8-K: Enhabit Narrows 2026 Rate Headwind, Boosts Growth Outlook

Enhabit, Inc. provides an update on its 2026 pricing impacts, strategic growth plans, and reiterates 2025 financial guidance at the BofA Securities Home Care Conference.

Summary

• Enhabit, Inc. is participating in the BofA Securities 2025 Home Care Conference on December 9, 2025, where its President and CEO, Barbara Jacobsmeyer, and CFO, Ryan Solomon, will discuss strategic focus and business developments.
• The CMS Final Home Health Rule narrows the 2026 rate headwind for Enhabit to approximately $6 million to $8 million, a significant improvement from the proposed $35 million to $40 million.
• CMS narrowed the scope years for the permanent adjustment, suggesting 2026 is likely the last year for this adjustment, potentially setting the stage for more normal market basket rate updates in 2027 and beyond.
• The estimated net rate update for 2026 is -1.3%, with an illustrative multi-year framework projecting positive updates of 2.3% from 2027 to 2035, and 5.0% in 2036.
• 2026 pricing impacts include an estimated revenue headwind of ~$6 million to $8 million from the final rule on fee-for-service Medicare and Non-Medicare episodic services.
• A run rate benefit of ~$2 million to $3 million is anticipated from improved Medicare Advantage pricing on contracts renegotiated in 2025.
• Hospice services are expected to see a revenue benefit of ~$4 million to $6 million from an annual Medicare pricing update of +2.6% in 2026.
• The company reiterated its 2025 guidance: Net service revenue of $1,058 million to $1,063 million, Adjusted EBITDA of $106 million to $109 million, and Adjusted EPS of $0.50 to $0.56.
• Q3 YTD 2025 consolidated net service revenue increased by 1.7% to $789.6 million, up from $776.6 million in Q3 YTD 2024.
• Q3 YTD 2025 consolidated Adjusted EBITDA increased by 7.3% to $80.5 million, up from $75.0 million in Q3 YTD 2024.
• The Net Debt Leverage Ratio improved from 5.4x in Q4 2023 to 3.9x in Q3 2025.
• Q3 YTD 2025 Adjusted Free Cash Flow increased by 11.1% to $64.8 million, up from $58.3 million in Q3 YTD 2024.
• Enhabit plans for mid-to-high single-digit admission growth in both Home Health and Hospice for 2026, including 36 new Home Health de novo locations and 9-12 new Hospice de novo locations.
• The company targets $25 million to $50 million investment in strategic acquisitions to fuel incremental inorganic growth of 2.5-4.5%.

Sentiment

Score: 8

Explanation: The significant reduction in the anticipated 2026 rate headwind from CMS, coupled with an improved balance sheet and clear growth strategies (de novos, M&A), presents a positive outlook for Enhabit. The reiteration of 2025 guidance and strong Q3 YTD performance further supports a favorable sentiment, despite the remaining negative rate impact for 2026.

Positives

• The final CMS Home Health Rule for 2026 resulted in an overall negative rate impact of -1.3%, which is significantly more manageable than the proposed -6.4%.
• The estimated rate headwind for Enhabit in 2026 narrowed substantially to ~$6 million to $8 million, a significant improvement from the proposed $35 million to $40 million.
• CMS narrowed the scope years for the permanent adjustment, suggesting 2026 is likely the last year for this negative adjustment, providing greater long-term rate stability.
• The illustrative multi-year rate update framework suggests net rates are positioned for positive updates of 2.3% from 2027 to 2035, and 5.0% in 2036.
• The Net Debt Leverage Ratio improved significantly from 5.4x in Q4 2023 to 3.9x in Q3 2025, indicating a stronger balance sheet.
• Q3 YTD 2025 revenues increased by 1.7% to $789.6 million compared to $776.6 million in Q3 YTD 2024.
• Q3 YTD 2025 Adjusted EBITDA increased by 7.3% to $80.5 million compared to $75.0 million in Q3 YTD 2024.
• Q3 YTD 2025 Adjusted Free Cash Flow increased by 11.1% to $64.8 million compared to $58.3 million in Q3 YTD 2024.
• Anticipated run rate benefit of ~$2 million to $3 million from improved Medicare Advantage pricing on contracts renegotiated in 2025.
• Estimated revenue benefit of ~$4 million to $6 million for Hospice from an annual Medicare pricing update of +2.6%.
• The company reiterated its 2025 financial guidance for Net Service Revenue, Adjusted EBITDA, and Adjusted EPS, indicating performance is on track.
• Plans for mid-to-high single-digit admission growth in both Home Health and Hospice for 2026, supported by de novo locations and strategic initiatives.

Negatives

• An anticipated revenue headwind of ~$6 million to $8 million in 2026 from the final home health rule on fee-for-service Medicare and Non-Medicare episodic services remains.
• The temporary adjustment of -2.7% in 2026 is expected to recoup ~$460 million of estimated overpayments, with the potential for similar recoupments over approximately 10 years.

Risks

• Ability to execute on strategic plans.
• Regulatory and other developments impacting the markets for services.
• Changes in reimbursement rates.
• General economic conditions.
• Changes in the episodic versus non-episodic mix of payers, the case mix of patients, and payment methodologies.
• Ability to attract and retain key management personnel and healthcare professionals.
• Potential disruptions or breaches of the company's or its vendors', payers', and other contract counterparties' information systems.
• Outcome of litigation.
• Quality performance and ratings.
• Ability to successfully complete and integrate de novo locations, acquisitions, investments, and joint ventures.
• Ability to successfully integrate technology in operations.
• Ability to control costs, particularly labor and employee benefit costs.

Future Outlook

The company anticipates a significantly narrowed rate headwind for 2026 from the CMS Final Home Health Rule, now estimated at $6 million to $8 million, down from a proposed $35 million to $40 million. Management believes 2026 will likely be the last year for a permanent adjustment, with net rates positioned for positive updates of 2.3% from 2027 to 2035 and 5.0% in 2036. Enhabit plans for mid-to-high single-digit admission growth in both Home Health and Hospice for 2026, driven by payer strategy success, business development, increased capacity, and de novo locations (36 in Home Health, 9-12 in Hospice). The company also targets $25 million to $50 million investment in strategic acquisitions to fuel incremental inorganic growth of 2.5-4.5%.

Management Comments

• We believe a combination of improved home health reimbursement rate clarity and our ongoing work on key efficiency initiatives such as VPE, growth and G&A positions us well to deliver organic profitability growth in 2026 at a similar rate to 2025.
• Our improved balance sheet will allow us to accelerate growth through increased investment in de novos and strategic M&A.

Industry Context

The home health and hospice industry is heavily influenced by Centers for Medicare & Medicaid Services (CMS) reimbursement policies. The final 2026 Home Health Rule, with its significantly reduced negative rate impact compared to the proposed rule, provides much-needed clarity and a more favorable operating environment for providers like Enhabit. This clarity, coupled with the potential for positive rate updates in subsequent years, could encourage investment and growth across the sector. The focus on de novo locations and strategic M&A aligns with a broader industry trend of consolidation and expansion to capture market share and achieve economies of scale in a regulated environment.

Stakeholder Impact

• Shareholders: Potential for increased shareholder value due to improved financial outlook, strategic growth initiatives, and reduced regulatory uncertainty.
• Employees: Continued investment in sales teams and expansion through de novo locations may create new job opportunities.
• Customers (Patients): Expansion of services through de novo locations and focus on quality performance could improve access to care.
• Creditors: Improved net debt leverage ratio and free cash flow generation enhance the company's financial stability and ability to service debt.

Next Steps

• Participate in the BofA Securities 2025 Home Care Conference on December 9, 2025.
• Implement strategic business development plans to increase referrals.
• Increase referral conversion with additional capacity post full implementation of VPE strategy.
• Open 36 de novo Home Health locations.
• Continue progress with centralized admissions process for Hospice.
• Continue investment in Hospice sales team and referral source diversification.
• Ramp-up 2024 and 2025 de novos for Hospice.
• Open 9-12 de novo Hospice locations.
• Invest $25 million to $50 million in strategic acquisitions.

Key Dates

Recommendation

The significant reduction in the 2026 rate headwind from the CMS final rule, from a proposed $35 million-$40 million to an actual $6 million-$8 million, removes a major overhang and provides much-needed clarity and stability. This, combined with an improved balance sheet (Net Debt Leverage Ratio down to 3.9x), strong Q3 YTD financial performance (revenue +1.7%, Adjusted EBITDA +7.3%, Adjusted Free Cash Flow +11.1%), and clear strategic growth plans (de novos, M&A, positive rate outlook post-2026), positions Enhabit for accelerated growth and profitability. The reiterated 2025 guidance further reinforces confidence in management's execution. The stock appears undervalued given the improved regulatory environment and growth trajectory.

Keywords

Home Health, Hospice, Healthcare, Enhabit, EHAB, CMS, Medicare, Reimbursement Rates, Financial Guidance, Adjusted EBITDA, Free Cash Flow, Strategic Growth, M&A, De Novo