Activist investor AREX Capital Administration has as soon as once more focused Enhabit Inc. (NYSE: EHAB) in what has turn into an ongoing, public and back-and-forth feud.

AREX Capital – which owns 4.9% of Enhabit shares, making it a high 5 shareholder – initially pushed Enhabit's board to endure a strategic evaluate final 12 months when the corporate didn’t had managed to satisfy monetary expectations.

Enhabit subsequently accomplished that evaluate and finally determined to stay an unbiased, publicly traded firm. AREX Capital, which had referred to as a sale the “solely acceptable end result” of that investigation, was surprised by the choice.

Since then, AREX Capital has nominated seven new board members and hopes they are going to be elected at Enhabit's annual assembly this 12 months. Enhabit, however, has responded to AREX Capital by revealing extra sophisticated particulars surrounding its strategic evaluate. It has additionally responded by supporting the present administration and suggesting that “AREX's public statements include quite a few mischaracterizations, cherry-picked time intervals and deceptive claims.”

On Monday, AREX Capital responded to Enhabit in a six-page letter “setting the report straight.”

“The previous two years haven’t been straightforward for the house care and hospice business, however Enhabit's colleagues have demonstrated the power to beat these challenges with out materially decreasing their profitability. Whereas friends caught a chilly, Enhabit bought pneumonia,” AREX Capital wrote. “We imagine that Enhabit's important underperformance relative to business friends is a direct results of the Board of Administrators not having the required business experience to carry administration accountable.”

AREX Capital additionally cited Enhabit's present share value, which has sunk greater than 60% since its spin-off from Embody Well being (NYSE: EHC) two years in the past.

Enhabit's leaders agree that its monetary efficiency shouldn’t be acceptable, whereas additionally noting that it has needed to modify to Medicare Benefit (MA) penetration and Medicare fee cuts over the previous two years.

After the Enhabit spin-off, the income combine was closely centered on Medicare fee-for-service. Since then, it has needed to revamp its payer technique to tackle extra MA sufferers, whereas additionally making an attempt to get MA plans to pay extra for its companies.

Nonetheless, AREX Capital disagrees with Enhabit's method to its payer innovation technique.

“Relatively than steadily normalize its payer combine by rising Medicare Benefit volumes in a managed method whereas defending its current Medicare fee-for-service (“FFS”) market share, Enhabit has suffered a precipitous decline in its considerably extra worthwhile FFS volumes enabled,” AREX Capital wrote. “The sharp decline in FFS volumes was considerably out of proportion to any underlying decline within the variety of FFS beneficiaries. Whereas the variety of FFS beneficiaries nationwide has shrunk by ~7% between 2021 and 2023, we estimate that Enhabit's FFS admissions have declined by greater than 20% over that interval.”

AREX Capital additionally drew comparisons to Enhabit's peer Amedisys Inc. (Nasdaq: AMED) to make its level.

“Enhabit has considerably underperformed its friends in each house care and same-store hospice, and the declare that the corporate's incapability to make acquisitions is answerable for this underperformance, in our view, represents a blatant misrepresentation and is an try to distract from horrible execution,” AREX Capital continued. “For the reason that spinoff, Enhabit has acquired two house care areas and 5 hospice areas for a complete of ~$40 million, whereas its closest peer, Amedisys, has made just one acquisition (for lower than $1 million). Throughout this era, Amedisys has considerably outperformed Enhabit in each house care and hospice actions.”