HealthSouth Corp., the nation's largest inpatient rehabilitation hospital chain, announced Monday plans to acquire Encompass Home Health and Hospice for about $750 million.
The deal, which is expected to close before the end of the year, is indicative of HealthSouth's desire to expand its presence in the home healthcare industry, HealthSouth CEO Jay Grinney said during a conference call with investors. Encompass will add 140 home-health locations in 13 states to HealthSouth's 25 existing home-health agencies across the U.S. HealthSouth home-health agencies will be integrated into Encompass, the company said.
Under the deal, which the companies expect to complete by the end of 2014, Birmingham, Ala.-based HealthSouth will buy the parent of Encompass, EHHI Holdings, with cash and incremental debt. Encompass will retain its name, management team and Dallas headquarters, Grinney said.
Home care has become an increasingly important component of integrated care as healthcare moves from a fee-for-service model to one that is more focused on population health, Grinney told investors. Like many sectors of the healthcare industry, home health services will undergo significant consolidation in the coming years, he predicted.
“We believe smaller, less sophisticated, less well-capitalized home-health providers that lack scale will be squeezed out or marginalized,” Grinney said.
Grinney said the addition of home healthcare agencies will provide a safer, lower-cost option for patients whose loved ones have sent them to skilled-nursing facilities after rehabilitation because they would be unsafe at home without help.
About 72,000 HealthSouth patients are referred to home-health providers every year, but only 4% are being referred to HealthSouth's agencies and only 1% to Encompass, the company said in a filing to the Securities and Exchange Commission.
HealthSouth reported a 7.6% decrease in net income last quarter after incurring startup costs associated with new facilities—the company spent $1.6 million in preopening startup costs for three new hospitals during the third quarter. The company's stock was trading at $39.70 a share Monday afternoon, up 3.79%.
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