Encompass Health Corporation · NYSE:EHC
Encompass Health — Investor Presentation (March 2021)
104 slides from Encompass Health's investor presentation, Mar 9, 2021
Slide 1: Investor Reference Book 2020
Investor Reference Book 2020
Slide 2: Forward-looking statements
Encompass Health 2 Forward-looking statements The information contained in this Investor Reference Book includes certain estimates, projections and other forward- looking information that reflect Encompass Health’s current outlook, views and plans with respect to future events, including the ongoing
Slide 3: Table of contents
Encompass Health 3 Company overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-16 Highlights from 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-23 Business outlook, including guidance . . .
Slide 4: Company overview
Encompass Health 4 Company overview Encompass Health is a national leader in integrated healthcare services offering both facility-based and home-based patient care through its network of inpatient rehabilitation hospitals, home health agencies, and hospice agencies. The Company is committed to deli
Slide 5: Leading provider of inpatient rehabilitation and home-based care
Encompass Health 5 Inpatient rehabilitation - 12/31/20 137 IRFs (50 are joint ventures) 35 States and Puerto Rico ~31,700 Employees 23 % of licensed beds† 31 % of Medicare patients served† Key statistics - trailing 4 quarters ~181,900 Inpatient discharges ~$3.5 Billion in revenue Portfolio as of Dec
Slide 6: Major services: inpatient rehabilitation hospitals
Encompass Health 6 Major services • Rehabilitation physicians: manage and treat medical conditions and oversee rehabilitation program • Rehabilitation nurses: provide personal care and oversee treatment plan for patients • Physical therapists: address physical function, mobility, strength, balance,
Slide 7: Major services: home health and hospice
Encompass Health 7 Major services • Skilled nurses: comprehensively assess, teach, train, and manage care related to injury or illness • Home health aides: provide personal care and assistance with Activities of Daily Living (ADLs) • Physical therapists: address physical function, mobility, strength
Slide 8: IRF and home health patient mix
Encompass Health 8 IRF patient mix Admission sources: • Physicians and acute care hospital case managers are key decision makers for post-acute services. • All IRF patients must meet reasonable and necessary criteria and must be admitted by a physician. • All IRF patients must be medically stable an
Slide 9: Quality of care
Encompass Health 9 9.2% 10.4%10.0% 11.1% Q4-19 FY 2020 10.2% 9.1% 8.2% 7.5% Q4-19 FY 2020 Home health qualityIRF quality Discharge to community* Discharge to skilled nursing* Discharge to acute hospital* Quality of care Star ratings**(4) 96% of our home health agencies are 3 Stars or higher; 57% are
Slide 10: Leading position in cost effectiveness inpatient rehabilitation
Encompass Health 10 # Avg. beds per IRF Avg. Medicare discharges per IRF(6) Avg. est. total cost per discharge for FY 2021 Avg. est. total payment per discharge for FY 2021 Encompass Health(5) = 133 68 967 $14,417 $20,944 Free-standing = (Non-Encompass Health) 169 58 591 $18,610 $22,569 Hospital uni
Slide 11: Home health cost per visit versus peers
Encompass Health 11 2019 Episodes Average revenue per episode* Average visits per episode Average revenue per visit (all payors) Cost per visit** Encompass Health 275,578 $2,972 17.1 $166 $77 Public peer average 336,684 $2,995 17.6 $149 $87 Comparison to peer average (0.8)% (2.8)% 11.4% (11.5)% Publ
Slide 12: Inpatient rehabilitation new-store/same-store growth
Encompass Health 12 * Includes consolidated inpatient rehabilitation hospitals classified as same store during each period Refer to pages 101-104 for end notes. Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0 New-stor
Slide 13: Home health new-store/same-store growth
Encompass Health 13 * Includes consolidated home health agencies classified as same store during each period Refer to pages 101-104 for end notes. Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 -20.0 -10.0 0.0 10.0 20.0 30.0 New-store/same-store growt
Slide 14: Hospice new-store/same-store growth
Encompass Health 14* Includes consolidated hospice agencies classified as same store during each period Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 -10.0 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 New-store/same-store growth Hospice Admissions Q1 2018
Slide 15: Payors and payment methodology
Encompass Health 15 Medicare Advantage Managed care Medicare Medicaid Other Per diem/visit or CMG/episodes - Negotiated rate - Some are “tiered” for acuity/severity Per diem/visit or CMG/episodes - Negotiated rate - Some are “tiered” for acuity/severity Varies by state Prospective Payment System (“P
Slide 16: Strong and sustainable business fundamentals
Encompass Health 16 Strong and sustainable business fundamentals Attractive healthcare sectors Ÿ Favorable demographic trends driving increasing demand Ÿ Nondiscretionary nature of many conditions treated Ÿ Highly fragmented post-acute sectors present acquisition and joint venture opportunities Indu
Slide 17: Highlights from 2020
Encompass Health 17 Highlights from 2020
Slide 18: Response to COVID-19
Encompass Health 18 We responded to the rapidly changing environment due to COVID-19 We remain confident in the long-term prospects of both of our business segments based on the increasing demands for the services we provide to an aging population. We believe COVID has reinforced the preferred post-
Slide 19: 2020 Highlights - Inpatient Rehabilitation
Encompass Health 19 2020 Highlights - Inpatient Rehabilitation Completed the transition to Section GG, achieving better than anticipated pricing Ÿ Continuous improvement with documentation of functional elements Increased clinical collaboration rates Increased stroke market share Developed and imple
Slide 20: 2020 Highlights - Home Health and Hospice
Encompass Health 20 2020 Highlights - Home Health and Hospice GROWTH COVID pressured both the volume of patients and staffing, which limited growth. OPERATIONAL INITIATIVES Q4 2020 Adjusted EBITDA Margin Q4 2019 Adjusted EBITDA Margin Expect full impact of tool to become evident by the end of 2021 1
Slide 21: Inpatient Rehabilitation patient census
Encompass Health 21 Inpatient Rehabilitation – Patient Census Information . Beginning in mid-March 2020, patient census was impacted by COVID-19. Patient census presented in this table represents the average daily census for the designated period. 2019 2020 January February March April May June July
Slide 22: Home Health starts of episodes
Encompass Health 22 Home Health - Starts of Episodes (Includes Starts of Care and Recertifications) . Beginning in mid-March 2020, starts of episodes were impacted by COVID-19. . The acquisition of Alacare anniversaried on July 1, 2020. . Sequential decreases in a month were primarily related to COV
Slide 23: Hospice admissions
Encompass Health 23 Hospice - Admissions . Hospice admissions experienced an initial drop in March 2020 but rebounded quickly. . The acquisition of Alacare anniversaried on July 1, 2020. 2019 2020 January February March April May June July August September October November December 0 200 400 600 800
Slide 24: Business outlook, including guidance
Encompass Health 24 Business outlook, including guidance (as of March 9, 2021)
Slide 25: 2021 Guidance
Encompass Health 25Reconciliations to GAAP provided on pages 93-99; Refer to pages 101-104 for end notes. 2021 Guidance Adjusted EBITDA(11) Adjusted earnings per share from continuing operations attributable to Encompass Health(12) Net operating revenues 2020 Actuals 2021 Guidance Net operating reve
Slide 26: 2021 Guidance considerations
Encompass Health 26 2021 Guidance considerations Inpatient Rehabilitation u Estimated 2.3% increase in Medicare pricing u Revenue reserve related to bad debt of 1.4% to 1.6% of net operating revenues u Pre-opening and new store ramp up costs of $15 million to $20 million Home Health and Hospice u Es
Slide 27: 2020-2025 Growth Targets
Encompass Health 27 2020-2025 Growth Targets 2020 through 2025 INPATIENT REHABILITATION HOME HEALTH AND HOSPICE CONSOLIDATED CAGR TARGETS Not inclusive of larger scale acquisitions 6 to 10 De Novos per year 100 to 150 bed additions per year 6% to 8% Discharge CAGR 10%+ Home Health admissions CAGR 10
Slide 28: Adjusted free cash flow assumptions
Encompass Health 28Reconciliations to GAAP provided on pages 93-99; Refer to pages 101-104 for end notes. Adjusted free cash flow(13) assumptions Certain cash flow items (millions) 2019 Actuals 2020 Actuals 2021 Assumptions Cash interest payments (net of amortization of debt discounts and fees) $155
Slide 29: Uses of free cash flow
Encompass Health 29See the debt schedule on page 58. Refer to pages 101-104 for end notes. Uses of free cash flow ($millions) 2020 Actuals 2021 Assumptions Growth in core business IRF bed expansions $44.8 $50 to $70 New IRFs - De novos 173.0 325 to 350 - Acquisitions — opportunistic - Replacement IR
Slide 30: IRF-PPS fiscal year 2021 final rule
Encompass Health 30 IRF-PPS fiscal year 2021 final rule: key provisions Company observations Source: https://www.cms.gov/medicaremedicare-fee-service-paymentinpatientrehabfacppsirf-rules-and-related-files/cms-1729-f Update to payment rates The final rule: • implemented a net 2.4% market basket incre
Slide 31: Home health final rule for 2021
Encompass Health 31 The final rule: • implemented a net 2.0% market basket increase (2.3% market basket update reduced by a 0.3% productivity adjustment); • implemented a 0.1% reduction related to the rural add-on modifications as required by the Bipartisan Budget Act (BBA) of 2018; and • revised th
Slide 32: Growth
Encompass Health 32 Growth Encompass Health is a leader in serving the post-acute patient population and has multiple avenues available for sustained growth in both segments. Favorable demographic trends are driving increasing demand.
Slide 33: Demographic tailwind: Medicare beneficiary growth
Encompass Health 33 All business lines benefit from a demographic tailwind: growth in the Medicare beneficiary population Age 80+Age 70-79Age 65-69 • The growth rate of Medicare beneficiaries increased in 2011 to an approx. 3% CAGR as “Baby Boomers” started turning age 65. ◦ ~10,000 Baby Boomers tur
Slide 34: Multi-faceted inpatient rehabilitation growth strategy
Encompass Health 34 2016 2017 2018 2019 2020 0 100 200 300 400 80 85 90 95 100 105 110 115 120 125 130 135 140 % Increase in licensed beds 1% 4% 1% 3% 3% Total number of licensed beds 8,504* 8,851 8,966** 9,249† 9,505‡ Total number of IRFs 123* 127 130** 133 137 Multi-faceted inpatient rehabilitatio
Slide 35: Disciplined approach to new store growth
Encompass Health 35 Disciplined approach to new store growth – $8 billion Medicare IRF market – Considerations: – Market demographics – Presence of other IRFs – Geographic proximity to other Company IRFs and home health locations – Potential joint venture partners Source: MedPAC, Medicare Payment Po
Slide 36: Acute care joint venture partnerships
Encompass Health 36 Inpatient rehabilitation acute care joint venture partnerships • The Company’s IRF joint ventures began in 1991 with Vanderbilt University Medical Center. • The Company’s joint venture acute care hospital partners own equity that ranges from 2.5% to 50%. 50* IRF joint venture hos
Slide 37: De novo IRFs and bed expansions schedule
Encompass Health 37 Location Operations date Joint venture? # of New Beds 2021 2022 2023 De novo IRFs: San Angelo, TX Q1 2021 Yes 40 Cumming, GA Q2 2021 50 North Tampa, FL Q2 2021 50 Greenville, SC Q3 2021 40 Shreveport, LA Q3 2021 40 Waco, TX Q3 2021 40 Pensacola, FL Q3 2021 40 Stockbridge, GA Q4 2
Slide 38: De novo costs and timeline
Encompass Health 38 CON process (if applicable) Zoning & design Permitting Construction OpeningGroundbreaking De novo costs and timeline Capital cost (millions) Low High Construction, design, permitting, etc. $22 $29 Land 2 6 Equipment (including CIS) 3 5 Range of a typical 40-50 bed IRF $27 $40 Pre
Slide 39: IRF de novo occupancy and EBITDA trends
Encompass Health 39 Months Bluffton (06/2018) Murrells Inlet** (09/2018) Lubbock (05/2019) Katy (09/2019) Murrieta (02/2020) Coralville (06/2020) Sioux Falls (06/2020) Toledo (11/2020) The Company’s average 1 2 3 4 5 6 7 8 9 10 11 12 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% IRF de novo occupancy
Slide 40: Home health and hospice growth strategy
Encompass Health 40 • Strong demand due to cost effectiveness of home-based care and increasing preference of patients to be treated at home • Strong organic growth from existing locations • Demographics * Currently located in states that represent ~70% of total Medicare home health and hospice spen
Slide 41: Home health growth pipeline
Encompass Health 41 # of A ge n ci e s 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 13,000 Home health growth pipeline • $17.9 billion Medicare home health market is highly fragmented with over 11,500 home health agencies. • Approx.
Slide 42: Hospice growth pipeline
Encompass Health 42 Hospice growth pipeline Source: MedPAC, Medicare Payment Policy, March 2020, pages 325, 326, and 338; https://www.kff.org/medicare/fact-sheet/10-faqs-medicares-role-in-end-of-life-care • Medicare hospice market is approx. $19.2 billion. • 1.5 million Medicare beneficiaries receiv
Slide 43: Operational Initiatives
Encompass Health 43 Operational Initiatives Our operational initiatives are designed to respond to regulatory changes, expand our services to more patients in need of our higher level of care, enhance our clinical expertise, and ensure the delivery of high-quality outcomes.
Slide 44: 2021 Priorities - Inpatient Rehabilitation
Encompass Health 44 2021 Priorities - Inpatient Rehabilitation Continue value proposition meetings with referral sources and payors, including Medicare Advantage local and regional medical directors Continue to build stroke market share Ÿ Launch healthcare provider continuing education in conjunctio
Slide 45: 2021 Priorities - Home Health and Hospice
Encompass Health 45 Expand relationships with Medicare Shared Savings Program ACOs Enter into more value-based payment arrangements with Medicare Advantage payors Collaborate with home care organizations on a SNF at home program Pilot virtual visit platform Monitor improvement resulting from full Me
Slide 46: Inpatient rehabilitation–home health clinical collaboration
Encompass Health 46 * Overlap markets have an Encompass Health IRF and an Encompass Health home health location within an approximate 30-mile radius, excluding markets that have home health licensure barriers. Overlap markets are open for 12 months before inclusion in the clinical collaboration rate
Slide 47: Building stroke market share
Encompass Health 47 Building stroke market share Source: https://www.ahajournals.org/doi/pdf/10.1161/CIR.0000000000000659; page e305; Table 14-1 Leveraging our: • quality outcomes • strategic sponsorship with the AHA/ASA • joint commission certifications 124 EHC IRFs hold stroke-specific certificati
Slide 48: Defining stroke market share
Encompass Health 48 • Total stroke incidence based on statistics released in annual AHA report • Mortality within stroke incidence is updated by AHA with greater frequency • EHC stroke market share defined as: Defining Stroke Market Share EHC LTM Stroke Discharges AHA Stroke Incidence Less Deaths**
Slide 49: Research: IRFs better option for stroke patients than SNFs
Encompass Health 49 Independent research concludes IRFs are a better rehabilitation option for stroke patients than SNFs * ** AHA/ASA press release, “Inpatient rehab recommended over nursing homes for stroke rehab,” issued May 4, 2016 (newsroom.heart.org) “Guidelines for Adult Stroke Rehabilitation
Slide 50: Veterans Affairs endorses AHA/ASA guidelines
Encompass Health 50 The Department of Veterans Affairs endorses the AHA/ASA Guidelines in their 2019 Guidelines on Stroke Rehabilitation There are ~20 million veterans and ~10 million are served by the Veterans Administration each year. “The Management of Stroke Rehabilitation” issued November 2019
Slide 51: 2019 JAMA article comparing IRF and SNF outcomes
Encompass Health 51 2019 JAMA published article comparing functional improvements of stroke patients receiving care in IRF vs SNF Conclusions This cohort study found that Medicare beneficiaries who received services at an IRF after a stroke demonstrated greater improvement in mobility and self-care
Slide 52: Post-acute innovation
Encompass Health 52 2018 Ÿ Modified and implemented Cerner’s HealtheCare module; created a longitudinal patient record to manage patients across the post-acute continuum – piloted in Tyler, Texas Ÿ Deployed ReAct in all of our hospitals Ÿ Developed post-acute readmission prediction model – piloted i
Slide 53: Review Choice Demonstration
Encompass Health 53 State Start date Company locations Illinois June 1, 2019 3 Ohio September 30, 2019 1 Texas March 2, 2020 51 Florida August 31, 2020 19 North Carolina August 31, 2020 6 Preparation • Reviewed all documentation requirements • Implemented system features to make electronic submissio
Slide 54: Evidence-based clinical initiatives to reduce readmissions
Encompass Health 54 Evidence-based clinical initiatives to reduce readmissions and improve patient outcomes "ReACT" and Readmission prevention • Standardized and improved infection control practices across the company. These practices and oversight provide the clinicians with tools to successfully n
Slide 55: Capital structure
Encompass Health 55 Capital structure Encompass Health is positioned with a cost-efficient, flexible capital structure.
Slide 56: Debt maturity profile
Encompass Health 56 Debt maturity profile - face value 2020 2022 2023 2024 2024 2025 2026 2027 2028 2029 2030 2031 $350 Senior Notes 5.75% $300 Senior Notes 5.125%** ($ in millions) Revolver capacity $252 Term Loans No significant debt maturities prior to 2023 Callable beginning March 2018 $800 Seni
Slide 57: Financial leverage and liquidity
Encompass Health 57 3.02 2.58 2.51 3.06 3.29 S&P Moody’s Corporate rating BB- Ba3 Outlook Stable Stable Revolver rating BB+ Baa3 Senior notes rating B+ B1 Financial leverage and liquidity (1) Liquidity Credit ratings (Billions) Leverage ratio* Total debt 3.8x*** December 31, 2020 December 31, 2019 C
Slide 58: Debt schedule
Encompass Health 58Reconciliations to GAAP provided on pages 93-99. Refer to pages 101-104 for end notes. Debt schedule Change in December 31, December 31, Debt vs. ($millions) 2020 2019 YE 2019 Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps $ — $ 45.0 $ (45.0) Te
Slide 59: IRF real estate portfolio
Encompass Health 59 38 lease building and land A CON is a regulatory requirement in some states and federal jurisdictions that require state authorization prior to proposed acquisitions, expansions, or construction of new hospitals. Lawmakers in several states have recently proposed modification or
Slide 60: Home Health Holdings rollover shares and SARs
Encompass Health 60 Options Holder – The right (but not the obligation) to sell for cash up to 1/3 of the Rollover Shares to the parent after 1/1/18; 2/3 after 1/1/19; and all outstanding Rollover Shares after 1/1/20 Company – The right (but not the obligation) to purchase for cash all or any portio
Slide 61: Information technology
Encompass Health 61 Information technology Encompass Health utilizes information technology to improve patient care and generate operating efficiencies.
Slide 62: IRF clinical information system
Encompass Health 62 IRF clinical information system: improved patient outcomes and streamlined operational efficiencies Discharge planning and patient education •Patient history •Problems and diagnoses •Orders and results •Plan of care •Workflow alerts and reminders •Treatment and interventions Docu
Slide 63: IRF proprietary management system: Beacon
Encompass Health 63 IRF Proprietary management system: Beacon Operations management tool Supply chain procurement
Slide 64: Homecare Homebase
Encompass Health 64 Homecare Homebase (“HCHB”) was born out of the Company’s operating model; HCHB is a leading IT platform provider in the home health and hospice industry. Optimization of capabilities in leading-edge technology embedded in culture, driving superior clinical, operational, and finan
Slide 65: Medalogix predictive models
Encompass Health 65 Medalogix’s predictive models for home health care help identify patients at risk for unplanned rehospitalization. Medalogix Modules Proactively identifies home health patients who are potentially better suited and eligible for the hospice benefit. Recommends a patient-centered v
Slide 66: Operational metrics
Encompass Health 66 Operational metrics
Slide 67: PPE utilization and spend
Encompass Health 67 INPATIENT REHABILITATION Avg. Monthly Utilization Avg. Monthly Spend Months of Current Utilization in Inventory Historical Current* Historical Current* MASKS 130,000 914,000 $ 10,400 $ 692,000 4.8 RESPIRATORS 5,000 60,000 $ 2,200 $ 156,000 4.0 GOWNS 137,500 252,000 $ 45,375 $ 511
Slide 68: Pre-payment claims denials
Encompass Health 68* For more information regarding TPE, see https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medicare-FFS-Compliance-Programs/Medical-Review/Targeted-Probe-and-EducateTPE.html Pre-payment claims denials - inpatient rehabilitation segment Impact to Income
Slide 69: Post-payment auditor activity
Encompass Health 69 Post-payment auditor activity - inpatient rehabilitation segment CMS supplements its pre-payment audits with post-payment audits. CMS uses Comprehensive Error Rate Testing (“CERT”) auditors to identify trends driving errors. CMS also uses the CERT error rate to evaluate the perfo
Slide 70: Inpatient rehabilitation operational and labor metrics
Encompass Health 70 Inpatient rehabilitation operational and labor metrics xxx-xxx Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2020 2020 2020 2020 2019 2019 2019 2019 2020 2019 (In Millions) Net patient revenue- inpatient $ 914.9 $ 883.2 $ 808.0 $ 890.0 $ 873.5 $ 850.6 $ 851.8 $ 847.6 $ 3,496.1 $ 3,423.5 Net
Slide 71: Home health and hospice operational metrics
Encompass Health 71 Home health and hospice operational metrics Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2020 2020 2020 2020 2019 2019 2019 2019 2020 2019 (In Millions) Net home health revenue $ 227.7 $ 223.3 $ 201.8 $ 224.8 $ 236.9 $ 238.9 $ 222.7 $ 219.5 $ 877.6 $ 918.0 Net hospice revenue 53.6 51.2 47.8
Slide 72: Payment sources (percent of revenues)
Encompass Health 72 Payment sources (percent of revenues) Inpatient Rehabilitation Segment Home Health and Hospice Segment Consolidated Q4 Q4 Q4 Full Year 2020 2019 2020 2019 2020 2019 2020 2019 Medicare 68.3 % 71.9 % 84.3 % 83.8 % 72.0 % 74.8 % 70.5 % 75.1 % Medicare Advantage 13.6 % 11.1 % 9.9 % 1
Slide 73: Industry structure
Encompass Health 73 Industry structure
Slide 74: National healthcare spending
Encompass Health 74 H e al th c o n su m p ti o n s p e n d in g* : $ 3 ,2 1 7 Overall healthcare spending (billions) Source: Centers for Medicare & Medicaid Services, National Health Expenditure Data (Historical), Table 2 - 2018 * Excludes Net Cost of Private Health Insurance of $258 billion. Natio
Slide 75: Medicare spending
Encompass Health 75 Source: Centers for Medicare & Medicaid Services, Medicare Trustees’ Report July 2019 – page 10; and MedPAC, Medicare Payment Policy, March 2020 - pages 219, 251, 273, 299, and 325 Medicare 2018 spending = $741 billion $ 29 Skilled nursing $146 Inpatient hospital $69 Physician pa
Slide 76: Continuum of healthcare services
Encompass Health 76 Preventive Routine health care (screenings, check- ups, patient counseling) to prevent illnesses, disease, or other health problems. Continuum of healthcare services Acute Medical treatment of diseases for which a patient is treated for a brief but severe episode of illness Ambul
Slide 77: Post-acute fee-for-service care services
Encompass Health 77 Post-acute fee-for-service care services Acute care hospital Home health Long-term acute care hospital Inpatient rehabilitation hospital Skilled nursing facility Discharge Medicare spending (billions) $4.2 $8.0 $28.5 $17.9* # of Discharges ~102,000 ~408,000 ~2,200,000 ~3,400,000
Slide 78: Medicare spending and margins on post-acute services
Encompass Health 78 2002 2003 20042005 20062007 2008 20092010 2011 20122013 2014 20152016 2017 2018 $0 $5 $10 $15 $20 $25 $30 $35 Medicare fee-for-service spending on post-acute services Post-acute settings 2018 Medicare margin** Projected 2020 Medicare margin** 10.3% 10.0% 15.3% 17.0% 14.7% 12.7% 4
Slide 79: IRF versus nursing home levels of service
Encompass Health 79 Different fee-for-service levels of services Inpatient rehabilitation hospital Nursing home Industry averages: Industry averages: Average length of stay = 12.7 days Average length of stay = 38.2 days Discharge to community = 76.4% Discharge to community = 41.4% Requirements(2): R
Slide 80: Supply of IRFs is relatively stable
Encompass Health 80 Supply of IRFs is relatively stable Share of Medicare FFS discharges 2018 Number of IRFs Average annual change Type of IRF 2013 2014 2015 2016 2017 2018 2013- 2017 2017- 2018 All IRFs 100% 1,161 1,177 1,182 1,188 1,178 1,170 0.4% -0.7% Urban 93 977 1,013 1,020 1,026 1,019 1,014 1
Slide 81: IRF supply versus 65+ population growth
Encompass Health 81 Supply of IRFs remains relatively stable while the age 65+ population continues to grow P op u la ti on i n m il li on s # of IR Fs 12 12 14 14 15 16 17 17 17 16 16 17 18 19 19 20 21 22 10 11 11 11 11 11 11 12 12 Age 65-69 Age 70-79 Age 80+ Total IRFs 2010 2011 2012 2013 2014 201
Slide 82: Inpatient rehabilitation sector margins
Encompass Health 82 Inpatient rehabilitation sector margins Aggregate FFS Medicare IRF margins in 2018 Share of Medicare fee-for- service discharges Margins Type of IRF 2018 2008 2010 2012 2014 2015 2016 2017 2018 All IRFs 100% 9.4% 8.6% 11.2% 12.2% 13.9% 13.3% 13.9% 14.7% Urban 93 9.6 9.0 11.5 12.6
Slide 83: 60% Rule: Medicare regulation for IRFs
Encompass Health 83 “60% Rule”: Medicare regulation for IRFs(2) 1983 1983: 75% Rule established – requires 75% of IRF patients to have a qualifying condition if the IRF is to maintain reimbursement on a “cost plus” basis vs. “prospective” (i.e., fixed) basis. 2002 2004 2007 2002: IRF reimbursement t
Slide 84: IRF qualifying conditions
Encompass Health 84 1. Stroke 2. Brain injury 3. Amputation 4. Spinal cord 5. Fracture of the femur 6. Neurological disorder 7. Multiple trauma 8. Congenital deformity 9. Burns IRF qualifying conditions(2) 1. Stroke 2. Brain injury 3. Amputation 4. Spinal cord 5. Fracture of the femur 6. Neurologica
Slide 85: Inpatient rehabilitation outlier payments
Encompass Health 85 Inpatient rehabilitation outlier payments(7) Refer to pages 101-104 for end notes. M o re E ff ic ie n t Le ss Outlier observations: •10% of IRFs receive 53% of the outlier payments; none of the 10% are Encompass Health IRFs. •The Company receives 3.7% of the IRF outlier payments
Slide 86: IMPACT Act of 2014
Encompass Health 86 IMPACT Act of 2014 - enacted Oct. 6, 2014 Source: https://www.govtrack.us/congress/bills/113/hr4994/text Company observations and considerations with respect to the IMPACT Act: ▪ It was developed on a bi-partisan basis by the House Ways and Means and Senate Finance Committees and
Slide 87: Segment operating results
Encompass Health 87 Segment operating results
Slide 88: Inpatient rehabilitation segment Adjusted EBITDA
Encompass Health 88 Inpatient rehabilitation segment Adjusted EBITDA For the Year Ended December 31, (In Millions) 2020 2019 2018 Net operating revenues: Inpatient $ 3,496.1 $ 3,423.5 $ 3,247.9 Outpatient and other 70.1 89.5 98.3 Total segment revenue 3,566.2 3,513.0 3,346.2 Operating expenses: Sala
Slide 89: Home health and hospice segment Adjusted EBITDA
Encompass Health 89 Home health and hospice segment Adjusted EBITDA For the Year Ended December 31, (In Millions) 2020 2019 2018 Net operating revenues: Home health revenue $ 877.6 $ 918.0 $ 814.6 Hospice revenue 200.6 174.0 116.5 Total segment revenue 1,078.2 1,092.0 931.1 Operating expenses Cost o
Slide 90: Consolidated Adjusted EBITDA 2020
Encompass Health 90 Year Ended December 31, 2020 (In Millions) IRF Home Health and Hospice Reclasses Consolidated Net operating revenues $ 3,566.2 $ 1,078.2 $ — $ 4,644.4 Operating Expenses: Inpatient Rehabilitation: Salaries and benefits (1,903.8) — (776.7) (2,680.5) Other operating expenses(a) (53
Slide 91: Consolidated Adjusted EBITDA 2019 and 2018
Encompass Health 91 Year Ended December 31, 2019 Year Ended December 31, 2018 (In Millions) IRF Home Health and Hospice Reclasses Consolidated IRF Home Health and Hospice Reclasses Consolidated Net operating revenues $ 3,513.0 $ 1,092.0 $ — $ 4,605.0 $ 3,346.2 $ 931.1 $ — $ 4,277.3 Operating Expense
Slide 92: Reconciliations to GAAP and share information
Encompass Health 92 Reconciliations to GAAP and share information
Slide 93: Reconciliation of net income to Adjusted EBITDA
Encompass Health 93 Reconciliation of net income to Adjusted EBITDA(11) * Per share amounts for each period presented are based on diluted weighted-average shares outstanding. Refer to pages 101-104 for end notes. For the Year Ended December 31, 2020 2019 2018 (in millions, except per share data) To
Slide 94: Reconciliation of segment Adjusted EBITDA to pre-tax income
Encompass Health 94 Reconciliation of segment Adjusted EBITDA to income from continuing operations before income tax expense For the Year Ended December 31, 2020 2019 2018 (in millions) Total segment Adjusted EBITDA $ 986.3 $ 1,095.4 $ 1,034.3 General and administrative expenses (155.5) (247.0) (220
Slide 95: Adjusted EPS 2020
Encompass Health 95 For the Year Ended December 31, 2020 Adjustments As Reported Gov’t, Class Action, & Related Settlements Loss on Early Exting. of Debt Income Tax Adj. Change in Fair Market Value of Equity Securities Gain on Consolidation of Former Equity Method Location Payroll Taxes on SARs Exer
Slide 96: Adjusted EPS 2019
Encompass Health 96 Adjusted EPS(12) - 2019 For the Year Ended December 31, 2019 Adjustments As Reported Mark-to- Market Adjustment for Stock Comp. Expense Loss on Early Exting. of Debt Income Tax Adj. Transaction Costs Change in Fair Market Value of Equity Securities Gain on Consolidation of Former
Slide 97: Adjusted EPS 2018
Encompass Health 97 For the Year Ended December 31, 2018 Adjustments As Reported Gov’t, Class Action, & Related Settlements Mark-to- Market Adjustment for Stock Comp. Expense Income Tax Adj. Transaction Costs Change in Fair Market Value of Equity Securities As Adjusted (In Millions, Except Per Share
Slide 98: Adjusted free cash flow history
Encompass Health 98 Adjusted free cash flow history(13) For the Year Ended December 31, (In Millions) 2020 2019 2018 Net cash provided by operating activities $ 704.7 $ 635.3 $ 762.4 Impact of discontinued operations 0.2 4.4 (0.8) Net cash provided by operating activities of continuing operations 70
Slide 99: Net cash from operating activities reconciled to Adjusted EBITDA
Encompass Health 99 Net cash provided by operating activities reconciled to Adjusted EBITDA(11) Information regarding investing and financing categories of the statement of cash flows for the periods presented can be found on Encompass Health’s website in the Earnings Releases for those periods. For
Slide 100: Share information
Encompass Health 100Refer to pages 101-104 for end notes. Share information Weighted Average for the Period Full Year (Millions) 2020 2019 2018 Basic shares outstanding(27) 98.6 98.0 97.9 Restricted stock awards, dilutive stock options, restricted stock units, and common stock warrants 1.2 1.4 1.9 D
Slide 101: End notes
Encompass Health 101 End notes
Slide 102: End notes (1)-(10)
Encompass Health 102 (1) Under this program, Joint Commission accredited organizations, like the Company’s IRFs, may seek certification for chronic diseases or conditions such as brain injury or stroke rehabilitation by complying with Joint Commission standards, effectively using evidence-based clin
Slide 103: End notes (11)-(16)
Encompass Health 103 (11) Adjusted EBITDA is a non-GAAP financial measure. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non-GAAP measure. Management and some members of the investment community utilize Adjusted EBITDA as a f
Slide 104: End notes (17)-(27)
Encompass Health 104 (17) In September 2019, the Company issued $500 million of 4.5% Senior Notes due 2028 and $500 million of 4.75% Senior Notes due 2030. The proceeds were used to fund the purchase of the home health rollover shares and exercise of SARs in Q3 2019, fund a call of $400 million of 5
Encompass Health — Investor Presentation (March 2021) on 6ix