of such anticipated benefits may be delayed by a variety of circumstances outside of our control.
In addition, because we have not elected to be exempt from Section 203 of the Delaware General Corporation Law, this provision could also delay or prevent a change of control that you may favor.
In addition, because we have not elected to be exempt from Section 203 of the Delaware General Corporation Law, this provision could also delay or prevent a change of control.
Our indebtedness could have important consequences, including: • limit our ability to borrow additional amounts to fund working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy and other general corporate purposes; • make us more vulnerable to unfavorable economic, industry and competitive conditions and government regulation by limiting our flexibility in planning for, and reacting to, changing conditions; • place us at a competitive disadvantage compared with competing providers that have less debt; and 27 • expose us to risks inherent in interest rate fluctuations, which could result in higher interest expense, as discussed in Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ,” in this Annual Report.
Our indebtedness could have important consequences, including: • limiting our ability to borrow additional amounts to fund working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy and other general corporate purposes; • making us more vulnerable to unfavorable economic, industry and competitive conditions and government regulation by limiting our flexibility in planning for, and reacting to, changing conditions; • placing us at a competitive disadvantage compared with competing providers that have less debt or better access to capital resources; and • exposing us to risks inherent in interest rate fluctuations, which could result in higher interest expense, as discussed in Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ,” in this Annual Report.
Under the tax matters agreement with Encompass, we generally are responsible for any taxes imposed on Encompass that arise from the failure of the distribution to qualify as tax-free for U.S. federal income tax purposes, within the meaning of Section 355 of the Code, to the extent such failure to so qualify is attributable to actions, events or transactions relating to our stock, assets or business, or a breach of the relevant representations or covenants made by us in the tax matters agreement.
Under the Tax Matters Agreement with Encompass, we generally are responsible for any taxes imposed on Encompass that arise from the failure of the Distribution and certain related transactions to qualify as tax-free for U.S. federal income tax purposes, to the extent such failure to so qualify is attributable to actions, events or transactions relating to our stock, assets or business, or a breach of the relevant representations 30 or covenants made by us in the Tax Matters Agreement.
Even if we ultimately succeed in recovering from Encompass any amounts for which we are held liable, we may temporarily bear these losses. • We may not be able to resolve favorably any disputes that arise between us and Encompass relating to our ongoing relationship, including without limitation labor, tax, employee benefit, and indemnification matters and the nature, quality, and pricing of services. • Our ability to engage in significant strategic transactions and equity issuances may temporarily be limited or restricted in order to preserve, for U.S. federal income tax purposes, the tax-free nature of the distribution.
Even if we ultimately succeed in recovering from Encompass any amounts for which we are held liable, we may temporarily bear these losses. • We may not be able to resolve favorably any disputes that arise between us and Encompass relating to our ongoing relationship, including indemnification matters. • Our ability to engage in significant strategic transactions, which we have announced we are considering, and equity issuances may temporarily be limited or restricted in order to preserve, for U.S. federal income tax purposes, the tax-free nature of the Distribution.
Failure to achieve the anticipated benefits could also divert management’s time and energy and could have an adverse effect on our business, financial position, results of operations, and cash flows.
Failure to achieve the anticipated benefits could also divert management’s time and energy and could have an adverse effect on our business, financial position, results of operations, and cash flows. Risks Related to Our Separation from Encompass.
Our business depends on the ability of our employees to travel via fleet vehicles or their personal vehicles, and our business operations may be impacted by rising costs of fuel and access to fleet vehicles. To provide home health and hospice services, our employees must drive to our patients using either company fleet vehicles or personal vehicles.
Our business depends on the ability of our employees to travel via fleet vehicles or their personal vehicles, and our business operations may be impacted by rising costs of fuel and access to fleet vehicles. Our employees drive to our patients using either company fleet vehicles or personal vehicles.
We may incur additional indebtedness in the future, and that debt or the associated increased leverage may have negative consequences for our business. The restrictive covenants included in the terms of our indebtedness could affect our ability to execute aspects of our business plan successfully.
Although we are currently restricted under the terms of our credit agreement, we may incur additional indebtedness in the future, and that debt or the associated increased leverage may have negative consequences for our business. The restrictive covenants included in the terms of our indebtedness could affect our ability to execute aspects of our business plan successfully.
For example, the 2010 Healthcare Reform Laws provide for the expansion of the federal Anti-Kickback Law and the False Claims Act (the “FCA”), likely increasing investigation and enforcement efforts in the healthcare industry generally.
For example, the 2010 Healthcare Reform Laws provide for the expansion of the federal Anti-Kickback Law and the FCA, likely increasing investigation and enforcement efforts in the healthcare industry generally.
In particular, if staffing costs rise at an annual rate greater than our net annual market basket update from Medicare, as is expected to happen in 2023, or we experience a significant shift in our payor mix to lower rate payors such as Medicaid, our results of operations and cash flows will be adversely affected.
In particular, if staffing costs continue to rise at an annual rate greater than the annual net impact of reimbursement rates from Medicare, as is expected to happen in 2024, or we experience a significant shift in our payor mix to lower rate payors such as Medicaid, our results of operations and cash flows will be adversely affected.
Not only do Medicare Advantage and managed care payors generally pay less than Medicare Fee for Service, we also expect bad debt to be slightly higher for patients covered by Medicare Advantage and managed care, as patients typically retain more payment responsibility under those arrangements.
Not only do Medicare Advantage and managed care payors generally pay less than Medicare Fee for Service, but bad debt and longer collection cycles also tend to be higher for patients covered by Medicare Advantage and managed care, as patients typically retain more payment responsibility under those arrangements.
Impairments to goodwill and other intangible assets may be caused by factors outside our control, such as increasing competitive pricing pressures, lower than expected revenue and profit growth rates, changes in industry EBITDA multiples or changes in discount rates based on changes in cost of capital, interest rates, etc.
Impairments to Goodwill and other Intangible assets, net may also be caused by factors outside our control, such as increasing competitive pricing pressures, lower than expected revenue and profit growth rates, changes in industry earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples or changes in discount rates based on changes in cost of capital and interest rates.
A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As described below, we have identified material weaknesses in the past.
As a result, the 36 Month Rule may further increase competition for acquisition targets that are not subject to the rule and may cause significant Medicare billing delays for the purchases of home health agencies that are subject to the rule.
CMS has recently extended the 36 Month Rule to Medicare‑enrolled hospices as well. As a result, the 36 Month Rule may further increase competition for acquisition targets that are not subject to the rule and may cause significant Medicare billing delays for the purchases of home health and hospice agencies that are subject to the rule.
We have implemented administrative, technical, and physical controls to prevent unauthorized access to that data, which includes patient information and other sensitive information, but we routinely identify attempts to gain unauthorized access to our systems.
We have implemented administrative, technical, and physical controls to prevent unauthorized access to that data, which includes patient information and other sensitive information, but we routinely identify attempts to gain unauthorized access to our systems. We are likely to face attempted attacks in the future.
In 2011, President Obama signed into law the Budget Control Act of 2011, which provided for an automatic 2% reduction of Medicare program payments. This automatic reduction, known as “sequestration,” began affecting payments received after April 1, 2013.
In 2011, President Obama signed into law the Budget Control Act of 2011, which provided for an automatic 2% reduction of Medicare program payments. This automatic reduction, known as “sequestration,” began affecting payments received after April 1, 2013. Under current law, the reimbursement we receive from Medicare will be reduced by this sequestration.
The productivity adjustment equals the trailing 10-year average of changes in annual economy-wide private nonfarm business multi-factor productivity. The 2023 Hospice Payment Rate Update Final Rule finalized a 3.8% hospice payment update percentage. This was the result of a 4.1% market basket increase and a 0.3 percentage point productivity adjustment.
The productivity adjustment equals the trailing 10-year average of changes in annual economy-wide private nonfarm business multi-factor productivity. The Fiscal Year 2024 Hospice Payment Rate Update Final Rule finalized a 3.1% hospice payment update percentage. This was a result of a 3.3% inpatient hospital market basket percentage increase reduced by a 0.2% productivity adjustment.
We cannot assure that changes in our business or other factors will prevent us from satisfying obligations under our credit agreement or other future debt instruments.
Changes in our business or other factors could prevent us from satisfying our obligations under our credit agreement or other future debt instruments.
The focus on alternative payment models and value-based purchasing of healthcare services has, in turn, led to more extensive quality of care reporting requirements. In many cases, the new reporting requirements are linked to reimbursement incentives.
Our quality of care and CMS quality reporting requirements could adversely affect the Medicare reimbursement we receive. The focus on alternative payment models and value-based purchasing of healthcare services has led to more extensive quality of care reporting requirements. In many cases, our reporting requirements are linked to reimbursement incentives.
Changes in our payor mix or the needs of our patients could adversely affect our Net service revenue or our profitability. The reimbursement rates we receive from traditional Medicare Fee for Service are generally higher than those received from other payors.
Changes in our payor mix or the needs of our patients could adversely affect our Net service revenue or our profitability. Although the reimbursement rates we receive from traditional Medicare Fee for Service are generally higher than those received from other payors, an increasing percentage of Medicare eligible individuals are choosing to enroll in a Medicare Advantage plan.
It is possible that Medicare, Medicaid, documentation support, system problems or other provider issues or industry trends, particularly with respect to newly acquired entities for 21 which we have limited operational experience, may extend our collection period, which may materially adversely affect our working capital, and our working capital management procedures may not successfully mitigate this risk.
It is possible that Medicare, Medicaid, documentation support, system problems or other provider issues or industry trends may extend our collection period, which may materially 21 adversely affect our working capital, and our working capital management procedures may not successfully mitigate this risk.
In some cases, the acquired business has itself grown through acquisitions, and there may be legacy systems, operating policies and procedures, and financial and administrative practices yet to be fully integrated.
We may face substantial difficulties, costs, and delays involved in the integration of acquired businesses. In some cases, the acquired business has itself grown through acquisitions, and there may be legacy systems, operating policies and procedures, and financial and administrative practices yet to be fully integrated.
Our success depends in large part on referrals from physicians, hospitals, case managers and other patient referral sources in the communities we serve. By law, referral sources cannot be contractually obligated to refer patients to any specific provider.
If we are unable to maintain or develop relationships with patient referral sources, our growth and profitability could be adversely affected. Our success depends in large part on referrals from physicians, hospitals, case managers and other patient referral sources in the communities we serve. By law, referral sources cannot be contractually obligated to refer patients to any specific provider.
Medicaid reimbursement rates are consistently the lowest among those of our payors, and frequently Medicaid patients come to us with other complicating conditions that make treatment more difficult and costly.
Medicaid reimbursement rates are consistently the lowest among those of our payors, and frequently Medicaid patients come to us with other complicating conditions that make treatment more difficult and costly. The administration of billings and collections is complex, and our estimates of accounts receivable require us to exercise judgment.
The Protecting Medicare and American Farmers from Sequester Cuts Act also suspends until 2025 the Statutory PAYGO reductions that would have gone into effect as a result of the American Rescue Plan Act.
In 2021, President Biden signed the American Rescue Plan Act of 2021 (the “American Rescue Plan Act”). The Protecting Medicare and American Farmers from Sequester Cuts Act also suspends until 2025 the Statutory PAYGO reductions that would have gone into effect because of the American Rescue Plan Act.
There can be no assurance that future governmental initiatives will not result in pricing freezes, reimbursement reductions, or reduced levels of reimbursement increases that are less than the increases we experience in our costs of operations.
There can be no assurance that future governmental initiatives will not result in pricing freezes, reimbursement reductions, or levels of reimbursement increases that are less than the increases we may experience in our costs of operations. There is also no assurance that our patient accounts receivable will be collected in a timely fashion, or at all.
An inability to record, process, summarize, and report financial information accurately could cause our investors to lose confidence in our publicly reported information, cause the market price of our stock to decline, expose us to sanctions or investigations by the SEC or other regulatory authorities, or impact our results of operations.
An inability to record, process, summarize, and report financial information accurately could cause our investors to lose confidence in our publicly reported information, cause the market price of our stock to decline, expose us to sanctions or investigations by the SEC or other regulatory authorities, or impact our financial condition and results of operations. 28 The carrying value of our Goodwill or other Intangible assets, net is subject to impairment testing and may result in the incurrence of impairment charges and adversely impact our results of operations and financial condition.
The net carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date or subsequent impairment date, if applicable.
As of December 31, 2023, we had Goodwill of $1.1 billion and Intangible assets, net of $80.0 million. The net carrying value of Goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date or subsequent impairment date, if applicable.
We are required to comply with HIPAA regulations regarding the privacy and security of protected health information, as well as state laws that focus on privacy, security, and notification requirements with regard to personal information.
We are required to comply with HIPAA regulations regarding the privacy and security of protected health information, as well as state laws that focus on privacy, security, and notification requirements with regard to personal information. The HIPAA regulations impose significant requirements on providers and our third-party vendors with regard to how such protected health information may be used and disclosed.
Many provisions within the Patient Protection and Affordable Care Act (as amended, the “2010 Healthcare Reform Laws”) have impacted or could in the future impact our business, including Medicare reimbursement reductions and promotion of alternative payment models, such as accountable care organizations (“ACOs”) and bundled payment initiatives.
Many provisions within the 2010 Healthcare Reform Laws have impacted or could in the future impact our business, including Medicare reimbursement reductions and promotion of alternative payment models, such as ACOs and bundled payment initiatives.
In addition to the legislative and regulatory actions that directly affect our reimbursement rates or further the evolution of the current healthcare delivery system, other legislative and regulatory changes, including as a result of ongoing healthcare reform, affect healthcare providers like us from time to time.
Other legislative and regulatory initiatives and changes affecting the industry could adversely affect our business and results of operations. In addition to the legislative and regulatory actions that directly affect our reimbursement rates or further the evolution of the current healthcare delivery system, other legislative and regulatory changes affect healthcare providers like us from time to time.
HIPAA directs the Secretary of HHS to periodically audit compliance by covered entities. We are and will remain dependent on the proper function, availability, and security of our (and third parties') information systems, including our electronic clinical information system.
We are and will remain dependent on the proper function, availability, and security of our (and third parties’) information systems, including our electronic clinical information system.
If the distribution does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, we, as well as Encompass and Encompass’s stockholders, could be subject to significant tax liabilities, and, in certain circumstances, we could be required to indemnify Encompass for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement. • Although Encompass has agreed to indemnify for us for certain liabilities after the separation, third parties could also seek to hold us responsible for any of the liabilities that Encompass has agreed to retain, and there can be no assurance that an indemnity from Encompass will be sufficient to protect us against the full amount of such liabilities, or that Encompass will be able to fully satisfy its indemnification obligations in the future.
If the IRS were to prevail with such a challenge, we could be subject to significant U.S. federal income tax liability and indemnification obligations under the Tax Matters Agreement entered into between Encompass and us in connection with the Separation. • Although Encompass has agreed to indemnify us for certain liabilities after the Separation, third parties could also seek to hold us responsible for any of the liabilities that Encompass has agreed to retain, and there can be no assurance that an indemnity from Encompass will be sufficient to protect us against the full amount of such liabilities, or that Encompass will be able to fully satisfy its indemnification obligations in the future.
In addition to many ordinary course reimbursement rate changes that CMS adopts each year as part of its annual rulemaking process for various healthcare provider categories, Congress and certain state legislatures periodically propose significant changes in laws and regulations governing the healthcare system.
In addition to many ordinary course reimbursement rate changes that CMS adopts each year as part of its annual rulemaking processes, Congress and certain state legislatures periodically propose significant changes in laws and regulations governing the healthcare system. These changes may result in limitations on increases and, in some cases, significant reductions in the levels of payments to healthcare providers.
Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants and maintain the required financial tests and ratios. Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions.
Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under any other agreements containing cross-default provisions.
The IMPACT Act has mandated that CMS adopt several new quality reporting measures for the various post-acute provider types, which we expect will be implemented over the next several years. The adoption of additional quality reporting measures to track and report will require additional time and expense and could affect reimbursement in the future.
Increased scrutiny and oversight in these industries may pose a heightened risk to reimbursement. The IMPACT Act mandated that CMS adopt several new quality reporting measures for the various post-acute provider types. The adoption of additional quality reporting measures to track and report will require additional time and 19 expense and could affect reimbursement in the future.
Our loss of, or failure to maintain, existing relationships or our failure to develop new relationships could adversely affect our ability to grow our business and operate profitably. We may make investments or complete transactions that could expose us to unforeseen risks and liabilities.
Our loss of, or failure to maintain, existing relationships or our failure to develop new relationships could adversely affect our ability to grow our business and operate profitably.
As a result of various alternative payment models, many referral sources are becoming increasingly focused on reducing post-acute costs by eliminating post-acute care referrals. Our ability to attract patients could be adversely affected if any of our home health agencies fail to provide or maintain a reputation for providing high-quality care on a cost-effective basis as compared to other providers.
Our ability to attract patients could be adversely affected 20 if any of our home health agencies fails to provide or maintain a reputation for providing high-quality care on a cost‑effective basis as compared to other providers.
Our primary competitors in home health services are two large insurance companies, a large public home health company, privately owned home health and hospice companies, and acute care hospitals with adjunct home health services.
Our primary competitors in home health services are two large insurance companies, a large public home health company, privately owned home health and hospice companies, and acute care hospitals with adjunct home health services. Some of these competitors have greater financial and other resources, advantages of scale and more established presences in their respective communities.
Each of these risks could negatively affect our business, financial positions, results of operations and cash flows. General Risk Factors Certain provisions in our amended and restated certificate of incorporation and amended and restated bylaws, and of Delaware law, may prevent or delay an acquisition of Enhabit, which could decrease the trading price of our common stock.
In such a case, our competitors or other activist shareholders could exploit these uncertainties and perceptions, which could have a material adverse impact on our business, financial position, results of operations, and cash flows. 31 Certain provisions in our amended and restated certificate of incorporation and amended and restated bylaws, and of Delaware law, may prevent or delay an acquisition of Enhabit, which could decrease the trading price of our common stock.
Various lawsuits, claims, and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. We are a defendant in a number of lawsuits, most of which are general and professional liability matters inherent in treating patients with medical conditions.
We are a defendant in a number of lawsuits, most of which are general and professional liability matters inherent in treating patients with medical conditions.
For additional discussion of our indebtedness, see Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources ,” in this Annual Report, and Note 9, Long-term Debt , to the accompanying consolidated financial statements.
For additional discussion of our indebtedness, see Item 7, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources ,” in this Annual Report, and Note 8, Long-term Debt , to the accompanying consolidated financial statements. 27 A pandemic, public health catastrophe or other unforeseen event, including regional or global sociopolitical conflicts, war, terrorism, or other man-made or natural disasters, could materially impact our operations.
Further, we may not be able to successfully integrate acquisitions or realize the anticipated benefits of any acquisitions. We selectively pursue strategic acquisitions of, and in some instances joint ventures with, other healthcare providers. We may face limitations on our ability to identify sufficient acquisition or other development targets and to complete those transactions to meet goals.
We may make investments or complete transactions that could expose us to unforeseen risks and liabilities. Further, we may not be able to successfully integrate acquisitions or realize the anticipated benefits of any acquisitions. Historically, we selectively pursued strategic acquisitions of, and in some instances joint ventures with, other healthcare providers.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur home health and hospice locations are in the localities served by that business and are subject to relatively small space leases, primarily of 5,000 square feet or less. Those space leases are typically five years or less in term. We do not believe any one of our individual properties is material to our consolidated operations.
Biggest changeIn addition to our principal executive office, as of December 31, 2023, we leased through various consolidated entities 292 agency offices. Our home health and hospice locations are in the localities served by that business and are subject to relatively small space leases, primarily of 5,000 square feet or less.
Our principal executive office and other properties are suitable for their respective uses and are, in all material respects, adequate for our present needs. 31 The following table sets forth information regarding our home health and hospice locations as of December 31, 2022: State Home Health Locations Hospice Locations Total Alabama+* 29 27 56 Alaska 1 1 2 Arizona 5 1 6 Arkansas+* 3 2 5 Colorado 6 2 8 Connecticut 1 — 1 Florida* 23 — 23 Georgia+ 20 4 24 Idaho 7 6 13 Illinois 3 — 3 Indiana 1 — 1 Kansas 4 2 6 Kentucky+* 3 — 3 Louisiana 1 2 3 Maryland+* 3 — 3 Massachusetts 5 — 5 Mississippi+ 9 11 20 Missouri 1 1 2 Montana 3 5 8 Nevada 3 1 4 New Mexico 5 3 8 North Carolina+* 6 — 6 Ohio 1 — 1 Oklahoma 19 2 21 Oregon 2 — 2 Pennsylvania 3 1 4 Rhode Island+* 1 — 1 South Carolina+* 3 1 4 Tennessee+* 7 1 8 Texas 51 20 71 Utah 6 6 12 Virginia 11 2 13 Washington+* 1 1 2 Wyoming 5 3 8 252 105 357 + Home health certificate of need state. * Hospice certificate of need state.
Our principal executive office and other properties are suitable for their respective uses and are, in all material respects, adequate for our present needs. 33 The following table sets forth information regarding our home health and hospice locations as of December 31, 2023: State Home Health Locations Hospice Locations Total Alabama+* 29 27 56 Alaska 1 1 2 Arizona 5 1 6 Arkansas+* 3 2 5 Colorado 6 3 9 Connecticut 1 — 1 Florida* 23 — 23 Georgia+ 19 4 23 Idaho 7 6 13 Illinois 3 1 4 Indiana 2 — 2 Kansas 4 2 6 Kentucky+* 3 — 3 Louisiana 1 2 3 Maryland+* 3 — 3 Massachusetts 5 — 5 Mississippi+ 9 11 20 Missouri 1 1 2 Montana+ 5 5 10 Nevada 3 1 4 New Mexico 5 3 8 North Carolina+* 6 — 6 Ohio 2 — 2 Oklahoma 19 2 21 Oregon 2 — 2 Pennsylvania 3 1 4 Rhode Island+* 1 — 1 South Carolina+* 3 1 4 Tennessee+* 7 1 8 Texas 51 23 74 Utah 6 6 12 Virginia 11 2 13 Washington+* 1 1 2 Wyoming 5 3 8 255 110 365 + Home health certificate of need state. * Hospice certificate of need state.
Item 2. Properties. We currently maintain our principal executive office at 6688 N. Central Expressway, Ste. 1300, Dallas, Texas 75206, the lease for which expires in May 2024 and has a renewal option for an additional five-year term. The lease was renewed in March 2023.
Item 2. Properties. We maintain our principal executive office at 6688 N. Central Expressway, Ste. 1300, Dallas, Texas 75206, the lease for which was renewed in March 2023 for an eleven-year term. See Note 6, Leases , to the accompanying consolidated financial statements for additional information about the renewal of the lease.
Removed
See Note 6, Leases , to the accompanying consolidated financial statements for additional information about the renewal of the lease. In addition to our home office, as of December 31, 2022, we leased through various consolidated entities 283 agency offices.
Added
Those space leases are typically five years or less in term.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe do not believe any of our pending legal proceedings are material to us, but there can be no assurance our assessment will not change based on future developments.
Biggest changeWe do not believe any of our pending legal proceedings are material to us, but there can be no assurance our assessment will not change based on future developments. Additionally, the FCA allows relators to institute civil proceedings on behalf of the United States alleging violations of the FCA.
These lawsuits, also known as “qui tam” actions, are common in the healthcare industry and can involve significant monetary damages, fines, attorneys’ fees, and the award of bounties to the relators who successfully prosecute or bring these suits to the government.
These lawsuits, also known as “qui tam” actions, are common in the healthcare industry and can involve 34 significant monetary damages, fines, attorneys’ fees, and the award of bounties to the relators who successfully prosecute or bring these suits to the government.
For additional discussion regarding the FCA, see Item 1A, “ Risk Factors—Risks Relating to Our Business—Other Regulatory Risks .” Item 4. Mine Safety Disclosures. Not applicable. 33 Part II.
For additional discussion regarding the FCA, see Item 1A, “ Risk Factors—Risks Relating to Our Business—Other Regulatory Risks .” Item 4. Mine Safety Disclosures. Not applicable. 35 Part II.
Removed
On January 13, 2022, the Federal Trade Commission (“FTC”) issued a Civil Investigative Demand (“CID”) to Encompass Health Corporation in connection with an investigation into unfair methods of competition by companies providing home health aide or personal care aide services.
Removed
Following responses to the CID by Encompass Health 32 Corporation and Enhabit, Inc. as successor to Encompass Health Corporation’s home health and hospice business, on October 6, 2022, the FTC informed Encompass Health Corporation that no further response to the CID would be required.
Removed
Additionally, the FCA allows relators to institute civil proceedings on behalf of the United States alleging violations of the FCA.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeFuture decisions concerning the payment of dividends will depend upon our results of operations, financial condition, capital expenditure plans and debt service requirements, as well as such other factors that our board of directors, in its sole discretion, may consider relevant. Recent Sales of Unregistered Securities None.
Biggest changeFuture decisions concerning the payment of dividends will depend upon our results of operations, financial condition, capital expenditure plans, and debt service requirements, as well as such other factors that our board of directors, in its sole discretion, may consider relevant.
The graph uses the closing market price on July 1, 2022 of $22.74 per share as the initial value of a share of our common stock. 34 This performance graph and other information furnished under this Comparison of Total Stockholder Return section shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act.
The graph uses the closing market price on July 1, 2022 of $22.74 per share as the initial value of a share of our common stock. 36 This performance graph and other information furnished under this Comparison of Total Stockholder Return section shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act.
Securities Authorized for Issuance Under Equity Compensation Plans Information required by this item is incorporated by reference to our definitive proxy statement for our 2023 Annual Meeting of stockholders.
Securities Authorized for Issuance Under Equity Compensation Plans Information required by this item is incorporated by reference to our definitive proxy statement for our 2024 Annual Meeting of stockholders.
Market Information for Common Stock Our common stock is listed for trading on the New York Stock Exchange under the symbol “EHAB.” Holders of Common Stock As of the close of business on April 11, 2023, approximately 5,600 holders of record held our common stock.
Market Information for Common Stock Our common stock is listed for trading on the New York Stock Exchange under the symbol “EHAB.” Holders of Common Stock As of the close of business on March 12, 2024, approximately 5,600 holders of record held our common stock.
Added
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities During the three months ended December 31, 2023, we purchased shares of our common stock as follows: Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans Approximate Dollar Value of Shares that May Yet be Purchased under our Share Repurchase Plans October 1 through October 31 12,076 $ 8.65 — — November 1 through November 30 — — — — December 1 through December 31 — — — — Total 12,076 $ 8.65 — — (1) Represents shares of common stock we repurchased in October 2023 to satisfy employee tax-withholding obligations in connections with the vesting of stock‑based compensation awards.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [ Reserved ] . 35 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 35 Item 7A. Quantitative and Qualitative Disclosures About Market Risks . 50 Item 8. Financial Statements and Supplementary Data. 50
Biggest changeItem 6. [ Reserved ] . 37 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. 37 Item 7A. Quantitative and Qualitative Disclosures About Market Risks . 53 Item 8. Financial Statements and Supplementary Data. 54

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table reconciles Net (loss) income to Adjusted EBITDA for the years ended December 31, 2022, 2021, and 2020 (in millions): For the Year Ended December 31, 2022 2021 2020 Net (Loss) Income $ (38.3) $ 112.9 $ 75.8 Income tax expense 12.8 35.1 24.4 Interest expense 15.0 0.3 5.2 Depreciation and amortization 33.0 36.9 40.0 Impairment of goodwill 109.0 — — Loss (gain) on disposal or impairment of assets 0.1 (0.8) 1.1 Stock-based compensation 9.2 3.6 3.9 Stock-based compensation included in overhead allocation 1.1 2.3 2.0 Net income attributable to noncontrolling interest (2.1) (1.8) (0.8) Transaction costs 9.5 11.9 — Gain on consolidation of joint venture formerly accounted for under the equity method of accounting — (3.2) (2.2) Payroll taxes on SARs exercise — — 1.5 Adjusted EBITDA $ 149.3 $ 197.2 $ 150.9 39 The following table reconciles Net cash provided by operating activities to Adjusted EBITDA for the years ended December 31, 2022, 2021, and 2020 (in millions): For the Year Ended December 31, 2022 2021 2020 Net cash provided by operating activities $ 80.1 $ 123.3 $ 24.9 Interest expense and amortization of debt discounts and fees 15.0 0.3 5.2 Equity in net income of nonconsolidated affiliates — 0.6 0.5 Net income attributable to noncontrolling interests in continuing operations (2.1) (1.8) (0.8) Distributions from nonconsolidated affiliates — (0.3) (0.4) Current portion of income tax (benefit) expense 17.1 26.5 5.9 Change in assets and liabilities 29.2 32.8 112.1 Transaction costs 9.5 11.9 — Stock-based compensation included in overhead allocation 1.1 2.3 2.0 Other (0.6) 1.6 1.5 Adjusted EBITDA $ 149.3 $ 197.2 $ 150.9 For additional information, see “— Results of Operations ” and “— Segment Results of Operations .” Segment Results of Operations Our segment and consolidated Net service revenue for the years ended December 31, 2022, 2021, and 2020 is provided in the table below.
Biggest changeRevenues and expenses are measured in accordance with the policies and procedures described in Note 1, Summary of Significant Accounting Policies , to the accompanying consolidated financial statements. 41 The following table reconciles Net (loss) income to Adjusted EBITDA for the years ended December 31, 2023, 2022, and 2021 (in millions): For the Year Ended December 31, 2023 2022 2021 Net (loss) income $ (79.0) $ (38.3) $ 112.9 Impairment of goodwill 85.8 109.0 — Interest expense 43.0 15.0 0.3 Depreciation and amortization 30.9 33.0 36.9 Unusual or nonrecurring items not typical of ongoing operations (1) 21.2 9.5 11.9 Income tax (benefit) expense (11.4) 12.8 35.1 Stock-based compensation 8.9 9.2 3.6 Net income attributable to noncontrolling interest (1.5) (2.1) (1.8) (Gain) loss on disposal or impairment of assets (0.3) 0.1 (0.8) Stock-based compensation included in overhead allocation — 1.1 2.3 Gain on consolidation of joint venture formerly accounted for under the equity method of accounting — — (3.2) Adjusted EBITDA $ 97.6 $ 149.3 $ 197.2 The following table reconciles Net cash provided by operating activities to Adjusted EBITDA for the years ended December 31, 2023, 2022, and 2021 (in millions): For the Year Ended December 31, 2023 2022 2021 Net cash provided by operating activities $ 48.4 $ 80.1 $ 123.3 Interest expense excluding amortization of debt discounts and fees 40.9 15.0 0.3 Unusual or nonrecurring items not typical of ongoing operations (1) 21.2 9.5 11.9 Change in assets and liabilities, excluding derivative instruments (11.9) 29.2 32.8 Net income attributable to noncontrolling interests in continuing operations (1.5) (2.1) (1.8) Other 0.3 (0.6) 1.6 Current portion of income tax (benefit) expense 0.2 17.1 26.5 Equity in net income of nonconsolidated affiliates — — 0.6 Distributions from nonconsolidated affiliates — — (0.3) Stock-based compensation included in overhead allocation — 1.1 2.3 Adjusted EBITDA $ 97.6 $ 149.3 $ 197.2 (1) Unusual or nonrecurring items in 2023 include costs associated with nonroutine litigation, restructuring activities, one-time standalone transition costs, shareholder activism and the strategic review process; in 2022, they include one-time standalone transition costs and costs associated with nonroutine litigation.
Aggressive payment review practices by Medicare contractors, aggressive enforcement of regulatory policies by government agencies, and restrictive or burdensome rules, regulations, or statutes governing admissions practices may lead us to not accept patients who would be appropriate for, and would benefit from, the services we provide.
Aggressive payment review practices by Medicare contractors, aggressive enforcement of regulatory policies by government agencies, and restrictive or burdensome rules, regulations, or statutes governing admissions practices may lead us not to accept patients who would be appropriate for, and would benefit from, the services we provide.
The Term Loan A Facility amortizes by an amount per annum equal to 5.0% of the outstanding principal amount thereon as of the closing date, payable in equal quarterly installments, with the balance being payable in June 2027. The Revolving Credit Facility provides the ability to borrow and obtain letters of credit, which is subject to a $75 million sublimit.
The Term Loan A Facility amortizes by an amount per annum equal to 5.0% of the outstanding principal amount thereon as of the closing date, payable in equal quarterly installments, with the balance being payable in June 2027. The Revolving Credit Facility provides the ability to borrow and obtain letters of credit, which is subject to a $75.0 million sublimit.
If management’s expectations for future operating results on a consolidated basis or at the state jurisdiction level vary from actual results due to changes in healthcare regulations, general economic conditions, or other factors, we may need to establish a valuation allowance for all or a portion of our deferred tax assets which could have a significant impact on our future earnings.
If management’s expectations for future operating results on a consolidated basis or at the state jurisdiction level 52 vary from actual results due to changes in healthcare regulations, general economic conditions, or other factors, we may need to establish a valuation allowance for all or a portion of our deferred tax assets which could have a significant impact on our future earnings.
For more information on the Separation, see Item 1, “ Business—History .” 36 COVID-19 Pandemic Impact on Our Results of Operations In response to the COVID-19 outbreak and ensuing pandemic (the “pandemic”), Congress and CMS adopted several statutory and regulatory measures intended to provide relief to healthcare providers in order to ensure patients would continue to have adequate access to care.
For more information on the Separation, see Item 1, “ Business—History .” COVID-19 Pandemic Impact on Our Results of Operations In response to the COVID-19 outbreak and ensuing pandemic (the “pandemic”), Congress and CMS adopted several statutory and regulatory measures intended to provide relief to healthcare providers in order to ensure patients would continue to have adequate access to care.
The projected operating results use management’s best estimates of economic and market conditions over the forecasted period including assumptions for pricing and volume, operating expenses, and capital expenditures. Other significant estimates and assumptions include cost-saving synergies and tax benefits that would accrue to a market participant under a fair value methodology.
The projected operating results use management’s best estimates of economic and market conditions over the forecasted period including assumptions for pricing and volume, operating expenses, and capital expenditures. Other significant estimates and assumptions include cost-saving synergies and tax benefits that would accrue to a market participant under a fair value 50 methodology.
The result of the analysis is sensitive to changes in key assumptions, such as assumed future reimbursement rates, rising interest rates and labor costs and delays in our ability to complete acquisitions and de novo openings, which could negatively impact our forecasted cash flows and result in an impairment charge in future periods.
The result of the analysis is sensitive to changes in key assumptions, such as assumed future reimbursement rates, rising interest rates and labor costs and delays in our ability to complete de novo openings, which could negatively impact our forecasted cash flows and result in an impairment charge in future periods.
We believe the following accounting estimates are the most critical to aid 45 in fully understanding and evaluating our reported financial results, as they require our most difficult, subjective, or complex judgments resulting from the need to make estimates about the effect of matters that are inherently uncertain.
We believe the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, as they require our most difficult, subjective, or complex judgments resulting from the need to make estimates about the effect of matters that are inherently uncertain.
We include the results of operations of the businesses acquired as of the beginning of the acquisition dates. Recent Accounting Pronouncements For information regarding recent accounting pronouncements, see Note 1, Summary of Significant Accounting Policies , to the accompanying consolidated financial statements. 49
We include the results of operations of the businesses acquired as of the beginning of the acquisition dates. Recent Accounting Pronouncements For information regarding recent accounting pronouncements, see Note 1, Summary of Significant Accounting Policies , to the accompanying consolidated financial statements.
See Item 1, “ Business — Our Growth Strategy .” Efficiency Cost and operating efficiencies impact the profitability of the patient care services we provide. We use a number of strategies to drive cost and operating efficiencies within our business.
See Item 1, “ Business — Our Strategy .” Efficiency Cost and operating efficiencies impact the profitability of the patient care services we provide. We use a number of strategies to drive cost and operating efficiencies within our business.
We target markets for expansion and growth that allow us to leverage our existing operations to create operating efficiencies through scale and density. We also leverage technology to create operating and supply chain efficiencies throughout our organization.
We target markets for expansion and growth that 38 allow us to leverage our existing operations to create operating efficiencies through scale and density. We also leverage technology to create operating and supply chain efficiencies throughout our organization.
See “— Results of Operations. ” For additional information regarding our business segments, including a detailed description of the services we provide, financial data for each segment, and a reconciliation of total adjusted earnings before interest, taxes, depreciation, and amortization (“Segment Adjusted EBITDA”) to ( Loss) i ncome before income taxes and noncontrolling interests , see Note 15, Segment Reporting , to the accompanying consolidated financial statements.
See “— Results of Operations .” For additional information regarding our business segments, including a detailed description of the services we provide, financial data for each segment, and a reconciliation of total adjusted earnings before interest, taxes, depreciation, and amortization (“Segment Adjusted EBITDA”) to ( Loss) i ncome before income taxes and noncontrolling interests , see Note 14, Segment Reporting , to the accompanying consolidated financial statements.
See Note 1, Summary of Significant Accounting Policies—Goodwill and Other Intangible Assets , and Note 7, Goodwill and Other Intangible Assets , to the accompanying consolidated financial statements for additional information.
See Note 1, Summary of Significant Accounting Policies—Goodwill and Other Intangible Assets, Net , and Note 7, Goodwill and Other Intangible Assets, Net , to the accompanying consolidated financial statements for additional information.
For example, based on our preliminary first quarter 2023 data that indicated a slowing rate of collections, which we believe is in part a result of a growing shift in our third-party payor mix and specifically, an increase in Medicare Advantage payors, we adjusted our reserves for the year ended December 31, 2022.
For example, based on our preliminary first quarter 2023 data that indicated a slowing rate of collections, which we believe was in part a result of a growing shift in our third-party payor mix and specifically, an increase in Medicare Advantage payors, we adjusted our reserves for the year ended December 31, 2022.
See Item 1, “ Business, ” and Item 1A, “ Risk Factors,” and “—S egment Results of Operations ” in this Annual Report, as well as Note 15, Segment Reporting , to the accompanying consolidated financial statements. We are also impacted by changes in reimbursement rates by other payors, and in particular, Medicare Advantage plans.
See Item 1, “ Business ,” and Item 1A, “ Risk Factors ,” and “—S egment Results of Operations ,” in this Annual Report, as well as Note 14, Segment Reporting , to the accompanying consolidated financial statements. We are also impacted by changes in reimbursement rates by other payors, and in particular, Medicare Advantage plans.
These triggering events included lower than expected fourth quarter operating results, a change in our acquisition strategy and declining collections, which we believe is in part a result of the growing shift in our third-party payor mix, and specifically, an increase in Medicare Advantage payors.
These triggering events included lower than expected fourth quarter operating results, a change in our acquisition strategy and declining collections, which we believe was in part a result of the growing shift in our third‑party payor mix, and specifically, an increase in Medicare Advantage payors.
We estimated the fair value of our reporting units using both the income approach and market approach. The assumptions used in the income approach incorporate a number of significant estimates and judgments, including the revenue growth rates, timing of acquisitions and de novo openings, forecasted operating margins, and the weighted-average cost of capital.
We estimated the fair value of our reporting units using both the income approach and market approach. The assumptions used in the income approach incorporate a number of significant estimates and judgments, including the revenue growth rates, timing of de novo openings, forecasted operating margins, the weighted average cost of capital, and terminal growth rates.
Segment Adjusted EBITDA is calculated similarly to consolidated Adjusted EBITDA but excludes corporate overhead costs that are not allocated to reportable segments because they are not considered when management evaluates segment performance. See Note 15, Segment Reporting , to the accompanying consolidated financial statements for additional information about Segment Adjusted EBITDA.
Segment Adjusted EBITDA is calculated similarly to consolidated Adjusted EBITDA but excludes corporate overhead costs that are not allocated to reportable segments because they are not considered when management evaluates segment performance. See Note 14, Segment Reporting , to the accompanying consolidated financial statements for additional information about Segment Adjusted EBITDA.
While management believes the assumptions included in its forecast of future earnings are reasonable and it is more likely than not the net deferred tax asset balance as of December 31, 2022 will be realized, no such assurances can be provided.
While management believes the assumptions included in its forecast of future earnings are reasonable and it is more likely than not the net deferred tax asset balance as of December 31, 2023 will be realized, no such assurances can be provided.
See also Note 1, Summary of Significant Accounting Policies—Basis of Presentation and Consolidation , and Note 12, Income Taxes , to the accompanying consolidated financial statements, and “ —Critical Accounting Estimates .” Adjusted EBITDA Adjusted EBITDA is a non-GAAP measure of our financial performance.
See also Note 1, Summary of Significant Accounting Policies —Basis of Presentation and Consolidation , and Note 11, Income Taxes , to the accompanying consolidated financial statements, and “ —Critical Accounting Estimates .” Adjusted EBITDA Adjusted EBITDA is a non-GAAP measure of our financial performance.
For additional information about our business and reportable segments, see Item 1, “ Business ,” Item 1A, “ Risk Factors,” “ — Segment Results of Operations ,” and Note 15, Segment Reporting , to the accompanying consolidated financial statements in this Annual Report.
For additional information about our business and reportable segments, see Item 1, “ Business ,” Item 1A, “ Risk Factors ,” “— Segment Results of Operations ,” and Note 14, Segment Reporting , to the accompanying consolidated financial statements in this Annual Report.
Our Restricted cash pertains primarily to a joint venture in which we participate where our external partner requested, and we agreed, the joint venture’s cash not be commingled with other corporate cash accounts. See Note 1, Summary of Significant Accounting Policies—Cash and Cash Equivalents and Restricted Cash , to the accompanying consolidated financial statements.
Our Restricted cash pertains primarily to a joint venture in which our joint venture partner requested, and we agreed, the joint venture’s cash not be commingled with other corporate cash accounts. See Note 1, Summary of Significant Accounting Policies—Cash and Cash Equivalents and Restricted Cash , to the accompanying consolidated financial statements.
As of December 31, 2022 and 2021, the amount of our patient accounts receivable representing denials that were under review or audit in excess of reserves established for such denials was $2.5 million and $8.9 million, respectively, in our home health segment and $1.6 million and $2.6 million, respectively, in our hospice segment.
As of December 31, 2023 and 2022, the amount of our patient accounts receivable representing denials that were under review or audit in excess of reserves established for such denials was $1.8 million and $2.5 million, respectively, in our home health segment and $2.2 million and $1.6 million, respectively, in our hospice segment.
See Note 1, Summary of Significant Accounting Policies — Income Taxes , and Note 12, Income Taxes , to the accompanying consolidated financial statements for a more complete discussion of income taxes and our policies related to income taxes.
See Note 1, Summary of Significant Accounting Policies — Income Taxes , and Note 11, Income Taxes , to the accompanying consolidated financial statements for a more complete discussion of income taxes and our policies related to income taxes.
The following discussion should be read in conjunction with the consolidated financial statements and related notes that appear in Item 15, “ Financial Statements and Exhibits ” in this Annual Report. This discussion also contains forward-looking statements about our business, operations and industry that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, and intentions.
The following discussion should be read in conjunction with the consolidated financial statements and related notes that appear in Item 15, “ Exhibit and Financial Statement Schedules ,” in this Annual Report. This discussion also contains forward-looking statements about our business, operations and industry that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, and intentions.
Prior to the Separation, the income tax amounts in our financial statements have been calculated based on a separate return methodology and were presented as if our income gave rise to separate federal and state consolidated income tax return filing obligations in the respective jurisdictions in which we operate, with adjustments as described in Note 12, Income Taxes, to the accompanying consolidated financial statements.
Prior to the Separation, the income tax amounts in our financial statements were calculated based on a separate return methodology and were presented as if our income gave rise to separate federal and state consolidated income tax return filing obligations in the respective jurisdictions in which we operate, with adjustments as described in Note 11, Income Taxes , to the accompanying consolidated financial statements.
Home Health During the years ended December 31, 2022, 2021, and 2020 our home health segment derived its Net service revenue from the following payor sources: For the Year Ended December 31, 2022 2021 2020 Medicare 73.8 % 78.2 % 79.5 % Medicare Advantage 17.3 % 13.1 % 13.2 % Managed care 7.3 % 6.9 % 5.2 % Medicaid 1.4 % 1.6 % 1.8 % Other 0.2 % 0.2 % 0.3 % Total 100.0 % 100.0 % 100.0 % 40 The decline in Medicare reimbursement as a percentage of our home health Net service revenue and corresponding increase in Medicare Advantage reimbursement is primarily the result of continued national enrollment increases in Medicare Advantage plans by Medicare beneficiaries.
Home Health During the years ended December 31, 2023, 2022, and 2021, our home health segment derived its Net service revenue from the following payor sources: For the Year Ended December 31, 2023 2022 2021 Medicare 65.6 % 73.8 % 78.2 % Medicare Advantage 23.4 % 17.3 % 13.1 % Managed care 9.5 % 7.3 % 6.9 % Medicaid 1.4 % 1.4 % 1.6 % Other 0.1 % 0.2 % 0.2 % Total 100.0 % 100.0 % 100.0 % The decline in Medicare revenue as a percentage of our home health Net service revenue and corresponding increase in Medicare Advantage revenue is primarily the result of continued national enrollment increases in Medicare Advantage plans by Medicare beneficiaries.
Beginning in October 2022, we receive the one-month SOFR and pay a fixed rate of interest of 4.3%. For additional information on the Separation, see Note 1, Summary of Significant Accounting Policies , to the accompanying consolidated financial statements.
Beginning in October 2022, we receive the one-month SOFR and pay a fixed rate of interest of 4.3%. See also Note 12, Derivative Instruments . For additional information on the Separation, see Note 1, Summary of Significant Accounting Policies , to the accompanying consolidated financial statements.
We base our fair value estimates on assumptions management believes to be reasonable but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates. Income Taxes We provide for income taxes using the asset and liability method.
We based our fair value estimates on assumptions management believed to be reasonable but which are unpredictable and inherently uncertain. Actual future results may differ from those estimates. Income Taxes We provide for income taxes using the asset and liability method.
Capital Resources In June 2022, we entered into a credit agreement (the “Credit Agreement”) that consists of a $400.0 million term loan A facility (the “Term Loan A Facility”) and a $350.0 million revolving credit facility (the “Revolving Credit Facility” and together with the Term Loan A Facility, the “Credit Facilities”). The Credit Facilities mature in June 2027.
In June 2022, the Company entered into a credit agreement (the “Credit Agreement”) that consists of a $400.0 million term loan A facility (the “Term Loan A Facility”) and a $350.0 million revolving credit facility (the “Revolving Credit Facility” and together with the Term Loan A Facility, the “Credit Facilities”). The Credit Facilities mature in June 2027.
For example, in the year ended December 31, 2021, Medicare Advantage patients accounted for 10.6% of our revenue as compared to 14.2% for the year ended December 31, 2022. In addition to organic growth, our strategy includes volume growth through strategic acquisitions and de novo location openings.
For example, in the year ended December 31, 2022, Medicare Advantage patients accounted for 14.2% of our revenue as compared to 19.0% for the year ended December 31, 2023. In addition to organic growth, our strategy includes volume growth through de novo location openings and strategic acquisitions.
We may perform interim impairment tests if an event occurs or circumstances change that could potentially reduce the fair value of a reporting unit below its carrying amount. We test goodwill for impairment by either performing a qualitative evaluation or a quantitative test.
Goodwill We test Goodwill for impairment annually as of October 1 st of each year. We may perform interim impairment tests if an event occurs or circumstances change that could potentially reduce the fair value of a reporting unit below its carrying amount. We test Goodwill for impairment by performing either a qualitative evaluation or a quantitative test.
As of December 31, 2022 2021 (in Millions) Current 0 – 30 Days $ 109.9 $ 113.4 31 – 60 Days 22.0 22.3 61 – 90 Days 10.2 10.2 91 – 120 Days 4.5 4.5 120 + Days 3.0 14.1 Current accounts receivable 149.6 164.5 Noncurrent patient accounts receivable 0.9 6.1 Accounts receivable $ 150.5 $ 170.6 Changes in general economic conditions (such as increased unemployment rates or periods of recession), business office operations, payor mix, or trends in federal or state governmental and private employer healthcare coverage could affect our collection of accounts receivable.
As of December 31, 2023 2022 (in Millions) Current 0 – 30 Days $ 102.5 $ 109.9 31 – 60 Days 24.2 22.0 61 – 90 Days 12.6 10.2 91 – 120 Days 8.1 4.5 120 + Days 17.3 3.0 Current accounts receivable, net of allowances 164.7 149.6 Noncurrent patient accounts receivable, net of allowances 0.5 0.9 Accounts receivable, net of allowances $ 165.2 $ 150.5 Changes in general economic conditions (such as increased unemployment rates or periods of recession), business office operations, payor mix, or trends in federal or state governmental and private employer healthcare coverage could affect our collection of accounts receivable.
Hospice During the years ended December 31, 2022, 2021, and 2020 our hospice segment derived its Net service revenue from the following payor sources: For the Year Ended December 31, 2022 2021 2020 Medicare 98.8 % 97.9 % 99.1 % Managed care 0.7 % 1.5 % 0.9 % Medicaid 0.5 % 0.6 % — % Total 100.0 % 100.0 % 100.0 % 42 Additional information regarding our hospice segment’s operating results for the years ended December 31, 2022, 2021, and 2020 is as follows: For the Year Ended December 31, Percentage Change 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (In Millions, Except Percentage Change) Hospice segment revenue $ 194.0 $ 209.3 $ 200.6 (7.3) % 4.3 % Cost of service, excluding depreciation and amortization 90.1 90.4 93.7 (0.3) % (3.5) % Gross margin, excluding depreciation and amortization 103.9 118.9 106.9 (12.6) % 11.2 % General and administrative expenses 65.2 62.6 60.4 4.2 % 3.6 % Equity earnings and noncontrolling interests 0.3 0.1 (0.2) 200.0 % (150.0) % Hospice Segment Adjusted EBITDA (a) $ 38.4 $ 56.2 $ 46.7 (31.7) % 20.3 % For the Year Ended December 31, Percentage Change 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (Actual Amounts) Total: Admissions 11,978 13,113 12,878 (8.7)% 1.8% Patient days 1,284,386 1,372,980 1,367,060 (6.5)% 0.4% Average daily census 3,519 3,762 3,735 (6.5)% 0.7% Revenue per patient day $ 151 $ 152 $ 147 (0.7)% 3.4% Cost per patient day $ 70 $ 66 $ 69 6.1% (4.3)% (a) Segment Adjusted EBITDA is presented in conformity with ASC 280, Segment Reporting , as a measure reported to management for purposes of making decisions on allocating resources and addressing the performance of our segments.
Segment Adjusted EBITDA The decrease in Segment Adjusted EBITDA for the year ended December 31, 2023 as compared to the year ended December 31, 2022 resulted primarily from the decrease in Net service revenue as discussed above. 44 Hospice During the years ended December 31, 2023, 2022, and 2021, our hospice segment derived its Net service revenue from the following payor sources: For the Year Ended December 31, 2023 2022 2021 Medicare 97.1 % 98.8 % 97.9 % Managed care 2.5 % 0.7 % 1.5 % Medicaid 0.4 % 0.5 % 0.6 % Total 100.0 % 100.0 % 100.0 % Additional information regarding our hospice segment’s operating results for the years ended December 31, 2023, 2022, and 2021 is as follows: For the Year Ended December 31, Percentage Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 (In Millions, Except Percentage Change) Hospice segment revenue $ 196.2 $ 194.0 $ 209.3 1.1 % (7.3) % Cost of service, excluding depreciation and amortization 96.6 90.1 90.4 7.2 % (0.3) % Gross margin, excluding depreciation and amortization 99.6 103.9 118.9 (4.1) % (12.6) % General and administrative expenses 63.4 65.2 62.6 (2.8) % 4.2 % Equity earnings and noncontrolling interests 0.1 0.3 0.1 (66.7) % 200.0 % Hospice Segment Adjusted EBITDA (a) $ 36.1 $ 38.4 $ 56.2 (6.0) % (31.7) % For the Year Ended December 31, Percentage Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 (Actual Amounts) Total: Admissions 11,713 11,978 13,113 (2.2)% (8.7)% Patient days 1,256,081 1,284,386 1,372,980 (2.2)% (6.5)% Average daily census 3,441 3,519 3,762 (2.2)% (6.5)% Revenue per patient day $ 156 $ 151 $ 152 3.3% (0.7)% Cost per patient day $ 77 $ 70 $ 66 10.0% 6.1% (a) Segment Adjusted EBITDA is presented in conformity with ASC 280, Segment Reporting , as a measure reported to management for purposes of making decisions on allocating resources and addressing the performance of our segments.
Segment Adjusted EBITDA The decrease in hospice Segment Adjusted EBITDA for the year ended December 31, 2022 as compared to the year ended December 31, 2021 resulted from the decrease in Net service revenue as discussed above and an increase in Cost of service , excluding depreciation and amortization .
Segment Adjusted EBITDA The decrease in hospice Segment Adjusted EBITDA for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily resulted from an increase in Cost of service , excluding depreciation and amortization .
However, we continually review the amounts actually collected in subsequent periods in order to determine the amounts by which our estimates differed. Such differences have been material.
However, we continually review the amounts actually collected in subsequent periods in order to determine the amounts by which our estimates differed.
However, we cannot predict the magnitude of future cost increases. We have little or no ability to pass on these increased costs associated with providing service to Medicare and Medicaid patients due to federal and state laws that establish fixed reimbursement rates though the annual Medicare reimbursement rate updates for home health and hospice.
We have little or no ability to pass on these increased costs associated with providing service to Medicare and Medicaid patients due to federal and state laws that establish fixed reimbursement rates through the annual Medicare reimbursement rate updates for home health and hospice.
During 2023, we expect to spend $5 million to $10 million for capital expenditures. Actual amounts spent will be dependent upon the timing of projects for our business. As of December 31, 2022, we do not have any material off-balance sheet arrangements. Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with GAAP.
Actual amounts spent will be dependent upon the timing of projects for our business. As of December 31, 2023, we do not have any material off-balance sheet arrangements. 48 Critical Accounting Estimates Our consolidated financial statements are prepared in accordance with GAAP.
Impairment of Goodwill Impairment of goodwill in the year ended December 31, 2022 resulted from a goodwill charge of $109.0 million to reduce the carrying value of our Home Health reporting unit to its fair value. See Note7, Goodwill and Other Intangible Assets , to the accompanying consolidated financial statements for additional information.
Impairment of goodwill for the year ended December 31, 2022 resulted from an impairment charge to reduce the carrying value of our home health reporting unit to its fair value. See Note 7, Goodwill and Other Intangible Assets, Net , to the accompanying consolidated financial statements for additional information.
The following events and circumstances are certain of the qualitative factors we consider in evaluating whether it is more likely than not the fair value of a reporting unit is less than its carrying amount: • macroeconomic conditions, such as deterioration in general economic conditions, limitations on accessing capital, or other developments in equity and credit markets • industry and market considerations and changes in healthcare regulations, including reimbursement and compliance requirements under the Medicare and Medicaid programs • cost factors, such as an increase in labor, supply, or other costs • overall financial performance, such as negative or declining cash flows or a decline in actual or forecasted revenue or earnings • other relevant company-specific events, such as material changes in management or key personnel or outstanding litigation • material events, such as a change in the composition or carrying amount of each reporting unit’s net assets, including acquisitions and dispositions • length of time since the most recent quantitative analysis During the three months ended September 30, 2022, we identified potential impairment triggering events, including the impact of reimbursement and labor pressures, the Federal Reserve further increasing the risk-free interest rate and a decline in our stock price, and determined a quantitative analysis of our two reporting units should be performed.
The following events and circumstances are certain of the qualitative factors we consider in evaluating whether it is more likely than not the fair value of a reporting unit is less than its carrying amount: • macroeconomic conditions, such as deterioration in general economic conditions, limitations on accessing capital, or other developments in equity and credit markets; • industry and market considerations and changes in healthcare regulations, including reimbursement and compliance requirements under the Medicare and Medicaid programs; • cost factors, such as an increase in labor, supply, or other costs; • overall financial performance, such as negative or declining cash flows or a decline in actual or forecasted revenue or earnings; • other relevant company-specific events, such as material changes in management or key personnel or outstanding litigation; • material events, such as a change in the composition or carrying amount of each reporting unit’s net assets, including acquisitions and dispositions; and • length of time since the most recent quantitative analysis.
If actual results are not consistent with our assumptions and 46 judgments, we may be exposed to gains or losses that could be material. See Note 1, Summary of Significant Accounting Policies—Net service revenue and — Accounts Receivable , to the accompanying consolidated financial statements. Goodwill We test goodwill for impairment annually as of October 1 st of each year.
If actual results are not consistent with our assumptions and judgments, we may be exposed to gains or losses that could be material. See Note 1, Summary of Significant Accounting Policies—Net Service Revenue and — Accounts Receivable, Net of Allowances to the accompanying consolidated financial statements.
See “ —Segment Results of Operations .” General and Administrative Expenses General and administrative expenses increased for the year ended December 31, 2022 as compared to December 31, 2021 primarily due to incremental costs associated with being a stand-alone company.
See “ —Segment Results of Operations .” 40 General and Administrative Expenses General and administrative expenses increased for the year ended December 31, 2023 as compared to December 31, 2022 primarily due to incremental costs associated with being a stand-alone company, investments in talent acquisition, and annual merit increases.
We believe the growing percentage of seniors experiencing chronic conditions will result in higher utilization of home health services in the future as patients require more care to support these conditions. We also expect the volume of third-party payors to shift and evolve.
We believe the growing percentage of seniors experiencing chronic conditions will result in higher utilization of home health services in the future as patients require more care to support these conditions. Due to the continued national enrollment increases in Medicare Advantage plans by Medicare beneficiaries, we expect the volume of third-party payors to shift and evolve.
We performed a sensitivity analysis by reporting unit and determined that, assuming all other assumptions and inputs used in the discounted cash flow analysis are held constant, a 50 basis point increase in the discount rate assumption would result in decreases in the fair value of the Home Health and Hospice reporting units of approximately $38 million and $15 million, respectively.
Based on the sensitivity analysis performed at September 30, 2023 by reporting unit, it was determined that, assuming all other assumptions and inputs used in the discounted cash flow analysis are held constant, a 50 and 100 basis point increase in the discount rate assumption would result in decreases in the fair value of the home health and hospice reporting units of approximately $35 million and $10 million, respectively.
As of December 31, 2022, we also had $156.6 million available to us under the Revolving Credit Facility, as discussed below.
As of December 31, 2023, we also had $33.4 million available to us under the Revolving Credit Facility, as discussed below.
Based on the quantitative analysis, we recorded an impairment charge of $109.0 million in the three months ended December 31, 2022 to reflect a decrease in the carrying value of our home health reporting unit. As of December 31, 2022, the fair value of our hospice reporting unit exceeded its carrying value by less than 15%.
Based on the quantitative analysis in the fourth quarter of 2022, we recorded an impairment charge of $109.0 million in the three months ended December 31, 2022 to reflect a decrease in the carrying value of our home health reporting unit.
During the years ended December 31, 2022 and 2021, we made capital expenditures of $7.1 million and $4.3 million, respectively, for property and equipment. These expenditures in 2022 and 2021 were exclusive of $36.3 million and $117.5 million, respectively, in net cash related to our acquisition activity.
During the years ended December 31, 2023 and 2022, we made capital expenditures of $3.5 million and $7.1 million, respectively, for property and equipment. These expenditures in 2023 and 2022 were exclusive of $2.8 million and $36.3 million, respectively, in net cash related to our acquisition activity. During 2024, we expect to spend approximately $6 million for maintenance capital expenditures.
See “— Segment Results of Operations .” Cost of Service, Excluding Depreciation and Amortization Cost of service , excluding depreciation and amortization represents the cost of operating our business, which primarily consists of payroll and related benefits, supplies, rental cost for our locations, purchased services, and ancillary expense such as the cost of pharmacy.
See “— Segment Results of Operations .” Cost of Service, Excluding Depreciation and Amortization Cost of service , excluding depreciation and amortization represents the cost of operating our business, which primarily consists of payroll and related benefits, travel, supplies, including pharmacy for hospice patients, and rental cost for our locations.
We calculate Adjusted EBITDA as Net (loss) income adjusted to exclude (1) income tax expense, (2) interest expense, (3) depreciation and amortization, (4) gains or losses on disposal or impairment of assets or goodwill, (5) stock-based compensation, (6) net income attributable to noncontrolling interest, (7) transaction costs, (8) gain on consolidation of joint venture formerly accounted for under the equity method of accounting and (9) payroll taxes on stock appreciation rights (“SARs”) exercises.
We calculate Adjusted EBITDA as Net (loss) income adjusted to exclude (1) income tax (benefit) expense, (2) interest expense and amortization of debt discounts and fees, (3) depreciation and amortization, (4) gains or losses on disposal or impairment of assets or goodwill, (5) stock‑based compensation, (6) net income attributable to noncontrolling interest, (7) unusual or nonrecurring items not typical of ongoing operations, and (8) gain on consolidation of joint venture formerly accounted for under the equity method of accounting.
Segment Adjusted EBITDA is calculated similarly to consolidated Adjusted EBITDA but excludes corporate overhead costs that are not allocated to reportable segments because they are not considered when management evaluates segment performance.
Segment Adjusted EBITDA is calculated similarly to consolidated Adjusted EBITDA but excludes corporate overhead costs that are not allocated to reportable segments because they are not considered when management evaluates segment performance. See Note 14, Segment Reporting , to the accompanying consolidated financial statements for additional information about Segment Adjusted EBITDA.
The table below shows a summary of our net accounts receivable balances as of December 31, 2022 and 2021. Information on the concentration of total patient accounts receivable by payor class can be found in Note 1, Summary of Significant Accounting Policies—Accounts Receivable , to the accompanying consolidated financial statements.
Information on the concentration of total patient accounts receivable by payor class can be found in Note 1, Summary of Significant Accounting Policies—Accounts Receivable, Net of Allowances , to the accompanying consolidated financial statements.
As of December 31, 2022 and 2021, we did not have a valuation allowance recorded against any of our deferred tax assets. 48 Our evaluation of any required liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions which are periodically audited by tax authorities.
Our evaluation of any required liability for unrecognized tax benefits contains uncertainties because management is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions which are periodically audited by tax authorities.
Additional information regarding our home health segment’s operating results for the years ended December 31, 2022, 2021, and 2020 is as follows: For the Year Ended December 31, Percentage Change 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (In Millions, Except Percentage Change) Net service revenue: Episodic $ 738.0 $ 781.5 $ 780.0 (5.6) % 0.2 % Non-episodic 128.0 102.0 82.3 25.5 % 23.9 % Other 11.1 13.8 15.3 (19.6) % (9.8) % Home health segment revenue 877.1 897.3 877.6 (2.3) % 2.2 % Cost of service, excluding depreciation and amortization 435.5 423.5 443.8 2.8 % (4.6) % Gross margin, excluding depreciation and amortization 441.6 473.8 433.8 (6.8) % 9.2 % General and administrative expenses 238.5 244.2 248.7 (2.3) % (1.8) % Other income (0.9) (1.6) — (43.8) % N/A Equity earnings and noncontrolling interests 1.8 1.1 0.5 63.6 % 120.0 % Home Health Segment Adjusted EBITDA (a) $ 202.2 $ 230.1 $ 184.6 (12.1) % 24.6 % For the Year Ended December 31, Percentage Change 2022 2021 2020 2022 vs. 2021 2021 vs. 2020 (Actual Amounts) Episodic: Admissions 145,136 155,357 158,912 (6.6) % (2.2) % Recertifications 102,901 111,394 114,775 (7.6) % (2.9) % Completed episodes 246,448 264,581 268,508 (6.9) % (1.5) % Visits 3,664,389 4,071,600 4,410,183 (10.0) % (7.7) % Revenue per episode $ 2,995 $ 2,954 $ 2,905 1.4 % 1.7 % Non-Episodic: Admissions 57,359 45,269 35,337 26.7 % 28.1 % Recertifications 26,071 19,865 13,923 31.2 % 42.7 % Visits 1,115,564 898,099 729,289 24.2 % 23.1 % Revenue per visit $ 115 $ 114 $ 113 0.9 % 0.9 % Total: Admissions 202,495 200,626 194,249 0.9 % 3.3 % Recertifications 128,972 131,259 128,698 (1.7) % 2.0 % Starts of care (total admissions and recertifications) 331,467 331,885 322,947 (0.1) % 2.8 % Visits 4,779,953 4,969,699 5,139,472 (3.8) % (3.3) % Cost per visit $ 89 $ 83 $ 84 7.2 % (1.2) % (a) Segment Adjusted EBITDA is presented in conformity with ASC 280, Segment Reporting , as a measure reported to management for purposes of making decisions on allocating resources and addressing the performance of our segments.
Additional information regarding our home health segment’s operating results for the years ended December 31, 2023, 2022, and 2021 is as follows: For the Year Ended December 31, Percentage Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 (In Millions, Except Percentage Change) Net service revenue: Episodic $ 661.2 $ 738.0 $ 781.5 (10.4) % (5.6) % Non-episodic 179.2 128.0 102.0 40.0 % 25.5 % Private duty (1) 9.7 11.1 13.8 (12.6) % (19.6) % Home health segment revenue 850.1 877.1 897.3 (3.1) % (2.3) % Cost of service, excluding depreciation and amortization 439.0 435.5 423.5 0.8 % 2.8 % Gross margin, excluding depreciation and amortization 411.1 441.6 473.8 (6.9) % (6.8) % General and administrative expenses 240.6 238.5 244.2 0.9 % (2.3) % Other income (0.2) (0.9) (1.6) (77.8) % (43.8) % Equity earnings and noncontrolling interests 1.4 1.8 1.1 (22.2) % 63.6 % Home Health Segment Adjusted EBITDA (a) $ 169.3 $ 202.2 $ 230.1 (16.3) % (12.1) % (1) Private duty represents long-term comprehensive hourly nursing medical care. 43 For the Year Ended December 31, Percentage Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 (Actual Amounts) Episodic: Admissions 130,393 145,136 155,357 (10.2) % (6.6) % Recertifications 93,601 102,901 111,394 (9.0) % (7.6) % Completed episodes 222,227 246,448 264,581 (9.8) % (6.9) % Visits 3,255,471 3,664,389 4,071,600 (11.2) % (10.0) % Revenue per episode $ 2,975 $ 2,995 $ 2,954 (0.7) % 1.4 % Non-Episodic: Admissions 77,055 57,359 45,269 34.3 % 26.7 % Recertifications 36,279 26,071 19,865 39.2 % 31.2 % Visits 1,480,623 1,115,564 898,099 32.7 % 24.2 % Revenue per visit $ 121 $ 115 $ 114 5.2 % 0.9 % Total: Admissions 207,448 202,495 200,626 2.4 % 0.9 % Recertifications 129,880 128,972 131,259 0.7 % (1.7) % Starts of care (total admissions and recertifications) 337,328 331,467 331,885 1.8 % (0.1) % Visits 4,736,094 4,779,953 4,969,699 (0.9) % (3.8) % Cost per visit $ 91 $ 89 $ 83 2.2 % 7.2 % (a) Segment Adjusted EBITDA is presented in conformity with ASC 280, Segment Reporting , as a measure reported to management for purposes of making decisions on allocating resources and addressing the performance of our segments.
Over that time, we have grown to become the fourth largest provider of home health services and a leading provider of hospice services nationally, measured by 2020 Medicare revenues. As of December 31, 2022, our footprint comprised 252 home health and 105 hospice locations across 34 states.
Over that time, we have grown to become the fourth-largest provider of home health services and a leading provider of hospice services nationally, measured by 2022 Medicare revenues.
During the second session of the 117 th Congress, the PAYGO cuts required in 2023 and 2024 were delayed until 2025. Volume The volume of services we provide has a significant impact on our Net service revenue. Various factors, including competition and increasing regulatory and administrative burdens, impact our ability to maintain and grow our home health and hospice volumes.
During the second session of the 117 th Congress, the PAYGO cuts required in 2023 and 2024 were delayed until 2025. Volume The volume of services we provide has a significant impact on our Net service revenue .
In addition, we have experienced higher prices for our medical supplies as a result of the pandemic. Our supply chain efforts and our continual focus on monitoring and actively managing medical supplies and pharmaceutical costs have enabled us to mitigate the effect of increased pricing related to supplies and other operating expenses over the past few years.
Our supply chain efforts and our continual focus on monitoring and actively managing medical supplies and pharmaceutical costs have enabled us to mitigate the effect of increased pricing related to supplies and other operating expenses over the past few years. However, we cannot predict the magnitude of future cost increases.
The decrease in Net cash used in investing activities for the year ended December 31, 2022 as compared to the year ended December 31, 2021 resulted primarily from the acquisition of assets from Frontier Home Health and Hospice, LLC in 2021. See Note 2, Business Combinations . Financing activities .
The decrease in Net cash used in investing activities for the year ended December 31, 2023 as compared to the year ended December 31, 2022 resulted primarily from three acquisitions in the fourth quarter of 2022. See Note 2, Business Combinations . Financing activities .
Results of Operations Our consolidated results of operations for the years ended December 31, 2022, 2021, and 2020 were as follows: For the Year Ended December 31, Percentage Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 (in Millions) Net service revenue $ 1,071.1 $ 1,106.6 $ 1,078.2 (3.2) % 2.6 % Cost of service, excluding depreciation and amortization 525.6 513.9 537.5 2.3 % (4.4) % Gross margin, excluding depreciation and amortization 545.5 592.7 540.7 (8.0) % 9.6 % General and administrative expenses 414.9 412.9 398.0 0.5 % 3.7 % Depreciation and amortization 33.0 36.9 40.0 (10.6) % (7.8) % Impairment of goodwill 109.0 — — N/A N/A Operating (loss) income (11.4) 142.9 102.7 (108.0) % 39.1 % Interest expense 15.0 0.3 5.2 4900.0 % (94.2) % Equity in net income of nonconsolidated affiliates — (0.6) (0.5) (100.0) % 20.0 % Other income (0.9) (4.8) (2.2) (81.3) % 118.2 % (Loss) income before income taxes and noncontrolling interests (25.5) 148.0 100.2 (117.2) % 47.7 % Income tax expense 12.8 35.1 24.4 (63.5) % 43.9 % Net (loss) income (38.3) 112.9 75.8 (133.9) % 48.9 % Less: Net income attributable to noncontrolling interests 2.1 1.8 0.8 16.7 % 125.0 % Net (loss) income attributable to Enhabit, Inc. $ (40.4) $ 111.1 $ 75.0 (136.4) % 48.1 % 37 The following table sets forth our consolidated results as a percentage of Net service revenue , except Income tax expense , which is presented as a percentage of (Loss) Income before income taxes and noncontrolling interests : For the Year Ended December 31, 2022 2021 2020 Cost of service, excluding depreciation and amortization 49.1 % 46.4 % 49.9 % General and administrative expenses 38.7 % 37.3 % 36.9 % Depreciation and amortization 3.1 % 3.3 % 3.7 % Interest expense 1.4 % — % 0.5 % Income tax expense (50.2) % 23.7 % 24.3 % Net Service Revenue Our Net service revenue decreased for the year ended December 31, 2022 as compared to December 31, 2021 due to adjustments to accounts receivable reserves, the continued shift to more non-episodic patients in home health, and the resumption of sequestration.
For discussion of the financial and operational impacts we have experienced as a result of the pandemic, see the sections titled Item 1, “ Business ,” Item 1A, “ Risk Factors ,” “— Results of Operations ,” and “— Segment Results of Operations .” 39 Results of Operations Our consolidated results of operations for the years ended December 31, 2023, 2022, and 2021 were as follows: For the Year Ended December 31, Percentage Change 2023 2022 2021 2023 vs 2022 2022 vs 2021 (in Millions) Net service revenue $ 1,046.3 $ 1,071.1 $ 1,106.6 (2.3) % (3.2) % Cost of service, excluding depreciation and amortization 535.6 525.6 513.9 1.9 % 2.3 % Gross margin, excluding depreciation and amortization 510.7 545.5 592.7 (6.4) % (8.0) % General and administrative expenses 441.6 414.9 412.9 6.4 % 0.5 % Depreciation and amortization 30.9 33.0 36.9 (6.4) % (10.6) % Impairment of goodwill 85.8 109.0 — (21.3) % N/A Operating (loss) income (47.6) (11.4) 142.9 317.5 % (108.0) % Interest expense and amortization of debt discounts and fees 43.0 15.0 0.3 186.7 % 4900.0 % Equity in net income of nonconsolidated affiliates — — (0.6) N/A (100.0) % Other income (0.2) (0.9) (4.8) (77.8) % (81.3) % (Loss) income before income taxes and noncontrolling interests (90.4) (25.5) 148.0 254.5 % (117.2) % Income tax (benefit) expense (11.4) 12.8 35.1 (189.1) % (63.5) % Net (loss) income (79.0) (38.3) 112.9 106.3 % (133.9) % Less: Net income attributable to noncontrolling interests 1.5 2.1 1.8 (28.6) % 16.7 % Net (loss) income attributable to Enhabit, Inc. $ (80.5) $ (40.4) $ 111.1 99.3 % (136.4) % The following table sets forth our consolidated results as a percentage of Net service revenue : For the Year Ended December 31, 2023 2022 2021 Cost of service, excluding depreciation and amortization 51.2 % 49.1 % 46.4 % General and administrative expenses 42.2 % 38.7 % 37.3 % Depreciation and amortization 3.0 % 3.1 % 3.3 % Interest expense 4.1 % 1.4 % — % Net Service Revenue Our Net service revenue decreased for the year ended December 31, 2023 as compared to December 31, 2022 primarily due to the continued shift to more non-episodic patients in home health and the resumption of sequestration.
Contractual Obligations Our consolidated contractual obligations as of December 31, 2022 are as follows (in millions): Total Current Long Term Long-term debt obligations: Long-term debt, excluding revolving credit facility and finance lease obligations (a) $ 390.0 $ 20.0 $ 370.0 Revolving credit facility 190.0 — 190.0 Interest on long-term debt (b) 96.5 23.6 72.9 Finance lease obligations (a) 5.2 3.1 2.1 Operating lease obligations (c) 42.1 14.0 28.1 Purchase obligations (d) 5.2 4.5 0.7 Total $ 729.0 $ 65.2 $ 663.8 (a) We lease automobiles for our clinicians under finance leases.
Contractual Obligations Our consolidated contractual obligations as of December 31, 2023 are as follows (in millions): Total Current Long Term Long-term debt obligations: Long-term debt, excluding revolving credit facility and finance lease obligations (a) $ 367.1 $ 20.0 $ 347.1 Revolving credit facility 180.0 — 180.0 Interest on long-term debt (b) 152.3 43.5 108.8 Finance lease obligations (a) 6.0 2.7 3.3 Operating lease obligations (c) 71.2 15.0 56.2 Purchase obligations (d) 7.4 5.6 1.8 Total $ 784.0 $ 86.8 $ 697.2 (a) We lease automobiles for our clinicians under finance leases.
The decrease in revenue per patient day for the year ended December 31, 2022 was primarily due to adjustments to accounts receivable reserves and the resumption of sequestration partially offset by an increase in Medicare reimbursement rates.
The increase in revenue per patient day for the year ended December 31, 2023 primarily was due to increased Medicare reimbursement rates and changes in our estimated recoverability of Net service revenue , partially offset by the resumption of sequestration.
Depreciation and Amortization Depreciation and amortization decreased for the year ended December 31, 2022 as compared to December 31, 2021 due to a number of intangible assets, including trade names and internal-use software, reaching the end of their useful lives in 2021.
Depreciation and Amortization Depreciation and amortization decreased for the year ended December 31, 2023 as compared to December 31, 2022 due to a number of intangible assets, vehicles, and internal-use software reaching the end of their useful lives in 2022. As we invest in technology and fleet vehicles in future periods, we anticipate our Depreciation and amortization costs will increase.
The Term Loan A Facility contains customary mandatory prepayments, including with respect to proceeds from asset sales and from certain incurrences of indebtedness.
The Term Loan A Facility contains customary mandatory prepayments, including with respect to proceeds from asset sales and from certain incurrences of indebtedness. On June 30, 2022, we drew the full $400.0 million of the Term Loan A Facility and $170.0 million on the Revolving Credit Facility.
Our operations are principally managed on a services basis and include two operating segments for financial reporting purposes: (1) home health; and (2) hospice.
As of December 31, 2023, our footprint comprised 255 home health and 110 hospice locations across 34 states. 37 Our operations are principally managed on a services basis and include two operating segments for financial reporting purposes: (1) home health; and (2) hospice.
Our purchase obligations primarily relate to software licensing and support. Purchase obligations are not recognized in our consolidated balance sheet. Our capital expenditures include costs associated with licensing software we utilize to run our business, leasehold improvements, and equipment purchases.
Our purchase obligations primarily relate to software licensing and support. Purchase obligations are not recognized in our Consolidated Balance Sheet. For more information, see Note 13, Contingencies and Other Commitments , to the accompanying consolidated financial statements. Our capital expenditures include costs associated with computer hardware and licensing software we utilize to run our business, as well as leasehold improvements.
The collection of outstanding receivables from third-party payors and patients is our primary source of cash and is critical to our operating performance. Our primary collection risks relate to the increasing complexities of documentation requirements by payors and claims reviews conducted by MACs or other contractors.
The collection of outstanding receivables from third-party payors and patients is our primary source of cash and is critical to our operating performance.
For the Year Ended December 31, 2022 % of Consolidated Revenue 2021 % of Consolidated Revenue 2020 % of Consolidated Revenue (In Millions) Home health segment net service revenue $ 877.1 81.9 % $ 897.3 81.1 % $ 877.6 81.4 % Hospice segment net service revenue 194.0 18.1 % 209.3 18.9 % 200.6 18.6 % Consolidated net service revenue $ 1,071.1 100.0 % $ 1,106.6 100.0 % $ 1,078.2 100.0 % For the year ended December 31, 2022, our Net service revenue de creased 3.2% over 2021 due to adjustments to accounts receivable reserves, the continued shift to more non-episodic patients in home health, and the resumption of sequestration, which were partially offset by reimbursement rate increases and an approximate $5.0 million medical claims audit recovery.
For the Year Ended December 31, 2023 % of Consolidated Revenue 2022 % of Consolidated Revenue 2021 % of Consolidated Revenue (In Millions) Home health segment net service revenue $ 850.1 81.2 % $ 877.1 81.9 % $ 897.3 81.1 % Hospice segment net service revenue 196.2 18.8 % 194.0 18.1 % 209.3 18.9 % Consolidated net service revenue $ 1,046.3 100.0 % $ 1,071.1 100.0 % $ 1,106.6 100.0 % 42 For the year ended December 31, 2023, our Net service revenue decreased 2.3% over 2022 due to the continued shift to more non-episodic patients in home health and the resumption of sequestration.
We estimated the fair value of our reporting units using the income approach and market approach. Based on the results of the quantitative analysis, no adjustments to the carrying value of goodwill for each of the reporting units were necessary during the three months ended September 30, 2022.
Based on the results of the quantitative analysis, no adjustments to the carrying value of goodwill for each of the reporting units were necessary during the three months ended September 30, 2023. As of September 30, 2023, the fair value of our home health and hospice units exceeded their carrying value by less than 7% and 5%, respectively.
As of December 31, 2022, amounts drawn under the Term Loan A Facility and the Revolving Credit Facility had an interest rate of 6.2% and 6.3%, respectively. On October 20, 2022, we entered into an interest rate swap. The interest rate swap has a $200.0 million notional value and a maturity date of October 20, 2025.
On October 20, 2022, we entered into an interest rate swap to manage our exposure to interest rate movements for a portion of our Term Loan A Facility. The interest rate swap has a $200.0 million notional value and a maturity date of October 20, 2025.
See Note 15, Segment Reporting , to the accompanying consolidated financial statements for additional information about Segment Adjusted EBITDA. 41 Expenses as a % of Net Service Revenue For the Year Ended December 31, 2022 2021 2020 Cost of service, excluding depreciation and amortization 49.7 % 47.2 % 50.6 % General and administrative expenses 27.2 % 27.2 % 28.3 % Net Service Revenue The decrease in home health Net service revenue for the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily due to adjustments to accounts receivable reserves, the continued shift to more non-episodic patients and the resumption of sequestration, which were partially offset by an approximate $5 million medical claims audit recovery.
Expenses as a % of Net Service Revenue For the Year Ended December 31, 2023 2022 2021 Cost of service, excluding depreciation and amortization 51.6 % 49.7 % 47.2 % General and administrative expenses 28.3 % 27.2 % 27.2 % Net Service Revenue The decrease in home health Net service revenue for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily was due to the continued shift to more non-episodic patients in home health and the resumption of sequestration.
Expenses as a % of Net Service Revenue For the Year Ended December 31, 2022 2021 2020 Cost of service, excluding depreciation and amortization 46.4% 43.2% 46.7% General and administrative expenses 33.6% 29.9% 30.1% Net service revenue The decrease in hospice Net service revenue for the year ended December 31, 2022 as compared to the year ended December 31, 2021 was due to adjustments to accounts receivable reserves, lower patient volumes, and the resumption of sequestration.
Expenses as a % of Net Service Revenue For the Year Ended December 31, 2023 2022 2021 Cost of service, excluding depreciation and amortization 49.2% 46.4% 43.2% General and administrative expenses 32.3% 33.6% 29.9% 45 Net service revenue The increase in hospice Net service revenue for the year ended December 31, 2023 as compared to the year ended December 31, 2022 primarily resulted from an increase in revenue per patient day.
See “— Contractual Obligations ” for more information about our material cash requirements from our contractual obligations at December 31, 2022. As of December 31, 2022 and 2021, we had $22.9 million and $5.4 million, respectively, in Cash and cash equivalents . These amounts exclude $4.3 million and $2.6 million, respectively, in Restricted cash .
As of December 31, 2023 and 2022, we had $27.4 million and $22.9 million, respectively, in Cash and cash equivalents . These amounts exclude $2.4 million and $4.3 million, respectively, in Restricted cash .
Amounts include interest portion of future minimum operating lease payments. For more information, see Note 6, Leases , to the accompanying consolidated financial statements.
Amounts include interest portion of future minimum finance lease payments. For more information, see Note 6, Leases , to the accompanying consolidated financial statements. (b) Interest on long-term debt was calculated using the rate for the Term Loan A Facility as of December 31, 2023.
Our Separation from Encompass As a result of our separation from Encompass, certain items may impact the comparability of our historical results and future performance. Specifically, we will have incurred additional expenses as a result of being a separate public company and continue to develop, manage, and train management level and other employees to comply with ongoing public company requirements.
We attempt to maintain a comprehensive compensation and benefits package to compete in the current challenging staffing environment. Our Separation from Encompass As a result of our separation from Encompass, certain items may impact the comparability of our historical results and future performance. Specifically, we have incurred additional expenses as a result of being a separate public company.
As of September 30, 2022, the fair value of our home health reporting unit exceeded its carrying value by less than 5%. The home health reporting unit has an allocated goodwill balance of $0.9 47 billion. We conducted our annual impairment test again at October 1, 2022, which resulted in the same values determined as of September 30, 2022.
The home health and hospice reporting units had an allocated goodwill balance of $843.9 million and $217.8 million, respectively. We conducted our annual impairment test again at October 1, 2023, which resulted in the same values determined as of September 30, 2023.
The following table shows the cash flows provided by or used in operating, investing, and financing activities for the years ended December 31, 2022, 2021, and 2020 (in millions): For the Year Ended December 31, 2022 2021 2020 Net cash provided by operating activities $ 80.1 $ 123.3 $ 24.9 Net cash used in investing activities (42.3) (119.2) (3.0) Net cash used in financing activities (18.6) (36.1) (16.7) Increase (decrease) in cash, cash equivalents, and restricted cash $ 19.2 $ (32.0) $ 5.2 Operating activities .
For additional information regarding our debt, see Note 8, Long-term Debt , to the accompanying consolidated financial statements and “ —Quantitative and Qualitative Disclosures about Market Risk .” For additional information regarding our interest rate swap, see Note 12, Derivative Instruments , to the accompanying consolidated financial statements. 47 The following table shows the cash flows provided by or used in operating, investing, and financing activities for the years ended December 31, 2023, 2022, and 2021 (in millions): For the Year Ended December 31, 2023 2022 2021 Net cash provided by operating activities $ 48.4 $ 80.1 $ 123.3 Net cash used in investing activities (5.3) (42.3) (119.2) Net cash used in financing activities (40.5) (18.6) (36.1) Increase (decrease) in cash, cash equivalents, and restricted cash $ 2.6 $ 19.2 $ (32.0) Operating activities .
The decrease in Net cash provided by operating activities for the year ended December 31, 2022 as compared to the year ended December 31, 2021 resulted primarily from the decrease in Net service revenue and an increase in Cost of services as discussed previously in “— Results of Operations. ” Investing activities .
The decrease in Net cash provided by operating activities for the year ended December 31, 2023 as compared to the year ended December 31, 2022 resulted primarily from the increase in Net loss , partially offset by changes in working capital. Investing activities .
In any particular market, we may encounter competition from local or national entities with longer operating histories or other competitive advantages.
Various factors, including competition and increasing regulatory and administrative burdens, impact our ability to maintain and grow our home health and hospice volumes. In any particular market, we may encounter competition from local or national entities with longer operating histories or other competitive advantages.
For a comparison of our results of operations for the years ended December 31, 2021 to 2020, see Item 1, “ Management's Discussion and Analysis of Financial Condition and Results of Operations, ” of our Form 10 date d Ju n e 1 4 , 202 2 .
For a comparison of our results of operations for the years ended December 31, 2022 to 2021, see Item 7, “ Management's Discussion and Analysis of Financial Condition and Results of Operations ,” of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on April 14, 2023.
The decrease in Net cash used in financing activities for the year ended December 31, 2022 as compared to the year ended December 31, 2021 resulted primarily from the distributions paid to Encompass, which included net proceeds from borrowings on our Credit Facilities.
The increase in Net cash used in financing activities for the year ended December 31, 2023 as compared to the year ended December 31, 2022 resulted primarily from an increase in net repayments of debt in 2023.
Amounts include interest portion of future minimum finance lease payments. (b) Interest on long-term debt was calculated using the rate for the Term Loan A Facility as of December 31, 2022. (c) Our home health and hospice segments lease: (1) relatively small office spaces in the localities they serve and (2) equipment in the normal course of business.
(c) In addition to our corporate headquarters office space, our home health and hospice segments lease: (1) relatively small office spaces in the localities they serve; and (2) equipment in the normal course of business. Amounts include interest portion of future minimum operating lease payments. For more information, see Note 6, Leases , to the accompanying consolidated financial statements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAssuming outstanding balances were to remain the same and including the impact of our interest rate swap agreement, a 1% increase in interest rates would result in an incremental negative cash flow of $3.8 million over the next 12 months, while a 1% decrease in interest rates would result in an incremental positive cash flow of $3.8 million over the next 12 months.
Biggest changeAssuming outstanding balances were to remain the same and including the impact of our interest rate swap agreement, a 1% increase in interest rates would result in an incremental negative cash flow of $3.5 million over the next 12 months, while a 1% decrease in interest rates would result in an incremental positive cash flow of $3.5 million over the next 12 months. 53 See Note 8, Long-term Debt , to the accompanying consolidated financial statements for additional information regarding our long-term debt.
As of December 31, 2022, our primary variable rate debt outstanding related to $190.0 million in advances under our Revolving Credit Facility and $390.0 million under our Term Loan A Facility. On October 20, 2022, we entered into an interest rate swap to hedge a portion of the cash flow risk related to our variable rate debt.
As of December 31, 2023, our primary variable rate debt outstanding related to $180.0 million in advances under our Revolving Credit Facility and $367.1 million under our Term Loan A Facility. On October 20, 2022, we entered into an interest rate swap to hedge a portion of the cash flow risk related to our variable rate debt.
See Note 9, Long-term Debt , to the accompanying consolidated financial statements for additional information regarding our long-term debt. See Note 13, Derivative Instruments , to the accompanying consolidated financial statements for additional information regarding our interest rate swap.
See Note 12, Derivative Instruments , to the accompanying consolidated financial statements for additional information regarding our interest rate swap.

Other EHAB 10-K year-over-year comparisons