Enhabit Inc. (NYSE: EHAB) introduced the result of its strategic assessment on Wednesday. It was not a sale or merger, however a dedication to the trail ahead as an impartial publicly traded firm.

On Thursday, firm executives defined the rationale behind that call, which was made unanimously by the board. A few of it’s associated to exterior elements that make a large-scale transaction troublesome proper now, and a few of it’s associated to the success Enhabit has had in altering its enterprise mannequin.

“Our strategic assessment course of has been accomplished and there was severe curiosity primarily based on social gathering involvement within the course of,” Enhabit CEO Barb Jacobsmeyer stated Thursday throughout the firm's first-quarter earnings name. “Nevertheless, the corporate has not obtained any formal proposals for a transaction. We consider that is largely attributable to macroeconomic headwinds together with, amongst different issues, unsure regulatory developments together with Medicare reimbursement insurance policies throughout the healthcare business, an evolving antitrust panorama, a troublesome healthcare and enterprise atmosphere, and persistently excessive rates of interest.”

Dallas-based Enhabit has 255 dwelling care places and 112 hospice places throughout 34 states. It first launched its strategic assessment course of in August final 12 months and concluded it this week. It was spun off from Embody Well being (NYSE: EHC) in July 2022.

Exterior elements undoubtedly performed a job in Enhabit's board of administrators' failure to discover a deal they deemed fascinating. The variety of transactions within the healthcare sector continues to say no considerably, together with throughout the dwelling care and hospice subsectors.

Labor pressures and Medicare Benefit (MA) penetration have been two of the principle the explanation why Enhabit struggled within the public market within the first place. Nevertheless, over the previous two years the nation has laid the muse for a turnaround in these areas.

Rates of interest, antitrust laws, and the Facilities for Medicare & Medicaid Companies (CMS) dwelling well being care cost insurance policies could have led to undesirable deal talks throughout the strategic assessment. Enhabit's board – and operational leaders – might also really feel that now shouldn’t be the time to make any transactions, simply as the corporate is about to finish the soiled work of a enterprise transformation.

Finally, it’s possible that each exterior headwinds and inside shiny spots have led to the choice to desert a sale or merger presently.

When Enhabit first spun off Embody Well being, it was uniquely ill-suited for the present dwelling healthcare panorama. Greater than half of Medicare beneficiaries are actually coated by MA plans, and all of the whereas Enhabit had tied 80% of its income to Medicare fee-for-service actions.

This instantly meant issues for the corporate, as did the intense labor stress that was positioned on all dwelling care suppliers on the finish of 2022.

Since these points got here to a head, Enhabit has needed to concentrate on concurrently successful extra MA enterprise whereas additionally renegotiating new contracts with plans and allocating capability to high-value payers.

That inevitably led to a decline in financials, however among the firm's successes are actually beginning to materialize.

“With our conventional Medicare dwelling well being income combine according to friends, we’re experiencing a stabilization of our fee-for-service Medicare combine,” Jacobsmeyer stated. “Whereas fee-for-service Medicare admissions declined 11.4% year-over-year, we skilled a sequential improve of three.4%. Our payer innovation staff continues to do wonderful work constructing our portfolio of payer contracts. And our discipline groups have efficiently shifted entry from traditionally lower-paying contracts to those new contracts at enhanced charges – contracts that acknowledge the high-quality care we offer to our paying members.”

Admissions from underperforming payers have fallen from 42% within the first quarter of 2023 to 29% now, Jacobsmeyer added. Non-Medicare admissions grew 25.2% year-over-year, contributing to five.3% year-over-year progress for dwelling care admissions total.

About 38% of non-Medicare visits now happen in better-rate payer innovation contracts, in keeping with Enhabit.

“Our payer innovation technique is working,” Jacobsmeyer stated. “We stay disciplined in our method with payers as we work to barter new agreements. And we're targeted on shifting away from the decrease cost agreements. We’re dedicated to renegotiating historic contracts to enhance charges whereas sustaining our perception within the worth we offer.”

Within the quarter, Enhabit's internet providers income was $262.1 million, down 1% 12 months over 12 months. Dwelling care revenues fell 1.2% 12 months over 12 months, whereas hospice revenues fell barely.

AREX Capital Administration – ​​​​an investor that owns 4.8% of Enhabit shares – expressed its dissatisfaction with the result of the strategic assessment on Thursday morning. AREX Capital initially urged Enhabit's board to conduct a strategic assessment, later calling a sale “the one acceptable end result” of the assessment.

“We’re dissatisfied that Enhabit's strategic assessment course of has been accomplished with out a sale of the corporate,” AREX Capital wrote in a press release. “We don’t consider this failure displays Enhabit's intrinsic worth or strategic potential. This failure lies fairly with Enhabit's administration. In March, we nominated seven extremely certified candidates to face for election to the 2024 Annual Assembly. We’ve chosen to not make our nomination public to keep away from disrupting the strategic assessment course of to the detriment of shareholders, however our hope is that this board will lastly may ship a optimistic end result for its shareholders was clearly wishful pondering.”

Though the result of the strategic assessment was not a sale, Enhabit left the door open for a transaction at a later date.

“The board will stay open to and take into account all alternatives to reinforce shareholder worth,” Jacobsmeyer stated.