Enhabit Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 7, 2025

Key Takeaways

  • Negative Sentiment: CMS’s proposed 2026 home health rule includes a 6.4% rate cut and over 20% cumulative reductions since PDGM, prompting Inhabit to evaluate cost levers—such as advanced visit management, branch closures and technology investments—while lobbying against the cuts.
  • Positive Sentiment: Home Health Q2 admissions rose 1.3% year-over-year (2% normalized) with Medicare fee-for-service census stabilizing (+0.5% YoY) and non-Medicare admissions up 5.2%; a renegotiated national payer contract delivered a low-double-digit per-visit rate increase.
  • Positive Sentiment: Hospice segment delivered an 8.7% YoY jump in admissions (10% normalized) and 12.3% census growth (10.7% same-store), kept cost per day flat (+1%), and opened three new locations this quarter toward a target of 10 for 2025.
  • Positive Sentiment: Consolidated Q2 net revenue was $266.1M (+2.1% YoY) with adjusted EBITDA of $26.9M (+6.7% YoY) and margin expansion to 10.1%; free cash flow conversion hit 51.9%, debt prepayments reached $50M, cutting annual interest expense by $10M.
  • Neutral Sentiment: CEO Barb Jacobsmeyer will step down in July 2026 (or upon successor appointment), with the board initiating a transition to ensure leadership continuity.
AI Generated. May Contain Errors.
Earnings Conference Call
Enhabit Q2 2025
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good morning, everyone, and welcome to Inhabit Home and Health Hospice Second Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Today's conference call is being recorded.

Operator

If you have any objections, you may disconnect at this time. I will now turn the call over to Bob Okunski, Inhabit's Vice President of Investor Relations. Mr. Okunski, please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone. Thank you for joining our call today. With me on the call this morning is Barb Jacobsmeyer, President and Chief Executive Officer and Ryan Solomon, Chief Financial Officer. Before we begin, if you do not already have a copy, our second quarter earnings release, supplemental information and related Form eight ks filed with the SEC are available on our website at investors.ehab.com. On Page two of the supplemental information, you will find the Safe Harbor statements, which are also set forth on the last page of the earnings release.

Speaker 1

During the call, we will make forward looking statements, which are subject to various risks and uncertainties, many of which are beyond our control. Certain risks and uncertainties that could cause actual results to differ materially from our projections, estimates and expectations are discussed in our SEC filings, including our annual report on Form 10 ks, which is available on our website. We encourage you to read those documents. You are also cautioned not to place undue reliance on the estimates, projections, guidance and other forward looking information presented, which are based on current estimates of future events and speak only as of today. We do not undertake a duty to update these forward looking statements.

Speaker 1

Our supplemental information and discussion on this call will include certain non GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information and in our earnings release. With that, I'd like to turn the call over to Barb. Barb?

Speaker 2

Thanks, Bob. Good morning, and thanks for joining us. I'm excited to highlight how our teams continue to execute on twenty twenty five strategies in the second quarter, but I'll start by addressing CMS' final rule for hospice and CMS' incredibly disappointing preliminary home health rule. The final hospice rule improved the rate adjustment effective 10/01/2025 from the proposed rule of 2.4% to final rule at 2.6%. While we appreciate the slight increase, we continue to be disappointed that the rate update does not accurately reflect the increasing cost of care.

Speaker 2

This sentiment is intensified as we reflect on the home health proposed rule. At a time when inflation continues to rise and demand for home based care grows, CMS has ignored data showing how these proposed cuts are destructive of the home health industry, which is the lowest cost care setting and critical to managing overall health care expenditures. The repeated cuts over the past few years have forced the industry to make tough decisions, including closing locations, which reduces patient access to care. Inhabit has had to make these tough decisions too, and the twenty twenty six proposed cuts exacerbate the pressure on the industry. It goes without saying if CMS does not change its extreme position, something we'll have to give.

Speaker 2

Our size and scale, coupled with our recent investments in technology and operational improvements, put us in a position to address the challenges of this moment. While we have used Medalogix to advise a just right care plan, we have allowed individual clinicians to override those recommendations. We will be implementing an advanced process whereby this override will occur only after review and approval by our trained virtual team of clinicians. Mindful of our obligations to our shareholders, our staff, and our patients, we are thoroughly evaluating these and other plausible levers to address the extreme headwind presented by the proposed cuts, while striving to maintain access to the high quality care that we have provided in years past. In addition to the visits per episode focus, more tough decisions could be made.

Speaker 2

We will continue to evaluate additional closures or consolidations of branches, service areas in each community, potential limitations of our future investments in technologies, and our overall G and A expenses. Evaluating these and other potential levers is necessary to ensure we can maintain competitive wage rates to recruit and retain our skilled workforce within a highly competitive labor market. While we work on adapting our business practices in response to the ongoing cuts, we have also been working nonstop alongside with the National Alliance for Care at Home, a leading home health trade association, to articulate to CMS and members of Congress a holistic argument against deep cuts to our industry, which provides the lowest cost care setting and saves the system money by reducing the use of higher cost alternatives. Although we will continue those efforts, and although in recent years the final rule has been less severe than the proposed rule, there are no guarantees or indications at this time where the final rule will ultimately land. Due to the severity of the proposed cuts, we are unable to just wait and see.

Speaker 2

The efficiencies that we have as a scaled company will position us better than others as we navigate these challenges. Now let's move on to our quarter results. Our second quarter Home Health performance is the result of continued execution on our payer contract initiative with a focus on a payer balance of admissions and census. Our second quarter admissions were up 1.3% year over year. Normalized for the closed branches, this growth is 2%.

Speaker 2

Fee for service Medicare census is stabilizing. With steady progress from our low entry point to the New Year, our census has grown 2.1% sequentially and now up 0.5% year over year. Our non Medicare admissions were up 5.2% year over year, mainly within our payer innovation contracts. We had disruption at the end of the second quarter in both admissions and census from the impact of renegotiations with national payer. However, we were successful in achieving a low double digit increase in our per visit rate effective 08/15/2025.

Speaker 2

Our scale drives meaningful access to payer members and that access coupled with our high quality outcomes positions us well for continued progress within our payer strategy. Moving now to our hospice segment. The impact of our investments and our strategies continued to drive outstanding results. We have now experienced six great quarters of sequential census growth. Total admissions grew 8.7% year over year with same store up 5.7%.

Speaker 2

Normalized for closed branches, admissions were up 10%. Census grew 12.3% with 10.7% same store growth. The census growth continues to create leverage on the fixed costs we added in 2023, evident in the minimal cost per day increase year over year of 1%. To complement our organic growth strategy, our de novo strategy is positively impacting total growth. In quarter two, we opened one home health and two hospice locations.

Speaker 2

Combined with the one hospice in quarter one, we are on track to open 10 locations this year, all in areas we believe have strong growth potential. Turning now to our cost strategy update. 11 branches were closed or consolidated by the end of quarter two twenty twenty five. An additional home health and hospice branch will be consolidated by the end of quarter three as we continue to evaluate our cost structure. At the start of the call, I mentioned advanced visit per episode management as one of our levers to mitigate the impact of the 2026 proposed rate cut.

Speaker 2

This advanced visit per episode management will be initiated with a pilot in 11 branches next week, and I look forward to sharing details of the results in future calls as well as additional insights into the other potential levers. And now I will turn it over to Ryan, who will cover the financial results of quarter two.

Speaker 3

Thank you, Barb. Before recapping our strong performance in Q2, which demonstrates consistent execution on key aspects of our strategy, I wanted to build on Barb's comments on the CMS preliminary home health rule. The CMS proposed 2026 Medicare home health rule, including continued permanent behavioral adjustments as well as a first time proposed temporary adjustment in 2026 meant to claw back perceived over reimbursement to the industry from prior years presents a clear and intensifying headwind for the entire industry. The company has significant concerns with the methodology CMS has used to justify behavioral rate adjustments post implementing PDGM, which in our view leads to home health rates that are fundamentally inconsistent with the statutory mandate for budget neutrality under the Bipartisan Budget Act of 2018. The cumulative permanent and temporary rate cuts since PDGM implementation now total over 20% with the recent proposed rule, all at a time where cost of care for home health providers has rapidly increased.

Speaker 3

We believe the consequence of these flawed rate cuts continues to risk compromising access to home health care services for Medicare beneficiaries and pressuring provider sustainability, especially in rural and underserved areas. While we do not agree with the CMS 2026 proposed rule, we believe Inhabit has the right team and right strategy in place, while also being uniquely positioned to outperform many of our subscale competitors in this challenging environment. Our scalable operating model, proprietary clinical pathways, disciplined cost structure and improved leverage give us distinct advantages relative to others in this environment. Previously, we proactively invested in technology that will allow ongoing evaluation of our ability to balance quality while optimizing our visit utilization, staffing models, and paraprofessional mix, all in a clinically appropriate manner that should provide meaningful potential offsets to the 2026 proposed Medicare home health rate cuts. In addition to the unique scale advantages and balanced approach to optimization that Barb and I have touched on, growth will also continue to be a key lever as well.

Speaker 3

The combination of our continued outsized hospice growth and a maturing payer innovation strategy that has positioned us as a full service provider to our referral partners will enable us to continue to stabilize Medicare fee for service volumes, while also providing us with an increased opportunity to selectively gain share in core and adjacent markets as smaller or less capitalized providers likely struggle under reimbursement constraints. While we continue to explore all options to combat the CMS proposed rate cuts, we remain committed to driving high quality, cost effective care while protecting long term shareholder value. Now shifting to our strong Q2 twenty twenty five financial performance, where consistent execution on our strategy delivered revenue and adjusted EBITDA growth to prior year and sequentially while continuing to delever our balance sheet. Before reviewing consolidated and segment detailed performance, a few Q2 highlights that demonstrate clear execution on our strategy include the following: consolidated net service revenue in the quarter reflects growth to prior year, marking the first quarter of year over year consolidated revenue growth post spin and the third consecutive quarter of sequential growth. Home Health momentum delivered the second straight quarter of sequential segment growth in revenue and adjusted EBITDA, while continuing to stabilize Medicare ADC.

Speaker 3

Opsys momentum continues to be very strong, delivering year over year segment adjusted EBITDA growth of 54% on both double digit volume growth and margin expansion to the prior year. We continue to focus on delevering our balance sheet with the fifth straight quarter of debt prepayments dating back to Q2 twenty twenty four totaling 45,000,000 of prepayments through 2025. In addition to the prepayments made through Q2, we made an additional $5,000,000 prepayment in late July that increases the total prepayments to $50,000,000 through 2025. The combination of these prepayments, standard amortization and improved pricing as we have exited the covenant relief restrictions under our agreement have reduced our cash interest expense by $10,000,000 annually. Now shifting to Q2 consolidated result details.

Speaker 3

Consolidated net revenue was $266,100,000 an increase sequentially of $6,200,000 or 2.4% with growth to the prior year of $5,500,000 or 2.1%. Consolidated sequential revenue growth was driven by both growth in home health and hospice segments as we were able to grow ADC sequentially in both businesses. Consolidated revenue growth in the quarter translated to improved profitability both to the prior year and sequentially, with consolidated adjusted EBITDA of $26,900,000 in the quarter, an increase sequentially of $300,000 or 0.7%, while growing to the prior year by $1,700,000 or 6.7%, with overall adjusted EBITDA margin as a percentage of revenue expanding to 10.1%, an increase of 40 basis points to the prior year. Now shifting to Home Health performance. Revenue was $205,900,000 reflecting sequential growth of $5,300,000 or 2.6%, while lower than prior year by $4,300,000 or 2%.

Speaker 3

Volumes were up both versus prior year and sequentially by zero point five percent and two point one percent respectively. The growth in ADC to prior year allowed us to hold unit cost measured in cost per patient day flat to prior year as we were able to use volume to improve clinical staff productivity, helping to offset cost of merit and inflation. Home Health adjusted EBITDA totaled $39,300,000 in Q2, reflecting a sequential increase of $1,000,000 or 2.6%. The sequential adjusted EBITDA improvement reflects $3,100,000 related to volume, offset by $1,500,000 in yield and $600,000 of increased expense in sales and ops back office G and A costs to support growth. Q2 Home Health adjusted EBITDA margin as a percent of revenue was 19.1%, flat sequentially and lower 190 basis points to the prior year on lower unit revenues primarily related to continued unfavorable mix shift.

Speaker 3

Two key items to highlight in Home Health outside of broader revenue and adjusted EBITDA performance include the following: Our continued success in slowing the rate of decline in our Medicare patient volumes, a key 2025 priority to maintain a healthy payer mix, is reflected in our Q2 Medicare ADC being lower by 3.4% in the quarter versus prior year compared to a 14.1% year over year decline in the corresponding 2024 period. In regards to continued optimization, in Q2, we saw improvement in visits per episode both sequentially and versus prior year coming in at 13.7. As discussed earlier, we see visits per episode as a key lever to continue to optimize while balancing quality to meaningfully offset rate reimbursement headwinds from CMS 2026 proposed home health rule. Now shifting to our hospice segment, performance for Q2. This segment continues to perform at a really high level with revenue totaling $60,200,000 reflecting sequential growth of $900,000 or 1.5% and strong growth to prior year of $9,800,000 or 19.4%.

Speaker 3

Revenue growth was supported by continued strong momentum on volumes in the quarter with improvements of 3.7% sequentially and 12.3% year over year with ADC for the quarter totaling $3,950 Opspis adjusted EBITDA totaled $14,000,000 in Q2, reflecting an increase to the prior year of $4,900,000 or 53.8% on a double digit volume increase combined with margin expansion as adjusted EBITDA margin as a percent of revenue improved five twenty basis points prior year and totaling 23.3% as our operational leaders continue to create operating leverage on the increased volumes. A few key items to highlight in hospice outside of broader revenue and adjusted EBITDA performance include the following. We saw exceptionally strong performance across all of our operating regions, with all hospice regions delivering double digit year over year revenue growth, demonstrating our operating model is fully deployed with strong leaders in place that gives us confidence that our current momentum should be sustainable. In addition to ADC growth, we were able to lower discharged average length of stay year over year, which continues to lower overall cap liability risk. Shifting briefly to our home office, general and administrative expenses, which for the quarter totaled $26,400,000 or 9.9 percent of revenues in Q2 compared to 10.8% in the prior year, delivering an improvement of $1,700,000 or 6% year over year.

Speaker 3

This improvement reflects targeted cost savings initiatives somewhat offset by merit and other inflationary increases year over year. Transitioning now to the balance sheet and cash flow. A key strategic priority in 2025 is using free cash flow to continue to deleverage our balance sheet. Adjusted free cash flow year to date totals 27,800,000.0 a 51.9% free cash flow conversion rate. During the quarter, we reduced overall bank debt by $10,500,000 including amortization and prepayments.

Speaker 3

We ended the quarter with approximately $37,000,000 in cash and available liquidity improving sequentially to $113,500,000 Improved profitability coupled with continued balance sheet improvements results in a net debt to adjusted EBITDA leverage ratio of 4.3 times compared to Q2 of the prior year of 5.1 times. We remain committed to strengthening our balance sheet and improving profitability. Let's conclude with briefly discussing updated guidance. Based on our consolidated first half twenty twenty five results and the momentum in the business, we remain confident in our strategy and full year outlook. We have updated our full year guidance as follows: We now expect full year revenue to be in a range of 1,060,000,000 and $1,073,000,000 with full year adjusted EBITDA to be in a range of $104,000,000 to $108,000,000 We also now expect full year adjusted free cash flow to be in a range of $47,000,000 to $57,000,000 Thank you for your time today.

Speaker 3

I'll hand it back over to Barb for a few closing comments before we open up for questions.

Speaker 2

Before opening the call for Q and A, let me touch briefly on the news last evening that I intend to step down from my role as president and CEO and as a member of the board in July 2026 or upon the appointment of a successor. I will be working with the Board on a smooth transition. The timing is optimal for a new CEO. I am proud of the accomplishments achieved over the past four years. Our team has collectively focused on stabilizing the company and creating a stronger foundation for the future.

Speaker 2

We have reached that point, and now it is the right time for a new leader to elevate Inhabit to the next level. My successor will join Inhabit alongside an experienced Board and a strong leadership team. And I have no doubt that with our sound operational foundation and the trajectory to achieve and have its long range potential, the future is incredibly bright. I will continue to dedicate my time and energy to support the team through the transition. Please remember that the purpose of this call is to discuss the operational performance of the quarter.

Speaker 2

Operator, we can now open the lines for questions.

Operator

Thank you. We will now begin the question and answer Your first question comes from the line of Brian with Jefferies. Please go ahead.

Speaker 4

Good morning. This is Megan Holt on for Brian Tanquilut. Congrats on the quarter and Barb, best wishes going forward. It's been great working with you. We appreciate the commentary on the proposed home nursing rule, but can you guys talk about how you're thinking about mitigating the negative impact of it and whether you believe there are operational levers you can pull on that can fully offset if the negative 6.4% is put into place?

Speaker 3

Yes. Good morning and I appreciate the question. As we touched on, we do see various levers that are in play here. First, as we think about the advanced PPE initiative, that's an area that will be a primary lever. We will be piloting several of these concepts in the coming weeks and we'll need to see our ability to operationalize the value we've estimated without materially impacting quality before we could comment definitively.

Speaker 3

Assuming we can execute without impacting quality, we believe that the totality of the various levers potentially can meaningfully offset the impact once fully ramped.

Speaker 4

Thank you. And then can you guys give us some color on the recent payer disruption that you mentioned in the slide deck and how that new national payer contract coming in might impact volumes and rates going forward?

Speaker 2

Sure. Well, I guess the first, this was a renegotiation of a national payer. And so we were successful in getting a low double digit increase in that per visit rate. That negotiation started several months ago, kind of came to a head in mid June when the payers sent notices to our patients that we wouldn't be a contractor provider by July 15. Unfortunately, that does cause disruption.

Speaker 2

Our census from that payer dropped about 600 or 59% of its quarter two peak census between mid June and mid July. That payer on average is about a little over 3% of our census. The good news is within two weeks of notifying our teams that we reached an agreement and that happened on July 11, we're now back to 76% of that peak census and admissions are now above our weekly average about 113% of our weekly average. So we feel confident we're going to not only regain that census, but grow from there, especially now that this is a payer that we will actively go after for referrals.

Speaker 4

Got it. Thank you very much.

Operator

Your next question comes from the line of A. J. Rice with UBS. Please go ahead.

Speaker 5

Hi, everybody. Just a clarification to that last question. On the proposed rate update, I think there was some question about the reset. If they if they take it down to 6.4%, is it just the baseline from there would get the full recoupment or would there need to be follow on cuts in subsequent years to get the full recapture that they're looking for? Have you gotten any clarity on that?

Speaker 3

Yeah. AJ, it's a good question. I think that the way we're viewing it is is that effectively the proposed rule, it would be updated each year. But, effectively, this would be a bit of a clearing event in the context of, you know, we see the in your impact of the the temporary proposed rule should that that go final. And then ultimately, they've outlined some framework as to how they would implement that roughly over a seven year period.

Speaker 3

But effectively, it'd be that similar impact assuming that framework were to play forward on a go forward basis. So how we're thinking about it is we're focused on mitigating the impact of the proposed rule. And then as you clear that hurdle going forward, it's really a market adjustment going forward on any sort of proposed rule on a prospective basis. I hope that answers your question, AJ.

Speaker 5

Yeah. No. That's good. That's what I was looking for. On the there's a lot of different things going on with the home health metrics.

Speaker 5

It seems like the fee for service business is still under pressure, I've got that right. And I just wonder, is that you prioritizing some of these new contracts you're getting? Is it just the the underlying volume of cases and you well, prioritizing and therefore, don't have it as much capacity for that? Or is it market share changes? Or is just the demand down just because there's less people on the fee for service side?

Speaker 5

I'm trying to understand where we're at in on that aspect of volumes.

Speaker 2

Sure. I would say, it is a combination. Certainly in some of our markets, we have markets that are now over 75% MA penetration. So in some markets, really is about that addressable fee for service market. In other markets, it is about going out and redeveloping those what we call books of business to make sure we're focused on referral sources that do have that blend.

Speaker 2

It is certainly not about us prioritizing any of the other payers that we have added. Those payers are really for us to be seen as a full service provider so that we can earn that healthy payer mix.

Speaker 5

Okay. Maybe just real

Speaker 3

quick to add on to that. Mean, we are outperforming how we thought about the strategy at the beginning of the year. As we talked about early on was we wanted to cut that rate of decline in half. We've actually, I think, bested that. Now as Bart touched on, it's not any sort of prioritization.

Speaker 3

I do think that when we think about our premium relative to some of the market, if you look at some of our larger publicly traded peers, we do have a share premium advantage, and that's actually growing if you look at Medicare Home Health revenues as a percentage of total. So while there is some gravity within the market, we feel like we're executing the strategy and actually a little bit ahead of schedule in the context of how we thought about our performance and decline year over year.

Speaker 5

Okay. Great. Thanks so much.

Operator

Your next question comes from the line of Ryan Langston with TD Cowen. Please go ahead.

Speaker 6

Hi, good morning. On hospice ADC growth, I think you previously monthly progression since January 2024. Now you're citing it sort of on a quarterly basis. Can you tell us if ADC grew sort of each month through the second quarter?

Speaker 2

So Ryan, great question. Actually for quarter two, we did continue to have monthly sequential progress. We just decided that counting months now seemed like a lot. And frankly, the other thing that we didn't want to do is have any sort of positively quarterly progress in the future be missed if, let's say, you went down one or two ADC in a certain month. But for quarter two, we did continue to have that monthly sequential progress.

Speaker 6

Great. And then last thing, just good to see the deleveraging inflection on the revenue growth as well. I guess can you remind us what your longer term leverage targets are and maybe kind of where you need to get to before you could pivot to M and A or making sort of heavier investments on the de novo side? Thanks.

Speaker 3

Yeah. So as we think about deleveraging, I think our view is we want to continue to focus on delevering the balance sheet. We haven't given specific leverage targets. But I think how we've consistently performed over the last five quarters with the prospective views, I think it's safe to assume that we would continue to take that approach going forward. We haven't given a specific leverage target, but we do think that there's a that's going to remain a priority before we pivot any sort of M and A or other activity.

Speaker 1

Got it. Thank you.

Operator

Your next question comes from the line of Jamie Perce with Goldman Sachs. Please go ahead.

Speaker 7

Hey, thank you. Good morning. I wanted to start with the payer contract you were able to renegotiate in the quarter. You mentioned that that rate went up low double digit percentage beginning August 15. I'm sure you're sensitive to the particulars here, but any color you can give us in terms of how that contract previously compared to your other contracts?

Speaker 7

Just trying to get a sense of whether there's opportunity with other contracts as they come up for renewal to see similar type of rate increases and any dates we should have in mind for when some of your larger contracts renew.

Speaker 2

Sure. Well, what I would say, again, guess, to give you a little bit of color is this contract previously was not considered a payer innovation contract. It will now move into that payer innovation contract level. Again, that's why I mentioned that we will actively be pursuing those referrals. And so that was certainly one that we had added before we really started the work around payer innovation.

Speaker 2

And so a lot of those contracts are three year contracts. So when you think of that work starting back in 2023, there'll be more work that will be coming up next year. Now some of that work we start about a year in advance because it does take a while to get those negotiations across the finish line.

Speaker 7

Okay, great. And then just on the fee for service Medicare volume pressure, it looks like that has begun to moderate. How much of that is just you guys have talked a lot in the past about just getting down to normal mix level between fee for service and non Medicare. How much is that phenomenon impacting it versus initiatives you're deploying internally? And to the extent, you know, some of these initiatives prioritization, you know, you've talked about, you know, color coding different different types of payers, green, yellow, red sort of concept, those initiatives kind of impacting that.

Speaker 7

And then just, you know, how should we think about that progressing in the back half and and into next year?

Speaker 2

Sure. I would say that the conversion rate on those continues to be very strong. It is kind of like I mentioned with AJ, it's a little bit of a mix because obviously you have some markets that are just way more pressured just because of the MA conversion in those markets. So it's a combination, I would say, of kind of settling into more normal. But also, we have some markets that are doing really well in some of the strategies and really developing out those books of business around moving a little bit away from maybe some of the settings that have significant amount of MA to more of the referral sources where we know we can have that balanced blend of payers.

Speaker 7

Okay. And if I could sneak in one more. Can you just spend another minute on the pilot programs and what you'll be looking for there? Talked about operationalizing that and scaling that. Just a little more color on what you'll be rolling out and again what you'll be looking for there in terms of gauging success?

Speaker 2

Sure. Well, have the resources on the virtual clinicians to initiate the pilot with the 11 branches that we're going to start with. We're certainly going to know more after that pilot if we need to add any future resources, but we believe that cost will be very minimal compared to the potential positive impact. We obviously know that we're still well above our large peers in the visits per episode. As we've stated before, we're very careful not to impact quality.

Speaker 2

That being said, to mitigate these kind of severe proposed cuts, we know we have to be more aggressive in the approach. Kind of let Ryan maybe talk on kind of the value of that, if you will.

Speaker 3

Yes. And we estimate for every 0.5 BPE reduction value could be in the approximately 5,000,000 to $8,000,000 with flex in the range mainly due to the percentage of the additional capacity that we can effectively reallocate and the mix of incremental patient load. So where that unit revenue comes in as we carry additional patient load or volume is obviously quite material to that assumption. Obviously, there's it's still very early. So we'll provide some early observations from the pilot as we update on future earnings calls.

Speaker 3

But we do view it as a meaningful lever. It's two phased. First, we need to free up the capacity. And then ultimately, we need to make sure that, that capacity is directed to additional patient or caseload on overall volumes. So that's where we're really focused as Barb touched on with some of the pilots and fine tuning the potential value there.

Speaker 7

Okay, great. Thank you.

Speaker 1

Thanks, Jim.

Operator

And ladies and gentlemen, that does conclude our question and answer session. And that does conclude today's conference call. Thank you for your participation and you may now disconnect.

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