Enhabit Reiterates That its Current Board is Best Positioned to Deliver Enhanced Value in Letter to Stockholders
AREX’s Slate of Less Experienced and Unqualified Director Candidates – and its Planned Formation of a “Transformation Committee” – Threatens to Destabilize
Urges Stockholders to Vote FOR Enhabit’s Director Nominees on the YELLOW Proxy Card
The full text of the letter follows and can be found at investors.ehab.com/2024-annual-meeting/, along with Enhabit’s definitive proxy materials and other materials regarding the Board of Directors’ recommendations for the 2024 Annual Meeting.
Protect the Value of
Vote the Enclosed YELLOW Proxy Card “FOR” Enhabit’s Highly Qualified Director Nominees
Dear Fellow Stockholders,
At Enhabit’s 2024 Annual Meeting,
Enhabit’s Board was intentionally designed to have the right mix of expertise to understand the key drivers of the business, as well as the functions that are necessary to oversee the management of a stand-alone, public company.
- Enhabit’s director nominees possess deep experience with the three key drivers of our business: payors, hospital networks and labor management. No candidate on AREX’s slate has the same level of insight into any of these drivers.
- AREX’s slate has negligible public company experience in either director or non-interim senior management roles , whereas Enhabit’s nominees have public company board experience as well as current and extensive experience in public company C-suites. Our candidates also include directors with current experience in public company financial controls and auditing procedures, executive compensation, IT and cybersecurity. AREX’s candidates have negligible or stale experience in these areas.
- AREX’s insistence that effective board oversight requires multiple directors with direct home health and hospice experience is contradicted by industry practices. Boards of the companies that AREX has asserted as our “peers” are comprised of directors who have a diverse range of senior-level skills and experiences adjacent to home health and hospice, in line with the approach of the Enhabit Board.1 At each of these companies, it appears that only one independent director has direct operating experience within the home health and hospice industry. Even putting aside the quality of the experience of AREX’s nominees, AREX’s assertion that it is necessary to install six directors with home health and hospice experience for the Board to properly exercise its oversight function is simply incorrect.
- In the attempt to portray their candidates as having direct home health and hospice experience, AREX improperly equates experience in companies that provide any kind of care in the home — for example, community care and senior living facilities — with experience in home health. In fact, home health and hospice operates in a different environment from the regulatory, reimbursement and referral process perspectives than these other businesses.
- In constructing such a narrowly focused slate, AREX has selected candidates who are demonstrably inferior to the Company’s nominees in terms of relevant industry experience, public company board experience, complementary skill sets and career accomplishments.
Enhabit’s Board is almost wholly refreshed since its separation from Encompass Health Corporation (“Encompass”) two years ago. Each of the Company’s directors is engaged and focused on enhancing value for all stockholders. Our performance over the last two quarters indicates that the business has stabilized and is positioned for profitable growth. There is more work to do – and Enhabit’s nominees are the right nominees to oversee the continued execution of the Company’s strategy.
In addition, AREX intends to form a “Transformation Committee”. AREX claims that this committee would not be a “shadow management team” and would instead operate like committees with a similar name that have been used at other public companies. However, unlike at other companies, AREX plans for this committee to be comprised of four directors who have no public company oversight experience and lack material senior operating experience. In fact, their career experience is commensurate with positions that would report to members of Enhabit’s C-suite. Certain of the initiatives contained in AREX’s “plan”, such as restructuring of the sales organization, are initiatives that are typically carried out at the executive level. Given the nature of the experience of the individuals and the initiatives in AREX's “plan”, we don’t believe this committee would operate as anything short of a shadow management team, likely with some degree of executive authority. Our CEO has serious concerns about continuing to serve under this “Transformation Committee” as proposed by AREX.
AREX CONTINUES TO DEMONSTRATE ITS LACK OF UNDERSTANDING OF THE BUSINESS AND INDUSTRY
While AREX claims its candidates have more than 40 years of home health experience, AREX’s public statements, as well as the lack of substance in their proposed “plan”, demonstrate that AREX does not understand Enhabit’s business dynamics. For example:
AREX claims that Enhabit’s inability to manage the ongoing payor mix shift is directly responsible for the Medicare fee-for-service market share loss.
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The implication that growth in Medicare Advantage and improvement in the payment rate for Medicare Advantage admissions results in a reduction in Medicare fee-for-service market share is simply wrong. To the contrary, the payor innovation program establishes
Enhabit as a high-quality provider that can accept a wide range of referrals for diverse payors, which is necessary in this changing environment. Over the past two years, referral sources have increasingly demanded that providers, includingEnhabit , serve both the Medicare Advantage and Medicare fee-for-service business. Refusing to provide care to Medicare Advantage patients would result in a decline in Medicare fee-for-service referrals. - Navigating this dynamic is fundamental in the current referral environment. Shortly after the separation from Encompass, Enhabit’s management team implemented a system that enables frontline sales and branch-level personnel to discern whether individual referral sources provide a favorable mix of Medicare and Medicare Advantage patients.
AREX argues that Enhabit’s overhead is too high and is questioning why
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Enhabit has been independent from its original parent company for only two years and during this time has needed to make expenditures to stand itself up as an independent public company. At the time of the spin-off,Enhabit did not have built-out finance, HR and IT infrastructures, and developing these infrastructures required significant investment. As of today, Enhabit’s investment in its HR structure has successfully eliminated high-cost contract labor in both itsHome Health and Hospice segments.Enhabit has also focused on the buildout of the IT organization to enhance its analytics capabilities and automate processes. Additionally, administering Medicare Advantage admissions and payment requires more time and personnel than is required to manage Medicare fee-for-service.Enhabit continues to seek out and evaluate opportunities to reduce overhead costs while maintaining the appropriate infrastructure to support operations. -
AREX’s criticism is based on a crude comparison of Enhabit’s financial statements against two other public companies. When comparing
Enhabit to other companies, AREX does not account for the differences in the size, business models and cost allocation methodologies. AREX’s assertion that another$10 million of cost cuts could be implemented with no impact on the operations or revenue shows a deep misunderstanding of our operations and business and provides a case as to why stockholders should fear AREX having an outsized voice on the Board.
AREX’S PROPOSED “TRANSFORMATION COMMITTEE” WOULD COMPRISE NOMINEES WHO ARE ILL-SUITED FOR THAT ROLE
AREX portrays their candidates as having “home health and hospice” experience. However, upon closer look beyond AREX’s high-level messaging, the AREX nominees have largely outdated experience and negligible leadership experience, and they lack achievements in home health and hospice. AREX consistently makes bold statements about their candidates’ strong histories and individual track records that are incompatible with the roles held by the candidates.
We urge stockholders to review the actual professional biographies of the four AREX director candidates that AREX would have on its proposed “Transformation Committee”:
- All lack material senior operating experience.
- All lack public company board experience.
- All lack public company C-suite experience, except for interim roles that did not lead to permanent positions.
- All have career experience commensurate with positions that would report to members of Enhabit’s C-suite. These track records are not reflective of a director at a public company.
- None has significant tenure in a relevant role that experienced current industry trends.
- None appears to have served for a material time in executive positions where they had regular interaction with a public company board of directors.
The following is a closer look at the professional biographies of these candidates and AREX’s overstatements about them. These are not “ad hominem” criticisms, but observations about the professional experience of AREX’s nominees relative to AREX’s statements about them.
AREX claims that
We believe AREX has significantly overstated the seniority and depth of Ms. Ambers’ relevant experience.
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Ms. Ambers has no apparent home health and hospice operating experience. Instead, her experience has been limited to interim and non-C-suite roles in human resources. She held the Interim Chief Human Resources Officer (CHRO) role at Amedisys for eight months in 2022 and then she did not continue in the role. -
Prior to that brief role, from 2018 to 2022,
Ms. Ambers was an SVP in human resources, and her current role is outside of home health and hospice.
It is unclear how
The most comparable candidate on Enhabit’s slate is
AREX claims that
We have had professional interactions with
-
Ms. Hochhauser headed up theHome and Community Based Services Division of LHC Group, Inc., a division distinct from their home health and hospice divisions. While AREX implies that Ms. Hochhauser’s experience running the community care division is directly relevant to home health and hospice, community care is a completely different industry. In community care, a company’s workforce provides assistance with grooming and feeding, medication reminders, meal preparation, housekeeping, respite care, transportation and errand services. Home health and hospice operates in a different environment from the regulatory, reimbursement and referral process perspectives than community care. As a result, Ms. Hochhauser’s experience at LHC Group, Inc. has minimal relevance to the home health and hospice business, despite AREX’s attempt to portray it differently. - Ms. Hochhauser’s most recent experience at Addus was over seven years ago for a period of approximately two years. Her tenure includes working in Addus’ home health and hospice division, which is a small part of its overall business, and completely predates the payor mix shift and current labor dynamics that have been central focuses of Enhabit’s business.
Against this backdrop, AREX cannot credibly claim that
Finally, as the current CEO of
Anna-Gene O’Neal
AREX claims that Anna-Gene O’Neal, 57, “brings 35 years of healthcare experience, including leadership positions in home health and hospice operations, and a strong track record of driving business growth, turning around operations, and improving the quality of patient care.” AREX touts that she is “Former Division President, Health Care Services of Brookdale Senior Living, Inc, where she ran the home health, hospice, and outpatient therapy division.”
Ms. O’Neal has substantially less experience, by decades, in overseeing home health and hospice as compared to Enhabit’s current executive officers.
- The bulk of her home health and hospice experience was from 2012 to 2019 at a small hospice care company.
- Over the past approximately five years, Ms. O’Neal’s experience in home health and hospice was spread over four different companies and with short tenures ranging from approximately six months to two years. It is not clear how she can have a “strong track record of driving business growth, turning around operations and improving the quality of patient care” with such short tenures in all of her recent positions, and it is not clear how such short tenures can meaningfully contribute to her knowledge base in the home health and hospice industry.
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While AREX touts Ms. O’Neal’s experience at Brookdale’s
Senior Living, Inc division, Brookdale’s home health and hospice business is a small part of its overall business that did not face the same referral management hurdles during the Medicare Advantage mix shift.
Ms. O’Neal’s level of experience is commensurate with that of a Senior Vice President reporting to one of
Dr.
AREX claims that
- Dr. Sheff’s roles at Humana, Inc. were in a small subsidiary in the home health and hospice business where he primarily served as Chief Medical Officer, a position that generally involves overseeing clinical operations and quality of care, not driving strategy, partnerships and integration.
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Dr. Sheff has no apparent home health and hospice operating experience beyond having served as the Interim President, Home Solutions at Humana, Inc. for approximately eight months – in a role he did not continue. -
As a result, it is difficult to understand how
Dr. Sheff had such broad responsibilities as leading “strategy, operations, partners and integration of multiple home-based care assets.” Additionally, he does not appear to have payor experience relevant toEnhabit , such as negotiating contracts, pricing or value-based initiatives, from working at Humana, Inc.
By contrast, our director nominees,
Finally,
GIVING AREX CONTROL OF THE ENHABIT BOARD NOW IS VALUE-DESTRUCTIVE AND RECKLESS
AREX has announced an operating plan for
YOUR VOTE MATTERS – PROTECT THE VALUE OF YOUR INVESTMENT BY VOTING THE YELLOW PROXY CARD TODAY
The Enhabit Board of Directors is committed to acting in the best interests of stockholders. We urge you vote the YELLOW proxy card today “FOR” ONLY Enhabit’s nine highly qualified nominees –
Thank you for your continued support of and investment in
Sincerely,
The Enhabit Board of Directors
If stockholders have questions or need assistance voting their shares, please contact:
Toll-Free: 1-800-322-2885
Or
Email: Enhabit@MacKenziePartners.com
About
Forward-Looking Statements
Statements contained in this press release which are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All forward-looking information speaks only as of the date hereof, and
Important Additional Information and Where to Find It
The Company has filed a definitive proxy statement on Schedule 14A and other documents with the
1 Enhabit’s “peer” group as identified by AREX: Amedisys, Inc. and
2 These and other references to AREX candidates are to the AREX Investor Presentation dated
3 AREX Investor Presentation,
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