Exhibit 99.1

 

June 21, 2022

Dear Encompass Health Corporation Stockholder:

We previously announced plans to separate our home health and hospice business (the “Enhabit Business”) into an independent, publicly traded company, which we expect to list on the New York Stock Exchange under the trading symbol “EHAB” when the separation is complete. The separation will occur through a distribution by Encompass Health Corporation (“Encompass”) of all of the outstanding shares of Enhabit, Inc. (“Enhabit”), a wholly owned subsidiary that owns and operates the Enhabit Business. Encompass’s existing inpatient rehabilitation business will continue to be a publicly traded company after the distribution. The board of directors of Encompass approved the spin-off of Enhabit following an extensive review of strategic alternatives informed by shareholder engagement and assisted by several independent advisors. The separation is expected to provide a number of benefits to both businesses. These potential benefits include enhancing the strategic and operational flexibility of each company, enhancing the focus of each management team on its business strategy and operations, allowing each company to adopt a capital structure, acquisition strategy, and return of capital policy best suited to its financial profile and business needs, and providing each company with its own equity currency to facilitate acquisitions and to better incentivize management. In addition, once Enhabit is a stand-alone public company, potential investors will be able to invest directly in Enhabit’s common stock.

Upon completion of the distribution, each Encompass stockholder as of June 24, 2022, the record date for the distribution, will receive one share of Enhabit common stock for every two shares of Encompass common stock held as of the close of business on the record date. Enhabit common stock will be issued in book-entry form only, which means that no physical share certificates will be issued. No vote of Encompass stockholders is required for the distribution. You do not need to take any action to receive the shares of Enhabit to which you are entitled as an Encompass stockholder, and you do not need to pay any consideration or surrender or exchange your Encompass common stock, which will continue to trade on the New York Stock Exchange.

We encourage you to read the attached information statement, which describes the planned distribution of Enhabit common stock in detail and contains important business and financial information about Enhabit. The included financial statements of Enhabit are prepared from Encompass’s historical accounting records and contain certain allocations of Encompass’s costs.We encourage you to read them together with the pro forma financial information included in the attached information statement, which gives effect to the separation and reflects Enhabit’s anticipated post-separation capital structure, including the assignment of certain assets and assumption of certain liabilities not included in the historical financial statements.

The Encompass board of directors and management team are confident that the pending separation will create new opportunities for both companies to realize significant growth while maintaining our commitment to our patients, investors, employees and community. We look forward to the potential we expect will be unlocked by the spin-off—for Encompass, for Enhabit and for you, as a stockholder of both companies. On behalf of our board of directors, thank you for your continued support.

Sincerely,

Mark Tarr

President and Chief Executive Officer

Encompass Health Corporation

 

June 21, 2022

Dear Future Enhabit Stockholder:

I’m excited to welcome you as a future stockholder of Enhabit, Inc., which will be an independent public company after its separation from Encompass.

In connection with the separation, we are rebranding to Enhabit Home Health & Hospice. The name Enhabit links us directly to the home. Maintaining the “En” of Encompass connects us to our heritage and communicates our belief that patients can expect the same level of excellence and compassion for which the Encompass brand stands. We believe the name Enhabit is welcoming and conveys that we, as a company, are advancing what it means to provide A Better Way to Care in the home.

For over 20 years, we have provided home health and hospice services where patients prefer it: in their homes. Connecting with compassion, we strive to bring humanity, dignity, and a sense of control to every patient’s journey. We invest in our people, medical treatments, technology and data analytics to deliver the highest quality of care to every home care patient.

Along the way, we have grown into one of the largest providers of home health services and hospice services nationally, measured by 2020 Medicare expenditures. Over 10,000 employees at 351 locations in 34 states, as of March 31, 2022, are part of an award-winning culture that we believe is a key contributor to our continued success. We employ our scale as one of the largest home health providers in the nation to expand the possibilities of home-based care, driving low cost of care, high-quality outcomes and a high standard of care for our patients.

As an independent company, we will continue our strategy of growth and focus on strategic priorities.

We expect to list Enhabit’s common stock on the New York Stock Exchange under the symbol “EHAB” when the separation is complete.

I hope you will learn more about Enhabit and our exciting story by reading the enclosed information statement.

Sincerely,

 

Barbara A. Jacobsmeyer

President and Chief Executive Officer

Enhabit, Inc.

INFORMATION STATEMENT

ENHABIT, INC.

This information statement is being furnished in connection with the distribution by Encompass Health Corporation (“Encompass”) to its stockholders of the outstanding shares of common stock of Enhabit, Inc., formerly known as Encompass Health Home Health Holdings, Inc. (“Enhabit”), a wholly owned subsidiary of Encompass comprising Encompass’s home health and hospice business. To implement the separation, Encompass currently plans to distribute all of the shares of Enhabit common stock on a pro rata basis to Encompass stockholders.

For every two shares of common stock of Encompass held of record by you as of the close of business on June 24, 2022, which is the record date for the distribution, you will receive one share of Enhabit common stock. As discussed under “The Separation and Distribution—Trading Between the Record Date and the Distribution Date,” if you sell your shares of Encompass common stock in the “regular-way” market after the record date up to the distribution date, you also will be selling your right to receive shares of Enhabit common stock in connection with the distribution. We expect the shares of Enhabit common stock to be distributed by Encompass to you on July 1, 2022. We refer to the date of the distribution of the Enhabit common stock as the “distribution date.”

Until the distribution occurs, Enhabit will be a wholly owned subsidiary of Encompass, and consequently, Encompass will have the sole and absolute discretion to determine and change the terms of the separation (or to terminate the separation), including the establishment of the record date for the distribution and the distribution date.

No vote of Encompass stockholders is required for the distribution. Therefore, you are not being asked for a proxy, and you are requested not to send Encompass a proxy, in connection with the distribution. You do not need to pay any consideration, exchange or surrender your existing shares of Encompass common stock or take any other action to receive your shares of Enhabit common stock.

There is no current trading market for Enhabit common stock, although we expect that a limited market, commonly known as a “when-issued” trading market, will develop on or shortly before the record date for the distribution, and we expect “regular-way” trading of Enhabit common stock to begin on the distribution date. Enhabit intends to list its common stock on the New York Stock Exchange (the “NYSE”) under the symbol “EHAB.” Following the distribution, Encompass will continue to trade on the NYSE under the symbol “EHC.”

In reviewing this information statement, you should carefully consider the matters described in the section titled “Risk Factors” beginning on page 26.

Neither the U.S. Securities and Exchange Commission (“SEC”) nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

The date of this information statement is June 21, 2022.

Notice of this information statement’s availability will be first sent to Encompass stockholders on or about June 21, 2022.

TABLE OF CONTENTS

	Page
INFORMATION STATEMENT SUMMARY	1
QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION	14
SUMMARY HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA	23
RISK FACTORS	26
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	61
THE SEPARATION AND DISTRIBUTION	63
DIVIDEND POLICY	70
CAPITALIZATION	71
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	72
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	77
BUSINESS	78
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	109
MANAGEMENT	133
DIRECTORS	135
EXECUTIVE COMPENSATION	142
ENHABIT 2022 OMNIBUS PERFORMANCE INCENTIVE PLAN	161
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	165
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES	171
DESCRIPTION OF CERTAIN MATERIAL INDEBTEDNESS	175
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	176
DESCRIPTION OF CAPITAL STOCK	178
WHERE YOU CAN FIND MORE INFORMATION	183
INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS	F-1
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	F-1

Presentation of Information

Unless the context otherwise requires or otherwise specifies:

• The information included in this information statement about Enhabit, including the Consolidated Financial Statements of Enhabit, assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution.

• As used in this information statement, references to “Enhabit,” “we,” “us,” “our,” “our company” and “the company” may, depending on the context, refer to Enhabit, Inc., to the Home Health and Hospice business segment of Encompass as described more particularly under “Certain Relationships and Related Party Transactions—Relationship with Encompass—Historical Relationship with Encompass” or to Enhabit and its consolidated subsidiaries after giving effect to the transactions referred to in this information statement in connection with the separation and distribution.

• References in this information statement to “Encompass” refer to Encompass Health Corporation, a Delaware corporation, and its consolidated subsidiaries, including Encompass’s Home Health and Hospice business segment prior to completion of the separation and distribution and excluding Encompass’s Home Health and Hospice business segment following completion of the separation and distribution.

• References in this information statement to the “separation” refer to the separation of the Enhabit Business from Encompass’s other businesses and the creation, as a result of the distribution, of an independent, publicly traded company, Enhabit, holding the assets and liabilities associated with the Enhabit Business after the distribution.

• References in this information statement to the “distribution” refer to the pro rata distribution of all of Enhabit’s issued and outstanding shares of common stock to Encompass stockholders as of the close of business on the record date for the distribution.

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• References in this information statement to Enhabit’s per share data assume a distribution ratio of one share of Enhabit common stock for every two shares of Encompass common stock.

• References in this information statement to Enhabit’s historical assets, liabilities, products, businesses or activities generally refer to the historical assets, liabilities, products, businesses or activities of the Enhabit Business as the businesses were conducted as part of Encompass prior to the completion of the separation and distribution.

Industry and Market Information

This information statement includes industry data and forecasts that we obtained from industry publications and surveys, public filings, other third-party sources and internal company sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. Statements as to our ranking, market position and market estimates are based on independent industry publications, third-party forecasts, our internal research and management’s estimates and assumptions about our markets which we believe to be reasonable. However, such information involves various estimates, assumptions, risks and uncertainties, which are subject to change based on various factors, including those discussed under the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the estimates and assumptions. Accordingly, investors should not place undue reliance on this information.

Trademarks, Trade Names and Service Marks

The Encompass name and mark and other trademarks, trade names and service marks of Enhabit or containing “Encompass” appearing in this information statement are the property of Encompass. Prior to the completion of the distribution, we expect to receive a license from Encompass to use the Encompass name, trademarks, trade names and services marks for a limited period of time, as summarized in “Certain Relationships and Related Party Transactions—Relationship with Encompass—Arrangements between Encompass and Our Company.” This information statement contains many of our trade names, trademarks, and service marks, including “Enhabit Home Health & Hospice,” “Enhabit” and “A Better Way to Care.” This information statement also contains additional trade names, trademarks and service marks belonging to other companies. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties. Any other trademarks, trade names or service marks referred to in this information statement are the property of their respective owners. For convenience, we may not include the SM, ® or ™ symbols, but such omission is not meant to indicate that we would not protect our intellectual property rights to the fullest extent allowed by law.

Non-GAAP Financial Measures

In this information statement, we present certain financial measures that are not calculated in accordance with accounting principles generally accepted in the United States of America (“GAAP”), referred to herein as “non-GAAP.” You should review the reconciliations and accompanying disclosures carefully in connection with your consideration of such non-GAAP measures and note that the way in which we calculate these measures may not be comparable to similarly titled measures employed by other companies. Specifically, we make use of the non-GAAP financial measure “Adjusted EBITDA.”

Adjusted EBITDA has been presented in this information statement as a supplemental measure of financial performance that is not required by, or presented in accordance with, GAAP. We believe Adjusted EBITDA assists investors in comparing our operating performance across operating periods on a consistent basis by excluding items that we do not believe are indicative of our ongoing operating performance. Adjusted EBITDA is not a measure of financial performance under GAAP and the excluded items are significant components in understanding and assessing financial performance. Therefore, Adjusted EBITDA should not be considered a substitute for Net income. Because Adjusted EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.

We calculate “Adjusted EBITDA” as Net income, as calculated in accordance with GAAP, adjusted to exclude (1) net income attributable to noncontrolling interest, (2) interest expense, (3) provision for income tax expense, (4) depreciation and amortization, (5) all unusual or nonrecurring items impacting consolidated Net

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income, (6) any losses from discontinued operations or the disposal or impairment of assets, (7) fees, costs and expenses incurred with respect to any non-ordinary course litigation or settlement, (8) stock-based compensation expense, (9) costs and expenses associated with changes in the fair value of marketable securities, (10) costs and expenses associated with the issuance or prepayment of debt and acquisitions, and (11) any restructuring charges.

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INFORMATION STATEMENT SUMMARY

The following is a summary of selected information discussed in this information statement. This summary may not contain all of the details concerning the separation, the distribution or other information that may be important to you. To better understand the separation, the distribution and our business and financial position, you should carefully review this entire information statement. Unless the context otherwise requires, the information included in this information statement about Enhabit, including the Consolidated Financial Statements of Enhabit, assumes the completion of all of the transactions referred to in this information statement in connection with the separation and distribution. As used in this information statement, the terms “Enhabit,” the “Company,” “we,” “us” and “our” may, depending on the context, refer to Enhabit, Inc., to the Home Health and Hospice business segment of Encompass as described more particularly under “Certain Relationships and Related Party Transactions—Relationship with Encompass—Historical Relationship with Encompass” or to Enhabit, Inc. and its consolidated subsidiaries after giving effect to the transactions described in this information statement in connection with the separation and distribution. Unless the context otherwise requires, references in this information statement to “Encompass” refer to Encompass Health Corporation, a Delaware corporation, and its combined subsidiaries, including the Enhabit Business prior to completion of the separation and distribution and excluding the Enhabit Business following the completion of the separation and distribution.

Unless the context otherwise requires, or when otherwise specified, references in this information statement to our historical assets, liabilities, products, businesses or activities of our businesses are generally intended to refer to the historical assets, liabilities, products, businesses or activities of the Enhabit Business as conducted as part of Encompass prior to completion of the separation and distribution.

Our Business

We are a leading provider of home health and hospice services in the United States. We strive to provide superior, cost-effective care where patients prefer it: in their homes. For over twenty years, we have provided care in the low-cost home setting while achieving high-quality clinical outcomes. Over that time, we have grown to become one of the largest providers of home health and a leading provider of hospice services nationally, measured by 2020 Medicare expenditures. As of March 31, 2022, our footprint comprised 252 home health and 99 hospice locations across 34 states.

We believe we are strongly positioned as a leader in the large and growing home health and hospice industries. Our scale and density in targeted markets, our disciplined operating model emphasizing the use of technology, our clinical expertise and our award-winning culture are key factors to our success. These competitive advantages enable us to significantly outperform many of our competitors in both clinical quality and profitability, while positioning us as an attractive partner to health systems, payors and other risk-bearing entities. These advantages have also helped us generate strong financial results. Despite industry disruptions related to COVID-19, over the seven-year period from the beginning of 2015 through the end of 2021, we grew Net service revenue from $507 million to $1,107 million, representing a compound annual growth rate of 14%.

Our continued growth is underpinned by strong industry tailwinds, including an aging U.S. population, an increased focus on shifting care to lower-cost settings, and patients’ preference for home-based care. From 2020 to 2030, the number of individuals over age 65 is expected to grow by approximately 30% to 73 million people, creating a greater need for cost-efficient in-home solutions. Furthermore, 70% of those over 65 had multiple chronic conditions as of 2018 and faced a higher incidence of chronic conditions than those under 65. Patients with multiple chronic conditions accounted for 94% of total Medicare spending and were associated with 99% of hospital readmissions. Home-based care is well-positioned to help manage these conditions for an aging population. Home-based care is also significantly more affordable than other care settings, and 75% of adults age 50 and older prefer to age in their homes. We believe these trends coupled with our competitive advantages strongly position us for the future.

We operate our business in two segments: home health and hospice. Our home health agencies provide a comprehensive range of Medicare-certified skilled home health services, including skilled nursing, physical, occupational and speech therapy, medical social work, and home health aide services. Our patients are typically older adults with three or more chronic conditions and significant functional limitations who require greater than ten medications. Our home health business benefits from a diversity of referral sources, with patients arriving from acute care hospitals, inpatient rehabilitation facilities, surgery centers, assisted living facilities, and skilled nursing facilities, as well as community physicians. We work closely with patients, their families and physicians

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to deliver care plans focused on patient needs and goals. For the year ended December 31, 2021, our home health segment had 200,626 patient admissions and generated $897.3 million in Net service revenue, or 81.1% of Enhabit total Net service revenue.

Our hospice agencies provide high-quality hospice services to terminally ill patients and their families. Hospice care focuses on the quality of life for patients who are experiencing an advanced, life limiting illness while treating the person and symptoms of the disease, rather than treating the disease itself. Our dedicated team of professionals works together to manage symptoms so that a patient’s time may be spent with dignity and in relative comfort, surrounded by their loved ones, typically in their home. For the year ended December 31, 2021, our hospice segment had an average daily census of 3,762 and generated $209.3 million in Net service revenue, or 18.9% of Enhabit total Net service revenue.

Our current footprint is the result of a multi-decade effort to establish scale and density in target markets with attractive demographic and regulatory profiles, which we believe positions us favorably for continued strong growth. In our home health business, we maintain top market share in a majority of our markets. We are a top five home health provider in 18 states and a top two home health provider in 11 of those states, based on 2020 Medicare revenues. These 18 states, centered in the Southern half of the United States, represented over 39% of the approximately $17 billion of total U.S. home health Medicare expenditures in 2020. Our 34-state footprint represented approximately 69% of total U.S. home health Medicare expenditures in 2020. Our strong presence in these markets helps us drive operating efficiency and create brand awareness. We drive operating efficiency by leveraging our market density as our volumes increase, which also enables our clinicians to spend less time on the road and more time providing care. We believe our operating structure is more efficient than our peers and advantageously positions us to grow our home health admissions as the industry continues to expand. Despite our status as the fourth-largest provider of home health services by 2020 Medicare revenues, our market share is only 4.3%. Given the high fragmentation of the industry, we believe there will be significant opportunities for consolidation, allowing us to increase our market share.

Many home health patients will ultimately require hospice services. By offering hospice services in many markets where we operate our home health business, we minimize disruption and gaps in care to patients who transition to hospice. We believe this co-location strategy between our home health and hospice businesses creates a growth opportunity for our hospice business, especially in geographies where we operate home health but not hospice. Although we began offering hospice services more recently than home health services, we have quickly become a leading hospice services provider based on 2020 Medicare expenditures. Since 2015, we have grown our hospice business from 20 locations to 99 locations as of March 31, 2022. We are a top ten hospice provider in ten states based on 2020 Medicare revenue. We believe our hospice segment will continue to have significant growth opportunities as we enhance our scale within the markets we currently serve and expand our hospice offerings into markets where we already have a strong home health history.

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The map below details our national home health and hospice footprint and the states where we maintain a top five home health market position based on 2020 Medicare revenues as of December 31, 2021:

 

Our operating model, which emphasizes consistency and the disciplined use of technology, has driven our industry leadership in both clinical quality and cost effectiveness. Technology is a core component of our culture and has been important to our success. Our operations are supported by Homecare Homebase, a leading technology platform we initially developed and which helps us manage the entire business continuum from clinical patient workflow to operations, sales and compliance. We believe our history and familiarity with the platform and other proprietary solutions enable us to help deliver superior clinical, operational, and financial outcomes.

We believe our disciplined approach to utilizing technology and our data-driven analytics differentiates us from our peers. We leverage both internally developed tools as well as third party software to reduce our cost per visit to enhance our productivity and optimize our nursing and therapy staff. This approach drives metric-driven decisions across our organization that yield better margins, better quality and better employee satisfaction. We also invest significant time and training resources teaching our operators to utilize these tools to help drive timely decisions in the field, including the development of patient care plans. Our pairing of technology and well-established operating protocols enables a workforce that is dedicated to achieving these superior results. Our company culture emphasizes the use of analytics-based tools to make better informed decisions to provide the highest quality of care, while tightly managing our cost of care.

Through our operating model, which includes leveraging technology, we are able to support our clinicians as they provide industry-leading clinical outcomes as measured by key claims-based metrics such as hospital readmissions. Our 30-day readmission rate of 15.3% was 200 basis points better than the national average on a non-risk adjusted basis in 2021. Our low readmission rate makes us an attractive partner for both payors and our diverse group of referral sources, especially hospitals that are at risk to receive Medicare readmission penalties. As of January 2022, the last publicly reported Star ratings, our Quality of Patient Care (QoPC) Star Rating and HHCAHPS Patient Survey Star Rating both averaged 3.7, higher than the national averages of 3.3 and 3.5, respectively for QoPC and HHCAHPS. Centers for Medicare and Medicaid Services (“CMS”) publishes Star ratings on a scale from 1 to 5 stars based on a number of quality measures, such as timely initiation of care, drug education provided to patients, fall risk assessment, depression assessments, improvements in bed transferring, and bathing, among others. For additional discussion regarding CMS’s Star ratings, see “Risk Factors—Reimbursement Risks.”

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Our scale and density and our disciplined operating model allow us to achieve this high level of quality more efficiently than our publicly traded home health peers. For the year ended December 31, 2021, our average cost per visit of $83 was 15.8% lower than the average of a subset of our public peers. Our lower cost per visit means that we are more efficient than our peers and better positioned to operate profitably in the event of potential unforeseen changes to the reimbursement model in our industry.

	Home Health Segment
	Year Ended December 31,
	2021	2020	2019
Cost per visit	$83	$84	$80
Public peers* average cost per visit	$99	$96	$87
Cost Per Visit vs. Public Peer* Average	(15.8)%	(12.1)%	(7.8)%

*
Note: Includes Amedisys, Inc. (Nasdaq: AMED) and LHC Group, Inc. (Nasdaq: LHCG).

Our strong operational performance, coupled with an opportunistic acquisition strategy and select de novo openings, has contributed to the strength of our financial performance over the last several years. Since 2015, we have deployed over $760 million of capital on 38 home health and hospice acquisitions, which we have fully integrated into our business and continue to grow. Over that same period, we have opened 31 de novo locations across 15 states, including 17 home health and 14 hospice locations. From 2015 to 2021, despite industry disruptions related to the COVID-19 pandemic, we grew Net service revenue from $507 million to $1,107 million, representing a compound annual growth rate of 14%. For more information and commentary on our history and financial performance, see “Business—Our History” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in this information statement.

Our Industries and Opportunity

We operate in large, growing and highly fragmented industries.

In 2020, approximately $124 billion was spent on broader home health expenditures, according to National Health Expenditures published by CMS. Home health expenditures are expected to grow to approximately $201 billion by 2028, representing a 6.3% compound annual growth rate. Within the home health market, we focus primarily on skilled home health services. Medicare is the dominant payor in the skilled home health sector, with annual payments approximating $17 billion in 2020. Based on our experience and industry knowledge, we believe Medicare represents the majority of expenditures in skilled home health services. However, Medicare Advantage is becoming a more prevalent payor source within skilled home health services, as payors continue to emphasize reimbursement models focused on value-based care. On a national basis, approximately 44% of Medicare beneficiaries chose a Medicare Advantage plan over traditional Medicare in November 2021 on a 12-month rolling basis, resulting in a 12% increase in Medicare Advantage enrollment from 2020. The total number of Medicare beneficiaries choosing Medicare Advantage is expected to grow to 51% by 2030. Given our low cost of care and high-quality outcomes, we believe we are well-positioned to serve this growing population.

The home health industry is primarily comprised of publicly traded and privately owned freestanding agencies, visiting nurse associations and government-owned agencies. The number of Medicare-certified home health agencies is near an all-time high, and in 2020, over 11,300 agencies provided care to approximately 3.1 million Medicare beneficiaries. Approximately 92% of home health agencies generate annual revenue of less than $5.0 million, and the four largest players in the space account for approximately 22% of the Medicare market. While we are the fourth-largest home health provider by 2020 Medicare revenues, our Medicare home health business accounts for only 4.3% of the Medicare home health market. We believe we have an opportunity to continue to gain market share through organic growth and as a leading consolidator in the industry.

The home health reimbursement landscape experienced a fundamental shift when Medicare implemented the Patient-Driven Groupings Model, or “PDGM,” for home health agencies on January 1, 2020. The impact of PDGM, which was expected to put downward pressure on home health revenue per episode and increase administrative burdens, coincided with the beginning of the COVID-19 pandemic. Federal relief funding, including funds distributed under the Coronavirus Aid, Relief and Economic Security Act of 2020 (the “CARES

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Act”), the Paycheck Protection Program and the Medicare Accelerated Advanced Payment Program, as well as the payroll tax deferral permitted by the CARES Act, has temporarily delayed the potentially negative effects of PDGM for those home health agencies that accepted relief funding. We did not accept any Cares Act funds and expect that as COVID-19 abates and federal relief funding concludes, the home health agencies accepting those funds may experience financial pressure as a result of PDGM. We anticipate these factors will drive industry consolidation, particularly of smaller home health agencies. We believe our strong history as a consolidator, our scale and density and our operational efficiency position us well to take advantage of this consolidation opportunity. Please see “Risk Factors” and “Business—Sources of Revenue” for additional detail on PDGM.

According to CMS, Medicare spending for hospice care has increased from $3 billion in 2000 to $22 billion in 2020, reflecting a compound annual growth rate of 10.6%. Based on our experience and industry knowledge, we believe Medicare expenditures represent the vast majority of total expenditures in the hospice market. The hospice industry is fragmented, with approximately 1.7 million Medicare beneficiaries receiving hospice services from over 5,000 providers in 2020. Hospice use among Medicare beneficiaries has grown substantially in recent years, suggesting a greater awareness of and access to hospice services. While we are a leading hospice services provider by 2020 Medicare revenues, our hospice business accounts for only 1.0% of the Medicare hospice market. We believe increasing demand, broader understanding and utilization of hospice care and the fragmented nature of the industry provide an attractive opportunity for our hospice business.

The home health and hospice industries are supported by several industry tailwinds, including a growing senior population, an increasing focus on shifting care to lower cost settings, patient preference for home-based care, emphasis on value-based payment models, significant near-term consolidation opportunities and high costs and underutilization of end-of-life care.

Our Competitive Strengths

We believe we differentiate ourselves from our competitors based on many factors, including the quality of our clinical outcomes, the scale and density of our footprint, our consistent and disciplined operating model, and our people and award-winning culture. We also believe our competitive strengths discussed below give us the ability to adapt and succeed in a healthcare industry facing continuing regulatory changes focused on improving outcomes and reducing costs.

Scale and Density

Our current footprint is the result of our multi-decade effort to establish scale and density in key markets with attractive demographic and regulatory profiles. We are a top five home health provider in 18 states and a top two home health provider in 11 of those states, based on 2020 Medicare revenues. These 18 states, centered in the Southern United States, represented over 39% of the approximately $17 billion of total U.S. home health Medicare expenditures in 2020. Our 34-state footprint represented approximately 69% of the total U.S. home health Medicare expenditures in 2020. Our strong presence in these markets helps us increase operating efficiency and brand awareness. These operating efficiencies have helped result in a 15.8% lower home health cost per visit for the year ended December 31, 2021 compared to a subset of our publicly traded peers. Our scale and density increase brand awareness through additional patient volumes from referral sources and help us attract and retain talent. Additionally, due to the demographic overlap of our patients, we believe many of our home health patients will eventually require the services of our hospice segment. We are a leading national provider of hospice services and have a top ten position in ten states, based on 2020 Medicare revenues. As of March 31, 2022, 85 of our 99 hospice locations were co-located within our home health markets. There is a significant opportunity to expand this co-location strategy by adding hospice services to our other home health locations. Through our co-location strategy, we minimize gaps in care and disruption to the patient. We believe this continuity of care between our home health and hospice businesses creates a growth opportunity for our hospice business. Although we entered hospice more recently than home health, we expect hospice to generate significant growth in the business going forward and to contribute to ongoing efforts to grow scale and density.

Consistent and Disciplined Operating Model

Our operating model, which emphasizes consistency and the disciplined use of technology, has driven our industry leadership in both clinical quality and cost effectiveness. We leverage our comprehensive technology capabilities and centralized administrative functions to define best practices, streamline staffing models, and

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identify supply chain efficiencies across our extensive platform of operations. We invest significant time and training resources teaching our operators to utilize the informatics of our technology to help drive timely decisions in the field. Our pairing of technology with a culture that includes substantial training resources and well-established operating protocols helps enable a disciplined workforce that delivers superior results. Our disciplined approach and commitment to making metric-driven decisions have enabled us to deliver care at an industry-leading cost per visit. Both our home health cost per visit and our hospice cost per patient day are lower than the average of our publicly traded peers. Finally, a consistent, disciplined operating model allows us to be nimble and responsive to change. We have demonstrated the ability to adapt in the face of numerous significant regulatory and legislative changes. In 2020, we rapidly moved to adapt our operations to the unprecedented COVID-19 pandemic while also successfully managing through significant changes in our Medicare reimbursement systems. We believe our tech-enabled operating model enables us to adopt and integrate new technologies faster than our peers and extend our competitive advantage through our operational efficiencies.

Clinical Expertise and High-Quality Outcomes

We have extensive home-based clinical experience from which we have developed standardized best practices and protocols. We believe these clinical best practices and protocols, when combined with our technology and well-trained, mission-motivated clinicians, help ensure the delivery of consistently high-quality healthcare services, reduced inefficiencies, and improved performance across a spectrum of operational areas. These clinical best practices allow us to have quality of patient care Star (“QoPC”) ratings and 30-day readmission rates that are meaningfully better than the national average. As of January 2022, the last publicly reported Star ratings, our QoPC Star Rating and HHCAHPS Patient Survey Star Rating both averaged 3.7, higher than the national averages of 3.3 and 3.5, respectively. For additional discussion of CMS’s Star ratings, see “Risk Factors—Reimbursement Risks.” Additionally, on a non-risk adjusted basis, our 30-day hospital readmission rate was 15.3%, 200 basis points lower than the national average of 17.3% in 2021. We focus on hospital readmission rates as our primary indicator of clinical quality. We believe this focus results in superior clinical outcomes for patients, providers and payors.

People and Award-Winning Culture

We believe our employees, who share our steadfast commitment to providing outstanding care to our patients, are the most valuable asset of our business. Through our employee-first culture, we undertake significant efforts to ensure our clinical and support staff receive the education, training, support and recognition necessary to provide the highest quality care in the most cost-effective manner. We have been recognized for six consecutive years by Fortune as a ‘Top 20 in Healthcare’ in the United States and for nine consecutive years by Modern Healthcare as a ‘Best Place to Work.’ Over the last 11 years, we have received over 144 ‘Best Place to Work’ awards. We believe our award-winning culture is an important component to attracting and retaining talent as demand for our services continues to grow. By promoting employee development and engagement, we believe we can increase our ability to attract and retain nurses, therapists, and other healthcare professionals in a highly competitive environment where staffing shortages are not uncommon. We support the long-term career aspirations of our employees through education and professional development, including an employee scholarship program, clinical license continuing education units, leadership development training, and other development programs. We believe fostering a strong culture that values diversity, equity, inclusion, and belonging (“DEIB”), allows us to be competitive in recruiting and retaining employees. We maintain a DEIB program that is overseen by a committee of diverse individuals committed to our mission of a better way to care and supported by a dedicated DEIB specialist role. The program is further supported by four distinct sub-committees comprised of a broad and cross-functional group, including our leadership and front-line staff. In light of well-publicized, recent challenges to hire and retain qualified personnel in the healthcare industry, we believe our culture will be even more important in contributing to our continued success.

Well-Positioned for Value-Based Care

Value-based contracts are a growing focus for us, and as payors emphasize reimbursement models driven by value, we believe they will continue to seek our clinical outcomes and appreciate our cost-efficient services. We have been partnering with and piloting a variety of new and innovative payment programs since 2014, including our previous participation in Bundled Payments for Care Improvement initiative (“BPCI”) Model 3, where we were one of the largest home health participants. CMS’s voluntary Bundled Payments for Care Improvement

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Advanced (“BPCI Advanced”) initiative began October 1, 2018, runs through December 31, 2023, and covers 29 types of inpatient and three types of outpatient clinical episodes, including stroke and hip fracture. We continue to evaluate, on a case-by-case basis, appropriate BPCI Advanced and accountable care organization (“ACO”) participation opportunities. Our history and participation in these programs have allowed us to collaborate with approximately 175 alternative payment models, including ACOs, Medicare Shared Savings Program ACOs, bundled payments and Direct Contracting Models.

Our Growth Strategy

Our growth strategy comprises several avenues for continued growth, including organic growth through existing operations, adding new locations through execution of our de novo strategy, strategic acquisitions, leveraging our expertise in care transitions, expanding Medicare Advantage and exploring adjacent service offerings.

Drive Organic Growth at Existing Operations

We hold a leading position in a number of markets that will allow us the opportunity to generate long-term, attractive organic growth. We believe there will continue to be strong demand for our services due to significant industry tailwinds, as well as our high-quality clinical outcomes and our cost-effective operating model. The states in which we offer home health services represented approximately 69% of total home health Medicare expenditures in 2020. Despite our market-leading position, we have only 2.4% market share of total Medicare home health and hospice spend, suggesting significant runway for growth in our existing footprint. We seek internal growth in our existing markets by increasing the number of referrals we receive from healthcare providers. To achieve this growth, we (1) educate healthcare providers about the benefits of our services, (2) position our agencies to add value in their communities by avoiding unnecessary hospital readmissions, (3) maintain a hyper focus on high-quality care and related outcomes for our patients, (4) identify related products and services needed by our patients and their communities, and (5) provide a superior work environment for our employees. As we continue to grow organically, our scale and density will increase, further reinforcing our ability to deliver cost-effective care.

Execute on De Novo Strategy in New Markets

We will continue to execute on our de novo strategy to complement our organic growth. Since 2015, we have opened 31 locations across 15 states, 17 of which are home health locations and 14 of which are hospice locations. Because our existing footprint includes states that do not have certificate of need laws requiring review and approval by state regulatory bodies prior to introducing new home health and hospice services, there are significant opportunities for us to open de novo locations. See “Business—Regulation—Certificates of Need” for a summary of state certificate of need laws. We believe there is a significant opportunity for our hospice segment to benefit meaningfully from de novo locations as we open new hospice sites in markets where we already have a home health presence. We believe our ability to leverage our existing home health infrastructure, referral sources and brand enables us to launch new hospice locations in a capital efficient manner.

Pursue Strategic Acquisitions

We will continue to identify and evaluate opportunities for strategic acquisitions in new and existing markets that will enhance our market position and increase our referral base. We plan to continue to focus on building overlap between our home health and hospice locations, as well as identifying attractive new geographies in which we currently do not have a presence. Our home health and hospice agencies operate in highly fragmented markets, and we believe we are well-positioned to be a leading consolidator in the industry. We have historically focused on acquisition opportunities where we believe we can accelerate top-line growth while also expanding profit margins. We have a proven history spanning over 20 years of consummating and fully integrating acquisitions culturally, technologically, and operationally. Since 2015, we have deployed over $760 million of capital on 38 home health and hospice acquisitions, which have contributed significantly to our revenue growth over time. For example, our three largest acquisitions between 2015 and 2019 (of CareSouth in 2015, Camellia Healthcare in 2018 and Alacare Home Health and Hospice in 2019) collectively contributed approximately $340 million to our 2021 consolidated revenues. As an independent home health and hospice company, we believe our enhanced financial flexibility will allow us to be more competitive in future, large-scale acquisition opportunities. We anticipate joint ventures will be a part of our growth strategy moving forward, as demonstrated by our recent joint venture announcements in Boise, Idaho with Saint

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Alphonsus Health System on January 5, 2022 and in Miami, Florida with Baptist Health South Florida on February 1, 2022. These joint ventures will enable Enhabit to grow into new geographies in partnership with large healthcare providers in their respective regions. Saint Alphonsus Health System serves southwestern Idaho, eastern Oregon and northern Nevada through multiple facilities and more than 4,000 employees. Baptist Health South Florida serves southern Florida through multiple facilities and more than 20,000 employees.

Leverage Care Transitions Expertise

We have established a strong track record of performance and quality that enables us to develop strong relationships with additional health systems and facility-based providers. We believe we are an attractive partner for patients transitioning from a facility-based setting to the home due to the quality of our outcomes, data management, scale and market density, and proven ability to safely transition high acuity and/or chronically ill patients to the home. Over 36% of all 30-day hospital readmissions occur within the first seven days, which supports the need for a well-organized transition plan from a facility to the home setting. We view our relationships with and extensive knowledge of inpatient rehabilitation facilities to be an important asset as we continue to expand our operations. Encompass found that, in markets where our home health locations overlapped with their inpatient rehabilitation facilities, overall satisfaction, discharge satisfaction and discharge to community scores were significantly higher than in non-overlap markets. Our deep understanding of care transitions and ability to achieve industry-leading hospital readmission rates make us the partner of choice for many facility-based partners. To help drive these strong partnerships, our Care Transition Coordinators and Transition Navigators serve as representatives in transitional care activities and strategic relationships with acute care hospitals and other healthcare providers and are integral to realizing positive outcomes from transitions of care from one setting to another.

Expand Medicare Advantage Focus

We believe our expertise in delivering high-quality and cost-efficient care positions us favorably to capture future Medicare Advantage volumes. On a national basis, approximately 44% of Medicare beneficiaries chose a Medicare Advantage plan over traditional Medicare in 2021 on a 12-month rolling basis, resulting in a 12% increase in Medicare Advantage enrollment from 2020. The total number of Medicare beneficiaries choosing Medicare Advantage is expected to grow to 51% by 2030. We continue to believe Medicare Advantage payors will be increasingly attracted to our historical track record of providing high-quality outcomes and lower hospital readmission rates, along with our successful participation in risk-based payment models. In 2021, Medicare Advantage accounted for only 10.6% of our revenue, suggesting a significant opportunity to grow this important revenue source.

Explore Adjacent Service Offerings

We have historically focused on the skilled home health and hospice industries. However, evolving alternatives for in-home care may present opportunities for us to develop adjacent service offerings. We will continue to evaluate these opportunities, including:

• Skilled nursing facility-at-home, or “SNF-at-home,” care refers to an emerging service area that seeks to provide care to higher acuity patients in the home. According to Lincoln Healthcare Leadership, approximately 25% of short-stay SNF episodes can be cared for in the home setting. We believe SNF-at-home could potentially be an attractive way to leverage our home health operating model. However, SNF-at-home care does not yet have a distinct reimbursement model, state licensure category, or Medicare certification status. A combination of federal and state regulatory action, as well as new reimbursement policies, will likely be needed before SNF-at-home services develop into a potential expansion opportunity.

• Palliative care services refer to care that improves the quality of life for patients, making the patient as comfortable as possible by anticipating, preventing, diagnosing and treating their symptoms, but does not seek to cure the patient’s underlying illness. Unlike hospice services, which are also palliative in nature, palliative care services are not limited to patients with terminal illnesses. While the nature of the patient care is substantially similar, palliative care services and hospice services are distinct from a state licensure and Medicare reimbursement perspective. Palliative care services are complementary to our existing business because they are often regarded as a bridge between home health and hospice.

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• Care management services refer to the management of patient care outside of home health under contracts with Medicare Advantage payors, ACOs or other risk-bearing entities. We currently receive a small amount of revenue from care management services.

• Private duty services refer to the provision of typically non-clinical hourly care to patients with a wide variety of serious or chronic illnesses and conditions or those that need assistance with activities of daily living in their homes. Private duty services typically last 4 to 24 hours a day. We currently provide private duty services through three of our locations, but it is not a material part of our business.

• Hospital-at-home care refers to the provision of acute care hospital services in patients’ homes. The concept received significant industry attention following a March 2020 announcement by CMS allowing Medicare-certified hospitals to request waivers to provide acute hospital care services in patients’ homes during the COVID-19 public health emergency. Hospital-at-home care under Medicare still requires the provider to meet all of the Medicare Conditions of Participation applicable to hospitals and involves a much higher intensity of care than home health agencies are equipped to provide. In order to provide hospital-at-home care, we would need to enter into an arrangement with a Medicare-certified hospital that has received an Acute Hospital Care at Home waiver from CMS to provide acute hospital care services at home on behalf of the hospital. Additionally, it is uncertain what CMS’s position on these services will be after the public health emergency ends.

As we evaluate these opportunities, we continue to assess addressable market, regulatory environment, reimbursement landscape, and other factors to determine the degree to which these services could be complementary additions to our core business while offering suitable returns on investment. If the uncertainties around these services are resolved to our satisfaction, these adjacent services present an opportunity to broaden our service offerings and grow our market share in the home health and hospice industry. See “Business—Regulation—Evolving Adjacent Services Opportunities” for further discussion of the regulatory status of these service areas.

Summary of Principal Risk Factors

Investing in our common stock involves a high degree of risk, including risks related to our business. These risks include: government reimbursement of healthcare costs, other governmental regulation, operational and financial aspects of our business and the effects of the COVID-19 pandemic, risks related to the separation and distribution and risks related to our common stock. You should carefully consider these risks before investing in our common stock. Such risks may offset our competitive strengths or have a negative effect on our business strategy, which could cause a decline in the price of our common stock and result in a loss of all or a portion of your investment. Set forth below is a high-level summary of some, but not all, of these risks. The following summary of risk factors is not exhaustive. Please read the information in the section titled “Risk Factors,” beginning on page 26, for a more thorough description of these and other risks.

• Reimbursement. The cost of healthcare is funded substantially by government and private insurance programs. If such funding is reduced, limited or no longer available, our business may be adversely impacted. Our primary source of reimbursement is the Medicare program, and Medicare reimbursement is subject to significant changes from time to time. Delays in the administrative appeals process associated with denied Medicare reimbursement claims could delay or reduce our reimbursement for services previously provided. Additionally, reimbursement claims are subject to various audits, which may negatively affect the reimbursement we receive.

• Regulation. We conduct business in a heavily regulated industry, and changes in regulations, including alternative payment models and value-based purchasing initiatives, may significantly affect our business and results of operations. Compliance with laws and regulations requires substantial time, effort and expense. Further, the enforcement of these regulations and any violations of these regulations may result in increased costs or sanctions that reduce our revenues and profitability.

• Collections. Delays in collection or non-collection of our accounts receivable, including delays associated with the appeals process for Medicare claim denials, could adversely affect our business, financial position, results of operations and liquidity.

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• Relationships with Referral Sources. If we are unable to maintain or develop relationships with patient referral sources, including the Encompass rehabilitation hospitals which accounted for approximately 27,000 admissions in 2021, our growth and profitability could be adversely affected. There can be no assurance that individuals will not attempt to steer patients to competing post-acute providers or otherwise limit our access to potential referrals. The establishment of joint ventures or networks between referral sources, such as acute care hospitals, and other post-acute providers may hinder patient referrals to us. The growing emphasis on integrated care delivery across the healthcare continuum increases that risk. Additionally, it is possible that the separation will result in reduced referrals from Encompass’s inpatient rehabilitation facilities.

• Payor and Patient Mix. Changes in the mix of our payors, such as a shift from Medicare fee-for-service to Medicare Advantage and to other payors, as well as changes to our patient mix, may adversely affect our profitability.

• Staffing. In some markets, the lack of availability of medical personnel is a significant operating issue facing all healthcare providers, including us. Competition for staffing, shortages of qualified personnel, union activity or other factors may increase turnover and otherwise increase our staffing costs and reduce profitability. Our operations are dependent on the efforts, abilities, and experience of our medical personnel, such as physical therapists, occupational therapists, speech pathologists, nurses and other healthcare professionals. We compete with other healthcare providers in recruiting and retaining qualified personnel responsible for the daily operations of each of our locations. Our ability to attract and retain qualified personnel depends on several factors, including our ability to provide competitive wages and benefits.

• Cybersecurity and Privacy and Security Laws. The proper function, availability, and security of our and our vendors’ information systems are critical to our business, and failure by us or our vendors to maintain proper function, availability, or security of information systems or protect data against unauthorized access could have a material adverse effect on our business, financial position, results of operations, and cash flows. Our information systems and protection, collection, storage, use, retention, security and processing of confidential, sensitive and personal information, including patient health information, must comply with a number of federal and state privacy and security laws, which are evolving and changing rapidly.

• Competition. We face intense competition for patients from other healthcare providers. We compete with a variety of companies in both home health and hospice, some of which, including several large public companies, may have greater financial and other resources and may be more established in their respective communities. In addition, from time to time, there are efforts in states with certificate of need laws to weaken those laws, which could potentially increase competition in those states.

• COVID-19. The COVID-19 pandemic has significantly affected and is expected to continue to significantly affect our operations, business and financial condition, and our liquidity could be negatively impacted, particularly if the operations of a significant number of acute care hospitals and physician practices are disrupted for a lengthy period of time. The pandemic has also disrupted our supply chain for equipment, pharmaceuticals and medical supplies and resulted in an increase in staffing shortages. Because of the nature of our business and the types of patients we serve, we may be more vulnerable to the effects of public health catastrophes, including the COVID-19 pandemic.

• Failure to Execute on Growth Strategy. Our success depends in large part on organic growth at existing operations through increased referrals from patient referral sources in the communities we serve. We may not be able to maintain our existing referral source relationships or be able to develop and maintain new relationships in existing or new markets. Additionally, we may face limitations on our ability to identify and complete acquisition transactions, which could delay or increase the cost of executing on our growth strategy. If we fail to successfully integrate our acquired businesses, we may not realize the benefits of our acquisition transactions.

• Litigation. We operate in a highly regulated industry in which healthcare providers are routinely subject to litigation. As a result, various lawsuits, claims and regulatory proceedings have been and can be asserted against us. Substantial damages, fines or other remedies assessed against us or agreed to in settlements could have a material adverse effect on our business.

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• No Existing Market. No market currently exists for our common stock, and there is no assurance that an active trading market for our common stock will develop or be sustained after the distribution and, following the distribution, the price of Enhabit common stock may fluctuate significantly.

• Separation. We may not achieve some or all of the expected benefits of the separation. Further, our ability to operate our business effectively may suffer if we are unable to cost-effectively establish our own administrative and other support functions in order to operate as a stand-alone company after the expiration of our shared services and other intercompany agreements with Encompass. Enhabit has no history of operating as an independent, publicly traded company, and its historical and pro forma financial information is not necessarily representative of the results that it would have achieved as a separate, publicly traded company and may not be a reliable indicator of its future results. Furthermore, we cannot be certain that we will continue to receive the same level of referrals from Encompass’s inpatient rehabilitation facilities after the separation.

The Separation and Distribution

In January 2022, Encompass announced its intention to separate into two independent, publicly traded companies. The separation will occur through a pro rata distribution to Encompass stockholders of 100% of the shares of common stock of Enhabit, the company consisting of Encompass’s home health and hospice businesses. Encompass will remain a publicly traded company after the separation and distribution, consisting of its existing inpatient rehabilitation business.

On June 8, 2022, the Encompass board of directors approved the distribution of all of Enhabit’s issued and outstanding shares of common stock on the basis of one share of Enhabit common stock for every two shares of Encompass common stock held as of the close of business on the record date for the distribution. The record date for the distribution is June 24, 2022.

Relationship with Encompass

Enhabit’s Post-Separation Relationship with Encompass

Currently, we are, and at all times prior to the completion of the distribution will be, a wholly owned subsidiary of Encompass. After the distribution, Encompass and Enhabit will each be separate companies with separate management teams and separate boards of directors. Prior to the distribution, we expect to enter into agreements with Encompass that will govern the separation of our business from Encompass, including a separation and distribution agreement and various interim arrangements that will provide a framework for our relationship with Encompass after the separation and distribution, such as a transition services agreement, a tax matters agreement and an employee matters agreement. See the section titled “Certain Relationships and Related Party Transactions—Relationship with Encompass” for a more detailed discussion of these agreements.

All of the agreements relating to our separation from Encompass will be made in the context of a parent-subsidiary relationship and will be entered into in the overall context of our separation from Encompass. The terms of these agreements may be more or less favorable to us than if they had been negotiated with unaffiliated third parties. See the section titled “Risk Factors—Risks Related to the Separation and Distribution.”

Reasons for the Separation

We believe, and Encompass has advised us that it believes, that the separation and distribution will provide a number of benefits to our business and to Encompass’s business. These potential benefits include improving the strategic and operational flexibility of each company, increasing the focus of each management team on its business strategy and operations, allowing each company to adopt a capital structure, acquisition strategy and return of capital policy best suited to its financial profile and business needs, and providing each company with its own equity currency to facilitate acquisitions and to better incentivize management. In addition, once we are a stand-alone publicly traded company, potential investors will be able to invest directly in our common stock.

• Enhanced Management Focus on Core Businesses. The separation will provide each company’s management team with undiluted focus on their unique strategic priorities, target markets and corporate development opportunities. The separation will enable the management teams of each company to set

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their own strategy for long-term growth and profitability, including implementing development and commercialization strategies specific to each business, pursuing business development opportunities, structuring and restructuring its operations, attracting talent, and investing current earnings to generate organic growth.

• Separate Capital Structures and Allocation of Financial Resources. Each of Encompass and Enhabit has different cash flow structures and capital requirements. The separation will permit each company to allocate its financial resources to meet the unique needs of its businesses and intensify the focus on its distinct operating and strategic priorities. The separation will also give each business its own capital structure and allow it to manage capital allocation and adopt distinct capital return strategies. Further, the separation will eliminate internal competition for capital between the two businesses and enable each business to implement a capital structure tailored to its strategy and business needs.

• Improved Alignment of Management Incentives and Performance. The separation will allow each company to more effectively recruit, retain and motivate employees through the use of equity-based compensation that more closely reflects and aligns management and employee incentives with specific business objectives, financial goals and business attributes. To the extent that the separate equity currencies are more attractively valued, this would further benefit Encompass and Enhabit.

• Creation of Independent Equity Currencies and Enhanced Strategic Opportunities. The separation will provide each of Encompass and Enhabit with its own pure-play equity currency that can be used to facilitate capital raising and to pursue accretive M&A opportunities that are more closely aligned with each company’s strategic goals and expected growth opportunities. To the extent that the separate equity currencies are more attractively valued, this would further increase these benefits to Encompass and Enhabit.

• Clear-Cut Investment Identities. The separation will allow investors to more clearly understand the separate business models, financial profiles and investment identities of the two companies and to invest in each based on a better appreciation of these characteristics. Each company is expected to appeal to types of investors who may differ from Encompass’s current investors. Following the separation, the separate management teams of each of the two companies are expected to be better positioned to implement goals and evaluate strategic opportunities in light of the expectations of the specific investors in that individual company’s market. To the extent that enhanced investor understanding results in greater investor demand for shares of Encompass stock and/or Enhabit stock, it could cause each company to be valued at multiples higher than Encompass’s current multiple, and higher than its publicly traded peers. Any such increase in the aggregate market value of Encompass and Enhabit following the separation over Encompass’s market value prior to the separation would benefit Encompass, Enhabit, and their respective stakeholders.

The Encompass board of directors also considered a number of potentially negative factors in evaluating the separation, including:

• Risk of Failure to Achieve Anticipated Benefits of the Separation. We may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: the separation will demand significant management resources and require significant amounts of management’s time and effort, which may divert management’s attention from operating our business; following the separation and distribution, we may be more susceptible to market fluctuations, and other events may be more disadvantageous for us than if we were still part of Encompass, because our business would be less diversified than Encompass’s business is prior to the completion of the separation and distribution.

• Disruptions and Costs Related to the Separation and Distribution. The actions required to separate the Enhabit Business from Encompass could disrupt our operations. In addition, we will incur substantial costs in connection with the separation and the transition to being a standalone public company, which may include accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management personnel who are new to Enhabit, tax costs, and costs to separate information systems.

• Loss of Scale and Increased Administrative Costs. Prior to the separation, Enhabit is able to take advantage of Encompass’s size and purchasing power in procuring certain goods, services and technologies. After the separation and distribution, as a standalone company, we may be unable to

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obtain these goods, services and technologies at prices or on terms as favorable as those Encompass obtained prior to completion of the separation and distribution. In addition, as part of Encompass, Enhabit benefits from certain functions performed by Encompass, such as accounting, tax, legal, human resources and other general and administrative functions. After the distribution, Encompass will not perform these functions for us, other than certain functions that will be provided for a limited time pursuant to the transition services agreement, and, because of our smaller scale as a standalone company, our cost of performing such functions could be higher than the amounts reflected in our historical financial statements, which would cause our profitability to decrease.

• Limitations on Strategic Transactions. Under the terms of the tax matters agreement that we will enter into with Encompass, we will be restricted from taking certain actions that could cause the distribution or certain related transactions (or certain transactions undertaken as part of the internal reorganization), in each case, as set forth in the tax matters agreement, to fail to qualify as tax-free under applicable law. The tax matters agreement will contain specific restrictions applicable until the second anniversary of the distribution that may limit our ability to pursue certain strategic transactions and equity issuances or engage in other transactions that might increase the value of our business.

• Uncertainty Regarding Stock Prices. We cannot predict the effect of the separation on the trading prices of Enhabit or Encompass common stock or know with certainty whether the combined market value of one share of our common stock and two shares of Encompass common stock will be less than, equal to or greater than the market value of two shares of Encompass common stock prior to the distribution.

In determining whether to pursue the separation, the Encompass board of directors concluded the potential benefits of the separation outweighed the potential negative factors. See the sections titled “The Separation and Distribution—Reasons for the Separation” and “Risk Factors” included elsewhere in this information statement.

Capitalization Summary

In connection with the separation, we entered into a $400 million term loan A facility and a $350 million revolving credit facility. See the section titled “Description of Certain Material Indebtedness.”

For additional information regarding the post-distribution capitalization of Enhabit, see the section titled “Capitalization.”

Corporate Information

Enhabit was incorporated in Delaware in 2014.

On March 7, 2022, we changed our name from “Encompass Health Home Health Holdings, Inc.” to “Enhabit, Inc.” and prior to the completion of the distribution, we intend to implement rebranding initiatives across our operations, including at the Enhabit corporate office which occurred in February 2022 and at our branches beginning in April 2022, to reflect our new Enhabit branding in connection with the separation and distribution. The rebranding is expected to be substantially completed at the time of the distribution. For additional discussion, see “Our Business.”

The address of our principal executive offices will be 6688 N. Central Expressway, Suite 1300, Dallas, Texas, 75206. Our telephone number after the distribution will be (214) 239-6500. We maintain an internet site at www.ehab.com. Our website and the information contained therein or connected thereto are not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC.

Reason for Furnishing This Information Statement

This information statement is being furnished solely to provide information to Encompass stockholders who will receive shares of Enhabit common stock in the distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any of Encompass’s or Enhabit’s securities. The information contained in this information statement is believed by Enhabit to be accurate as of the date set forth on its cover. Changes may occur after that date, and neither Encompass nor Enhabit undertakes any obligation to update the information except as may be required in the normal course of their respective disclosure obligations and practices, or as required by applicable law.

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QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION

What is Enhabit and why is Encompass separating the Enhabit Business and distributing Enhabit common stock?	Enhabit is currently a wholly owned subsidiary of Encompass consisting of the Enhabit Business. The separation of Enhabit from Encompass and the distribution of Enhabit common stock is intended, among other things, to improve the strategic and operational flexibility of each company, increase the focus of each management team on its business strategy and operations, allow each company to adopt a capital structure, acquisition strategy and return of capital policy best suited to its financial profile and business needs, and provide each company with its own equity currency to facilitate acquisitions and to better incentivize management. Encompass expects that the separation will result in enhanced long-term performance of each business for the reasons discussed in the section titled “The Separation and Distribution—Reasons for the Separation.”
Why am I receiving this document?	Encompass is delivering this document to you because you are a holder of shares of Encompass common stock. If you are a holder of shares of Encompass common stock as of the close of business on June 24, 2022, the record date for the distribution, you will be entitled to receive one share of Enhabit common stock for every two shares of Encompass common stock that you hold at the close of business on such date. This document is intended to describe the separation and distribution and help you understand how the separation and distribution will affect your post-separation ownership in Encompass and Enhabit.
How will the separation of Enhabit from Encompass work?	As part of the separation, and prior to the distribution, Encompass and its subsidiaries expect to complete an internal reorganization (which we refer to as the “internal reorganization”) to separate the businesses currently conducted by Encompass and its subsidiaries (including Enhabit) such that Enhabit will own solely the Enhabit Business following the separation. To complete the separation, Encompass will distribute all of the outstanding shares of Enhabit common stock to Encompass stockholders on a pro rata basis. Following the distribution, the number of shares of Encompass common stock you own will not change as a result of the separation.
What is the record date for the distribution?	The record date for the distribution will be June 24, 2022.
When will the distribution occur?	We expect that all of the outstanding shares of Enhabit common stock will be distributed by Encompass, on July 1, 2022, to holders of record of shares of Encompass common stock at the close of business on June 24, 2022, the record date for the distribution.

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What do stockholders need to do to participate in the distribution?	Stockholders of Encompass as of the record date for the distribution will not be required to take any action to receive Enhabit common stock in the distribution, but you are urged to read this entire information statement carefully. No stockholder approval of the distribution is required. You are not being asked for a proxy. You do not need to pay any consideration, exchange or surrender your existing shares of Encompass common stock or take any other action to receive your shares of Enhabit common stock. Please do not send in your Encompass stock certificates. The distribution will not affect the number of outstanding shares of Encompass common stock or any rights of Encompass stockholders, although it will affect the market value of each outstanding share of Encompass common stock.
How will shares of Enhabit common stock be issued?	You will receive shares of Enhabit common stock through the same channels that you currently use to hold or trade shares of Encompass common stock, whether through a brokerage account, 401(k) plan or other channel. Receipt of Enhabit shares will be documented for you in the same manner that you typically receive stockholder updates, such as monthly broker statements and 401(k) statements.
	If you own shares of Encompass common stock as of the close of business on the record date for the distribution, including shares owned in certificate form, Encompass, with the assistance of Computershare Trust Company, N.A., the distribution agent for the distribution (the “distribution agent” or “Computershare”), will electronically distribute shares of Enhabit common stock to you or to your brokerage firm on your behalf in book-entry form. The distribution agent will mail you a book-entry account statement that reflects your shares of Enhabit common stock, or your bank or brokerage firm will credit your account for the shares.
How many shares of Enhabit common stock will I receive in the distribution?	Encompass will distribute to you one share of Enhabit common stock for every two shares of Encompass common stock held by you as of close of business on the record date for the distribution. Based on approximately 99,796,688 shares of Encompass common stock outstanding as of June 7, 2022, a total of approximately 49,898,344 shares of Enhabit common stock will be distributed to Encompass’s stockholders. For additional information on the distribution, see “The Separation and Distribution.”

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Will Enhabit issue fractional shares of its common stock in the distribution?	No. Encompass will distribute one share of our common stock for every two shares of Encompass common stock you own as of the close of business on the record date. As a result, no fractional shares will be distributed. Encompass will not issue fractional shares of its common stock in the distribution. Fractional shares that Encompass stockholders would otherwise have been entitled to receive will be aggregated and sold in the open market by the distribution agent. The aggregate net cash proceeds of these sales will be distributed pro rata (based on the fractional share such holder would otherwise have been entitled to receive) to those stockholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.
What will govern my rights as an Enhabit stockholder?	Your rights as an Enhabit stockholder will be governed by Delaware law, as well as our amended and restated certificate of incorporation and our amended and restated bylaws. Except with respect to (i) the requirement that any nominee for director must deliver a questionnaire with respect to the background, qualifications, stock ownership and independence of such nominee and provide a written representation and agreement that such nominee is not and will not, if elected, become party to any voting commitment or any agreement or arrangement with respect to any compensation or reimbursement for service as a director that has not been disclosed to Enhabit, (ii) the ability of Enhabit, to the extent authorized by the board of directors or the chief executive officer, to advance expenses incurred in connection with any legal proceeding in advance of such legal proceeding’s final disposition to any current or former officer, employee or agent of the corporation and (iii) the exclusive forum provision with respect to a cause of action arising under the Securities Act of 1933, as amended (the “Securities Act”), at the time of the distribution, we expect that there will be no other material differences in stockholder rights between the existing Encompass common stock and the Enhabit common stock. For additional details regarding the Enhabit stock and Enhabit stockholder rights, see “Description of Capital Stock.”
What are the conditions to the distribution?	The distribution is subject to the satisfaction (or waiver by Encompass in its sole and absolute discretion) of the following conditions:
	•	the SEC declaring effective the registration statement on Form 10 of which this information statement forms a part; there being no order

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	suspending the effectiveness of the registration statement; and no proceedings for such purposes having been instituted or threatened by the SEC;
•	this information statement having been made available to Encompass stockholders;
•	the receipt by Encompass and continuing validity of an opinion of its outside counsel, satisfactory to the Encompass board of directors, regarding the qualification of the distribution as a transaction that is generally tax free for U.S. federal income tax purposes under Section 355 of the Internal Revenue Code of 1986, as amended (the “Code”);
•	the receipt by Encompass and continuing validity of a favorable private letter ruling from the U.S. Internal Revenue Service (the “IRS”), satisfactory to the Encompass board of directors, regarding the qualification of the distribution as a transaction that is generally tax free for U.S. federal income tax purposes under Section 355 of the Code and certain other U.S. federal income tax matters relating to the separation and distribution;
•	an independent valuation or financial advisory firm acceptable to the Encompass board of directors having delivered one or more opinions to the Encompass board of directors regarding solvency and capital adequacy matters with respect to each of Encompass and Enhabit after completion of the distribution, in each case in a form and substance acceptable to the Encompass board of directors in its sole and absolute discretion;
•	all actions and filings necessary or appropriate under applicable U.S. federal, state or other securities or blue sky laws and the rules and regulations thereunder relating to the separation and distribution having been taken or made and, where applicable, having become effective or been accepted;
•	the transaction agreements relating to the separation and distribution having been duly executed and delivered by the parties thereto;
•	no order, injunction or decree issued by any government authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the related transactions being in effect;
•	the shares of Enhabit common stock to be

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		distributed having been approved for listing on the NYSE, subject to official notice of distribution;
	•	Encompass having received certain proceeds from the Enhabit financing arrangements described under “Description of Certain Material Indebtedness” and being satisfied in its sole and absolute discretion that, as of or immediately after the effective time of the distribution, it will have no further liability under such arrangements, and Encompass having completed any required refinancing of its existing indebtedness on terms satisfactory to the Encompass board of directors in its sole and absolute discretion; and
	•	no other event or development existing or having occurred that, in the judgment of Encompass’s board of directors, in its sole and absolute discretion, makes it inadvisable to effect the separation, the distribution or the other related transactions.
	Encompass and Enhabit cannot assure you that any or all of these conditions will be met, or that the separation or distribution will be consummated even if all of the conditions are met. Encompass can decline at any time to go forward with the separation and distribution. In addition, Encompass may waive any of the conditions to the distribution. For a complete discussion of all of the conditions to the distribution, see “The Separation and Distribution—Conditions to the Distribution.”
What is the expected date of completion of the separation?	The completion and timing of the separation are dependent upon a number of conditions. We expect that the shares of Enhabit common stock will be distributed by Encompass on July 1, 2022, to the holders of record of shares of Encompass common stock at the close of business on June 24, 2022, the record date for the distribution. However, no assurance can be provided as to the timing of the separation or distribution or that all conditions to the distribution will be met. Alternatively, Encompass may waive any of the conditions to the distribution and proceed with the distribution even if such conditions have not been met. If the distribution is completed and the Encompass board of directors waived any such condition, such waiver could have a material adverse effect on Encompass’s and Enhabit’s respective business, financial condition or results of operations, the trading price of Enhabit’s common stock, or the ability of stockholders to sell their shares after the distribution, including, without limitation, as a result of illiquid trading due to the failure of Enhabit common stock to be accepted for listing or litigation relating to any preliminary or permanent injunctions sought to prevent

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	the consummation of the distribution. If Encompass elects to proceed with the distribution notwithstanding that one or more of the conditions to the distribution has not been met, Encompass will evaluate the applicable facts and circumstances at that time and make such additional disclosure and take such other actions as Encompass determines to be necessary and appropriate in accordance with applicable law.
Can Encompass decide to cancel the distribution of Enhabit common stock even if all of the conditions have been met, or proceed with the distribution of Enhabit common stock even if any of the conditions have not been met?	Yes. Until the distribution has occurred, the Encompass board of directors has the right to terminate the distribution, even if all of the conditions are satisfied. Alternatively, Encompass may waive any of the conditions to the distribution and proceed with the distribution even if such conditions have not been met. If the distribution is completed and the Encompass board of directors waived any such condition, such waiver could have a material adverse effect on Encompass’s and Enhabit’s respective business, financial condition or results of operations, the trading price of Enhabit’s common stock, or the ability of stockholders to sell their shares after the distribution, including, without limitation, as a result of illiquid trading due to the failure of Enhabit common stock to be accepted for listing or litigation relating to any preliminary or permanent injunctions sought to prevent the consummation of the distribution. If Encompass elects to proceed with the distribution notwithstanding that one or more of the conditions to the distribution has not been met, Encompass will evaluate the applicable facts and circumstances at that time and make such additional disclosure and take such other actions as Encompass determines to be necessary and appropriate in accordance with applicable law.
What if I want to sell my Encompass common stock or my Enhabit common stock?	You should consult with your financial advisors, such as your stock broker, bank or tax advisor. If you sell your shares of Encompass common stock in the “regular-way” market after the record date and before the distribution date, you also will be selling your right to receive shares of Enhabit common stock in connection with the distribution.
What is “regular-way” and “ex-distribution” trading of Encompass common stock?	Beginning on or shortly before the record date for the distribution and continuing up to the distribution date, we expect that there will be two markets in Encompass common stock: a “regular-way” market and an “ex-distribution” market. Encompass common stock that trades in the “regular-way” market will trade with an entitlement to shares of Enhabit common stock distributed pursuant to the distribution. Shares that trade in the “ex-distribution” market will trade without an entitlement to Enhabit common stock distributed pursuant to the distribution. If you decide to sell any shares of Encompass common stock before the distribution date, you should make sure your stockbroker, bank or other

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	nominee understands whether you want to sell your Encompass common stock with or without your entitlement to Enhabit common stock pursuant to the distribution.
Where will I be able to trade shares of Enhabit common stock?	Enhabit intends to list its common stock on the NYSE under the symbol “EHAB.” Enhabit anticipates that trading in shares of its common stock will begin on a “when-issued” basis on or shortly before the record date for the distribution and will continue up to the distribution date, and that “regular-way” trading in Enhabit common stock will begin on the distribution date. If trading begins on a “when-issued” basis, you may purchase or sell Enhabit common stock up to the distribution date, but your transaction will not settle until after the distribution date. Enhabit cannot predict the trading prices for its common stock before, on or after the distribution date.
What will happen to the listing of Encompass common stock?	Encompass common stock will continue to trade on the NYSE under the symbol “EHC” after the distribution.
Will the number of shares of Encompass common stock that I own change as a result of the distribution?	No. The number of shares of Encompass common stock that you own will not change as a result of the distribution.
Will the distribution affect the market price of my Encompass common stock?	Yes. As a result of the distribution, Encompass expects the trading price of shares of Encompass common stock immediately following the distribution to be different from the “regular-way” trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of the Enhabit Business. There can be no assurance whether the aggregate market value of Encompass common stock and Enhabit common stock following the separation will be higher or lower than the market value of Encompass common stock if the separation did not occur. This means, for example, that the combined trading prices of two shares of Encompass common stock and one share of Enhabit common stock after the distribution may be equal to, greater than or less than the trading price of two shares of Encompass common stock before the distribution.
What are the material U.S. federal income tax consequences of the separation and distribution?	It is a condition to the distribution that Encompass receives (i) a favorable private letter ruling from the IRS, satisfactory to the Encompass board of directors, regarding the qualification of the distribution as a transaction that is generally tax free for U.S. federal income tax purposes under Section 355 of the Code and certain other U.S. federal income tax matters relating to the separation and distribution and (ii) an opinion of its outside counsel, satisfactory to the Encompass board of directors, regarding the qualification of the distribution as a transaction that is generally tax free for U.S. federal

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	income tax purposes under Section 355 of the Code.
	If the distribution so qualifies, except with respect to cash received in lieu of a fractional share of Enhabit common stock, generally no gain or loss will be recognized by you, and no amount will be included in your income, for U.S. federal income tax purposes upon your receipt of Enhabit common stock in the distribution.
	You should carefully read the section titled “Material U.S. Federal Income Tax Consequences” and should consult your own tax advisor as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state and local tax laws, as well as any non-U.S. tax laws.
What will Enhabit’s relationship be with Encompass following the separation?	After the distribution, Encompass stockholders will beneficially own all of the outstanding shares of Enhabit, and Encompass and Enhabit will be separate companies with separate management teams and separate boards of directors. Enhabit will enter into a separation and distribution agreement with Encompass to effect the separation and to provide a framework for Enhabit’s relationship with Encompass after the separation and distribution, and will enter into certain other agreements, including a transition services agreement, a tax matters agreement and an employee matters agreement. These agreements will provide for the allocation between Enhabit and Encompass of the assets, employees, liabilities and obligations (including, among others, investments, property and employee benefits and tax-related assets and liabilities) of Encompass and its subsidiaries attributable to periods prior to, at and after the separation and will govern the relationship between Enhabit and Encompass subsequent to the completion of the separation and distribution. For additional information regarding the separation and distribution agreement and other transaction agreements, see the sections titled “Risk Factors— Risks Related to the Separation and Distribution” and “Certain Relationships and Related Party Transactions.”
Who will manage Enhabit after the separation?	Enhabit will benefit from a management team with an extensive background in the Enhabit Business. For more information regarding Enhabit’s management and directors, see “Management” and “Directors.”
Are there risks associated with owning Enhabit common stock?	Yes. Ownership of Enhabit common stock is subject to both general and specific risks relating to the Enhabit Business, the industry in which it operates, its ongoing contractual relationships with Encompass and its status as a separate, publicly traded company. Ownership of Enhabit common stock is also subject to risks relating to the separation. Certain of these risks are described in the “Risk Factors” section of this information statement. We encourage you to read that section carefully.

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Does Enhabit plan to pay dividends?	The declaration and payment of any dividends in the future by Enhabit will be subject to the sole discretion of its board of directors and will depend upon many factors. See “Dividend Policy.”
Will Enhabit incur any indebtedness prior to or at the time of the distribution?	Yes. Enhabit entered into a $400 million term loan A facility and a $350 million revolving credit facility on June 1, 2022 and expects to borrow an aggregate principal amount of $570 million prior to the completion of the distribution. Enhabit expects to transfer approximately $566.5 million of cash using all or a portion of the net proceeds of the borrowings under the new term loan A facility and revolving credit facility to Encompass prior to the completion of the distribution. As a result of such transactions, Enhabit anticipates having approximately $570 million of outstanding indebtedness upon completion of the distribution (excluding finance leases and intercompany liabilities). See “Description of Certain Material Indebtedness” and “Risk Factors— Risks Related to Our Business.”
Who will be the distribution agent for the distribution and transfer agent and registrar for Enhabit common stock?	The distribution agent, transfer agent and registrar for the Enhabit common stock will be Computershare. For questions relating to the transfer or mechanics of the stock distribution, you should contact Computershare toll free at (877) 456-7913.
Where can I find more information about Encompass and Enhabit?	Before the distribution, if you have any questions relating to Encompass, you should contact:
	Encompass Health Corporation 9001 Liberty Parkway Birmingham, AL 35242 Attention: Investor Relations
	After the distribution, Enhabit stockholders who have any questions relating to Enhabit should contact:
	Enhabit, Inc. 6688 N. Central Expressway Suite 1300 Dallas, TX 75206 Attention: Investor Relations
	The Enhabit investor relations website is at www.ehab.com. The Enhabit website and the information contained therein or connected thereto are not incorporated into this information statement or the registration statement of which this information statement forms a part, or in any other filings with, or any information furnished or submitted to, the SEC.

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SUMMARY HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA

The following financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited annual and unaudited interim consolidated financial statements and the related notes, and our unaudited pro forma condensed consolidated financial statements and the related notes, included elsewhere in this information statement.

The following table summarizes our historical and pro forma condensed consolidated financial data as of and for the periods presented. The summary historical consolidated balance sheet data as of March 31, 2022, December 31, 2021 and December 31, 2020, and statement of income data for the three months ended March 31, 2022 and 2021 and years ended December 31, 2021, 2020, and 2019, are derived from our audited annual and unaudited interim historical consolidated financial statements included elsewhere in this information statement. Our historical results are not necessarily indicative of our results in any future period. The summary consolidated financial data in this section is not intended to replace our consolidated financial statements and the related notes and are qualified in their entirety by the consolidated financial statements and related notes included elsewhere in this information statement.

The summary historical consolidated financial data includes certain expenses of Encompass that were allocated to us for certain corporate functions, including but not limited to executive oversight, treasury, legal, accounting, human resources, tax, internal audit, financial reporting, information technology and investor relations. Management believes the assumptions underlying the consolidated financial statements, including the assumptions regarding allocated expenses, reasonably reflect the utilization of services provided to or the benefit received by us during the periods presented. However, these shared expenses may not represent the amounts that we would have incurred had we operated autonomously or independently from Encompass. Actual costs that would have been incurred if we had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions in various areas, such as information technology and infrastructure. In addition, our summary historical consolidated financial data does not reflect changes that we expect to experience in the future as a result of our separation from Encompass, including changes in our cost structure, personnel needs, tax structure, capital structure, financing and business operations.

The unaudited pro forma condensed consolidated financial statements included elsewhere in this information statement have been derived from our audited annual and unaudited interim historical consolidated financial statements and were prepared in accordance with Article 11 of the SEC’s Regulation S-X. The unaudited pro forma condensed consolidated statements of income for the three months ended March 31, 2022 and the year ended December 31, 2021, have been prepared as though the separation from Encompass occurred as of January 1, 2021. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2022 has been prepared as though the separation from Encompass occurred on March 31, 2022. The unaudited pro forma condensed consolidated financial statements are provided for illustrative purposes only and are not necessarily indicative of the operating results or financial position that would have occurred had the separation been completed on the dates indicated. The unaudited pro forma condensed consolidated financial statements should not be relied on as indicative of the historical operating results that we would have achieved or any future operating results or financial position that we will achieve after the completion of the separation and distribution. See “Unaudited Pro Forma Condensed Consolidated Financial Statements” for a description of the adjustments and assumptions underlying the summary unaudited pro forma condensed consolidated financial data set forth below.

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The following summary condensed consolidated financial data should also be read in conjunction with the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and ”Description of Material Indebtedness” as well as the audited annual and unaudited interim consolidated financial statements and related notes and the unaudited pro forma condensed consolidated financial statements and related notes, included elsewhere in this information statement.

	For the Three Months Ended March 31,			For the Year Ended December 31,
	Pro Forma 2022	2022	2021	Pro Forma 2021	2021	2020	2019
	(in Millions)
Consolidated Statements of Income:
Net service revenue	$274.3	274.3	$270.5	$1,106.6	$1,106.6	$1,078.2	$1,092.0
Cost of service (excluding depreciation and amortization)	129.7	129.7	124.6	513.9	513.9	537.5	527.4
Gross margin	144.6	144.6	145.9	592.7	592.7	540.7	564.6
General and administrative expenses	106.2	100.7	99.9	442.1	412.9	398.0	465.7
Depreciation and amortization	9.0	8.5	9.1	38.2	36.9	40.0	37.7
Operating income	29.4	35.4	36.9	112.4	142.9	102.7	61.2
Interest expense	4.6	—	0.1	18.8	0.3	5.2	28.4
Equity in net income of nonconsolidated affiliates	—	—	(0.2)	(0.6)	(0.6)	(0.5)	(1.2)
Other income	—	—	—	(4.8)	(4.8)	(2.2)	—
Income before income taxes and noncontrolling interests	24.8	35.4	37.0	99.0	148.0	100.2	34.0
Income tax expense	6.3	8.7	8.7	24.2	35.1	24.4	9.2
Net income	18.5	26.7	28.3	74.8	112.9	75.8	24.8
Less: Net income attributable to noncontrolling interests	0.6	0.6	0.4	1.8	1.8	0.8	0.8
Net income attributable to Enhabit, Inc.	$17.9	$26.1	$27.9	$73.0	$111.1	$75.0	$24.0

	As of March 31,		As of December 31,
	Pro Forma 2022	2022	2021	2020
	(in Millions)
Consolidated Balance Sheet Data:
Cash and cash equivalents	$17.5	$17.5	$5.4	$38.5
Property and equipment, net	21.9	20.7	20.4	24.2
Total assets	1,609.2	1,743.2	1,720.0	1,616.8
Total debt	573.8	7.3	8.5	9.7
Total stockholders’ equity	825.2	1,495.9	1,478.3	1,398.8

	For the Three Months Ended March 31,			For the Year Ended December 31,
	Pro Forma 2022	2022	2021	Pro Forma 2021	2021	2020	2019
Other Financial Data:				(in Millions)
Adjusted EBITDA(1)	$42.8	$47.0	$47.2	$180.9	$197.2	$150.9	$189.8

(1)
We present Adjusted EBITDA as a non-GAAP measure of our financial performance. Below, we have provided a reconciliation of Adjusted EBITDA to our Net income,the most directly comparable financial measure calculated and presented in accordance with GAAP. Adjusted EBITDA should not be considered as an alternative to Net income or any other measure of financial performance calculated and presented in accordance with GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of other organizations because other organizations may not calculate Adjusted EBITDA in the same manner as we calculate this measure.

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Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future;

• Adjusted EBITDA does not reflect capital expenditure requirements for such replacements or other contractual commitments;

• Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

• Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our indebtedness; and

• other companies, including companies in our industry, may calculate Adjusted EBITDA measures differently, which reduces their usefulness as a comparative measure.

Adjusted EBITDA excludes items that can have a significant effect on our profit or loss and should, therefore, be used in conjunction with, not as a substitute for, profit or loss for the period. We compensate for these limitations by separately monitoring Net income and Income before income taxes and noncontrolling interests for the period.

The following table reconciles Net income, the most directly comparable GAAP measure, to Adjusted EBITDA (in millions):

Reconciliation of Net income to Adjusted EBITDA

	For the Three Months Ended March 31,			For the Year Ended December 31,
	Pro Forma 2022	2022	2021	Pro Forma 2021	2021	2020	2019
	(in Million)
Net Income	$18.5	$26.7	$28.3	$74.8	$112.9	$75.8	$24.8
Income tax expense	6.3	8.7	8.7	24.2	35.1	24.4	9.2
Interest expense	4.6	—	0.1	18.8	0.3	5.2	28.4
Depreciation and amortization	9.0	8.5	9.1	38.2	36.9	40.0	37.7
(Gain) loss on disposal or impairment of assets	(0.1)	(0.1)	(0.1)	(0.8)	(0.8)	1.1	—
Stock-based compensation	3.1	1.3	0.6	8.5	3.6	3.9	84.9
Stock-based compensation included in overhead allocation	—	0.5	0.2	—	2.3	2.0	2.5
Net income attributable to noncontrolling interest	(0.6)	(0.6)	(0.4)	(1.8)	(1.8)	(0.8)	(0.8)
Transaction costs	2.0	2.0	0.7	22.2	11.9	—	2.1
Gain on consolidation of joint venture formerly accounted for under the equity method of accounting	—	—	—	(3.2)	(3.2)	(2.2)	—
Payroll taxes on SARs exercise	—	—	—	—	—	1.5	1.0
Adjusted EBITDA	$42.8	$47.0	$47.2	$180.9	$197.2	$150.9	$189.8

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RISK FACTORS

You should carefully consider the following risks and uncertainties, together with all the other information in this information statement, including our consolidated financial statements and the related notes, in evaluating Enhabit and Enhabit common stock (“our stock” or “our common stock”). This section does not describe all risks that may be applicable to us, our industry, or our business, and it is intended only as a summary of material risk factors. More detailed information concerning other risks and uncertainties as well as those described below is contained in other sections of this information statement. Additional risks and uncertainties we have not or cannot foresee as material to us may also adversely affect us in the future. If any of the risks below or other risks or uncertainties discussed elsewhere in this information statement are actually realized, our business and financial condition, results of operations, and cash flows could be adversely affected. The impact of the COVID-19 pandemic has also exacerbated and may continue to exacerbate other risks discussed herein, any of which could have a material effect on us. Additional impacts may arise that we are not currently aware of, and this situation is changing rapidly.

Risks Related to Our Business

Reimbursement Risks

Reductions or changes in reimbursement from government or third-party payors could adversely affect our Net service revenue and other operating results.

We derive a substantial portion of our Net service revenue from the Medicare program. Furthermore, Medicare payments represent a greater percentage of our Net service revenue than for many of our competitors. See “Business—Sources of Revenue” elsewhere in this information statement for a table identifying the sources and relative payor mix of our revenues. In addition to many ordinary course reimbursement rate changes that CMS adopts each year as part of its annual rulemaking process for various healthcare provider categories, the United States Congress (“Congress”) and some state legislatures have periodically proposed significant changes in laws and regulations governing the healthcare system. Many of these changes have resulted in limitations on the increases in and, in some cases, significant roll-backs or reductions in the levels of payments to healthcare providers for services under many government reimbursement programs. There can be no assurance that future governmental initiatives will not result in pricing freezes, reimbursement reductions, or reduced levels of reimbursement increases that are less than the increases we experience in our costs of operation. And because our percentage of revenues from Medicare exceeds that of many of our competitors, such changes could have a disproportionate impact on our revenues compared to the impact on the revenues of our competitors.

In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act (as subsequently amended, the “2010 Healthcare Reform Laws”). Many provisions within the 2010 Healthcare Reform Laws have impacted or could in the future impact our business, including Medicare reimbursement reductions and promotion of alternative payment models, such as accountable care organizations (“ACOs”) and bundled payment initiatives. The nature and substance of state and federal healthcare laws are always subject to change, occasionally by means of both broad base healthcare reform legislation, like the 2010 Healthcare Reform Laws, and targeted legislative or regulatory action. Any future legislative and regulatory changes may ultimately impact the provisions of the 2010 Healthcare Reform Laws discussed below or other laws or regulations that either currently affect, or may in the future affect, our business.

For Medicare providers like us, these laws include reductions in CMS’s annual adjustments to Medicare reimbursement rates, commonly known as a “market basket update.” In accordance with Medicare laws and statutes, CMS makes market basket updates by provider type in an effort to compensate providers for rising operating costs. The 2010 Healthcare Reform Laws required reductions, the last of which ended in 2019, in the annual market basket updates for hospice agencies of 30 basis points. For home health agencies, the 2010 Healthcare Reform Laws directed CMS to improve home health payment accuracy through rebasing home health payments over four years starting in 2014. In addition, the 2010 Healthcare Reform Laws require the market basket updates for home health and hospice providers to be reduced by a productivity adjustment on an annual basis. The productivity adjustment equals the trailing 10-year average of changes in annual economy-wide private nonfarm business multi-factor productivity. To date, the productivity adjustments have typically resulted in decreases to the market basket updates ranging from 30 to 100 basis points. For fiscal year 2021, the hospice payment rate included a 2.4% market basket increase and no productivity adjustment. Home health agencies will receive an estimated aggregate payment increase of 1.9% for fiscal year 2021, resulting from a 2.0% home health

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payment update percentage and a 0.1% decrease in payments due to reductions in the rural add-on percentages mandated by the Bipartisan Budget Act of 2018. For calendar year 2022, CMS has finalized an increase of 2.6% for home health Medicare payment rates, resulting from a market basket update of 3.1% reduced by a productivity adjustment of 0.5%. On July 29, 2021, CMS finalized an increase of 2.0% for hospice payment rates in fiscal year 2022, resulting from a market basket increase of 2.7% reduced by a productivity adjustment of 0.7%.

Other federal legislation can also have a significant direct impact on our Medicare reimbursement. On August 2, 2011, President Obama signed into law the Budget Control Act of 2011, which provided for an automatic 2% reduction of Medicare program payments. This automatic reduction, known as “sequestration,” began affecting payments received after April 1, 2013. Under current law, for each year through fiscal year 2030, the reimbursement we receive from Medicare, after first taking into account all annual payment adjustments, including the market basket update, will be reduced by sequestration unless it is repealed or modified before then. The Coronavirus Aid, Relief, and Economic Security Act of 2020 (the “CARES Act”) temporarily suspended sequestration for the period of May 1 through December 31, 2020. Subsequent legislation extended the sequestration suspension until April 1, 2022. Sequestration resumed on April 1, 2022 but with only a 1% payment reduction through June 30, 2022, at which time the 2% reduction will resume.

Additional Medicare payment reductions are also possible under the Statutory Pay-As-You-Go Act of 2010 (“Statutory PAYGO”). Statutory PAYGO requires, among other things, that mandatory spending and revenue legislation not increase the federal budget deficit over a five- or ten-year period. If the Office of Management and Budget (the “OMB”) finds there is a deficit in the federal budget, Statutory PAYGO requires OMB to order sequestration of Medicare. In March 2021, President Biden signed the American Rescue Plan Act of 2021 (the “American Rescue Plan Act”). The Congressional Budget Office estimated that the American Rescue Plan Act would result in budget deficits necessitating a 4% reduction in Medicare program payments for 2022 under Statutory PAYGO unless Congress and the President take action to waive the Statutory PAYGO reductions. The Protecting Medicare and American Farmers from Sequester Cuts Act also suspends until 2023 the Statutory PAYGO reductions that would have gone into effect as a result of the American Rescue Plan Act.

Additionally, concerns held by federal policymakers about the federal deficit, national debt levels, or healthcare spending specifically, including solvency of the Medicare trust fund, could result in enactment of further federal spending reductions, further entitlement reform legislation affecting the Medicare program, and further reductions to provider payments. In October 2014, President Obama signed into law the Improving Medicare Post-Acute Care Transformation Act of 2014 (the “IMPACT Act”). The IMPACT Act directs the United States Department of Health and Human Services (“HHS”), in consultation with healthcare stakeholders, to implement standardized data collection processes for post-acute quality and outcome measures. Although the IMPACT Act does not specifically call for the implementation of a new post-acute payment system, we believe this act lays the foundation for possible future post-acute payment policies that would be based on patients’ medical conditions and other clinical factors rather than the setting where the care is provided, also referred to as “site neutral” reimbursement. CMS has begun changing current post-acute payment systems to improve comparability of patient assessment data and clinical characteristics across settings, which will make it easier to create a unified payment system in the future. For example, CMS recently established new case-mix classification models for both home health, as discussed further below, and skilled nursing facilities that rely on patient characteristics rather than the amount of therapy received to determine payments. The IMPACT Act also creates additional data reporting requirements for our home health agencies. The precise details of these new reporting requirements, including timing and content, are being developed and implemented by CMS through the regulatory process that we expect will continue to take place over the next several years. We cannot quantify the potential effects of the IMPACT Act on us.

Each year, the Medicare Payment Advisory Commission (“MedPAC”), an independent agency, advises Congress on issues affecting Medicare and makes payment policy recommendations to Congress for a variety of Medicare payment systems including, among others, the home health prospective payment system (“HH-PPS”) and the hospice payment system (“Hospice-PS”). MedPAC also provides comments to CMS on proposed rules, including the prospective payment system rules. Congress is not obligated to adopt MedPAC recommendations, and, based on outcomes in previous years, there can be no assurance Congress will adopt MedPAC’s recommendations in a given year. However, MedPAC’s recommendations have, and could in the future, become the basis for legislative or regulatory action.

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In connection with CMS’s final rulemaking for the HH-PPS in each year since 2008, MedPAC has recommended either no updates to payments or reductions to payments. In a March 2021 report to Congress, MedPAC recommended, among other things, legislative changes to eliminate the update to the fiscal year 2021 Medicare base payment rates for hospice, reduce the aggregate payment cap by 20%, and reduce by 5% the base payment rate under the HH-PPS. In an October 2020 report, MedPAC called for future research into Medicare hospice payments and expressed concerns that aggregate payments substantially exceed costs and that there are outlier utilization patterns in the industry.

In a June 2018 report mandated by the IMPACT Act, MedPAC reiterated its recommendation that Congress adopt a unified payment system for all post-acute care (“PAC-PPS”) in lieu of separate systems for inpatient rehabilitation facilities, skilled nursing facilities, long-term acute care hospitals, and home health agencies. A PAC-PPS would rely on “site neutral” reimbursement based on patients’ medical conditions and other clinical factors rather than the care settings. MedPAC found a PAC-PPS to be feasible and desirable but also suggested many existing regulatory requirements should be waived or modified as part of implementing a PAC-PPS. MedPAC previously estimated, although we cannot verify the methodology or the accuracy of that estimate, a PAC-PPS would result in a 1% decrease to home health reimbursements. As a precursor to a unified PAC-PPS, MedPAC discussed in November 2017 a potential recommendation to change the case-mix weights in each post-acute setting for 2019 and 2020 to a blend of the current setting specific weight and the proposed unified PAC-PPS weight. MedPAC has also called for aligning Medicare regulatory requirements across post-acute providers, although the agency has acknowledged it could take years to complete this effort. Additionally, MedPAC previously has suggested that Medicare should ultimately move from fee for service reimbursement to more integrated delivery payment models.

MedPAC also recommended significant changes to the HH-PPS, some of which CMS incorporated into the PDGM system mandated by the Bipartisan Budget Act of 2018, and set out in the final rule for the 2019 HH-PPS. Beginning in 2020, PDGM replaced the prior 60-day episode of payment methodology with a 30-day payment period and eliminated therapy usage as a factor in setting payments (that is, more therapy visits led to higher reimbursement). CMS adopted a 4.4% reduction in the base payment rate for 2020 intended to offset the provider behavioral changes that CMS assumed PDGM would drive. The reimbursement and other changes associated with PDGM could have a significant impact on our home health agencies. Likewise, MedPAC’s previously recommended changes to the Hospice-PS, including a wage adjustment and a reduction in the hospice aggregate cap by 20%, could have a significant impact on our hospice agencies.

We cannot predict what alternative or additional deficit reduction initiatives, Medicare payment reductions, or post-acute care reforms, if any, will ultimately be adopted or enacted into law, or the timing or effect of any initiatives or reductions. Those initiatives or reductions would be in addition to many ordinary course reimbursement rate changes that CMS adopts each year as part of the market basket update rulemaking process for various provider categories. While we do not expect the drive toward integrated delivery payment models, value-based purchasing, and post-acute site neutrality in Medicare reimbursement to subside, there will almost certainly be new or alternative healthcare reforms in the future which may change these initiatives and other healthcare laws and regulations. We cannot predict the nature or timing of any changes to the laws or regulations that either currently affect, or may in the future affect, our business.

There can be no assurance that future governmental action will not result in substantial changes to, or material reductions in, our reimbursements. Similarly, we may experience material increases in our operating costs. For example, in 2022, we expect our wage and benefit costs to increase at a rate in excess of our aggregate Medicare reimbursement rate increase. In any given year, the net effect of statutory and regulatory changes may result in a decrease in our reimbursement rate, and that decrease may occur at a time when our expenses are increasing. As a result, there could be a material adverse effect on our business, financial position, results of operations, and cash flows. For additional discussion of how we are reimbursed by Medicare, see the sections titled “Business—Sources of Revenue—Medicare Reimbursement” and “Business—Regulation” elsewhere in this information statement.

In addition, there are increasing pressures, including as a result of the 2010 Healthcare Reform Laws, from many third-party payors to control healthcare costs and to reduce or limit increases in reimbursement rates for medical services. Our relationships with managed care and nongovernmental third-party payors, such as health maintenance organizations and preferred provider organizations, are generally governed by negotiated

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agreements. These agreements set forth the amounts we are entitled to receive for our services. Our Net service revenue and our ability to grow our business with these payors could be adversely affected if we are unable to negotiate and maintain favorable agreements with third-party payors.

Our quality of care and CMS quality reporting requirements could adversely affect the Medicare reimbursement we receive.

The focus on alternative payment models and value-based purchasing of healthcare services has, in turn, led to more extensive quality of care reporting requirements. In many cases, the new reporting requirements are linked to reimbursement incentives. For example, home health and hospice agencies are required to submit quality data to CMS each year, and the failure to do so in accordance with the rules will result in a 2% reduction in their market basket updates. All of our 351 home health and hospice locations met the reporting deadlines resulting in no corresponding reimbursement reductions for 2022.

As noted above, the IMPACT Act mandated that CMS adopt several new quality reporting measures for the various post-acute provider types. The adoption of additional quality reporting measures to track and report will require additional time and expense and could affect reimbursement in the future. In healthcare generally, the burdens associated with collecting, recording, and reporting quality data are increasing. Currently, CMS requires home health providers to track and submit patient assessment data to support the calculation of 20 quality reporting measures.

CMS has instituted a Star rating methodology for home health agencies to meet the 2010 Healthcare Reform Laws call for more transparent public information on provider quality. All Medicare-certified home health agencies would be eligible to receive a Star rating (from 1 to 5 stars) based on a number of quality measures, such as timely initiation of care, drug education provided to patients, fall risk assessment, depression assessments, improvements in bed transferring, and bathing, among others. The “Quality of Patient Care Star Ratings” were first published in July 2015 and are updated quarterly thereafter based upon new data that is published with the ratings on the “Home Health Compare” section of the medicare.gov website. The “Patient Survey Star Ratings” were first published in 2016 and are updated periodically based upon new data that is published with the ratings on the “Home Health Compare” section of the medicare.gov website. As of January 2022, our Quality of Patient Care (QoPC) Star Rating and HHCAHPS Patient Survey Star Rating both averaged 3.7, higher than the national averages of 3.3 and 3.5, respectively for QoPC and HHCAHPS. Failing to maintain satisfactory Star rating scores could affect our rates of reimbursement and patient referrals and have a material adverse effect on our business and consolidated financial condition, results of operations, and cash flows.

In 2015, CMS established a five-year home health value-based purchasing model in nine states to test whether incentives for better care can improve outcomes in the delivery of home health services. The model, which began in 2016, applies a reduction or increase, depending on quality performance, to current Medicare-certified home health agency payments made to agencies in Massachusetts, Maryland, North Carolina, Florida, Washington, Arizona, Iowa, Nebraska, and Tennessee. CMS assesses performance based on several process, outcome, and care satisfaction measures. In the 2022 HH Rule, CMS expanded the model to apply nationwide. The first performance year under the expanded, nationwide home health value-based purchasing model will be 2023 and any associated payment adjustments, capped at 5%, will occur in 2025.

To date, we have not experienced a decrease in Net service revenue in excess of $0.6 million in any year. There can be no assurance that all of our agencies will meet quality reporting requirements or quality performance in the future, which may result in one or more of our agencies seeing a reduction in its Medicare reimbursements. Regardless, we, like other healthcare providers, are likely to incur additional expenses in an effort to comply with additional and changing quality reporting requirements.

Reimbursement claims are subject to various audits from time to time and such audits may negatively affect our operations and our cash flows from operations.

We receive a substantial portion of our revenues from the Medicare program. Medicare reimbursement claims made by healthcare providers, including home health and hospice agencies, are subject to audit from time to time by governmental payors and their agents, such as Medicare Administrative Contractors (“MACs”) that act as fiscal intermediaries for all Medicare billings, auditors contracted by CMS, and insurance carriers, as well as the HHS Office of Inspector General (the “HHS-OIG”), CMS and state Medicaid programs. As noted above, the clarity and completeness of each patient medical file, some of which is the work product of a physician not

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employed by us, is essential to successfully challenging any payment denials. If the physicians working with our patients do not adequately document, among other things, their diagnoses and plans of care, our risks related to audits and payment denials in general are greater. Depending on the nature of the conduct found in such audits and whether the underlying conduct could be considered systemic, the resolution of these audits could have a material adverse effect in the aggregate on our financial position, results of operation and liquidity.

In August 2017, CMS announced the Targeted Probe and Educate (“TPE”) initiative. Under the TPE initiative, MACs use data analysis to identify healthcare providers with high claim error rates and items and services that have high national error rates. Once a MAC selects a provider for claims review, the initial volume of claims review is limited to 20 to 40 claims. The TPE initiative includes up to three rounds of claims review with corresponding provider education and a subsequent period to allow for improvement. If results do not improve sufficiently after three rounds, the MAC may refer the provider to CMS for further action, which may include extrapolation of error rates to a broader universe of claims or referral to a UPIC or RAC (each defined below). As of March 31, 2022, none of our agencies have progressed beyond the third round of reviews, so it is unclear how the review process after TPE would proceed. We cannot predict whether the TPE initiative or similar probes or reviews will materially impact our reimbursement or the timeliness of collections from Medicare in the future.

CMS has developed and instituted various audit programs under which CMS contracts with private companies to conduct claims and medical record audits. These audits are in addition to those conducted by existing MACs. Some contractors are paid a percentage of the overpayments recovered. One type of audit contractor, the Recovery Audit Contractors (“RACs”), receives claims data directly from MACs on a monthly or quarterly basis and is authorized to review previously paid claims. It is unclear whether CMS intends to conduct RAC prepayment reviews in the future and if so, what providers and claims would be the focus of those reviews. CMS has authorized RACs to conduct complex reviews of the medical records associated with home health reimbursement claims.

CMS has also established contractors known as the Uniform Program Integrity Contractors (“UPICs,” formerly known as “ZPICs”). These contractors are successors to the Program Safeguard Contractors and conduct audits with a focus on potential fraud and abuse issues. Like the RACs, the UPICs conduct audits and have the ability to refer matters to the HHS-OIG or the United States Department of Justice (“DOJ”). Unlike RACs, however, UPICs do not receive a specific financial incentive based on the amount of the error. We have, from time to time, received UPIC record requests which have resulted in claim denials on paid claims. In some cases, the UPICs have extrapolated error rates to larger pools of our claims. In the most significant example to date, a UPIC denied less than $90,000 in claims but recouped an extrapolated amount of approximately $9.7 million. Following our initial appeals, this extrapolated overpayment amount has been reduced to approximately $6.7 million and remains subject to further pending appeal procedures.

Audits may lead to assertions that we have been underpaid or overpaid by Medicare or have submitted improper claims in some instances. Such assertions may require us to incur additional costs to respond to requests for records and defend the validity of payments and claims and may ultimately require us to refund any amounts determined to have been overpaid. In some circumstances, auditors have the authority to extrapolate denial rationales to large pools of claims not actually audited, which could greatly increase the impact of the audit. As a result, we may suffer reduced profitability. We cannot predict when or how these audit programs will affect us.

Our third-party payors have also, from time to time, requested audits of the amounts paid, or to be paid, to us, and sometimes dispute such amounts. We could be adversely affected in some of the markets where we operate if the auditing payor alleges substantial overpayments were made to us due to coding errors or lack of documentation to support medical necessity determinations. Similarly, there can be no assurance that our current or future MACs will not take restrictive interpretations of Medicare coverage rules. The adoption of restrictive interpretations of coverage rules by MACs could result in a large number of payment denials and materially and adversely affect our financial position, results of operations, and cash flows.

Delays in the administrative appeals process associated with denied Medicare reimbursement claims could delay or reduce our reimbursement for services previously provided.

We currently record our estimates for pre-payment denials and for post-payment audit denials that will ultimately not be collected as a component of Net service revenue. See Note 1, Summary of Significant

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Accounting Policies, “Net service revenue,” to the accompanying consolidated financial statements. Given the continuing or increasing delays along with the increasing number of denials in the backlog, we may experience decreases in Net service revenue and/or decreases in cash flow as a result of increasing accounts receivable, which may in turn lead to a change in the patients and conditions we treat. Any of these impacts could have an adverse effect on our financial position, results of operations, and liquidity. Although Congress has considered legislation to reform and improve the Medicare audit and appeals process, we cannot predict what, if any, legislation will be adopted or what, if any, effect that legislation might have on the audit and appeals process.

In May 2014, the American Hospital Association and others filed a lawsuit seeking to compel HHS to meet the statutory deadlines for adjudication of denied Medicare claims. In December 2016, the presiding federal district court judge in the lawsuit ordered HHS to eliminate the backlog of appeals by the end of 2020. HHS appealed the federal district court decision, and an appeals court remanded the order for further consideration of how HHS can eliminate the backlog. On November 1, 2018, the district court again ordered HHS to achieve the following reductions: 19% by the end of fiscal year 2019; 49% by the end of fiscal year 2020; 75% by the end of fiscal year 2021; and 100% by the end of fiscal year 2022.

The Medicare appeals adjudication process is administered by the Office of Medicare Hearings and Appeals (“OMHA”). Beginning in March 2020, OMHA increased the frequency of hearings and the number of claims set at each hearing, which we believe adds to the substantive and procedural deficiencies in the appeals process. We are exploring various remedies to counter those deficiencies. We believe it is too early to determine what impact, if any, these recent changes in the appeals process will have on our long-term success rate or Net service revenue. We cannot predict what, if any, further action CMS will take to reduce the backlog or how long it will take to resolve our pending appeals of payment denials that are part of the backlog.

Efforts to reduce payments to healthcare providers undertaken by third-party payors, conveners, and referral sources could adversely affect our revenues and profitability.

Health insurers and managed care companies, including Medicare Advantage plans, may utilize certain third parties, known as conveners, to attempt to control costs. Conveners offer patient placement and care transition services to those payors as well as bundled payment participants, ACOs, and other healthcare providers with the intent of managing post-acute utilization and associated costs. Conveners may influence referral source decisions on which post-acute setting to recommend, as well as how long to remain in a particular setting. Conveners are not healthcare providers and may suggest a post-acute setting or duration of care that may not be appropriate from a clinical perspective potentially resulting in a costly acute care hospital readmission.

We also depend on referrals from physicians, acute care hospitals, and other healthcare providers in the communities we serve. As a result of various alternative payment models, many referral sources are becoming increasingly focused on reducing post-acute costs by eliminating post-acute care referrals, sometimes without understanding the potential impact on patient outcomes over an entire episode of care. Our ability to attract patients could be adversely affected if any of our home health agencies fail to provide or maintain a reputation for providing high-quality care on a cost-effective basis as compared to other providers.

Changes in our payor mix or the acuity of our patients could adversely affect our Net service revenueor our profitability.

Many factors affect pricing of our services and, in turn, our revenues. The reimbursement rates we receive from traditional Medicare Fee for Service are generally higher than those received from other payors. We are attempting to grow the number of Medicare Advantage networks in which we participate, so we expect the payor mix to continue to shift with that growth. Not only do Medicare Advantage and managed care payors generally pay us less than Medicare Fee for Service, but we also expect bad debt to be slightly higher for patients covered by Medicare Advantage and managed care as patients typically retain more payment responsibility under those arrangements.

The expansion and growth of Medicaid resulting from provisions of the 2010 Healthcare Reform Laws have increased the number of those patients coming to us. In addition, the American Rescue Plan Act offers new financial incentives to states who have not yet elected to expand Medicaid eligibility as allowed under the 2010 Healthcare Reform Laws. Medicaid reimbursement rates are almost always the lowest among those of our payors, and frequently Medicaid patients come to us with other complicating conditions that make treatment more difficult and costly.

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We cannot predict the growth of, or changes to, Medicaid, but President Biden has stated that he favors extending public health insurance coverage to low-income individuals currently ineligible for Medicaid. We cannot predict whether our payor mix will shift to lower reimbursement rate payors. We have in recent years experienced, and in the future may experience, shifts in our payor mix or the acuity of our patients that could adversely affect our pricing, Net service revenue, and profitability.

Delays in collection or non-collection of our accounts receivable could adversely affect our business, financial position, results of operations and liquidity.

Reimbursement is typically conditioned on our documenting medical necessity and correctly applying diagnosis codes. Incorrect or incomplete documentation and billing information could result in non-payment for services rendered. Billing and collection of our accounts receivable with Medicare and Medicaid are further subject to the complex regulations that govern Medicare and Medicaid reimbursement and rules imposed by nongovernment payors. For example, recent efforts have focused on improved coordination of regulation across the various types of Medicaid programs through which personal care services are offered. Our inability to bill and collect on a timely basis pursuant to these regulations and rules could subject us to payment delays that could have a material adverse effect on our business, financial position, results of operations and liquidity.

In addition, timing delays in billings and collections may cause working capital shortages. Working capital management, including prompt and diligent billing and collection, is an important factor in our financial position and results of operations and in maintaining liquidity. It is possible that Medicare, Medicaid, documentation support, system problems or other provider issues or industry trends, particularly with respect to newly acquired entities for which we have limited operational experience, may extend our collection period, which may materially adversely affect our working capital, and our working capital management procedures may not successfully mitigate this risk.

The timing of payments made under the Medicare and Medicaid programs is subject to governmental budgetary constraints, which may result in an increased period of time between submission of claims and subsequent payment under specific programs, most notably under the Medicare and Medicaid managed care programs, which in many cases pay claims significantly slower than traditional Medicare or state Medicaid programs do as a result of more complicated authorization, billing and collecting processes that are required by Medicare and Medicaid managed care programs. In addition, we may experience delays in reimbursement as a result of the failure to receive prompt approvals related to change of ownership applications for acquired or other agencies or from delays caused by our or other third parties’ information system failures. Furthermore, the proliferation of Medicare and Medicaid managed care programs could have a material adverse impact on the results of our operations as a result of more complicated authorization, billing and collection requirements implemented by such programs.

A change in our estimates of collectability or a delay in collection of accounts receivable could adversely affect our results of operations and liquidity. The estimates are based on a variety of factors, including the length of time receivables are past due, significant one-time events, contractual rights, client funding and/or political pressures, discussions with clients and historical experience. A delay in collecting our accounts receivable, or the non-collection of accounts receivable, including, without limitation, in connection with our transition and integration of acquired companies, and the attendant movement of underlying billing and collection operations from legacy systems to future systems, could have a material negative impact on our results of operations and liquidity and could be required to record impairment charges on our financial statements.

Medicare reimbursement of hospice services are subject to caps, which may result in our having to reimburse Medicare for certain amounts previously paid to us.

Our hospice operations are subject to two annual Medicare caps. If any of our hospice providers exceeds such caps, our business and consolidated financial condition, results of operations and cash flows could be materially adversely affected. Overall payments made by Medicare to each hospice provider number (generally corresponding to each of our hospice agencies) are subject to an inpatient cap amount and an overall payment cap amount, which are calculated and published by the Medicare fiscal intermediary on an annual basis covering the period from October 1 through September 30. If payments received under any of our hospice provider

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numbers exceed either of these caps, we may be required to reimburse Medicare for payments received in excess of the caps, which could have a material adverse effect on our business and consolidated financial condition, results of operations and cash flows. We have not had to repay more than $2 million in the aggregate to Medicare in any of the last five years.

Other Regulatory Risks

The ongoing evolution of the healthcare delivery system, including alternative payment models and value-based purchasing initiatives, in the United States may significantly affect our business and results of operations.

The healthcare industry in general is facing regulatory uncertainty around attempts to improve outcomes and reduce costs, including coordinated care and integrated delivery payment models. In an integrated delivery payment model, hospitals, physicians, and other care providers are reimbursed in a fashion meant to encourage coordinated healthcare on a more efficient, patient-centered basis. These providers are then paid based on the overall value and quality (as determined by outcomes) of the services they provide to a patient rather than the number of services they provide. While this is consistent with our goal and proven track record of being a high-quality, cost-effective provider, broad-based implementation of a new delivery payment model would represent a significant evolution or transformation of the healthcare industry, which may have a significant impact on our business and results of operations.

In recent years, HHS has been studying the feasibility of bundling, including conducting a voluntary, multi-year bundling pilot program to test and evaluate alternative payment methodologies. CMS’s voluntary Bundled Payments for Care Improvement Advanced (“BPCI Advanced”) initiative began October 1, 2018, runs through December 31, 2023, and covers 29 types of inpatient and three types of outpatient clinical episodes, including stroke and hip fracture. Providers participating in BPCI Advanced are subject to a semiannual reconciliation process where CMS compares the aggregate Medicare expenditures for all items and services included in a clinical episode against the target price for that type of episode to determine whether the participant is eligible to receive a portion of the savings or is required to repay a portion of the payment above target. Accordingly, reimbursement may be increased or decreased, compared to what would otherwise be due, based on whether the total Medicare expenditures and patient outcomes meet, exceed or fall short of the targets.

Similarly, CMS has established per the 2010 Healthcare Reform Laws several separate ACO programs, the largest of which is the Medicare Shared Savings Program (“MSSP”), a voluntary ACO program in which hospitals, physicians, and other care providers pursue the delivery of coordinated healthcare on a more efficient, patient-centered basis. Conceptually, ACOs receive a portion of any savings generated above a certain threshold from care coordination as long as benchmarks for the quality of care are maintained. Under the MSSP, there are two ACO tracks from which participants can choose. Each track offers a different degree to which participants share any savings realized or any obligation to repay losses suffered. The ACO rules adopted by CMS are extremely complex and remain subject to further refinement by CMS. Based on the data CMS provides as of January 1 each year, which is presented below, the MSSP has not experienced meaningful growth in recent years.

Performance Year	Number of ACOs	Assigned Beneficiaries (in Millions)
2022	483	11.0
2021	477	10.7
2020	517	11.2
2019	487	10.4
2018	561	10.5

We continue to evaluate, on a case-by-case basis, appropriate BPCI Advanced and ACO participation opportunities for our home health agencies. As of March 31, 2022, our home health and hospice segments are collaborating with approximately 175 alternative payment models, including Next Generation ACOs, MSSP ACOs, and Direct Contracting Models.

In December 2020, CMS announced another voluntary alternative payment model initiative, the Geographic Direct Contracting Model (the “GDCM”). Under the GDCM, Direct Contracting Entities (“DCEs”), which can include ACOs, health systems, healthcare provider groups, and health plans, will take responsibility for the total

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cost of care for all Medicare beneficiaries in a specific geographic region. DCEs may enter into agreements with preferred providers that provide for payment risk-sharing and offer Medicare beneficiaries benefits not otherwise available under traditional Medicare. The GDCM will be tested over a six-year period in four to ten regions. Many specifics of the GDCM remain unknown at this time, and it is not clear if, or how, the Biden administration will implement the GDCM. CMS suspended the initial implementation of GDCM and currently has the program under review.

In March 2022, CMS released the FY 2023 Inpatient Rehabilitation Facility PPS Proposed Rule (the “2023 Proposed IRF Rule”), which included a request for comment on a potential change in inpatient rehabilitation facility (“IRF”) reimbursement that could be included in future rulemaking. Based on a recent HHS-OIG report, CMS is considering whether to modify the IRF “transfer” payment policy to reduce reimbursement for early discharges to home health, similar to how early home health discharges are paid for under the Acute Care Prospective Payment System. HHS-OIG estimated that its recommended change to the policy could reduce total IRF industry reimbursements by approximately 6% based on 2017 and 2018 data.

HHS and CMS continue to explore ways to encourage and facilitate increased participation in alternative payment models and value-based purchasing initiatives. For example, the HHS-OIG and CMS finalized rules in 2020 modernizing the Anti-Kickback Law and Stark law to, in part, promote a more coordinated, value-based system of care. The bundling and ACO initiatives have served as motivating factors for regulators and healthcare industry participants to identify and implement workable coordinated care and integrated delivery payment models. Broad-based implementation of a new delivery payment model would represent a significant transformation for us and the healthcare industry generally. The nature and timing of the evolution or transformation of the current healthcare system to coordinated care delivery and integrated delivery payment models and value-based purchasing remain uncertain. The development of new delivery and payment systems will almost certainly take significant time and expense. Many of the alternative approaches being explored, including those discussed above and the home health value-based purchasing model discussed below, may not be effective or could change substantially prior to any nationwide implementations. While only a small percentage of our business currently is or is anticipated to be subject to the alternative payment models discussed above, we cannot be certain these models will not be expanded or made standard or that new models will not be implemented broadly.

Additionally, as the number and types of bundling, direct contracting, and ACO models increase, the number of Medicare beneficiaries who are treated in one of the models increases. Our unwillingness or inability to participate in integrated delivery payment and other alternative payment models and the referral patterns of other providers participating in those models may limit our access to Medicare patients who would benefit from treatment by home health services. In an attempt to reduce costs, ACOs may seek to discourage referrals to post-acute care altogether. To the extent that acute care hospitals participating in those models do not perceive our quality of care or cost efficiency favorably compared to alternative post-acute providers, we may experience a decrease in volumes and Net service revenue, which could adversely affect our financial position, results of operations, and cash flows. For further discussion of coordinated care and integrated delivery payment models and value-based purchasing initiatives, the associated challenges, and our efforts to respond to them, see “Our Industries and Opportunity—Emphasis on Value-Based Payment Models” in the “Business” section elsewhere in this information statement.

Other legislative and regulatory initiatives and changes affecting the industry could adversely affect our business and results of operations.

In addition to the legislative and regulatory actions that directly affect our reimbursement rates or further the evolution of the current healthcare delivery system, other legislative and regulatory changes, including as a result of ongoing healthcare reform, affect healthcare providers like us from time to time. For example, the 2010 Healthcare Reform Laws provide for the expansion of the federal Anti-Kickback Law and the False Claims Act (the “FCA”) that, when combined with other recent federal initiatives, are likely to increase investigation and enforcement efforts in the healthcare industry generally. Changes include increased resources for enforcement, lowered burden of proof for the government in healthcare fraud matters, expanded definition of claims under the FCA, enhanced penalties, and increased rewards for relators in successful prosecutions. CMS may also suspend

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payment for claims prospectively if, in its opinion, credible allegations of fraud exist. The initial suspension period may be up to 180 days. However, the payment suspension period can be extended almost indefinitely if the matter is under investigation by the HHS-OIG or DOJ. Any such suspension would adversely affect our financial position, results of operations, and cash flows.

Some states in which we operate have also undertaken, or are considering, healthcare reform initiatives that address similar issues. While many of the stated goals of other federal and state reform initiatives are consistent with our own goal to provide care that is high-quality and cost-effective, legislation and regulatory proposals may lower reimbursements, increase the cost of compliance, decrease patient volumes, promote frivolous or baseless litigation, and otherwise adversely affect our business. We cannot predict what healthcare initiatives, if any, will be enacted, implemented or amended, or the effect any future legislation or regulation will have on us.

On September 30, 2019, CMS adopted a new rule as called for by the IMPACT Act that revises the discharge planning requirements applicable to our home health agencies. Effective November 29, 2019, CMS now requires every hospital to have a discharge planning process that focuses on patients’ goals and preferences and on preparing them and, as appropriate, their caregivers, to be active partners in their post-discharge care. This rule requires hospitals to institute standardized procedures to identify those patients who are likely to suffer adverse health consequences upon discharge in the absence of adequate discharge planning and to provide a discharge planning evaluation for such patients to ensure that appropriate arrangements for post-hospital care are made before discharge. At the time of discharge, a hospital must transfer or refer the patient, along with all necessary medical information pertaining to the patient’s current course of illness and treatment, post-discharge goals of care, and treatment preferences, to the appropriate post-acute care service providers and suppliers, facilities, agencies, and other outpatient service providers and practitioners responsible for the patient’s follow-up or ancillary care. Patients must also be informed of all post-acute providers in the area and, for patients enrolled in managed care organizations, in network providers must be identified if the hospital has that information. Additional information must be provided to patients who are discharged home and referred for home health agency services or who are referred to other post-acute care services.

For home health agencies, the final rule includes several new requirements, including that home health agencies develop and implement an effective discharge planning process. Home health agencies must also send certain medical and other information to the post-discharge facility or health care practitioner and comply with requests for additional information as may be necessary for treatment of the patient made by the receiving facility or health care practitioner. The rule will likely require implementation of new processes and modification of existing discharge forms and reports, and patient visits may need to be extended in order to accommodate patient education. We expect to incur additional one-time and recurring expenses to comply with the new requirements, but at this time we cannot predict what the final impact will be. In areas where we are not part of a managed care network with significant enrollment, this discharge planning rule may negatively affect the number of patients choosing us.

In accordance with requirements adopted pursuant to the IMPACT Act, CMS implemented requirements to publish certain Medicare spending per beneficiary measures for each home health agency in January 2017. The intent of tracking and publishing this data is to evaluate a given provider’s payment efficiency relative to the efficiency of the national median provider in that provider’s post-acute segment. CMS believes this measure will encourage improved efficiency and coordination of care in the post-acute setting by holding providers accountable for Medicare resource use during an episode of care. However, the measures may be misleading as they do not incorporate patient outcomes associated with those resources used. CMS has not proposed to compare payment efficiency across provider segments.

In June 2019, CMS commenced the Home Health Review Choice Demonstration (“RCD”) in Illinois. RCD is intended to test whether pre-claim review improves methods for the identification, investigation, and prosecution of Medicare fraud and whether the pre-claim review helps reduce expenditures while maintaining or improving quality of care. Under RCD, providers may choose pre-claim review or post-payment review of all Medicare claims submitted or elect not to participate, in which case they will incur a 25% payment reduction on all claims. If a home health agency elects to participate in the review and 90% or more of its claims are found to be valid during the six-month pre-claim review period, that agency may then opt out of the RCD review, except for spot reviews of samples consisting of 5% of total claims. CMS implemented RCD in Ohio in September 2019. RCD was scheduled to expand to Texas in March 2020 and to North Carolina and Florida in May 2020. In late March 2020, however, CMS announced it was pausing the RCD for home health services in Illinois, Ohio,

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and Texas and that it would not start RCD in North Carolina and Florida until after the COVID-19 public health emergency ended. On August 21, 2020, CMS announced a new “phased-in approach” to the RCD due to the public health emergency and subsequently announced the delay of the phased-in participation of the RCD in Florida and North Carolina until March 31, 2021. As a result, North Carolina and Florida agencies were able to submit pre-claim review requests for billing periods beginning August 31, 2020. Cycle 1 of the RCD in Texas ended on September 30, 2020, and we achieved an affirmation rate greater than 90%. Effective September 1, 2021, CMS ended its phased-in approach to participation in the RCD in Florida and North Carolina and fully implemented the RCD in those states.

We operate agencies (representing approximately 42% of our home health Medicare claims) in the five RCD states. We expect this demonstration project will require us to incur additional administrative and staffing costs and may impact the timeliness of claims payments given that Medicare Administrative Contractors in Illinois in a prior version of the project had difficulty processing pre-claim reviews on a timely basis. Accordingly, we may experience temporary decreases in Net service revenue and in cash flow, or we may incur costs associated with patient care for which the Medicare claim is subsequently denied, which could have an adverse effect on our financial position, results of operations, and liquidity.

As discussed above, MedPAC makes healthcare policy recommendations to Congress and provides comments to CMS on Medicare payment-related issues. Congress is not obligated to adopt MedPAC’s recommendations, and, based on outcomes in previous years, there can be no assurance Congress will adopt any given MedPAC recommendation. For example, in March and June 2021, MedPAC issued reports to Congress again recommending several possible changes, which MedPAC has advocated previously, that could negatively impact home health and hospice reimbursements.

We cannot predict what legislative or regulatory reforms or changes, if any, will ultimately be enacted, or the timing or effect any of those changes or reforms will have on us. If enacted, they may be challenging for all providers, and have the effect of limiting Medicare beneficiaries’ access to healthcare services, and could have a material adverse impact on our Net service revenue, financial position, results of operations, and cash flows. For additional discussion of healthcare reform and other factors affecting reimbursement for our services, see “Business—Regulation” and “Business—Sources of Revenue—Medicare Reimbursement” elsewhere in this information statement.

Compliance with the extensive laws and government regulations applicable to healthcare providers requires substantial time, effort and expense, and if we fail to comply with them, we could suffer penalties or be required to make significant changes to our operations.

Healthcare providers are required to comply with extensive and complex laws and regulations at the federal, state, and local government levels. These laws and regulations relate to, among other things:

• licensure, certification, enrollments, and accreditation;

• policies, either at the national or local level, delineating what conditions must be met to qualify for reimbursement under Medicare (also referred to as coverage requirements);

• coding and billing for services;

• relationships with physicians and other referral sources, including physician self-referral and anti-kickback laws;

• quality of medical care;

• use and maintenance of medical supplies and equipment;

• maintenance, security and privacy of patient information and medical records;

• minimum staffing;

• acquisition and dispensing of pharmaceuticals and controlled substances; and

• disposal of medical and hazardous waste.

In the future, changes in these laws or regulations or the manner in which they are enforced could subject our current or past practices to allegations of impropriety or illegality or could require us to make changes in our equipment, personnel, services, capital expenditure programs, operating procedures, and contractual arrangements,

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as well as the way in which we deliver home health and hospice services. Those changes could also affect reimbursements as well as future compliance, training, and staffing costs. For example, the Consolidated Appropriations Act, 2021 (the “2021 Budget Act”) creates a new Medicare survey program for hospice agencies which will require a survey at least once every three years. Hospice agencies that are found to be out of compliance could be subjected to new civil monetary penalties that accrue according to days out of compliance, as well as other forms of corrective action.

Examples of regulatory changes that can affect our business, beyond direct changes to Medicare reimbursement rates, can be found from time to time in CMS’s annual rulemaking. For example, to implement the Bipartisan Budget Act of 2018, the final rule for the 2019 Hospice-PS amended the hospice regulations to permit physician assistants to serve as “attending physicians” for patients in addition to physicians and nurse practitioners.

Of note, the HHS-OIG periodically updates a work plan that identifies areas of compliance focus. In January 2020, the HHS-OIG announced an active work plan to focus on incentives under the inpatient rehabilitation facility prospective payment system to discharge patients prematurely to home health agencies and appropriate documentation to support claims by home health and hospice agencies, which was issued in December 2021. In the report, HHS-OIG concluded that Medicare could have saved $993 million in 2017 and 2018 if it had implemented an inpatient rehabilitation facility transfer payment policy for early discharges to home health agencies. In July 2020, the HHS-OIG issued an audit report concluding that a significant number of home health claims for episodes of care slightly above the Low Utilization Payment Adjustment threshold (four visits per payment episode) because Medicare Administrative Contractors failed to adequately audit home health claims with between five and seven visits per payment episode. The HHS-OIG directed MACs to target this category of claims for additional review. In September 2020, the HHS-OIG announced an active work plan to focus on infection control at home health agencies during the COVID-19 pandemic, partially issued in 2021 with an additional report expected in 2022. In January 2021, the HHS-OIG announced an audit to evaluate home health services provided by agencies during the COVID-19 public health emergency to determine which types of skilled services were furnished via telehealth, and whether those services were administered and billed in accordance with Medicare requirements. Another active work plan provides that the HHS-OIG will determine if hospice patients are receiving the required visits by registered nurses.

Because Medicare comprises a significant portion of our Net service revenue, failure to comply with the laws and regulations governing the Medicare program and related matters, including anti-kickback and anti-fraud requirements, could materially and adversely affect us. As discussed above in connection with the 2010 Healthcare Reform Laws, the federal government has in the last couple of years made compliance enforcement and fighting healthcare fraud top priorities. In the past few years, DOJ and HHS as well as federal lawmakers have significantly increased efforts to ensure strict compliance with various reimbursement-related regulations as well as combat healthcare fraud. DOJ has pursued and recovered record amounts based on alleged healthcare fraud. The increased enforcement efforts have frequently included aggressive arguments and interpretations of laws and regulations that pose risks for all providers. For example, the federal government has increasingly asserted that incidents of erroneous billing or record keeping may represent violations of the FCA. Human error and oversight in record keeping and documentation, particularly where those activities are the responsibility of non-employees, are always a risk in business, and healthcare providers and independent physicians are no different. Additionally, the federal government has been willing to challenge the medical judgment of independent physicians in determining issues such as the medical necessity of a given treatment plan.

Settlements of alleged violations or imposed reductions in reimbursements, substantial damages and other remedies assessed against us could have a material adverse effect on our business, financial position, results of operations, and cash flows. Even the assertion of a violation, depending on its nature, could have a material adverse effect upon our stock price or reputation and could cost us significant time and expense to defend.

The use of sub-regulatory guidance, statistical sampling, and extrapolation by CMS, Medicare contractors, HHS-OIG, and DOJ to deny claims, expand enforcement claims, and advocate for changes in reimbursement policy increases the risk that we could experience reduced revenue, suffer penalties, or be required to make significant changes to our operations.

Because Medicare comprises a significant portion of our Net service revenue, failure to comply with the laws and regulations governing the Medicare program and related matters, including anti-kickback and anti-fraud requirements, could materially and adversely affect us. Our ability to operate in a compliant manner impacts the

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claims denials, compliance enforcement, and regulatory processes discussed in other risks above. The federal government’s reliance on sub-regulatory guidance, such as handbooks, FAQs, internal memoranda, and press releases, presents a unique challenge to compliance efforts. Such sub regulatory guidance purports to explain validly promulgated regulations but often expands or supplements existing regulations without constitutionally and statutorily required notice and comment and other procedural protections. Without procedural protections, sub-regulatory guidance poses a risk above and beyond reasonable efforts to follow validly promulgated regulations, particularly when the agency or MAC seeking to enforce such sub-regulatory guidance is not the agency or MAC issuing the guidance and therefore not as familiar with the substance and nature of the underlying regulations or even clinical issues involved.

On August 6, 2020, CMS issued a proposed rule invoking a rarely used retroactive-rulemaking authority to support CMS’s application of a Medicare payment methodology that the U.S. Supreme Court found to be procedurally improper in Azar v. Allina Health Services in 2019. CMS’s invocation of its retroactive-rulemaking authority in response to this Supreme Court decision is an unfavorable precedent for providers because it demonstrates a willingness by CMS to revive adverse reimbursement actions after those actions are deemed deficient on administrative procedural grounds.

Additionally, the federal government is increasingly turning to statistical sampling and extrapolation to expand claims denials and enforcement efforts and advocate for changes in reimbursement policy. Through sampling and extrapolation, the government takes a review of a small number of reimbursement claims and generalizes the results of that review to a much broader universe of claims, which can result in significant increases in the aggregate number and value of claims at issue. Increasing use of extrapolation can be found in payment review audits, such as those conducted by RACs and UPICs. In addition to payment reviews, government agencies may allege compliance violations, including submission of false claims, based on sampling and extrapolation and seek to change reimbursement policy. Notwithstanding the technical statistical flaws that can arise in sampling small groups of claims and the extremely problematic nature of extrapolation in the context of individualized decisions of medical judgment as some courts have noted, sampling and extrapolation pose a growing risk to healthcare providers in the form of more significant claims of overpayments and increased legal costs to defend against these problematic regulatory practices. In a recent federal court case, the United States Court of Appeals for the Fifth Circuit ruled in favor of CMS and affirmed the application of extrapolation errors identified in a sample of claims to support larger claims for overpayment. Any associated loss of revenue or increased legal costs could materially and adversely affect our financial position, results of operations, and cash flows.

Efforts to comply with regulatory mandates to increase the use of electronic health data and health system interoperability may lead to enforcement and negative publicity which could adversely affect our business.

For many years, a primary focus of the healthcare industry has been to increase the use of electronic health records (“EHR”) and the sharing of the health data among providers, payors and other members of the industry. The federal government has been a significant driver of that initiative through rules and regulations. In 2009, as part of the Health Information Technology for Economic and Clinical Health (“HITECH”) Act, the federal government set aside $27 billion of incentives for hospitals and providers to adopt EHR systems. In 2020, CMS and HHS’s Office of the National Coordinator for Health IT (“ONC”) finalized policy changes implementing interoperability, information blocking, and patient access provisions of the 21^st Century Cures Act and supporting the MyHealthEData initiative, designed to allow patients to access their health claims information electronically through the application of their choosing. The companion rules will transform the way in which healthcare providers, health information technology developers, health information exchanges/health information networks (“HIEs/HINs”), and health plans share patient information. For example, the ONC rule prohibits healthcare providers, health IT developers, and HIEs/HINs from engaging in practices that are likely to interfere with, prevent, materially discourage, or otherwise inhibit the access, exchange or use of electronic health information, also known as “information blocking.” The ONC rule also requires regulated actors to respond to requests for electronic health information in the content and manner requested, with some exceptions. Enforcement of ONC’s and CMS’s new health information access, exchange, and use standards promulgated in the 2020 rules began in 2021, and noncompliance can result in civil monetary penalties, exclusion from participation in federal healthcare programs and other appropriate “disincentives” that have not yet been identified by the agencies. The HHS Office of Civil Rights (“HHS-OCR”) patient right of access initiative, which began in late 2019 and has similar objectives to the new ONC initiative, such as promoting and enforcing patient access to health information, has led to 25 settlements of enforcement actions to date.

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The goals of increased use of electronic health data and interoperability are improved quality of care and lower healthcare costs generally. However, increased use of electronic health data and interoperability inherently magnifies the risk of security breaches involving that data and information systems used to share it, which risk is discussed below. Additionally, interoperability and the sharing of health information have received increasingly negative publicity. There is at least one well publicized instance where organizations received significant negative publicity for sharing health data despite having appeared to comply in all respects with privacy law. There can be no assurance that our efforts to improve the care we deliver and to comply with the law through increasing use of electronic data and system interoperability will not receive negative publicity that may materially and adversely affect our ability to get patient referrals or enter into joint ventures with other providers or may lead to greater regulatory scrutiny. Negative publicity may also lead to federal or state regulation that conflicts with current federal policy and interferes with the healthcare industry’s efforts to improve care and reduce costs through use of electronic data and interoperability.

If any of our home health or hospice agencies fail to comply with the Medicare enrollment requirements or conditions of participation, that agency could be terminated from the Medicare program.

Each of our home health and hospice agencies must comply with extensive enrollment requirements and conditions of participation for the Medicare program. If any of our agencies fail to meet any of the Medicare enrollment requirements or conditions of participation, we may receive a notice of deficiency from the applicable survey agency or contractor, as applicable. If that agency then fails to institute an acceptable plan of correction and correct the deficiency within the applicable correction period, it could lose the ability to bill Medicare. An agency could be terminated from the Medicare program if it fails to address the deficiency within the applicable correction period. If CMS terminates one agency, it may increase its scrutiny of others under common control.

On September 5, 2019, CMS released a final rule that will implement over a period of time additional provider enrollment provisions and create several new revocation and denial authorities in an attempt to bolster CMS’s efforts to prevent waste, fraud and abuse. A few provisions of this new rule could significantly increase the complexity of filing enrollment applications for all of our provider entities, including increased burden related to tracking and identifying required reporting data from our joint venture partners. This rule requires Medicare and Medicaid providers and suppliers to disclose any current or previous (in the last five years), direct or indirect affiliation with a provider or supplier that has ever had a disclosable event. A disclosable event is any uncollected debt to Medicare or Medicaid, payment suspension under a federal healthcare program, denial, revocation or termination of enrollment (even if it is under appeal), or exclusion by the HHS-OIG from participation in a federal healthcare program. The rule also broadens the definition of an affiliation, including many indirect ownership or control situations such as ownership interests in a publicly traded company. If CMS determines an affiliation with a disclosable event poses an undue risk of fraud, waste or abuse, then the provider reporting that affiliation may be subject to exclusion from Medicare. Currently, information regarding uncollected debt, payment suspensions and enrollment actions are not generally available, so obtaining such information on affiliates could prove difficult or impossible in some situations. CMS intends to issue further guidance on the level of effort it expects providers to undertake to uncover information on their affiliates.

Under this new rule, CMS may revoke a provider’s Medicare enrollment, including all of the provider’s locations, if the provider bills for services performed at or items furnished from one location that it knew or should have known did not comply with Medicare enrollment requirements, including making the disclosures discussed above. CMS has the ability to prevent applicants from enrolling in the program for up to three years if a provider is found to have submitted false or misleading information in its initial enrollment application. Additionally, CMS can now block providers and suppliers who are revoked from re-entering the Medicare program for up to ten years. CMS may also revoke a provider’s enrollment if it fails to report on a timely basis any change in ownership or control, revocation or suspension of a federal or state license or certification, or any other change in its enrollment data.

Any termination of one or more of our agencies from the Medicare program for failure to satisfy the enrollment requirements or conditions of participation could materially adversely affect our business, financial position, results of operations, and cash flows.

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If we are found to have violated applicable privacy and security laws and regulations, or our contractual obligations, we could be subject to sanctions, fines, damages and other additional civil or criminal penalties, which could increase our liabilities, harm our reputation and have a material adverse effect on our business, financial position, results of operation and liquidity.

There are a number of federal and state laws, rules and regulations, as well as contractual obligations, relating to the protection, collection, storage, use, retention, security, disclosure, transfer and other processing of confidential, sensitive and personal information, including certain patient health information, such as patient records. Existing laws and regulations are constantly evolving, and new laws and regulations that apply to our business are being introduced at every level of government in the United States. In many cases, these laws and regulations apply not only to third-party transactions, but also to transfers of information between or among us, our affiliates and other parties with whom we conduct business. These laws and regulations may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our business. We monitor legal developments in data privacy and security regulations at the local, state and federal level, however, the regulatory framework for data privacy and security worldwide is continuously evolving and developing and, as a result, interpretation and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future.

The management of protected health information (“PHI”) is subject to several regulations at the federal level, including the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and the HITECH Act. The HIPAA privacy and security regulations protect medical records and other personal health information by limiting their use and disclosure, giving individuals the right to access, amend, and seek accounting of their own health information, and limiting most uses and disclosures of health information to the minimum amount reasonably necessary to accomplish the intended purpose. The HITECH Act strengthened HIPAA enforcement provisions and authorized state attorneys general to bring civil actions for HIPAA violations. It also permits HHS to conduct audits of HIPAA compliance and impose significant civil monetary penalties even if we did not know and could not reasonably have known about a violation. This reporting obligation supplements state laws that also may require notification in the event of a breach of personal information. If we are found to have violated the HIPAA privacy or security regulations or other federal or state laws protecting the confidentiality of patient health or personal information, including but not limited to the HITECH Act, we could be subject to litigation, sanctions, fines, damages and other additional civil or criminal penalties, which could increase our liabilities, harm our reputation and have a material adverse effect on our business, financial position, results of operations and liquidity.

Numerous other federal and state laws protect the confidentiality, privacy, availability, integrity and security of PHI. For example, various states, such as California, Colorado, Connecticut, Massachusetts, and Virginia have implemented privacy laws and regulations that impose restrictive requirements regulating the use and disclosure of personally identifiable information, including PHI, and many other states have proposed similar laws and regulations. These laws in many cases are more restrictive than, and may not be preempted by, the HIPAA rules, apply to employees as well as patients, and may be subject to varying interpretations by courts and government agencies, creating complex compliance issues and potentially exposing us to additional expense, adverse publicity and liability. We also expect that there will continue to be new laws, regulations and industry standards concerning privacy, data protection and information security proposed and enacted in various jurisdictions. The U.S. Congress has considered, but not yet passed, several comprehensive federal data privacy bills over the past few years, such as the CONSENT Act, which was intended to be similar to the landmark 2018 European Union General Data Protection Regulation. We expect federal data privacy laws to continue to evolve.

At the state and local level, there is increased focus on regulating the collection, storage, use, retention, security, disclosure, transfer and other processing of confidential, sensitive and personal information. In recent years, we have seen significant changes to data privacy regulations across the United States. New legislation proposed or enacted will continue to shape the data privacy environment. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to confidential, sensitive and personal information than federal, international or other state laws, and such laws may differ from each other, which significantly complicates compliance efforts.

In addition, all 50 U.S. states and the District of Columbia have enacted breach notification laws that may require us to notify patients, employees or regulators in the event of unauthorized access to or disclosure of

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personal or confidential information experienced by us or our service providers. These laws are not consistent, and compliance in the event of a widespread data breach is difficult and may be costly. Moreover, states have been frequently amending existing laws, requiring attention to changing regulatory requirements.

We also may be contractually required to notify patients or other counterparties of a security breach. Although we have contractual protections with many of our service providers, any actual or perceived security breach could harm our reputation and brand, expose us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach. Any contractual protections we may have from our service providers may not be sufficient to adequately protect us from any such liabilities and losses, and we may be unable to enforce any such contractual protections. In addition to government regulation, privacy advocates and industry groups have and may in the future propose self-regulatory standards from time to time. These and other industry standards may legally or contractually apply to us, or we may elect to comply with such standards.

Complying with these various laws, rules, regulations and standards, and with any new laws or regulations or changes to existing laws, could cause us to incur substantial costs that are likely to increase over time, require us to change our business practices in a manner adverse to our business, divert resources from other initiatives and projects, and restrict the way products and services involving data are offered, all of which may have a material adverse effect on our business. However, in the future we may be unable to make such changes and modifications to our business practices in a commercially reasonable manner, or at all. Given the rapid development of cybersecurity and data privacy laws, we expect to encounter inconsistent interpretation and enforcement of these laws and regulations, as well as frequent changes to these laws and regulations which may expose us to significant penalties or liability for noncompliance, the possibility of fines, lawsuits (including class action privacy litigation), regulatory investigations, criminal or civil sanctions, audits, adverse media coverage, public censure, other claims, significant costs for remediation and damage to our reputation, or otherwise have a material adverse effect on our business and operations. Any allegations of a failure to adequately address data privacy or security-related concerns, even if unfounded, or to comply with applicable laws, regulations, standards and other obligations relating to data privacy and security, could result in additional cost and liability to us, damage our relationships with patients and have a material adverse effect on our business.

We make public statements about our use and disclosure of personal information through our privacy policies, information provided on our website and press statements. Although we endeavor to comply with our public statements and documentation about patient privacy, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policies and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices. Moreover, from time to time, concerns may be expressed about whether our products and services compromise the privacy of patients and others. Any concerns about our data privacy and security practices, even if unfounded, could damage the reputation of our businesses, discourage potential patients from our products and services and have a material adverse effect on our business.

We are subject to federal, state and local laws and regulations that govern our employment practices, including minimum wage, overtime, living wage, and paid-time-off requirements. Failure to comply with these laws and regulations, or changes to these laws and regulations that increase our employment-related expenses, could adversely impact our operations.

We are required to comply with all applicable federal, state and local laws and regulations relating to employment, including occupational safety and health requirements, wage and hour, overtime and other compensation requirements, employee benefits and other leave and sick pay requirements, proper classification of workers as employee or independent contractors, and immigration and equal employment opportunity laws, among others. These laws and regulations can vary significantly among jurisdictions, can change, and can be highly technical. Costs and expenses related to these requirements are a significant operating expense and may increase as laws and regulations change. Any failure to comply with these requirements can result in significant penalties or litigation exposure and could have a material adverse effect on our business.

Federal regulation may impair our ability to consummate acquisitions or open new agencies.

Changes in federal laws or regulations may materially adversely impact our ability to acquire home health agencies or open de novo home health agencies. For example, CMS has adopted a regulation known as the “36 Month Rule” that is applicable to home health agency acquisitions. Subject to certain exceptions, the 36 Month

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Rule prohibits buyers of certain home health agencies—those that either enrolled in Medicare or underwent a change in ownership fewer than 36 months prior to the acquisitions—from assuming the Medicare billing privileges of the acquired agency. Instead, the acquired home health agencies must enroll as new providers with Medicare. As a result, the 36 Month Rule may further increase competition for acquisition targets that are not subject to the rule and may cause significant Medicare billing delays for the purchases of home health agencies that are subject to the rule.

Other Operational and Financial Risks

The proper function, availability, and security of our information systems are critical to our business and failure to maintain proper function, availability, or security of our information systems or protect our data against unauthorized access could have a material adverse effect on our business, financial position, results of operations, and cash flows.

We are and will remain dependent on the proper function, availability and security of our and third-party information systems, including our electronic clinical information system. We undertake measures to protect the safety and security of our information systems and the data maintained within those systems, and we periodically test the adequacy of our security and disaster recovery measures. We have implemented administrative, technical and physical controls on our systems and devices in an attempt to prevent unauthorized access to that data, which includes patient information subject to the protections of HIPAA and the HITECH Act and other sensitive information. For additional discussion of these laws, see “Business—Regulation” elsewhere in this information statement.

We expend significant capital to protect against the threat of security breaches, including cyber-attacks, email phishing schemes, malware and ransomware. Substantial additional expenditures may be required to respond to and remediate any problems caused by breaches, including the unauthorized access to or theft of patient data and protected health information stored in our information systems and the introduction of computer malware or ransomware to our systems. We also provide our employees annual training and regular reminders on important measures they can take to prevent breaches and other cyber threats, including phishing schemes. We routinely identify attempts to gain unauthorized access to our systems. However, given the rapidly evolving nature and proliferation of cyber threats, there can be no assurance our training and network security measures or other controls will detect, prevent or remediate security or data breaches in a timely manner or otherwise prevent unauthorized access to, damage to, or interruption of our systems and operations. For example, it has been widely reported that many well-organized international interests, in certain cases with the backing of sovereign governments, are targeting the theft of patient information and the disruption of healthcare services through the use of advanced persistent threats. Similarly, in recent years, several hospitals have reported being victims of ransomware attacks in which they lost access to their systems, including clinical systems, during the course of the attacks. In 2020, one large, national healthcare system reported a ransomware attack that forced its facilities to operate without access to information systems for some time. We are likely to face attempted attacks in the future. Accordingly, we may be vulnerable to losses associated with the improper functioning, breach or unavailability of our and our vendors’ information systems, including systems used in acquired operations, and third-party systems we use.

In December 2020, it was reported that a sophisticated, well-funded state-sponsored threat actor implanted a backdoor security vulnerability in a widely used network monitoring software sold by SolarWinds, which software was then distributed to thousands of customers, including numerous government agencies and companies in the private sector, via an automatic update platform used to push out new software updates. Three of our servers downloaded the compromised software. The vulnerability was designed to enable hackers to install and execute additional malware that could be used to exfiltrate and facilitate remote access to data possessed by these government agencies and companies. The full scope of the security threat and extent of exploitation of the vulnerability is not yet known. Promptly after we learned of the compromised SolarWinds software update, we identified, isolated and remediated the malicious update then reviewed and ensured we were implementing the recommended security practices provided by industry and government experts. We also conducted a forensics investigation using all the indicators of compromise provided by leading security experts. Our forensic analysis to date has discovered no indicators of compromise.

There have been other recent significant incidents of software vendor compromises. Threat actors continue to attempt to exploit commonly used software and services to gain remote access to a large number of their customers’ information systems. For example, in August 2021, Microsoft reported a vulnerability within their

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email exchange services which attackers can use to remotely bypass the access control list then elevate privileges. In December 2021, vulnerable logging software installed within thousands of applications and services gave threat actors the ability to execute code remotely and gain unrestricted control over the victims’ systems. We conducted forensics investigations on our systems containing these software applications using all the indicators of compromise provided by leading security experts. Our forensic analysis to date has discovered no indicators of compromise.

We continue to monitor each of these situations closely and work with our cyber security vendors, as well as industry and governmental cyber security partners combating this threat. To combat recent cyber security threats, in March 2022 Congress enacted the Bipartisan Cyber Incident Reporting for Critical Infrastructure Act of 2022 (the “Cyber Incident Reporting Act”) which requires critical infrastructure owners and operators—including those in the health care and public health industry—to report substantial cyber incidents to the Department of Homeland Security’s (DHS) Cybersecurity and Infrastructure Security Agency (CISA) within 72 hours and any ransomware payments to malicious cyber actors within 24 hours. As a critical infrastructure owner and operator, we must comply with the Cyber Incident Reporting Act and may be subject to certain penalties for failure to comply with its reporting requirements.

To date, we are not aware of having experienced a material compromise from a cyber breach or attack. However, given the increasing cyber security threats in the healthcare industry, there can be no assurance we will not experience business interruptions; data loss, ransom, misappropriation or corruption; theft or misuse of proprietary data, patient or other personally identifiable information; or litigation, investigation, or regulatory action related to any of those, any of which could have a material adverse effect on our patient care, financial position, and results of operations and harm our business reputation.

A compromise of our network security measures or other controls, or of those businesses or vendors with whom we interact, which results in confidential information being accessed, obtained, damaged or used by unauthorized persons or unavailability of systems necessary to the operation of our business, could impact patient care, harm our reputation, and expose us to significant remedial costs as well as regulatory actions (fines and penalties) and claims from patients, financial institutions, regulatory and law enforcement agencies, and other persons, any of which could have a material adverse effect on our business, financial position, results of operations and cash flows. The nature of our business requires the sharing of protected health information and other sensitive information among employees and healthcare partners, many of whom carry and access portable devices outside of our physical locations, which in turn increases the risk of loss, theft or inadvertent disclosure of that information. Moreover, a security breach, or threat thereof, could require that we expend significant resources to repair or improve our information systems and infrastructure and could distract management and other key personnel from performing their primary operational duties. In the case of a material breach or cyber-attack, the associated expenses and losses may exceed our current insurance coverage for such events. Some adverse consequences may not be insured, such as reputational harm and third-party business interruption. Failure to maintain proper function, security, or availability of our information systems or protect our data against unauthorized access, or the failure of one or more of our key partners, vendors, or other counterparties to do these things, could have a material adverse effect on our business, financial position, results of operations, and cash flows.

We have an agreement to license and support a comprehensive home care management and clinical information system, Homecare Homebase. In addition, we have a number of partners and non-software vendors with whom we share data in order to provide patient care and otherwise operate our business. In fact, federal laws and regulations require interoperability among healthcare entities in many circumstances. Our inability, or the inability of our partners or vendors, to continue to maintain and upgrade information systems, software, and hardware could disrupt or reduce the efficiency of our operations, including affecting patient care. A security breach or other system failure involving Homecare Homebase, our licensed information management system, or another third party with whom we share data or system connectivity could compromise our patient data or proprietary information or disrupt our ability to operate. In addition, costs, unexpected problems, and interruptions associated with the implementation or transition to new systems or technology or with adequate support of those systems or technology across numerous hospitals and agencies could have a material adverse effect on our business, financial position, results of operations, and cash flows.

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If we are unable to provide a consistently high quality of care, our business will be adversely impacted.

Providing quality patient care is fundamental to our business. We believe hospitals, physicians and other referral sources refer patients to us in large part because of our reputation for delivering quality care. Clinical quality is becoming increasingly important within our industry. Effective October 2012, Medicare began to impose a financial penalty upon hospitals that have excessive rates of patient readmissions within 30 days from hospital discharge. We believe this regulation provides a competitive advantage to home health providers who can differentiate themselves based upon quality, particularly by achieving low patient acute care hospital readmission rates and by implementing disease management programs designed to be responsive to the needs of patients served by referring hospitals. If we should fail to attain our goals regarding acute care hospital readmission rates and other quality metrics, we expect our ability to generate referrals would be adversely impacted, which could have a material adverse effect upon our business and consolidated financial condition, results of operations and cash flows.

Additionally, Medicare has established consumer-facing websites, Home Health Compare and Hospice Compare, that present data regarding our performance on certain quality measures compared to state and national averages. Failure to achieve or exceed these averages may affect our ability to generate referrals, which could have a material adverse effect upon our business and consolidated financial condition, results of operations and cash flows.

We face intense competition for patients from other healthcare providers.

We operate in the highly competitive and fragmented home health and hospice industries. Our primary competition in home health services comes from a large insurance company, two other large public home health companies, locally owned private home health companies, and acute care hospitals with adjunct home health services and typically varies from market to market. We compete with a variety of companies in both home health and hospice, some of which, including several large public companies, may have greater financial and other resources and may be more established in their respective communities. One public home health company has a strategy that emphasizes joint ventures with acute care hospitals, including a number of joint ventures with large systems, which frequently serve as the referral sources for home health patients in specific markets. Similarly, there is a large insurance company that offers Medicare Advantage coverage and owns a home health business that is the largest provider of Medicare certified skilled home health services. This competitor can designate which home health and hospice agencies are inside or outside of the participating provider networks and can also set reimbursement rates for network participants, which are abilities that we do not have. Other large health insurance companies have publicly announced their intentions to enter the home health business. Additionally, nursing homes compete for referrals in some instances when the patients may be suitable for home-based care.

Competing companies may offer newer or different services from those we offer or have better relationships with referring physicians and may thereby attract patients who are presently, or would be candidates for, receiving our home health or hospice services. The other public companies and the insurance companies have or may obtain significantly greater marketing and financial resources or other advantages of scale than we have or may obtain. Other companies, including hospitals and other healthcare organizations that are not currently providing competing services, may expand their services to include home health, hospice care, or similar services. In several states in which we operate, a majority of the Medicare Advantage patients within the state are insured by two large managed care companies that either currently offer home health services or are actively pursuing the acquisition of a business that offers home health services. The managed care companies have substantial resources and existing relationships with customers which may serve as a large patient base for their current or future home health services. Competition by these managed care companies in home health services may adversely affect our growth strategy of capturing greater Medicare Advantage volumes. In addition, recently, we have seen several companies that have not traditionally been healthcare providers express an interest in home healthcare; some of these companies have substantial resources and could compete with us in the future if their efforts to provide healthcare are successful. In addition to having substantial resources, these companies also have large numbers of customers and employees, which may serve as a large patient base for such companies in the future.

There can be no assurance this competition, or other competition which we may encounter in the future, will not adversely affect our business, financial position, results of operations or cash flows. In addition, from time to time, there are efforts in states with certificate of need (“CON”) laws to weaken those laws, which could

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potentially increase competition in those states. Conversely, competition and statutory procedural requirements in some CON states may inhibit our ability to expand our operations in those states. For a breakdown of the CON status of the states and territories in which we have operations, see the section titled “Business—Properties” elsewhere in this information statement.

If we are unable to maintain or develop relationships with patient referral sources, our growth and profitability could be adversely affected.

Our success depends in large part on referrals from physicians, hospitals, case managers and other patient referral sources in the communities we serve. By law, referral sources cannot be contractually obligated to refer patients to any specific provider. However, there can be no assurance that individuals will not attempt to steer patients to competing post-acute providers or otherwise limit our access to potential referrals. The establishment of joint ventures or networks between referral sources, such as acute care hospitals, and other post-acute providers may hinder patient referrals to us. The growing emphasis on integrated care delivery across the healthcare continuum increases that risk.

Our growth and profitability depend on our ability to establish and maintain close working relationships with patient referral sources and to increase awareness and acceptance of the benefits of home health and hospice care by our referral sources and their patients. In 2021, we admitted approximately 27,000 patients following their discharge from an Encompass rehabilitation hospital. We cannot provide assurance that we will be able to maintain our existing referral source relationships, including with Encompass, or that we will be able to develop and maintain new relationships in existing or new markets. Some of our business practices related to care coordination and transitions of care from Encompass will have to change following the separation. Our loss of, or failure to maintain, existing relationships or our failure to develop new relationships could adversely affect our ability to grow our business and operate profitably.

We may have difficulty completing investments and transactions that increase our capacity consistent with our growth strategy.

We selectively pursue strategic acquisitions of, and in some instances joint ventures with, other healthcare providers. We may face limitations on our ability to identify sufficient acquisition or other development targets and to complete those transactions to meet goals. In the home health industry, there is significant competition among acquirors attempting to secure the acquisition of companies that have a large number of locations. Our large home health competitors may have the ability to outbid us for acquisitions. In many states, the need to obtain governmental approvals, such as a CON or an approval of a change in ownership, may represent a significant obstacle to completing transactions. Additionally, in states with CON laws, it is not unusual for third-party providers to challenge the initial awards of CONs or the expansion of the area served, and the adjudication of those challenges and related appeals may take many years. These factors and others may delay, or increase the cost to us associated with, any acquisition or de novo development or prevent us from completing one or more acquisitions or de novo developments.

We may make investments or complete transactions that could expose us to unforeseen risks and liabilities.

Investments, acquisitions, joint ventures or other development opportunities identified and completed may involve material cash expenditures, debt incurrence, operating losses, amortization of certain intangible assets of acquired companies, issuances of equity securities, liabilities and expenses, some of which are unforeseen, that could materially and adversely affect our business, financial position, results of operations and liquidity. Acquisitions, investments and joint ventures involve numerous risks, including:

• limitations, including state CONs as well as anti-trust, Medicare and other regulatory approval requirements, on our ability to complete such acquisitions, particularly those involving not for profit providers, on terms, timetables and valuations reasonable to us;

• limitations in obtaining financing for acquisitions at a cost reasonable to us;

• difficulties integrating acquired operations, personnel, and information systems, and in realizing projected revenues, efficiencies and cost savings, or returns on invested capital;

• entry into markets, businesses or services in which we may have little or no experience;

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• diversion of business resources or management’s attention from ongoing business operations; and

• exposure to undisclosed or unforeseen liabilities of acquired operations, including liabilities for failure to comply with healthcare laws and anti-trust considerations in specific markets, successor liability imposed by Medicare, and risks and liabilities related to previously compromised information systems.

We may not be able to successfully integrate acquisitions or realize the anticipated benefits of any acquisitions.

We may undertake strategic acquisitions from time to time. For example, we completed the acquisitions of the home health and hospice business of Camellia Healthcare (“Camellia Healthcare”) and Alacare Home Health and Hospice (“Alacare”) and Frontier Home Health and Hospice (“Frontier”) in 2018, 2019, and 2021, respectively. Prior to consummation of any acquisition, the acquired business will have operated independently of us, with its own procedures, corporate culture, locations, employees and systems. We expect to integrate acquired businesses into our existing business utilizing certain common information systems, operating procedures, administrative functions, financial and internal controls and human resources practices to the extent practicable. There may be substantial difficulties, costs and delays involved in the integration of an acquired business with our business. Additionally, an acquisition could cause disruption to our business and operations and our relationships with customers, employees and other parties. In some cases, the acquired business has itself grown through acquisitions, and there may be legacy systems, operating policies and procedures, and financial and administrative practices yet to be fully integrated. To the extent we are attempting to integrate multiple businesses at the same time, we may not be able to do so as efficiently or effectively as we initially anticipate. The failure to successfully integrate on a timely basis any acquired business with our existing business could have an adverse effect on our business, financial position, results of operations and cash flows.

We anticipate our acquisitions will result in benefits including, among other things, increased revenues. However, acquired businesses may not contribute to our revenues or earnings to the extent anticipated, and any synergies we expect may not be realized after the acquisitions have been completed. If the acquired businesses underperform and any underperformance is other than temporary, we may be required to take an impairment charge. Failure to achieve the anticipated benefits could result in the diversion of management’s time and energy and could have an adverse effect on our business, financial position, results of operations, and cash flows.

Our business depends on the ability of our employees to travel via fleet vehicles or their personal vehicles, and our business operations may be impacted by rising costs of fuel and access to fleet vehicles.

To provide home health and hospice services, our employees must travel to our patients. Our employees either drive vehicles from our company fleet or use their personal vehicles. For the company fleet vehicles, we reimburse our employees’ out-of-pocket expenses, including fuel cost, and we reimburse our employees using their personal vehicles for mileage pursuant to an established reimbursement methodology. The recent significant rise in fuel prices has increased, and likely will continue to increase, the amounts we reimburse to our employees for travel as well as the associated cost per visit. Additionally, recent supply chain issues may impact the number of fleet vehicles available for use by our employees. Our ability to timely obtain replacement or purchase new vehicles has been hindered by recent supply chain issues and may in the future prevent us from providing fleet cars for eligible employees who have extensive travel needs.

If the costs associated with fuel, repair expenses, and new fleet vehicles continue to rise, our future operations and financial results may be adversely affected, and our profits and profit margins will likely be reduced. Moreover, our competitors may provide higher mileage reimbursement rates than we are able to provide, which may result in increased employee turnover. If we are not able to provide fleet vehicles to eligible employees who would prefer not to use their own vehicles, we may not be able to recruit or retain those employees. Increased turnover could increase our staffing costs and reduce profitability of our overall business.

Competition for staffing, shortages of qualified personnel, union activity or other factors may increase our staffing costs and reduce profitability.

Our operations are dependent on the efforts, abilities and experience of our medical personnel, such as physical therapists, occupational therapists, speech pathologists, nurses and other healthcare professionals. We compete with other healthcare providers in recruiting and retaining qualified personnel responsible for the daily operations of each of our locations. Our ability to attract and retain qualified personnel depends on several

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factors, including our ability to provide competitive wages and benefits. In some markets, the lack of availability of medical personnel is a significant operating issue facing all healthcare providers, including us. This issue may be exacerbated if immigration is more limited in the future. As discussed below in “—Novel Coronavirus Disease 2019 (“COVID-19”) Pandemic Risks,” the pandemic has significantly affected the availability of clinical staff. A shortage may require us to continue to enhance wages and benefits to recruit and retain qualified personnel or to contract for more expensive temporary personnel. We also depend on the available labor pool of semi-skilled and unskilled employees in each of the markets in which we operate. Our failure to recruit and retain qualified medical personnel could cause the quality of our services to decline or our ability to grow may be constrained.

If our staffing costs increase, we may not experience reimbursement rate or pricing increases to offset these additional costs. Because a significant percentage of our revenues consists of fixed, prospective payments, our ability to pass along increased staffing costs is limited. In particular, if staffing costs rise at an annual rate greater than our net annual market basket update from Medicare, as is expected to happen in 2022, or we experience a significant shift in our payor mix to lower rate payors such as Medicaid, our results of operations and cash flows will be adversely affected. Conversely, decreases in reimbursement revenues, such as with sequestration and PDGM reimbursement rate reductions, may limit our ability to increase compensation or benefits to the extent necessary to retain key employees, in turn increasing our turnover and associated costs. Union activity is another factor that may contribute to increased staffing costs. We currently have no union employees, so an increase in labor union activity, or our entry into geographic areas where health care providers historically have been unionized, could have a significant impact on our staffing costs. Our failure to control our staffing costs could have a material adverse effect on our business, financial position, results of operations and cash flows.

We are a defendant in various lawsuits and may be subject to liability under qui tam cases, the outcome of which could have a material adverse effect on us.

We operate in a highly regulated industry in which healthcare providers are routinely subject to litigation. As a result, various lawsuits, claims, and legal and regulatory proceedings have been and can be expected to be instituted or asserted against us. We are a defendant in a number of lawsuits, most of which are general and professional liability matters inherent in treating patients with medical conditions.

Substantial damages, fines or other remedies assessed against us or agreed to in settlements could have a material adverse effect on our business, financial position, results of operations and cash flows, including indirectly as a result of covenant defaults under our debt instruments or other claims such as those in securities actions. Additionally, the costs of defending litigation and investigations, even if frivolous or nonmeritorious, could be significant.

The FCA allows private citizens, called “relators,” to institute civil proceedings on behalf of the United States alleging violations of the FCA. These lawsuits, also known as “whistleblower” or “qui tam” actions, can involve significant monetary damages, fines, attorneys’ fees and the award of bounties to the relators who successfully prosecute or bring these suits to the government. Qui tam cases are sealed at the time of filing, which means knowledge of the information contained in the complaint typically is limited to the relator, the federal government and the presiding court. The defendant in a qui tam action may remain unaware of the existence of a sealed complaint for years. While the complaint is under seal, the government reviews the merits of the case and may conduct a broad investigation and seek discovery from the defendant and other parties before deciding whether to intervene in the case and take the lead on litigating the claims. The court lifts the seal when the government makes its decision on whether to intervene. If the government decides not to intervene, the relator may elect to continue to pursue the lawsuit individually on behalf of the government.

It is possible that other qui tam lawsuits have been filed against us, which suits remain under seal, or that we are unaware of such filings or precluded by existing law or court order from discussing or disclosing the filing of such suits. We may be subject to liability under one or more undisclosed qui tam cases brought pursuant to the FCA.

The healthcare services we provide involve substantial risk of general and professional liability. Our clinicians must frequently assist patients who have difficulty with mobility. Home care services, by their very nature, are provided in an environment that is not in the substantial control of the healthcare provider. On any given day, we have thousands of care providers driving to and from the homes of patients. We cannot predict the impact any claims arising out of the travel, the home visits or the care being provided (regardless of their

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ultimate outcomes) could have on our business or reputation or on our ability to attract and retain patients and employees. We also cannot predict the adequacy of any reserves for such losses or recoveries from any insurance or re-insurance policies.

Our insurance policies may not cover all losses we may experience, and increases in the cost of insurance coverage could impact our ability to obtain coverage in sufficient amounts or at all.

We are subject to claims and legal actions in the ordinary course of our business. To cover claims that may arise, we maintain commercial insurance in amounts that we believe are appropriate and sufficient for our operations. We maintain claims-made healthcare professional liability and occurrence-based general liability insurance that provides primary limits of $1 million per incident/occurrence and $3 million in annual aggregate amounts. We maintain workers’ compensation insurance that meets state statutory requirements and provides a primary employer liability limit of $1 million to cover claims that may arise in the states in which we operate, excluding Texas. Coverage for workers’ compensation matters within Texas is procured under the nonsubscriber option whereby we retain the first $25,000 of each occurrence with an aggregate policy limit of $25 million. Under our workers’ compensation insurance policies for all other states, Enhabit incurs no deductible. We maintain automobile liability insurance for all owned, hired and non-owned autos with a primary limit of $1 million.

While we believe our insurance policies and coverage are adequate for a business enterprise of our type, we cannot guarantee that our insurance coverage is sufficient to cover all future claims or that it will continue to be available in adequate amounts or at a reasonable cost. Also, these policies may not cover all risks that our business may face.

The cost and availability of insurance coverage has varied widely in recent years. Changes in the number of our liability claims and the cost to resolve them can impact the expense of maintaining such coverage. A significant increase in the cost of obtaining insurance with adequate coverage or in an adequate amount could have a material impact on our financial position and results of operations.

We may incur additional indebtedness in the future, and that debt or the associated increased leverage may have negative consequences for our business. The restrictive covenants included in the terms of our indebtedness could affect our ability to execute aspects of our business plan successfully.

In connection with the separation, we entered into a $400 million term loan A facility and a $350 million revolving credit facility. Subject to specified limitations, the credit agreement governing this indebtedness will permit us and our subsidiaries to incur material additional debt. If new debt is added to the indebtedness incurred in connection with the separation, the risks described here could intensify.

Our indebtedness could have important consequences, including:

• limiting our ability to borrow additional amounts to fund working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy and other general corporate purposes;

• making us more vulnerable to adverse changes in general economic, industry and competitive conditions, in government regulation and in our business by limiting our flexibility in planning for, and making it more difficult for us to react quickly to, changing conditions;

• placing us at a competitive disadvantage compared with competing providers that have less debt; and

• exposing us to risks inherent in interest rate fluctuations for outstanding amounts under our credit facility, which could result in higher interest expense in the event of increases in interest rates, as discussed in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” elsewhere in this information statement.

We are subject to contingent liabilities, prevailing economic conditions, and financial, business and other factors beyond our control. Although we expect to make scheduled interest payments and principal reductions, we cannot provide assurance that changes in our business or other factors will not occur that may have the effect of preventing us from satisfying obligations under our credit agreement or other future debt instruments. If we are unable to generate sufficient cash flow from operations in the future to service our debt and meet our other needs or have an unanticipated cash payment obligation, we may have to refinance all or a portion of our debt,

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obtain additional financing or reduce expenditures or sell assets we deem necessary to our business. We cannot provide assurance these measures would be possible or any additional financing could be obtained.

In addition, the terms of our credit agreement impose, and our future debt instruments may impose, restrictions on us and our subsidiaries, including restrictions on our ability to, among other things, pay dividends on or repurchase our capital stock, engage in transactions with affiliates, or incur or guarantee indebtedness. These covenants could also adversely affect our ability to finance our future operations or capital needs and pursue available business opportunities. Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing. For additional discussion of our indebtedness, see the “Post Separation Liquidity and Capital Resources” section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section elsewhere in this information statement, and Note 9, Long-term Debt, to the accompanying consolidated financial statements.

In addition, the credit agreement will require us to maintain specified financial ratios and satisfy certain financial condition tests. See the “Post Separation Liquidity and Capital Resources” section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section elsewhere in this information statement, and Note 9, Long-term Debt, to the accompanying consolidated financial statements. We cannot provide assurance that we will be able to maintain compliance with such financial ratios and financial condition tests. Events beyond our control, including changes in general economic and business conditions, may affect our ability to meet those financial ratios and financial condition tests. A severe downturn in earnings, failure to realize anticipated earnings from acquisitions, or, if we have outstanding borrowings under our credit facility at the time, a rapid increase in interest rates could impair our ability to comply with those financial ratios and financial condition tests and we may need to obtain waivers from the required proportion of the lenders to avoid being in default. If we try to obtain a waiver or other relief from the required lenders, we may not be able to obtain it or such relief might have a material cost to us or be on terms less favorable than those in our existing debt. If a default occurs, the lenders could exercise their rights, including declaring all the funds borrowed (together with accrued and unpaid interest) to be immediately due and payable, terminating their commitments or instituting foreclosure proceedings against our assets, which, in turn, could cause the default and acceleration of the maturity of our other indebtedness. A breach of any other restrictive covenants contained in our credit agreement would also (after giving effect to applicable grace periods, if any) result in an event of default with the same outcome.

We may be more vulnerable to the effects of a public health catastrophe than other businesses due to the nature of our patients, and a regional or global socio-political or other catastrophic event could severely disrupt our business.

We believe the majority of our patients are individuals with complex medical challenges, many of whom may be more vulnerable than the general public during a pandemic or other public health catastrophe. Our employees are also at greater risk of contracting contagious diseases due to their increased exposure to vulnerable patients. For example, if another pandemic were to occur, we could suffer significant losses to our consumer population or a reduction in the availability of our employees and, at a high cost, be required to hire replacements for affected workers. Enrollment for our services could experience sharp declines if families decide healthcare workers should not be brought into their homes during a health pandemic. Local, regional or national governments might limit or ban public interactions to halt or delay the spread of diseases causing business disruptions and the temporary suspension of our services. Accordingly, certain public health catastrophes could have a material adverse effect on our financial condition and results of operations.

Other unforeseen events, including acts of violence, war, terrorism and other international, regional or local instability or conflicts (including labor issues), embargoes, natural disasters such as earthquakes, whether occurring in the United States or abroad, could restrict or disrupt our operations.

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Our ability to develop adjacent service offerings is subject to a number of risks.

Because we have historically focused on the skilled home health and hospice industries, developing adjacent service offerings such as SNF-at-home, palliative care services, care management services, private duty services, and hospital-at-home care involves a number of risks, including reimbursement risks, regulatory risks, and staffing and operational risks, among others. The lack of well-developed regulations for these adjacent services magnifies those risks. Any of these risks could impact our ability to enter these service areas, or the attractiveness of these opportunities for our business. Furthermore, because these are new services that we have not previously provided, we may not be able to do so efficiently or effectively if we do develop these service areas, and such services may not contribute to our revenues or earnings to the extent anticipated. Developing these adjacent service offerings may involve material cash expenditures, debt incurrence, liabilities and expenses, some of which may be unforeseen and could materially and adversely affect our business, financial position, results of operations and liquidity.

Novel Coronavirus Disease 2019 (“COVID-19”) Pandemic Risks

The COVID-19 pandemic (the “pandemic”) has significantly affected, and is expected to continue to significantly affect our operations, business and financial condition, and our liquidity could be negatively impacted, particularly if the provision of healthcare services and the supplies for those services are disrupted for a lengthy period of time.

The pandemic has significantly affected and will continue to significantly affect our agencies, employees, business operations and financial performance, as well as the U.S. economy and financial markets. The pandemic is still rapidly evolving and much of its impact remains unknown and difficult to predict, with the impact on our operations and financial performance being dependent on numerous factors, including: the rate of spread, duration and geographic coverage of the pandemic; the rate and extent to which the virus mutates and the severity of the symptoms of the variants; the status of testing capabilities; the rates of vaccination and therapeutic remedies for COVID-19 and any variant strains; the legal, regulatory and administrative developments related to COVID-19 at federal, state and local levels, such as vaccine mandates, anti-mandate laws and orders, shelter-in-place orders, facility closures and quarantines; and the infectious disease prevention and control efforts of the Company, governments and third parties.

We began experiencing a negative impact from the pandemic on our operations and financial results due to the pandemic in March 2020. The most pronounced negative impacts occurred in the first half of 2020 as a result of the initial wave of COVID-19 and the initial governmental reactions to the pandemic. Since then, our operational and financial performance has improved, but subsequent localized surges in case counts, particularly ones involving new COVID-19 variants, have also had a negative impact on us. The ongoing nature of the pandemic means that new or recurring problems are likely to arise and may have significant negative effects on our business, particularly in specific markets most affected by a new surge.

Legal and Regulatory Environment

Future federal, state or local laws, regulations, orders or other governmental or regulatory actions addressing COVID-19 have, and could in the future, adversely affect our financial condition, results of operations and cash flow, including by exacerbating staffing shortages, increasing staffing and supply costs, reducing patient volumes, and increasing compliance costs and the associated risks of losing a license to operate. CMS imposed a COVID-19 vaccination requirement (the “CMS Vax Mandate”) as a condition of participating in the Medicare and Medicaid programs. The CMS Vax Mandate recognizes potential medical and religious exemptions but does not allow for testing as an alternative for employees that do not get the vaccine. Pursuant to CMS guidance, a healthcare provider must have policies and procedures in place to ensure all employees are vaccinated and 100% of employees must be fully vaccinated or have been granted qualifying exemption on or before the deadline for the provider’s state, the latest of which is March 21, 2022. Compliance with the CMS Vax Mandate will be assessed as part of initial certification, standard recertification or re-accreditation performed by existing surveying agencies and contractors. As is customary in the surveying process, non-compliance does not necessarily lead to termination, and providers will generally be given opportunities to return to compliance. If noncompliance is not resolved in the notice and remediation period, providers may as a final measure be subject to termination of participation from the Medicare and Medicaid programs. Home health and hospice agencies are also subject to civil monetary penalties and claims denials. Some states have adopted more onerous vaccine mandate requirements than CMS. Other states, including Florida and Texas, have promulgated laws and executive orders

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that purport to prohibit employers from instituting vaccine mandates for employees or to prevent state authorities from aiding in enforcement of federal vaccine mandates. It is unclear how these conflicting anti-mandate laws and orders might impact the administration of the CMS Vax Mandate or employers’ attempts to comply with the CMS Vax Mandate.

State and local executive actions in response to COVID-19, such as limitations on elective procedures, vaccine mandates, shelter-in-place orders, facility closures and quarantines, have in the past, and could in the future, impair our ability to operate or prevent people from seeking care from us. For example, local health departments have restricted our ability to take patients in specific markets for periods of time in reaction to perceived COVID-19 outbreaks. The imposition of a nationwide restriction on travel or other public activities by the federal government could have similar effects in all of our markets.

We may also be subject to lawsuits from patients, employees and others alleging exposure to COVID-19 from our operations. Such actions may involve large damage claims as well as substantial defense costs. Our professional and general liability insurance may not cover all claims against us.

Additionally, the CARES Act, signed into law on March 27, 2020, authorized the cash distribution of relief funds to healthcare providers in response to the pandemic. On April 10, 2020, HHS began distributing CARES Act relief funds, for which we did not apply, to various of our bank accounts. We refused the CARES Act relief funds, and our banks returned all the funds to HHS. The 2021 Budget Act, signed into law on December 27, 2020, provides for additional provider relief funds. We intend to refuse any additional provider relief funds distributed in the future, whether authorized under the CARES Act, the 2021 Budget Act, or the American Rescue Plan Act.

Patient Volumes and Related Risks

For various quarterly periods during the pandemic, we experienced decreased patient volumes in our home health and hospice businesses, when compared to prior year periods. We believe reduced patient volumes resulted, and will continue to result in specific markets, from a number of conditions related to the pandemic negatively affecting the willingness and ability of patients to seek and receive healthcare services, including: reductions in elective procedures by acute-care hospitals and physician practices; capacity and staffing constraints; restrictive governmental measures, such as travel bans, social distancing requirements, quarantines and shelter-in-place orders; and patient and caregiver fear of infection. We also experienced decreases in institutional referrals because of the pandemic.

We believe one of the primary drivers of our reduced volumes is the significant reduction in volumes of elective procedures by acute-care hospitals and physician practices. There is also reason to believe patients, because of fear of infection, have delayed or foregone treatment for conditions, such as stroke and heart attack, that are non-elective in nature. As a reminder, a large number of patients are referred to us following procedures or treatment at acute-care hospitals. Other factors related to the pandemic that have led to decreasing patient volumes include: lower acute-care hospital censuses due to shelter-in-place orders, restrictive visitation policies in place at acute-care hospitals that severely limit access to patients and caregivers by our care transition coordinators, policies in assisted living facilities that limit our staff from visiting patients, and heightened anxiety among patients and their family members regarding the risk of exposure to COVID-19 during acute-care and post-acute care treatment. Significant outbreaks of COVID-19 in our markets, hospitals or large acute-care referral sources could further increase patient anxiety and unwillingness to seek treatment from us or otherwise limit referrals. These factors have contributed, and could in the future contribute, to a decline in new patients and decreases in visits per episode and institutional referrals in our home health segment.

Staffing and Related Risks

Our operations and financial results have been, and may in the future be, adversely affected by staffing shortages and costs. The pandemic and governmental responses to it have created and continue to exacerbate staffing challenges for us and other healthcare providers, including our referral sources. Quarantines and vaccine mandates as well as employee apprehension and stress related to the pandemic have led to staffing shortages which in turn have led to increased staffing costs. We have, and the healthcare industry in general has, experienced staffing shortages at individual hospitals and agencies from time to time. Staffing shortages have limited, and may in the future limit our ability to admit additional patients at a given agency. Shortages in nurse staffing have led to increases in agency nursing and the compensation costs for nursing staff, both agency and

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employee. The CMS Vax Mandate (as defined below) may lead to the loss of some employees. In addition to staffing shortages, significant outbreaks of COVID-19 or PPE shortages in our markets or hospitals may reduce employee morale or create labor unrest or other workforce disruptions. Staffing shortages or employee relations issues related to COVID-19 may lead to increased compensation expenses and limitations on the ability to admit new patients. We may also experience additional benefit costs related to increased workers’ compensation claims and group health insurance expenses as a result of the pandemic. Additionally, as some employees work from home to comply with COVID-19 mitigation protocols, they will rely on remote access to our information systems to a greater extent than normal, which could increase the likelihood and magnitude of a cyber-attack on our information systems.

Supply Chain

Additionally, we experienced supply chain disruptions as a result of the pandemic, including shortages and delays, and we have experienced, and are likely to continue to experience, significant price increases in equipment, pharmaceuticals and medical supplies, particularly personal protective equipment, or “PPE.” Beginning in March 2020, we experienced increased supply expenses due to higher utilization of PPE and increased purchasing of other medical supplies and cleaning and sanitization materials as well as higher prices for supplies in shortage. Increased supply expenses are likely to continue in 2022. Shortages of essential PPE and pharmaceutical and medical supplies in the future may also limit our ability to admit and treat patients or lead to employee disputes.

Other Factors

The foregoing disruptions to our business as a result of the pandemic have had, and are likely to continue to have, an adverse effect on our business and could have a material adverse effect on our business, results of operations, financial condition and cash flows. Furthermore, assessing the CMS Vax Mandate and numerous other federal, state and local regulatory changes and formulating our responses to those regulatory changes and the effects of the pandemic has required, and will likely continue to require, extensive management involvement and company resources, which may negatively affect our ability to implement our business plan and respond to opportunities and could have a material adverse effect on our business, results of operations, financial condition and cash flows.

Risks Related to the Separation and Distribution

Our rebranding initiative will involve substantial costs and may not be favorably received by our referral sources, business partners, or investors.

Prior to the separation, we have conducted our business under the Encompass brand. In connection with the separation, we will conduct our business under a new brand and are currently in the process of planning our rebranding. We may not improve upon the brand recognition associated with the “Encompass” name that we previously established with referral sources and business partners. In addition, the initiative will involve significant costs and require the dedication of significant time and effort by management and other personnel.

We cannot predict the impact of this rebranding initiative on our business. However, if we fail to establish, maintain and/or enhance brand recognition associated with the “Enhabit” name, it may affect patient referrals, which may adversely affect our ability to generate revenues and could impede our business plan. Additionally, the costs and the dedication of time and effort associated with the rebranding initiative may negatively impact our profitability.

The separation may not be successful.

Upon completion of the distribution, we will be a stand-alone public company. The process of becoming a stand-alone public company may distract our management from focusing on our business and strategic priorities. Further, although we expect to have direct access to the debt and equity capital markets following the separation, we may not be able to issue debt or equity on terms acceptable to us or at all. Moreover, even with equity compensation tied to our business, we may not be able to attract and retain employees as desired. We also may not fully realize the anticipated benefits of being a stand-alone public company if any of the risks identified in this “Risk Factors” section, or other events, were to occur. If we do not realize these anticipated benefits for any reason, then our business may be negatively affected. In addition, the separation could adversely affect our operating results and financial condition.

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Following the separation and distribution, our financial profile will change, and we will be a less diversified company than Encompass prior to the separation.

The separation will result in each of Encompass and Enhabit being less diversified companies with more limited businesses concentrated in their respective industries. As a result, our company may be more vulnerable to changing market and regulatory conditions, which could have a material adverse effect on our business, financial condition and results of operations. In addition, the diversification of our revenues, costs, and cash flows will diminish as a standalone company, such that our results of operations, cash flows, working capital, effective tax rate and financing requirements may be subject to increased volatility and our ability to fund capital expenditures and investments, pay dividends and service debt may be diminished. After the separation the regulatory and reimbursement risk for Enhabit will be significantly concentrated in the Medicare home health and hospice rules and regulations. For 2021, Medicare payments under the home health prospective payment system represented approximately 63% of our Net service revenue. A significant change in Medicare regulations governing either home health or hospice could have a material adverse effect on our business, financial condition and results of operations.

The separation and distribution are subject to various risks and uncertainties and may not be completed in accordance with the expected plans or anticipated timeline, or at all, and will involve significant time and expense, which could disrupt or adversely affect our business.

Encompass’s separation into two independent, publicly traded companies is complex in nature, and unanticipated developments or changes, including changes in the law, the macroeconomic environment, competitive conditions, regulatory approvals or clearances, the uncertainty of the financial markets and challenges in executing the separation, could delay or prevent the completion of the proposed separation, or cause the separation to occur on terms or conditions that are different or less favorable than expected. Additionally, the Encompass board of directors, in its sole and absolute discretion, may decide not to proceed with the distribution at any time prior to the distribution date.

The process of completing the proposed separation has been and is expected to continue to be time-consuming and involves significant costs and expenses. The separation costs may be significantly higher than what we currently anticipate and may not yield a discernible benefit if the separation is not completed or is not well executed, or the expected benefits of the separation are not realized. Executing the proposed separation will also require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our business.

If the distribution does not qualify as a transaction that is generally tax-free for U.S. federal income tax purposes, we, as well as Encompass and Encompass’s stockholders, could be subject to significant tax liabilities, and, in certain circumstances, we could be required to indemnify Encompass for material taxes and other related amounts pursuant to indemnification obligations under the tax matters agreement.

The distribution will be conditioned upon the receipt of (i) a favorable private letter ruling from the IRS, satisfactory to the Encompass board of directors, regarding the qualification of the distribution as a transaction that is generally tax-free to Encompass and its stockholders pursuant to Section 355 of the Code and certain other U.S. federal income tax matters relating to the separation and distribution and (ii) an opinion of its outside counsel, satisfactory to the Encompass board of directors, regarding the qualification of the distribution as a transaction that is generally tax-free to Encompass and its stockholders pursuant to Section 355 of the Code. The IRS private letter ruling and the opinion of counsel would be based upon and rely on, among other things, various facts and assumptions, as well as certain representations, statements and undertakings of Encompass and us, including those relating to the past and future conduct of Encompass and us. If any of these facts, assumptions, representations, statements or undertakings is, or becomes, inaccurate or incomplete, or if Encompass or we breach any of the applicable representations or covenants contained in the separation and distribution agreement and certain other agreements and documents or in any documents relating to the IRS private letter ruling or the opinion of counsel, the IRS private letter ruling or opinion of counsel may be invalid and the conclusions reached therein could be jeopardized.

Notwithstanding receipt of an IRS private letter ruling, the IRS could determine that the distribution and/or certain related transactions should be treated as taxable transactions for U.S. federal income tax purposes if it determines that any of the representations, assumptions or undertakings upon which such IRS private letter ruling was based are false or have been violated. In addition, the IRS private letter ruling will not address all of the

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issues that are relevant to determining whether the distribution and certain related transactions qualify as transactions that are generally tax-free for U.S. federal income tax purposes and the opinion of counsel would represent the judgment of such counsel and would not be binding on the IRS or any court, and the IRS or a court may disagree with the conclusions in such opinion. Accordingly, notwithstanding receipt of an IRS private letter ruling and an opinion of counsel, there can be no assurance that the IRS will not assert that the distribution and/or certain related transactions do not qualify for tax-free treatment for U.S. federal income tax purposes or that a court would not sustain such a challenge. In the event the IRS were to prevail with such challenge, we, as well as Encompass and Encompass’s stockholders, could be subject to significant U.S. federal income tax liability and indemnification obligations under the tax matters agreement to be entered into between Encompass and us in connection with the separation. For more information, see “Material U.S. Federal Income Tax Consequences.”

Our ability to operate our business effectively may suffer if we are unable to cost-effectively establish our own administrative and other support functions to operate as a stand-alone company after the expiration of our shared services and other intercompany agreements with Encompass.

As a business segment of Encompass, we relied on administrative and other resources of Encompass, including corporate services related to executive oversight, treasury, legal, finance, human resources, tax, internal audit, financial reporting, information technology and investor relations, to operate our business. In connection with the separation, we will enter into a transition services agreement to retain the ability for specified periods to use certain of these Encompass resources. See the section titled “Certain Relationships and Related Party Transactions—Relationship with Encompass.” These services may not be provided at the same level as when we were a business segment within Encompass, and we may not be able to obtain the same benefits that we received prior to the separation. These services may not be sufficient to meet our needs, and after our agreements with Encompass expire (which will generally occur within 24 months following the distribution), we may not be able to replace these services at all or obtain these services at prices and on terms as favorable as we currently have with Encompass. We will need to create our own administrative and other support systems or contract with third parties to replace Encompass’s systems. In addition, we have received informal support from Encompass, which may not be addressed in the agreements we have entered into with Encompass, and the level of this informal support may diminish as we become a more independent company. Any failure or significant downtime in our own administrative systems or in Encompass’s administrative systems during the transitional period could result in unexpected costs, impact our results and/or prevent us from paying our suppliers or employees and performing other administrative services on a timely basis.

Encompass has agreed to indemnify us for certain liabilities. However, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or that Encompass’s ability to satisfy its indemnification obligation will not be impaired in the future.

Pursuant to the separation and distribution agreement and certain other agreements with Encompass, from the separation, we will be responsible for the debts, liabilities and other obligations related to Enhabit. Encompass has agreed to indemnify us for certain liabilities. However, third parties could also seek to hold us responsible for any of the liabilities that Encompass has agreed to retain, and there can be no assurance that an indemnity from Encompass will be sufficient to protect us against the full amount of such liabilities, or that Encompass will be able to fully satisfy its indemnification obligations in the future. Even if we ultimately succeed in recovering from Encompass any amounts for which we are held liable, we may be temporarily required to bear these losses. Each of these risks could negatively affect our business, financial position, results of operations and cash flows.

Certain contracts that will need to be assigned from Encompass or its affiliates to Enhabit in connection with the separation may require the consent of the counterparty to such an assignment, and failure to obtain these consents could increase Enhabit’s expenses or otherwise reduce Enhabit’s profitability.

The separation and distribution agreement will provide that, in connection with Enhabit’s separation from Encompass, a number of contracts are to be assigned from Encompass or its affiliates to Enhabit or Enhabit’s affiliates. It is possible that some parties may use any consent requirement to seek more favorable contractual terms from Enhabit. If Enhabit is unable to obtain these consents, Enhabit may be unable to obtain some of the benefits and contractual commitments that are intended to be allocated to Enhabit as part of the separation. If Enhabit is unable to obtain these consents, the loss of these contracts could increase Enhabit’s expenses or otherwise reduce Enhabit’s profitability.

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Our inability to resolve favorably any disputes that arise between us and Encompass with respect to our past and ongoing relationships may adversely affect our operating results.

Disputes may arise between Encompass and us in a number of areas relating to our ongoing relationships, including:

• labor, tax, employee benefit, indemnification and other matters arising from our separation from Encompass;

• employee retention and recruiting;

• business combinations involving us; and

• the nature, quality and pricing of services that we and Encompass have agreed to provide each other.

We may not be able to resolve potential conflicts, and even if we do, the resolution may be less favorable than if we were dealing with an unaffiliated party.

The agreements we have entered into with Encompass may be amended upon agreement between the parties. While we are controlled by Encompass, we may not have the leverage to negotiate amendments to these agreements if required on terms as favorable to us as those we would negotiate with an unaffiliated third party.

We may not be able to engage in desirable strategic transactions and equity issuances following the distribution because of certain restrictions related to preserving the tax-free treatment of the distribution. In addition, we could be liable for adverse tax consequences resulting from engaging in significant strategic or capital-raising transactions.

Our ability to engage in significant strategic transactions and equity issuances may temporarily be limited or restricted in order to preserve, for U.S. federal income tax purposes, the tax-free nature of the distribution. Even if the distribution otherwise qualifies for tax-free treatment under Section 355 of the Code, it may result in corporate level taxable gain to Encompass (and potential liability to us under our agreements with Encompass) under Section 355(e) of the Code if 50% or more, by vote or value, of shares of our stock or Encompass’s stock are acquired or issued as part of a plan or series of related transactions that includes the distribution. The process for determining whether an acquisition or issuance triggering these provisions has occurred is complex and inherently factual. Any acquisitions or issuances of our stock or Encompass stock within the four-year period beginning on the date which is two years before the date of the distribution generally are presumed to be part of such a plan, although we or Encompass, as applicable, may be able to rebut that presumption. Under the tax matters agreement that we will enter into with Encompass, we generally will be responsible for any taxes imposed on Encompass that arise from the failure of the distribution to qualify as tax-free for U.S. federal income tax purposes, within the meaning of Section 355 of the Code, to the extent such failure to so qualify is attributable to actions, events or transactions relating to our stock, assets or business, or a breach of the relevant representations or covenants made by us in the tax matters agreement.

We may have been able to receive better terms from unaffiliated third parties than the terms we receive in our agreements related to the separation and distribution.

We expect that the agreements related to the separation and distribution, including the separation and distribution agreement, transition services agreement, employee matters agreement, tax matters agreement, and any other agreements, will be negotiated in the context of our separation from Encompass while we are still part of Encompass. Accordingly, these agreements may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties. The terms of the agreements being negotiated in the context of our separation are related to, among other things, allocations of assets, liabilities, rights and indemnifications as well as the terms of ongoing service agreements between the two companies, and we may have received better terms under the agreements related to the separation from third parties because third parties may have competed with each other to win our business. See “Certain Relationships and Related Party Transactions—Relationship with Encompass” elsewhere in this information statement.

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Risks Related to Ownership of Our Common Stock

No market currently exists for our common stock. We cannot assure you that an active trading market will develop and sustain for our common stock after the distribution, and following the distribution, our stock price may fluctuate significantly.

A public market for our shares of common stock does not currently exist. We anticipate that on or about the record date for the distribution, trading in shares of Enhabit common stock will begin on a “when-issued” basis, which will continue through the distribution date. However, we cannot guarantee that an active trading market will develop or be sustained for shares of Enhabit common stock after the distribution, nor can we predict the prices at which shares of Enhabit common stock may trade after the distribution. Similarly, we cannot predict the effect of the distribution on the trading prices of shares of Enhabit common stock or whether the combined market value of the shares of Enhabit common stock and Encompass common stock will be less than, equal to or greater than the market value of shares of Encompass common stock prior to the distribution.

The prices at which shares of Enhabit common stock trade may fluctuate more significantly than might otherwise be typical, even with other market conditions, including general volatility, held constant. The market price of our common stock will be influenced by many factors, some of which are beyond our control, including those described above in “—Other Operational and Financial Risks” and the following:

• actual or anticipated fluctuations in our operating results and those of our competitors;

• publication of research reports about us, our competitors, or our industry, or changes in, or failure to meet, estimates made by securities analysts or ratings agencies of our financial and operating performance, or lack of research reports by industry analysts or ceasing of analyst coverage;

• announcements by us or our competitors of significant contracts, acquisitions, joint marketing relationships, joint ventures, capital commitments or other strategic actions;

• our quarterly or annual earnings, or those of other companies in our industry;

• general geopolitical, economic and business conditions, conditions in the financial markets and the effects of the COVID-19 pandemic;

• the public reaction to our press releases, our other public announcements and our filings with the SEC;

• changes in governmental regulation;

• risks and changes in conditions or trends related to our business and our industry, including those discussed above;

• the trading volume of our common stock and future sales of our common stock or other securities;

• whether, when and in what manner Encompass completes the distribution; and

• investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives.

In particular, the realization of any of the risks described in these “Risk Factors” could have a material and adverse impact on the market price of our common stock in the future. In addition, the stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance. In addition, price volatility may be greater if the public float and trading volume of our common stock is low.

A significant number of our shares of common stock are or will be eligible for future sale, which may depress the price of our common stock.

Upon completion of the separation and distribution, we will have approximately 49,898,344 shares of common stock outstanding. Virtually all of those shares will be freely tradable without restriction or registration under the Securities Act, except for any shares of common stock that may be held or acquired by our directors, executive officers and other affiliates, as that term is defined in the Securities Act, which will be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. We are unable to predict

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whether large amounts of Enhabit common stock will be sold in the open market following the separation and distribution. We are also unable to predict whether a sufficient number of buyers of Enhabit common stock to meet the demand to sell shares of Enhabit common stock at attractive prices would exist at that time. It is possible that Encompass stockholders will sell the shares of Enhabit common stock they receive in the distribution for various reasons. For example, such stockholders may not believe that our business profile or our level of market capitalization as an independent company fits their investment objectives. The sale of significant amounts of Enhabit common stock or the perception in the market that this will occur may lower the market price of Enhabit common stock.

Our costs will increase significantly as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.

We have historically operated our business as a segment of a public company. As a stand-alone public company, we will have additional legal, accounting, insurance, compliance and other expenses that we have not incurred historically. In connection with the separation and distribution, we will become obligated to file with the SEC annual and quarterly reports and other reports that are specified in Section 13 and other sections of the Exchange Act. We will also be required to ensure that we have the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis. In addition, we will become subject to other reporting and corporate governance requirements, including the NYSE corporate governance standards and other rules, policies and procedures, and certain provisions of Sarbanes-Oxley Act of 2002 (“Sarbanes Oxley”) and the regulations promulgated thereunder, which will impose significant compliance obligations upon us.

Sarbanes-Oxley and rules subsequently implemented by the SEC and the NYSE have imposed increased regulation and disclosure and required enhanced corporate governance practices of public companies. We are committed to maintaining high standards of corporate governance and public disclosure, and our efforts to comply with evolving laws, regulations and standards in this regard are likely to result in increased selling and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. These changes will require a significant commitment of additional resources. We may not be successful in implementing these requirements and implementing them could materially adversely affect our business, results of operations and financial condition. In addition, if we fail to implement the requirements with respect to our internal accounting and audit functions, our ability to report our operating results on a timely and accurate basis could be impaired. If we do not implement such requirements in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC or the NYSE. Any such action could harm our reputation and the confidence of investors and customers in our company and could materially adversely affect our business and cause our share price to fall.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley could materially adversely affect our business, results of operations, financial condition and stock price.

As a public company, we will be required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of Sarbanes-Oxley, which will require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm that addresses the effectiveness of internal control over financial reporting. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet our deadline for compliance with Section 404. Testing and maintaining internal control can divert our management’s attention from other matters that are important to the operation of our business. We also expect the regulations under Sarbanes-Oxley to increase our legal and financial compliance costs, make it more difficult to attract and retain qualified officers and members of our board of directors, particularly to serve on our audit committee, and make some activities more difficult, time-consuming and costly. We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not be able or willing to issue an unqualified report on the effectiveness of our internal control over financial reporting. If we conclude that our internal control over financial reporting is not effective, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations because there is presently no precedent available by which to measure compliance adequacy. If either we are unable to conclude that we have effective internal control over financial reporting or our independent auditors are unable to provide us with an unqualified report as required by Section 404, then investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.

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Your percentage ownership in Enhabit may be diluted in the future.

In the future, your percentage ownership in Enhabit may be diluted because of equity awards that Enhabit will be granting to Enhabit’s directors, officers and employees or otherwise as a result of equity issuances for acquisitions or capital market transactions. Enhabit’s employees will have awards in respect of shares of our common stock after the distribution as a result of conversion of their Encompass stock awards to Enhabit stock awards. From time to time, Enhabit will grant additional stock-based awards to its directors, officers and employees after the distribution. Such awards will have a dilutive effect on Enhabit’s earnings per share, which could adversely affect the market price of Enhabit common stock.

In addition, Enhabit’s amended and restated certificate of incorporation will authorize Enhabit to issue, without the approval of Enhabit’s stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over Enhabit’s common stock respecting dividends and distributions, as Enhabit’s board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, Enhabit could grant the holders of preferred stock the right to elect some number of Enhabit’s directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences that Enhabit could assign to holders of preferred stock could affect the residual value of the common stock. See the section titled “Description of Capital Stock.”

Certain provisions in our amended and restated certificate of incorporation and amended and restated bylaws, and of Delaware law, may prevent or delay an acquisition of Enhabit, which could decrease the trading price of our common stock.

Our amended and restated certificate of incorporation and amended and restated bylaws will contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include, among others:

• rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;

• rules regarding the number of votes of stockholders required to amend certain provisions of our amended and restated certificate of incorporation;

• the right of our board of directors to issue preferred stock without stockholder approval; and

• the ability of our directors, and not stockholders, to fill vacancies on our board of directors.

In addition, because we will not elect to be exempt from Section 203 of the Delaware General Corporation Law (the “DGCL”), this provision could also delay or prevent a change of control that you may favor. Section 203 provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation (an “interested stockholder”) shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which the person became an interested stockholder, unless (i) prior to such time, the board of directors of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) the voting stock owned by directors who are also officers or held in employee benefit plans in which the employees do not have a confidential right to tender or vote stock held by the plan); or (iii) on or subsequent to such time the business combination is approved by the board of directors of such corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder.

We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make Enhabit immune

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from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in the best interests of Enhabit and its stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

Our amended and restated bylaws will contain an exclusive forum provision that may discourage lawsuits against us and our directors and officers.

Our amended and restated bylaws will provide that, unless the board of directors otherwise determines, the state courts in the State of Delaware or, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware, will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of Enhabit, any action asserting a claim of breach of a fiduciary duty owed by any director or officer of Enhabit to Enhabit or Enhabit’s stockholders, any action asserting a claim against Enhabit or any director or officer of Enhabit arising pursuant to any provision of the DGCL or Enhabit’s amended and restated certificate of incorporation or bylaws, or any action asserting a claim against Enhabit or any director or officer of Enhabit governed by the internal affairs doctrine.

In addition, our amended and restated bylaws will further provide that, unless the board of directors otherwise determines, the federal district courts of the United States of America shall be the sole and exclusive forum for any action asserting a claim arising under the Securities Act. The exclusive forum provision does not apply to actions arising under the Exchange Act or the rules and regulations thereunder. While the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our federal forum provision described above. Our stockholders will not be deemed to have waived compliance with the federal securities laws and the rules and regulations thereunder.

This exclusive forum provision may limit the ability of Enhabit’s stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with Enhabit or Enhabit’s directors or officers, which may discourage such lawsuits against Enhabit and Enhabit’s directors and officers, and such provision may also make it more expensive for Enhabit’s stockholders to bring such claims. Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, Enhabit may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect Enhabit’s business, financial condition or results of operations.

Our board of directors will have the ability to issue blank check preferred stock, which may discourage or impede acquisition attempts or other transactions.

Our board of directors will have the power, subject to applicable law, to issue series of preferred stock that could, depending on the terms of the series, impede the completion of a merger, tender offer or other takeover attempt. For instance, subject to applicable law, a series of preferred stock may impede a business combination by including class voting rights, which would enable the holder or holders of such series to block a proposed transaction. Our board of directors will make any determination to issue shares of preferred stock on its judgment as to our and our stockholders’ best interests. Our board of directors, in so acting, could issue preferred stock having terms which could discourage an acquisition attempt or other transaction that some, or a majority, of the stockholders may believe to be in their best interests or in which stockholders would have received a premium for their stock over the then-prevailing market price of the stock.

General Risk Factors

We are not obligated to, and do not intend to, pay dividends for the foreseeable future.

We are not obligated to pay cash dividends, and we currently intend to retain future earnings to finance the operation and expansion of our business and therefore do not anticipate paying cash dividends on our capital stock in the foreseeable future. Any declaration and amount of any future dividends to holders of our common stock will be at the discretion of our board of directors in accordance with applicable law and after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, cash flows, impact on our effective tax rate, indebtedness, contractual obligations, legal requirements and other

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factors that our board of directors deems relevant. As a result, we cannot assure you that we will pay dividends at any rate or at all, and you may have to rely on sales of your common stock after price appreciation, which may never occur, as the only way to realize any future gain on your investment.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our stock or if our operating results do not meet their expectations, our stock price could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover our company downgrade our stock or if our operating results do not meet their expectations, our stock price could decline.

We could be subject to securities class-action litigation.

In the past, securities class-action litigation has often been instituted against companies whose securities have experienced periods of volatility in market price. Securities litigation brought against us following volatility in the price of our common stock, regardless of the merit or ultimate results of such litigation, could result in substantial costs, which would hurt our financial condition and results of operations and divert management’s attention and resources from our business.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This information statement and other materials Encompass and Enhabit have filed or will file with the SEC (and oral communications that Encompass or Enhabit may make) contain or incorporate by reference forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terms such as “anticipate,” “believe,” “continue,” “could,” “effort,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “intend,” “may,” “objective,” “outlook,” “plan,” “potential,” “predict,” “projection,” “should,” “target,” “trajectory,” “will” or the negative of these terms or other comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by the company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors (including risks, uncertainties and assumptions) that might cause or contribute to a material difference include, but are not limited to:

• intense competition among home health and hospice companies;

• our ability to maintain relationships with existing patient referral sources and to establish relationships with new patient referral sources;

• our ability to have services funded from third-party payors, including Medicare, Medicaid and private health insurance companies;

• incidents affecting the proper operation, availability or security of our or our vendors’ or partners’ information systems, including patient information stored there;

• changes to Medicare or Medicaid reimbursement rates or methods governing Medicare or Medicaid payments, and the implementation of alternative payment models;

• our limited ability to control reimbursement rates for our services;

• audits of reimbursement claims that may lead to assertions that we have been overpaid or have submitted improper claims, which may require us to incur additional costs to respond to requests for records and defend the validity of payments and claims;

• the effects of, and the cost of compliance with, complex and evolving federal, state, and local laws and regulations regarding healthcare, including those contemplated now and in the future as part of national healthcare reform and deficit reduction (such as the re-basing of payment systems, the introduction of site neutral payments or case-mix weightings across post-acute settings, and other payment system reforms);

• our ability to successfully select, execute and integrate our acquisitions;

• our ability to retain the services of key personnel;

• fluctuations in our results of operations and stock price over time;

• global economic conditions;

• changes in tax rates, changes in tax laws or exposure to additional income tax liabilities;

• additional liabilities for taxes, duties, interest and penalties related to our operations as a result of indirect tax laws in multiple jurisdictions;

• current and future litigation matters or a failure to comply with current or future laws or regulations;

• potential strain on our operations and increase in our operating expenses as a result of our expansion of operations and infrastructure;

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• political events, war, terrorism, public health issues, natural disasters, sudden changes in trade and immigration policies, and other circumstances that could materially adversely affect us;

• the timing of the distribution and whether the distribution will occur at all;

• our ongoing relationship with Encompass and any related conflicts of interest;

• failure of the distribution to qualify for tax-free treatment, which may result in significant tax liabilities to Encompass for which we may be required to indemnify Encompass in certain situations;

• achievement of the expected benefits of the separation;

• our ability to operate as a stand-alone public company;

• our ability to meet expectations with respect to payments of dividends and repurchases of our common stock;

• impacts and lasting effects of the COVID-19 pandemic; and

• the effect of the separation and distribution on our business.

There can be no assurance that the separation, distribution or any other transaction described above will in fact be consummated in the manner described or at all.

In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this information statement may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements. The factors identified above are believed to be important factors, but not necessarily all of the important factors, that could cause actual results to differ materially from those expressed in any forward-looking statement made by us.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. These forward-looking statements speak only as of the date of this information statement. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

See the section titled “Risk Factors” for a more complete discussion of the risks and uncertainties mentioned above and for discussion of other risks and uncertainties. All forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements as well as others made in this information statement and hereafter in our and Encompass’s other SEC filings and public communications. You should evaluate all forward-looking statements made by us in the context of these risks and uncertainties.

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THE SEPARATION AND DISTRIBUTION

Overview

On January 19, 2022, Encompass announced its intention to separate into two independent, publicly traded companies. The separation will occur through a pro rata distribution to the Encompass stockholders of 100% of the shares of common stock of Enhabit, which comprises the Enhabit Business.

In connection with the separation and distribution:

• we expect that Encompass will complete certain internal restructuring transactions that will allocate and align certain assets and liabilities of Encompass and Enhabit to the respective company;

• on June 1, 2022, Enhabit entered into a $400 million term loan A facility and a $350 million revolving credit facility, as described under “Description of Certain Material Indebtedness;” and

• we expect that using all or a portion of the net proceeds of the borrowings under the new term loan A facility and revolving credit facility prior to the completion of the distribution, Enhabit will transfer approximately $566.5 million of cash to Encompass.

On June 8, 2022, the Encompass board of directors approved the distribution of all of Enhabit’s issued and outstanding shares of common stock on the basis of one share of Enhabit common stock for every two shares of Encompass common stock held as of the close of business on the record date for the distribution. The record date for the distribution is June 24, 2022.

On July 1, 2022, the distribution date, each Encompass stockholder will receive one share of Enhabit common stock for every two shares of Encompass common stock held at the close of business on the record date for the distribution, as described below. Upon completion of the distribution, each Enhabit stockholder as of the record date will continue to own shares of Encompass common stock and will receive a proportionate share of the outstanding common stock of Enhabit to be distributed. You will not be required to make any payment, surrender or exchange your Encompass common stock or take any other action to receive your shares of Enhabit common stock in the distribution. The distribution of Enhabit common stock as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see “Conditions to the Distribution.”

Reasons for the Separation

We believe, and Encompass has advised us that it believes, that the separation and distribution will provide a number of benefits to our business and to Encompass’s business. These potential benefits include improving the strategic and operational flexibility of each company, increasing the focus of each management team on its business strategy and operations, allowing each company to adopt a capital structure, acquisition strategy and return of capital policy best suited to its financial profile and business needs, and providing each company with its own equity currency to facilitate acquisitions and to better incentivize management. In addition, once we are a stand-alone publicly traded company, potential investors will be able to invest directly in our common stock.

• Enhanced Management Focus on Core Businesses. The separation will provide each company’s management team with undiluted focus on their unique strategic priorities, target markets and corporate development opportunities. The separation will enable the management teams of each company to set their own strategy for long-term growth and profitability, including implementing development and commercialization strategies specific to each business, pursuing business development opportunities, structuring and restructuring its operations, attracting talent, and investing current earnings to generate organic growth.

• Separate Capital Structures and Allocation of Financial Resources. Each of Encompass and Enhabit has different cash flow structures and capital requirements, with Encompass’s business being far more capital intensive. The separation will permit each company to allocate its financial resources to meet the unique needs of its businesses and intensify the focus on its distinct operating and strategic priorities. The separation will also give each business its own capital structure and allow it to manage capital allocation and adopt distinct capital return strategies. Further, the separation will eliminate internal competition for capital between the two businesses and enable each business to implement a capital structure tailored to its strategy and business needs.

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• Improved Alignment of Management Incentives and Performance. The separation will allow each company to more effectively recruit, retain and motivate employees through the use of equity-based compensation that more closely reflects and aligns management and employee incentives with specific business objectives, financial goals and business attributes. To the extent that the separate equity currencies are more attractively valued, this would further benefit Encompass and Enhabit.

• Creation of Independent Equity Currencies and Enhanced Strategic Opportunities. The separation will provide each of Encompass and Enhabit with its own pure-play equity currency that can be used to facilitate capital raising and to pursue accretive M&A opportunities that are more closely aligned with each company’s strategic goals and expected growth opportunities. To the extent that the separate equity currencies are more attractively valued, this would further increase these benefits to Encompass and Enhabit.

• Clear-Cut Investment Identities. The separation will allow investors to more clearly understand the separate business models, financial profiles and investment identities of the two companies and to invest in each based on a better appreciation of these characteristics. Each company is expected to appeal to types of investors who differ from Encompass’s current investors. Following the separation, the separate management teams of each of the two companies are expected to be better positioned to implement goals and evaluate strategic opportunities in light of the expectations of the specific investors in that individual company’s market. To the extent that enhanced investor understanding results in greater investor demand for shares of Encompass stock and/or Enhabit stock, it could cause each company to be valued at multiples higher than Encompass’s current multiple, and higher than its publicly traded peers. Any such increase in the aggregate market value of Encompass and Enhabit following the separation over Encompass’s market value prior to the separation would benefit Encompass, Enhabit, and their respective stakeholders.

The Encompass board of directors also considered a number of potentially negative factors in evaluating the separation, including:

• Risk of Failure to Achieve Anticipated Benefits of the Separation. We may not achieve the anticipated benefits of the separation for a variety of reasons, including, among others: the separation will demand significant management resources and require significant amounts of management’s time and effort, which may divert management’s attention from operating our business; and following the separation, we may be more susceptible to market fluctuations and other adverse events than if we were still a part of Encompass because our business will be less diversified than Encompass’s business prior to the completion of the separation and distribution.

• Disruptions and Costs Related to the Separation. The actions required to separate the Enhabit Business from Encompass could disrupt our operations. In addition, we will incur substantial costs in connection with the separation and the transition to being a standalone, public company, which may include accounting, tax, legal and other professional services costs, recruiting and relocation costs associated with hiring key senior management personnel who are new to Enhabit, tax costs and costs to separate information systems.

• Loss of Scale and Increased Administrative Costs. Prior to the separation, as part of Encompass, Enhabit takes advantage of Encompass’s size and purchasing power in procuring certain goods and services. After the separation and distribution, as a standalone company, we may be unable to obtain these goods, services and technologies at prices or on terms as favorable as those Encompass obtained prior to completion of the separation and distribution. In addition, as part of Encompass, Enhabit benefits from certain functions performed by Encompass, such as accounting, tax, legal, human resources and other general and administrative functions. After the separation and distribution, Encompass will not perform these functions for us, other than certain functions that will be provided for a limited time pursuant to the transition services agreement, and, because of our smaller scale as a standalone company, our cost of performing such functions could be higher than the amounts reflected in our historical financial statements, which would cause our profitability to decrease.

• Limitations on Strategic Transactions. Under the terms of the tax matters agreement that we will enter into with Encompass, we will be restricted from taking certain actions that could cause the distribution or certain related transactions (or certain transactions undertaken as part of the internal reorganization),

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in each case, as set forth in the tax matters agreement, to fail to qualify as tax-free under applicable law. The tax matters agreement will contain specific restrictions applicable until the second anniversary of the distribution that may limit our ability to pursue certain strategic transactions and equity issuances or engage in other transactions that might increase the value of our business.

• Uncertainty Regarding Stock Prices. We cannot predict the effect of the separation on the trading prices of Enhabit or Encompass common stock or know with certainty whether the combined market value of one share of our common stock and two shares of Encompass common stock will be less than, equal to or greater than the market value of two shares of Encompass common stock prior to the distribution.

In determining whether to pursue the separation, the Encompass board of directors concluded that the potential benefits of the separation outweighed the foregoing negative factors. See the section titled “Risk Factors” included elsewhere in this information statement.

When and How You Will Receive the Distribution

With the assistance of Computershare, Encompass expects to distribute Enhabit common stock, on July 1, 2022, the distribution date, to all holders of outstanding Encompass common stock as of the close of business on June 24, 2022, the record date for the distribution. Computershare will serve as the settlement and distribution agent in connection with the distribution and the transfer agent and registrar for Enhabit common stock.

If you own Encompass common stock as of the close of business on the record date for the distribution, Enhabit common stock that you are entitled to receive in the distribution will be issued electronically, as of the distribution date, to you in direct registration form or to your bank or brokerage firm on your behalf. If you are a registered holder, Computershare will then mail you a direct registration account statement that reflects your shares of Enhabit common stock. If you hold your Encompass shares through a bank or brokerage firm, your bank or brokerage firm will credit your account for the Enhabit shares. Direct registration form refers to a method of recording share ownership when no physical share certificates are issued to stockholders, as is the case in this distribution. If you sell Encompass common stock in the “regular-way” market up to and including the distribution date, you will be selling your right to receive shares of Enhabit common stock in the distribution.

Commencing on or shortly after the distribution date, if you hold physical share certificates that represent your Encompass common stock and you are the registered holder of the shares represented by those certificates, the distribution agent will mail to you an account statement that indicates the number of shares of Enhabit common stock that have been registered in book-entry form in your name.

Most Encompass stockholders hold their common stock through a bank or brokerage firm. In such cases, the bank or brokerage firm is said to hold the shares in “street name” and ownership would be recorded on the bank or brokerage firm’s books. If you hold your Encompass common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the Enhabit common stock that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares held in “street name,” please contact your bank or brokerage firm.

Transferability of Shares You Receive

Shares of Enhabit common stock distributed to holders in connection with the distribution will be transferable without registration under the Securities Act, except for shares received by persons who may be deemed to be our affiliates. Persons who may be deemed to be our affiliates after the distribution generally include individuals or entities that control, are controlled by or are under common control with us, which may include certain of our executive officers or directors. Securities held by our affiliates will be subject to resale restrictions under the Securities Act. Our affiliates will be permitted to sell shares of our common stock only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.

Number of Shares of Enhabit Common Stock You Will Receive

For every two shares of Encompass common stock that you own at the close of business on June 24, 2022, the record date for the distribution, you will receive one share of Enhabit common stock on the distribution date. Encompass will not distribute any fractional shares of Enhabit common stock to its stockholders. Fractional shares that Encompass stockholders would otherwise have been entitled to receive will be aggregated and sold in the open market

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by the distribution agent. The aggregate net cash proceeds of these sales will be distributed pro rata (based on the fractional share such holder would otherwise have been entitled to receive) to those stockholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.

If you hold physical certificates for shares of Encompass common stock and are the registered holder, you will receive a check from the distribution agent in an amount equal to your pro rata share of the net cash proceeds of these sales. We estimate that it will take approximately two weeks from the distribution date for the distribution agent to complete the distribution of the net cash proceeds. If you hold your shares of Encompass common stock through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your pro rata share of the net cash proceeds of the sales and will electronically credit your account for your share of such proceeds.

Treatment of Equity-Based Compensation

In connection with the separation and distribution, Encompass equity-based awards that are outstanding immediately prior to the separation and distribution and held by individuals who will serve as employees or non-employee directors of Enhabit following the separation and distribution will be treated as follows:

• Restricted Stock Awards (“RSAs”) held by Enhabit Employees. Each Encompass RSA held by an individual who will be an employee of Enhabit following the separation and distribution will be converted into an RSA with respect to Enhabit common stock. The number of shares subject to each such award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original Encompass award as measured immediately before and immediately after the separation and distribution (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Such adjusted award will otherwise be subject to the same terms and conditions that applied to the original Encompass award immediately prior to the separation and distribution.

• Performance Share Units (“PSUs”) held by Enhabit Employees. Each award of Encompass PSUs held by an individual who will be an employee of Enhabit following the separation and distribution will be converted into an RSA with respect to Enhabit common stock. The number of shares subject to each RSA will be equal to the number of shares of Encompass common stock calculated based on a level of performance as determined by the Compensation and Human Capital Committee of the Encompass board of directors, which number will then be adjusted to a number of shares of Enhabit common stock immediately following the separation and distribution. This adjustment will be made in a manner intended to preserve the aggregate intrinsic value of the original Encompass award as measured immediately before and immediately after the separation and distribution (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Such adjusted award will otherwise be subject to the same terms and conditions that applied to the original Encompass award immediately prior to the separation and distribution.

• Stock Options held by Enhabit Employees. Each award of Encompass stock options held by an individual who will be an employee of Enhabit following the separation and distribution will be converted into an award of stock options with respect to Enhabit common stock. The exercise price of, and number of shares subject to, each such award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original Encompass award as measured immediately before and immediately after the separation and distribution (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Such adjusted award will otherwise be subject to the same terms and conditions that applied to the original Encompass award immediately prior to the separation and distribution.

• RSUs and Deferred Stock held by nonemployee directors of Enhabit. Each award of Encompass RSUs or deferred stock held by an individual who will be a nonemployee director of Enhabit following the separation and distribution will remain denominated in shares of Encompass common stock, although the number of shares subject to the award will be adjusted in a manner intended to preserve the aggregate intrinsic value of the original RSU or deferred stock award as measured immediately before and immediately after the separation and distribution (in each case, as calculated based on the applicable stock price measurements specified in the employee matters agreement), subject to rounding. Such adjusted award will otherwise be subject to the same terms and conditions that applied to the original Encompass award immediately prior to the separation and distribution.

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Internal Restructuring Transactions

As part of the separation, and prior to the distribution, Encompass and its subsidiaries expect to complete certain internal restructuring transactions in order to separate the businesses currently conducted by Encompass and its subsidiaries (including Enhabit) such that Enhabit will solely own the operations comprising, and the entities that conduct, the Enhabit Business.

Following the completion of the internal restructuring and immediately prior to the distribution, Enhabit will be the parent company of the entities that are expected to conduct the Enhabit Business and Encompass will remain the parent company of the entities that currently conduct all of Encompass’s inpatient rehabilitation business.

Enhabit may experience increased costs following the distribution after becoming a stand-alone company. See “Risk Factors—Risks Related to the Separation and Distribution.”

Results of the Distribution

After the distribution, Enhabit will be an independent, publicly traded company. The actual number of shares to be distributed will be determined at the close of business on June 24, 2022, the record date for the distribution, and will reflect any exercise of Encompass options between the date the Encompass board of directors declares the distribution and the record date for the distribution. The distribution will not affect the number of outstanding shares of Encompass common stock or any rights of Encompass stockholders. Encompass will not distribute any fractional shares of Enhabit common stock.

Prior to the distribution, we and Encompass intend to enter into certain agreements that will effect the separation of our business from Encompass and provide a framework for our relationship with Encompass after the separation and distribution. The material agreements that we intend to enter into with Encompass prior to the separation are summarized below in the section titled “Certain Relationships and Related Party Transactions—Relationship with Encompass” and will be filed as exhibits to the registration statement of which this information statement forms a part. These summaries are qualified in their entirety by reference to the full text of such agreements. The terms of the agreements described below that will be in effect following the separation are in draft form and are not yet final. Changes to these agreements, some of which may be material, may be made prior to the separation. For additional information regarding the separation and distribution agreement and other transaction agreements, see the sections titled “Risk Factors—Risks Related to the Separation and Distribution” and “Certain Relationships and Related Party Transactions.”

Market for Enhabit Common Stock

There is currently no public trading market for Enhabit common stock. Enhabit intends to list its common stock on the NYSE under the symbol “EHAB.” Enhabit has not and will not set the initial price of its common stock. The initial price will be established by the public markets.

We cannot predict the price at which Enhabit common stock will trade after the distribution. In fact, the combined trading prices, after the distribution, of the shares of Enhabit common stock that each Encompass stockholder will receive in the distribution, together with the Encompass common stock held at the record date for the distribution, may not equal the “regular-way” trading price of the Encompass common stock immediately prior to the distribution. The price at which Enhabit common stock trades may fluctuate significantly, particularly until an orderly public market develops. Trading prices for Enhabit common stock will be determined in the public markets and may be influenced by many factors. See “Risk Factors—Risks Related to Our Common Stock.”

Incurrence of Debt

In connection with the distribution, on June 1, 2022, we entered into a $400 million term loan A facility and a $350 million revolving credit facility. Prior to the distribution, Enhabit expects to distribute all or a portion of the net proceeds from the borrowings under the new term loan A and revolving credit facility to Encompass. For more information, see “Description of Certain Material Indebtedness.”

Trading Between the Record Date and the Distribution Date

Beginning on or shortly before the record date for the distribution and continuing up to the distribution date, Encompass expects that there will be two markets in Encompass common stock: a “regular-way” market and an

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“ex-distribution” market. Encompass common stock that trades on the “regular-way” market will trade with an entitlement to Enhabit common stock distributed in the distribution. Encompass common stock that trades on the “ex-distribution” market will trade without an entitlement to Enhabit common stock distributed in the distribution. Therefore, if you sell shares of Encompass common stock in the “regular-way” market up to the distribution date, you will be selling your right to receive shares of Enhabit common stock in the distribution. If you own Encompass common stock at the close of business on the record date and sell those shares on the “ex-distribution” market up to the distribution date, you will receive the shares of Enhabit common stock that you are entitled to receive pursuant to your ownership of shares of Encompass common stock as of the record date.

Furthermore, beginning on or shortly before the record date for the distribution and continuing up to and including the distribution date, Enhabit expects that there will be a “when-issued” market in its common stock. “When-issued” trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The “when-issued” trading market will be a market for Enhabit common stock that will be distributed to holders of Encompass common stock on the distribution date. If you owned Encompass common stock at the close of business on the record date for the distribution, you would be entitled to Enhabit common stock distributed pursuant to the distribution. You may trade this entitlement to shares of Enhabit common stock, without trading the Encompass common stock you own, on the “when-issued” market. On the distribution date, “when-issued” trading with respect to Enhabit common stock will end, and “regular-way” trading with respect to Enhabit common stock will begin.

Conditions to the Distribution

The distribution will be effective on July 1, 2022, subject to the satisfaction (or waiver by Encompass in its sole and absolute discretion), of the following conditions as set forth in the separation and distribution agreement:

• the SEC declaring effective the registration statement on Form 10 of which this information statement forms a part; there being no order suspending the effectiveness of the registration statement; and no proceedings for such purposes having been instituted or threatened by the SEC;

• this information statement having been made available to Encompass stockholders;

• the receipt by Encompass and continuing validity of an opinion of its outside counsel, satisfactory to the Encompass board of directors, regarding the qualification of the distribution as a transaction that is generally tax free for U.S. federal income tax purposes under Section 355 of the Code;

• the receipt by Encompass and continuing validity of a favorable private letter ruling from the IRS, satisfactory to the Encompass board of directors, regarding the qualification of the distribution as a transaction that is generally tax free for U.S. federal income tax purposes under Section 355 of the Code and certain other U.S. federal income tax matters relating to the separation and distribution;

• an independent appraisal firm acceptable to the Encompass board of directors having delivered one or more opinions to the Encompass board of directors confirming the solvency and financial viability of Encompass before the completion of the distribution, in each case in a form and substance acceptable to the Encompass board of directors in its sole and absolute discretion;

• all actions and filings necessary or appropriate under applicable U.S. federal, state or other securities or blue sky laws and the rules and regulations thereunder relating to the separation and distribution having been taken or made and, where applicable, having become effective or been accepted;

• the transaction agreements relating to the separation and distribution having been duly executed and delivered by the parties thereto;

• no order, injunction or decree issued by any government authority of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, the distribution or any of the related transactions being in effect;

• the shares of Enhabit common stock to be distributed having been approved for listing on the NYSE, subject to official notice of distribution;

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• Encompass having received certain proceeds from the financing arrangements described under “Description of Certain Material Indebtedness” and being satisfied in its sole and absolute discretion that, as of the effective time of the distribution, it will have no further liability under such arrangements, and Encompass having completed any required refinancing of its existing indebtedness on terms satisfacto