Enhabit, Inc. (EHAB) Earnings Call Transcript & Summary

Good morning, everyone. I think we're going to get started with our next session. We've got Enhabit here for our next fireside chat, Barb Jacobsmeyer, President and CEO; and Ryan Solomon, CFO. Thank you for joining.

Thanks for having us.

Maybe just to start, I mean, high level, kind of reflecting on the last 2 or so years, it's been a little more challenging than I think you guys expected. Maybe just reflect on that journey where you are in it, what lessons you've learned kind of going through that process?

Sure. Well, I guess, first, to talk about home health. Certainly, we've been on a journey, particularly as it relates to payer innovation. That has been the most critical part of our strategy to have us really be seen as a full service provider. I would say looking back, it's been a more lengthy process than maybe what I would have originally anticipated, but certainly been a worthwhile process. For hospice, it really was about changing our whole case management clinical model. While that took a lot of time and a heavy lift and quite a bit of an investment, clearly, we're showing that, that investment has paid off well because we do know that there is a market out there that needs a high-quality hospice care. And I think we're showing that with our growth that we've seen, particularly throughout 2024 that's continued into 2025 that we made the right changes as it relates to hospice.

Okay. And I think we'll get into both of those elements in a minute. As you think about the next 2 or 3 years, what is it that you're building towards? How do you define success? I mean, what does that look like to you?

Yes. I think it's becoming more and more important to be kind of that large provider out there whether it's negotiating with a plan or whether it's going to referral sources, knowing that you have the scope of the ability to care for a large number of their members or their patients is important. So for us to continue to grow in the model that we've established is going to be an important part of our strategy.

Okay. And before diving into more detail on the company, I wanted to start big picture on the market. How would you assess where we are from a volume growth perspective, first on the home health side, and you can segment that by traditional members of Medicare Advantage and just help us think about what you're seeing from a volume growth for the industry?

Yes. I think we've tended to see kind of that mid-single-digit volume growth on the home health side throughout the industry. I think we're going to continue to see that and potentially see that continue to increase. Medicare Advantage does tend to utilize home health more so than some of the traditional facility side post-acute setting. So as Medicare Advantage continues to grow, I think, so does the utilization of home health. And then obviously, the aging population will continue to fuel the growth for home health.

And how would you break that down between traditional Medicare and Medicare Advantage just in terms of the volume growth in the industry?

Well, you'll see Medicare Advantage grow because of 2 things. One, obviously, more beneficiaries continue to choose Medicare Advantage and again, just the utilization with home health being the lowest cost setting. Medicare Advantage does certainly manage the use of those post-acute services. So for example, when we see patients coming out of an acute care hospital, you'll see much more Medicare Advantage go directly to home health, maybe versus the utilization of fee-for-service on the SNF and IRF side of things.

Okay. And I think you've previously kind of characterized the traditional Medicare side is growing -- well, declining like minus 4%. Is that still kind of your best view of market growth?

Yes. And as we think about Medicare, I mean there's a couple of different lenses that we look at that through. One, and we kind of focused a bit more on our Q1 content around ADC. As you think about ADC for Q1 of 2025, we saw roughly overall kind of 7.5% type decline versus same quarter prior year, would have been closer to 13.4%. And so we're seeing that rate of decline. And so what we've said is we want to cut that in half, which we largely did in Q1. We would anticipate to continue to execute in that regard. How we're doing that is a combination of aligning incentives across our sales teams, some of the Medicare messaging. We think that's really important. Also may reference some of the material that we put out in front of the conference through an 8-K that shows some of the Medicare as a percentage of revenues. We're also seeing that rate of decline slow as well. So both on the volume overall as a percent of revenue and really coming more in line with our peers. We had just under 57% Medicare as a percentage of revenues. That's very in line with some of our larger kind of public peers at this point, and we would expect to continue to see that normalization through the balance of the year and prospectively.

Yes. Maybe we can go through some of those strategies and things you're implementing to cut the rate of declines in half throughout this year. First, just in terms of serving your referral partners and being a one-stop shop, where are you in terms of being a good partner to those referral sources and getting enough contracts in place that you can be kind of a one-stop shop and responsive to their referrals?

Yes, I would say effective January 1 of this year has been the first time that I would consider us really full service. Up to that point, we were either negotiating or renegotiating or given notice to various payers. And so January 1 of this year is the first time that we've had all the large national payers as well as a large number of the regional payers. And so really being seen as a full service provider now.

And has that message been kind of, I guess, broadly disseminated? How is the referral source responding to that?

Yes. So a lot of work has been put on what we call our messaging really now for our teams out in the field to go the referral sources and say, we've done this contracting for you, we want to be able to take care of the majority of your patients, but we need a healthy mix. We can't be just your shop for a certain payer, we have to receive a healthy mix. So what really is about out there messaging now to the referral sources that we've done this work for them, but now we want to be -- we want this to be a partnership and how we get a healthy payer mix from them.

Is that starting to show up just a better mix of -- obviously, you're referring to the -- getting enough traditional Medicare patients to support the business. I mean, is that starting to get through?

You'll see that when you see not only our traditional Medicare, but the continued growth in our payer innovation contracts. And so kind of, again, working to balance that payer mix. I think it's one of the reasons that it's been really important. One of the metrics that Ryan really introduced after he came and we put it in our deck for this meeting is really now focusing on that revenue per day because it's been really noisy over the last couple of years for the analysts and for our shareholders to say, well, there's a lot of moving parts here. There's fee-for-service, there's episodic. There's not episodic. There's just a lot of noise that revenue per day should really be able to show our results and how we are using the messaging to make sure that we are getting that balanced payer mix.

And then Ryan, you mentioned just incentives with the sales force. I mean maybe give us a sense of how that's evolved over the last year or 2? And what the incentives look like?

Yes. So I think building on bars, I mean, it's really allowed us with having a full service, the ability to kind of tier the broader payers. As we think about the tiering structure, we're able to align incentives and that really gives -- allows us to set expectations with the broader sales team, but also with our referral providers as far as kind of how we think about the overall kind of access that we provide. And so at the end of the day, building on Barb's point, I think we're really starting to see that. We talked about Medicare earlier. Payer innovation, when you look at that sequentially, admits were up a little over 4% sequentially. If you look at payer innovation year-over-year, up closer to 15% overall admits in that payer innovation contract. And then when we look at the nonpayer innovation, we know that those typically have a higher discount to Medicare fee-for-service. And so we're seeing the strategy really come together, slow the rate of decline on the Medicare ADC. We believe that to be gravity within the industry, but we want to be as good or better than our peers in that regard, how do we grow our payer innovation contracts that have a smaller discount to Medicare fee-for-service than the nonpayer innovation and then make sure that we normalize those volumes in the nonpayer innovation and make sure that we're providing a really good service to our referral partners. We want to provide high-quality care for all payers, but we need to do it in a way that we can have healthy margins from a prospective basis.

That all makes sense, but how are you actually aligning incentives with the sales force to drive that?

Yes. So it's important for us. Again, they have to be aligned with the operational partners at the branch, right? Because ultimately, it's the branch that's accepting the referrals. So the business development teams bring the referrals, but the branch accepts them, but the branch is the one that's responsible for their local budget. So it's making sure that not only at the branch level, but at the business development level, they know the tiers, very easy on. They know red, yellow green. They know where that payer fits within our payer profile. And they know that if I'm going to be accepting, for example, red referrals from a referral source, it has to be a referral source that's driving a good mix of patients. Again -- and we explain it to both the sales team and the operations team is that we didn't put ourselves in this predicament, the payers did. But for us, we have to have a healthy mix if we're going to reinvest in our teams and in technology. And so we need them to be good stewards and make sure that they're accepting that healthy mix from their referral sources.

And so the collaboration between operations and incentives, as Barb just touched on, and then a clear point system for if we think about our BD or our sales reps, what are the -- not every payer type is worth a similar amount of points. So how do you think about the collaboration and setting expectations and then clear objectives for our sales reps to focus on the types of tier of the business that will ultimately deliver their goals and objectives. And so it's multifactorial, but ultimately, we've seen some really good success as we think about late last year, early through Q1 as we have that kind of full payer innovation capability.

Okay. And I guess, just thinking back over the last year plus, how is the branch visibility into their own performance? I mean, you talked about the red, yellow, green and just making it very clear. How has that evolved? And I guess, as part of that, does each branch have essentially their own P&L and just very clear visibility on how they're tracking relative to what you're incentivizing?

Yes. So they each have their P&L. They each see where every day. They know where their payer mix of their census is. They know how that compares to their target. And that's how it compares to last year this time. And so they had those clear objectives in front of them every day.

And then what do you do when branches not optimized at the levels you'd like? I mean, what interventions kind of at a regional or corporate level are in place to move branches along?

Yes. So you first look at what are the referrals they're getting in, right? So if it comes down to the referral conversion, well, then why are we not converting the right referrals. But if it comes down to that they're not even getting that healthy payer mix from a referral, then it's really working with our data and analytics team to say, well, then our business development team is really focused on the right referral sources and then building out their referral books of business to make sure we're focusing. I mentioned this a couple of quarters ago on a call, for example, community care used to be and still is a big part of our business, but that was where we had sales team and clinicians inside a senior apartment settings. Well, it may be that we have to evaluate if that apartment setting today has really been taken over by one MA plan, and that is not an MA plan that pays well. Well, it doesn't matter that we've been in there for years. We may have to decide is that really a place that we can have a presence anymore. So that's the type of thing that you then dig deeper to say, do we have to even change where we're getting those referrals from.

Okay. And then obviously, on the first quarter grew a little under 1% in terms of total admissions. You highlighted more progress on a sequential basis, I think, around 8% growth. I mean any updates in terms of here in June, if the momentum has continued and just how you'd characterize the continued progress?

We really haven't talked about anything about Q2, but what I will say is that when we were in still negotiations with the large payer at the end of fourth quarter, we did have to slow down our hiring. Our teams were focused solely on replacing volume for a payer that we weren't sure we were going to get across the finish line. And so we had to slow down that hiring because we are focused on productivity and the margin of the business. And so when we knew that we were successful in December of getting a final contract executed, then we did return to kind of our historic focus on talent acquisition and had a nice hiring in the first quarter. Now those clinicians have a time of orientation and onboarding. So what I would say is as we look at like a capacity that has been building throughout the end of first quarter into the second quarter.

Okay. And then Ryan, you mentioned you went from minus 13% in the fee-for-service to minus 7% year-over-year and characterized that as cutting the declines in half. I just want to be clear. I think last year, fee-for-service was down 11%. So when you've characterized cutting the rate of decline in half as you get to the back half of the year, [indiscernible] minus 4%, minus 5% that you're targeting. Is that right?

Yes, I think that's fair. As you kind of prospectively play it forward in kind of overall absolute volumes. And then as you play those forward, I think that's a fair...

Okay. So that would essentially be in line with the market. Is that...

I think that's fair.

Okay. Is there opportunity as you now have all these contracts in place as of January to do better than the market? I mean what's the kind of next few years look like in terms of how you're gauging your success on the fee-for-service front?

Yes, that's definitely a goal of ours. We would like to be the leader in that and continue to decrease and stabilize that business. It really does come down to looking at where those patients are in those markets and making sure, again, that we're identifying those referral sources. We have markets that have done really well. We have markets that actually have increased their fee-for-service business. And so it's taking those best practices from those markets and then redeploying those best practices across the portfolio.

Okay. And as we think about mix now, I mean that's obviously been a huge driver of not just the top line but the P&L. And where should that go from here? I mean you're at 40% or so of visits in these payer innovation contracts. What's the opportunity on the non-fee-for-service front?

Yes. I think we're -- in some of the materials that we produced, we think we're kind of more at equilibrium with the broader market at this point. I think reasonably, if you look at the Kaiser projections and things of that sort, I think that, that would project kind of a 300, 400 basis point type continued deterioration over a multiyear period and overall kind of Medicare fee-for-service volumes. And so I think that we would expect to continue to perform in line with the market or, as Barb touched on, try to outpace the market in that regard. We think we've got a lot of the strategy in place to allow us to do that. But I think realistically, we think we're kind of at that normalization and then we play forward with broader market projections on a prospective basis at a minimum.

Okay. And then just how should we think about contracting? Obviously, you have this initial set of contracts in place, but annual rate updates and just willingness of payers to accommodate rate increases. I mean, what's your perspective on that?

Most of our contracts are 2- to 3-year contracts. So we're now at the table renegotiating with ones that we had contracted with early on. I will say that in more -- some of our more recent ones, even though they're 2 to 3 years, we've been able to negotiate in some rate updates. Some of those have been tied to quality metrics. So really being able to have an opportunity to have rate increases even during the contract. But back to the table, already renegotiating with others, always focused on trying to get episodic if and when possible that allows us to manage the visits for the patient versus the payer managing the visits. And so that's -- we go into every one of these discussions looking for episodic.

Okay. And those are 2- to 3-year fixed or there's annual escalators?

Some have escalators, some don't.

Okay. Okay. And so you're at the, I guess, beginning of renegotiating some of the...

Very early ones.

Got it. Okay. Maybe we can just touch on CMS reimbursement for home health, and then we'll go to hospice after that. Obviously, it's been a very challenging reimbursement backdrop. I think you're set for a 50 basis points increase in the latest update. I guess -- what do you think CMS is looking at or seeing that is disconnected from the industry? I mean any perspectives on what they're -- there seems to be a clear market that they are going after, really the only one right now, but what's your perspective?

Yes. I think first and foremost, we really do need MedPAC when they release their reports. We need them to look at all payer margins. They've continued to produce reports for home health with only Medicare margins. And obviously, that was fine 10 years ago when the majority of home health was fee-for-service. It's not okay anymore when you have more than 50% in Medicare Advantage. So I think it's really continuing to strongly encourage MedPAC and their reports to do an all-payer margin. I think that does help take the eye off of this inflated number that's put out there. I think it's also really reinforcing the work that's happening through our trade association on home health and hospice being the lowest cost setting. And how can we make sure that we are getting rate updates, at least in line with our peers and other health care because that's the talent workforce that we're trying to recruit. And when we are getting 50 basis points versus others getting 2.5%, 3% increase, it really puts us in a large disadvantage when we're going after the same labor force.

And is there any visibility to MedPAC changing their approach as we think about '26? And then I guess as part of that, for '26, would you expect another half of the permanent adjustments to be implemented?

Yes. At this point, I don't think that we would be surprised to see kind of a rinse and repeat of what we've seen in the last couple of years. It really will come down to not what the proposed rule says, but obviously, what that final rule says. I do think that there was never a better time for the consolidation that we've had in the industry with NAC and HPCO and the partnership for quality to really have a single voice up on the hill. And I think Dr. Steve Landers, who's the CEO for the new alliance, I think, is doing a really good job talking about the industry and what we need as far as rate updates in the future. So to your question on how will MedPAC look at that, I think that's yet to be seen, but there certainly is not a lot of effort to show the data on why it needs to be looked at differently.

Okay. And how are you thinking about the temporary adjustment? I mean there's obviously some big numbers out there. It's hard to give visibility on what's going on there. Any...

Yes, it's a huge number on the potential clawbacks. I think the industry will be shocked if anything within the proposed rules it relates to -- there's no way the industry can withstand a permanent and some clawbacks at the same time. Again, I think there's a lot of work being done by the alliance to talk about how it's just unatttainable to think about those temporary clawbacks. And so the ask is really, frankly, to look to eliminate those. And I guess, again, we'll see what -- if we can get a ear to that.

And just broadly, you can answer this on the hospice side or -- just across the new administration, are there any changes in stance that you're seeing things that are impacting your business?

I think it's early on to say that. What I would say is I think it creates an opportunity for us if we're really looking at saving the Medicare Trust Fund. I think we have to look at what is the lowest cost setting, and we need to invest in the lowest cost setting. And so I think myself and others in the industry are saying this is an opportunity for us to reinforce the high quality of care that can be provided in the home and cost -- and save the trust fund dollars.

Okay. Maybe moving on to hospice. Starting big picture first, again with the market. How should we think about market growth going forward? And then beyond the obvious, just demographic factors in play, what else is contributing to growth in terms of just duration of care? I know there's an opportunity there, access to care. I mean what's underpinning your kind of expectations going forward?

Yes, I think there's 3 real opportunities as it relates to a tailwind for hospice. One, obviously, is the aging population. The other is, I think there continues to be growing acceptance for the -- for patients going on hospice. But I think a really big opportunity is to get that increase in acceptance earlier on. We continue to get patients that are on service for 7 to 14 days. And frankly, they have a much longer benefit than that. And so it's how can we -- even with our current population, how can we make sure they access their benefits earlier.

Okay. And you talked in the beginning about the change in the care model. We've seen progression sequentially in terms of your growth on average daily census. Where are we in kind of the benefits of that coming through? Do you expect more acceleration? Just talk to the dynamics on growth on ADC.

Yes. I think we'll continue to see the growth and mainly because we've continued to put other things into play, right? We built out the RN case management model, then we turn to building out our business development teams. We put in place last year all the admission departments, which I think really has helped our conversion and the growth. And then a lot of our de novo investments have been on the hospice side, really putting hospice where we have home health and that will create a line of growth as well for hospice.

And how should we think about de novo activity first and foremost. But I guess, over time, maybe potential M&A. Would that be focused on the hospice side? And then just from a magnitude perspective, how much capacity do you think the markets you serve or regional markets maybe you're not in, where you could expand on the hospice side?

Yes. I think in general, our focus will continue to prioritize on deleveraging the balance sheet. That said, we do think it's really important to have all 3 growth vehicles available to us, which we do believe will have capability prospectively going forward as we come out of the covenant relief period. And when I describe that, it's organic growth, as we've talked about, de novo growth, which we've targeted roughly 10 sites a year. That tends to be a little bit more indexed towards the hospice side, kind of more of a 60-40 split. And that generates roughly kind of 1% of kind of overall kind of revenue growth on an annualized or run rate basis. And then M&A on a more small, medium-sized kind of targeted strategic tuck-in basis is a capability we would look to continue -- or to prioritize as we think about late this year and early next. As we think about hospice, I think that in general, we're roughly an 80-20 split today between home health and hospice. We do think that similar to the de novo strategy, our M&A would likely more bias towards the hospice side, probably not an entirely different type of kind of skew from the de novo side. So we think it's really important to have all 3 growth levers available to us. That said, we'll continue to be measured. We really want that to be strategic in nature while we continue to prioritize delevering the overall balance sheet.

And can you remind us just how quickly you can scale a de novo? How quickly it gets to breakeven? How quickly it gets to more corporate run rate?

There's a lot of use case specific, as you can imagine, between sites and kind of the host of other factors. But typically, we'd look for that to be a 12- to 18-month type of ramp on an overall kind of de novo basis when you think about breakeven or profitable and contributing. And so we've been at this for close to 3 years at that kind of 10-year -- 10 de novos a year. And so the nice thing about that is really our 2022, 2023 type de novos are really fully mature [indiscernible] of new growth in 2025. And so it creates a nice run rate where we're seeing sites mature each year while we're putting investment in new sites.

Okay. And Barb, just back to some of the opportunities in the market. How much opportunity do you see from a duration of care and just getting patients on earlier? I mean, part of that is just the acceptance that you talked about, but where do you see things going on that piece of the equation?

Yes. It's really about -- I think many referral sources struggle to talk about end-of-life care. And so it's really encouraging them that the patient has the benefit, they feel the patient may be eligible for the benefit. We're happy to talk with the patient about that benefit. So I think what you turned to many times is not that the patient is not ready, it's the referral source struggles to refer early on. So it's about the education at that referral source level and letting know that we would be the ones that would be happy to talk. And then maybe the patient decides that they're not ready at that point. But sometimes the patient isn't introduced to it until it's so late.

Okay. And then just on reimbursement in this market has been much healthier 3, 4-ish percent over the last couple of years. A little bit lighter in the last rate update. I think it was 2.4%. Is that sufficient to meet the needs of the industry and just the cost growth that you see?

We're all right now submitting our comment letters for the proposed rule for hospice, and I would say we're still reminding them that there's been about a 4.9% forecast error if you look over the last few years and really keeping up with what inflation has been appreciative of the rate update. We still believe that it needs to be better than that for us, again, to continue to be competitive as we look to build these service lines, we need the clinical workforce to do it. And so really taking into account that, that -- those rate updates have not kept in line with inflation.

Okay. Maybe turning to the cost side of both businesses. Home health cost per day, I think, was up 1% in 2024, saw a little bit higher number in the first quarter, I think, around 2.5%. Is there any movement? Or is that comps? What are you seeing from just a labor demand perspective and how that's impacting wages?

That's another one that I would say it's important to look at some of the new metrics that we introduced on the fourth quarter call and again on the first quarter call is really moving from kind of that cost per visit for home health to a cost per day because if you think about you have 2 things, you have cost. But then as we manage our visits per episode, that lower visits per episode can actually inflate your cost per visit. And so really looking at that cost per day metric so that we can understand as we're managing cost and volume, that cost per day actually should be a better metric to look at as you're looking at the home health segment.

Yes. So I think just building on Barb's point, I mean, if you look at cost per visit up as you touched on, and we did see some escalation there just as we see visit utilization come down. As you think about overall cost per patient day, we did see improvement there, and that's a function of using technology in our Medalogix tool to think about our overall kind of care planning and the overall visit utilization. And so as we free up some of those visits, that allows the clinician to do start of carry and carry a little bit higher patient load. And so we really do see an opportunity to continue to -- on a clinically based approach, continue to optimize our overall BPE that will likely have lower visits per episode, which will allow some of that capacity to be freed up to start new patients and create an offset to what would be merit or market inflation that we'd see within the business. And so that's the interplay you're seeing within -- whether you look at both of those metrics, it's visit utilization, it's the market inflation and ultimately better utilizing that clinical staff to do more patient starts that's creating this kind of push and pull mechanism as you think about our unit cost in the home health business.

Okay. So it sounds like nothing has really changed on the wage front. It's really just the visits per episode. I guess how much more opportunity is there? You mentioned that needs to be clinically focused, and there's -- you're threading the needle there. How do you just think about the remaining opportunity and again, kind of just creating the right balance to meet the needs of the patients, but also being efficient?

You said it the right way, threading the needle, right? Because we tell the team all the time, our greatest value proposition to the payers is our high quality. And so we cannot sacrifice that by managing 2 lower visits per episode. And so it's why it's so important for them to use the Medalogix tool. I would say we do believe we still have opportunity when you look across our portfolio. We have branches that manage very close to the recommended Medalogix visits episode, and we have others that we see continue to have opportunity. So it's about reminding them if a patient progresses quicker than what they anticipated, it's about taking those visits and either redeploying them to a patient who has -- who is maybe declining or increasing in their acuity or moving them to a new start of care. And so it is about us making sure then at a regional level, we're looking at those dashboards and saying, are we using our clinical capacity in the right way.

Okay. And then on hospice cost per day, I mean, this has been very well controlled. You've guided to 2% to 3% growth for the year. I think that would imply an acceleration. Are there any specific dynamics you're contemplating for the remainder of the year? Does that just reflect that's about what inflation is? I mean what goes into...

I mean, I think you're -- I mean, it's really more how we think about kind of where market and market inflation would be. And then as Barb touched on, we believe that while we appreciate the proposed rule from a hospice perspective, we still don't believe that keeps up with overall kind of market inflation. And so there's a bit of an imbalance that we have assumed or modeled into, particularly as we think about our merit and market adjustments typically occur later in the year in that kind of Q3, Q4 time frame. And so it's that imbalance between the rate reimbursement update and kind of what we would assume as far as kind of merit and market inflation.

Okay. And then just on G&A efficiency, this is -- that's obviously come down as a percent of sales. I think you had a little over 200 basis points of leverage in the first quarter. If we go back away, I think the target coming out of the IPO was $27 million to $28 million in corporate cost per quarter. You're already below that. I mean, marginally, but below that. How should we think about remaining opportunities on G&A and...

Yes. I think we're starting to see that normalization on kind of the broader corporate or home office expense. As you touched on, we were running a little bit below that in Q1. We do think with net of -- there are some cost savings that we have contemplated through the balance of the year. In addition, we do have kind of some market or merit inflation baked in there. And we do think we kind of run in that $27 million to $28 million range on a prospective. And so we think that's kind of normalizing at this stage.

Okay. So you've got to increase wages for corporate employees, I don't know, 2%, 3%, 4%. It sounds like that's happening on an underlying basis and then there's some cost takeout. Does that cost takeout extend through '25? And then in '26, we'd start to see more normal 2%, 3%, 4% growth in G&A. Is that the right way to think about?

Yes. Our objective is to try to offset that as much as possible. And so while we've got specific initiatives that are underway, some of which we've commented on, we'll continue to look at opportunities through the corporate or kind of home office structure to continue to take that approach. Some of those are underway and known today on a prospective basis, we're continuing to evaluate opportunities for efficiency across some of the back office functions. And so exactly where that plays out, I think it's more of an approach that we've got that it's not okay. We'll just see market increases of 2% to 3%. It's going to be market offset by any efficiency that we can bring through.

Okay. And then just tying this all together with -- at the corporate margin level, your guidance also implies slightly lower margins in the remainder of the year than you delivered in the first quarter. Again, are there any kind of things you're considering in that margin profile? Or does that reflect conservatism? How would you...

The biggest one I would call out, I mean, so we do have the rate increase in Q4 for hospice that partially offset some of the market or merit. On the home health side, that rate increase, wherever that proposed rule would go or how that might look would not occur until Q1 of 2026. And so when you think about our kind of market or merit cycle, it will come in front of -- particularly on the home health side in front of any sort of proposed rate rule and reimbursement. And so that's probably the biggest driver in what you're seeing there.

And then as you get to this more normalized mix on the -- particularly within home health and just cost dynamics that we talked to, how should we think about annual margin expansion in '26 and beyond as the mix dynamic becomes less and less of a headwind?

Yes. So I mean there's multiple factors. There's no -- as we think about some of the mix and the unit revenue and continuing to optimize there, we talked about the interplay between utilization and some of the market and inflation. And then it's really, as we think about reimbursement, the expectation of the assumption is, at least right now, if it is a wash, rinse, repeat, that it wouldn't keep up with the overall inflation. So our assumption is through unit revenue, through kind of appropriate utilization being able to offset that market inflation given that reimbursement is not going to catch up. And so I do think that running in at least on the home health side, a 19%, 20% type margin profile is actually -- there's an awful lot of work to maintain that margin profile given the dynamics that we touched on earlier.

Got it. Perfect. Well, with that, I think we're out of time. Thank you both so much.

Thank you. I appreciate it.

Thank you.