Encompass Health Corporation · NYSE:EHC
Encompass Health — Investor Presentation (June 2020)
102 slides from Encompass Health's investor presentation, Jun 2, 2020
Slide 1: Investor Reference Book Post Q1 2020 earnings release
Investor Reference Book Post Q1 2020 earnings release Last updated June 2, 2020 HealthSouth is a leading provider of post-acute healthcare services, offering both facility-based and home-based post-acute services in 34 states and Puerto Rico through its network of inpatient rehabilitation hospitals,
Slide 2: Forward-looking statements
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 COVID-19 pandemic and its
Slide 3: Table of contents
Table of contents Company overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-18 Investment thesis and strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19-24 Growth . . . . . . . . . . . . . . . . . . .
Slide 4: Company overview
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 delivering high-quality
Slide 5: Leading provider of inpatient rehabilitation and home-based care
Encompass Health a leading provider of inpatient rehabilitation and home-based care Market overlap 89 of EHC’s IRFs have an EHC home health location within the service area.* Portfolio as of March 31, 2020 Inpatient rehabilitation hospitals (“IRFs”) Home health locations Hospice locations 11 Future
Slide 6: Company overview inpatient rehabilitation hospitals
Company overview inpatient rehabilitation 124 of the Company’s IRFs hold one or more disease-specific Inpatient rehabilitation certifications from The Joint Commission’s Disease-Specific hospitals Care Certification Program.(1) Major services • Rehabilitation physicians: manage and treat medical con
Slide 7: Company overview home health and hospice
Company overview home health and hospice The Company offers evidence-based specialty programs Home health agencies related to: post-operative care, fall prevention, chronic disease management, and transitional care. Major services • Skilled nurses: comprehensively assess, teach, train, and manage ca
Slide 8: IRF patient mix and home health patient mix
IRF patient mix Home health patient mix Admission sources: Admission sources: Acute care hospitals – 90% Acute care hospitals – 37% Physician offices / community – 8% Physician offices / community – 36% Skilled nursing facilities – 2% IRFs / LTCHs / SNFs – 27% YTD Demographics of all Medicare home h
Slide 9: High-quality care
High-quality care IRF quality Home health quality Discharge to community* 3.8 81.2% 81.0% Percent of cases 79.9% 79.5% discharged to Quality of care (4) the community, Star ratings including home 3.3 99% of our home health agencies or home with are 3 Stars or higher; home health. 47% are 4 Stars or
Slide 10: Leading position in cost effectiveness inpatient rehabilitation
Leading position in cost effectiveness inpatient rehabilitation Avg. est. Avg. est. total Avg. total cost payment Medicare pays Avg. Medicare per per Encompass Health beds discharges discharge discharge less per discharge, # per IRF per IRF(6) for FY 2021 for FY 2021 on average, and Encompass Health
Slide 11: Low cost leader home health
Low cost leader home health Cost per visit is 11.5% lower due to market Average density and operational Average Average revenue efficiency: 2019 revenue visits per visit Cost Episodes per episode* per episode (all payors) per visit Ÿ Caregiver Encompass optimization 275,578 $2,972 17.1 $166 $77 Heal
Slide 12: New-store/same-store growth Inpatient Rehabilitation
New-store/same-store growth Inpatient Rehabilitation 25.0 Shelby County, AL (34 beds) Yuma, AZ (51 beds)(9) Bluffton, SC (38 beds) 20.0 Boise, ID (40 beds) Katy, TX (40 beds) Gulfport, MS (33 beds) Murrells Inlet, 15.0 SC (29 beds) Lubbock, TX Westerville, OH (60 beds) (40 beds) Murrieta, CA (50 bed
Slide 13: New-store/same-store growth Home Health
New-store/same-store growth Home Health 30.0 Acquired Alacare Home Health & Hospice (23 home health locations in Alabama) in July 2019 25.0 Acquired Camellia Healthcare 20.0 (14 home health locations in 3 states) in May 2018 15.0 10.0 5.0 0.0 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q
Slide 14: New-store/same-store growth Hospice
New-store/same-store growth Hospice Acquired Camellia Healthcare 70.0 (18 hospice locations in 3 states) Acquired Alacare Home Health & Hospice in May 2018 60.0 (23 hospice locations in Alabama) in July 2019 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q
Slide 15: Payors (Q1 2020)
Payors (Q1 2020) Payor source % of Revenues Payment methodology Prospective Payment System (“PPS”) - IRF: paid per discharge by Case Mix Group (“CMG”) Home Medicare Inpatient - Home health: paid per 30-day period of care health & • A period is paid in two installments: rehab hospice 1) Request for a
Slide 16: Strong and sustainable business fundamentals
Strong and sustainable business fundamentals Ÿ Favorable demographic trends driving increasing demand Ÿ Attractive healthcare sectors Nondiscretionary nature of many conditions treated Ÿ Highly fragmented post-acute sectors present acquisition and joint venture opportunities Ÿ Largest provider of in
Slide 17: IRF-PPS fiscal year 2021 proposed rule: key provisions
IRF-PPS fiscal year 2021 proposed rule: key provisions Update to payment rates The proposed rule would: • implement a net 2.5% market basket increase; ◦ 2.9% market basket update Company observations ◦ (40 bps) healthcare reform productivity reduction • update case mix group relative weights and ave
Slide 18: IMPACT Act of 2014
IMPACT Act of 2014 - enacted Oct. 6, 2014 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 incorporated feedback from healthcare providers and provider organizations that re
Slide 19: Investment thesis and strategy
Investment thesis and strategy Encompass Health’s ability to adapt to changes, build strategic relationships, and consistently provide high-quality, cost-effective care positions the Company for success in the evolving healthcare industry. Encompass Health 19
Slide 20: Investment thesis
Investment thesis Encompass Health is one of the nation's leading providers of integrated post-acute services. The healthcare industry is evolving toward integrated delivery models and value-based care. Providers must be able to adapt to changes, build strategic relationships across the healthcare c
Slide 21: Strategy
Strategy The Company’s strategy is to expand its network of inpatient rehabilitation hospitals and home health and hospice locations, further strengthen its relationships with healthcare systems, provider networks, and payors in order to connect patient care across the healthcare continuum, and to d
Slide 22: Elements of strategy
Elements of strategy Diagnosis-specific treatment protocols drive high-quality outcomes Technology facilitates information flow across the provider continuum and supports the use of Clinical predictive analytics expertise Integration of care transition coordinators in a patient’s care plans ensures
Slide 23: The post-acute landscape continues to evolve
The post-acute landscape continues to evolve. Current post-acute providers Future post-acute providers • Medicare payments/regulations are site • Medicare payments/regulations will be specific (e.g., 60% Rule, 3-Hour Rule, condition and outcome focused. “preponderance” of one-to-one therapy, • Many
Slide 24: Well-positioned for integrated delivery models and site neutrality
We believe the Company is well-positioned for the progression towards integrated delivery models and post-acute site neutrality as it will be able to treat all types of post-acute patients by leveraging its operational expertise across its network of facility-based and home-based assets. The Company
Slide 25: Growth
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. Encompass Health 25
Slide 26: Multiple avenues available for sustained growth in both segments
The Company has multiple avenues available for sustained growth in both segments u The Company continues to have excellent organic growth opportunities in inpatient rehabilitation, home health, and hospice. — Track record of consistent growth — IRF organic growth supplemented by bed additions • Bed
Slide 27: Demographic tailwind: growth in Medicare beneficiary population
All business lines benefit from a demographic tailwind: growth in the Medicare beneficiary population Projected Population of Age 65+ • The growth rate of Medicare Millions beneficiaries increased in 2011 to an Baby Boomer wave reaches approx. 3% CAGR as “Baby Boomers” average age of an Encompass st
Slide 28: Multi-faceted inpatient rehabilitation growth strategy
Multi-faceted inpatient rehabilitation growth strategy New beds Total IRFs 2019 Bed count 400 140 increase 135 • Lubbock, TX (40 beds) 130 De novos 300 125 • Boise, ID (40 beds) 120 • Katy, TX (40 beds) 115 200 110 Acquisitions • Bed expansions (152 beds) 105 100 2020 Projected bed 100 95 count incr
Slide 29: Inpatient rehabilitation growth pipeline
Inpatient rehabilitation growth pipeline Disciplined approach to new store growth The Company’s value proposition – $8 billion Medicare IRF market – CAPEX to build free-standing IRF, freeing up space for Considerations: ü medical/surgical beds in an acute care facility for a JV partner – Market demo
Slide 30: Inpatient rehabilitation acute care joint venture partnerships
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%. 47* IRF joint venture hospitals in place with
Slide 31: De novo IRFs and acquisitions
De novo IRFs and acquisitions Operations Joint # of new beds Location date Investment considerations venture? 2019 2020 2021 2022 De novo IRFs: • IRR objective of 13% (after tax) Lubbock, TX Q2 2019 Yes 40 • Joint venture capitalization Boise, ID Q3 2019 Yes 40 • Certificate of need (“CON”) costs, K
Slide 32: De novo costs and timeline
De novo costs and timeline • Prototype includes all private rooms Capital cost (millions) Low High • Core infrastructure of building anticipates Construction, design, permitting, etc. $17 $24 future expansion (accretive to financial Land 2 5 returns) Equipment (including CIS) 3 5 • Factors that impa
Slide 33: IRF de novo occupancy and EBITDA trends
IRF de novo occupancy and EBITDA* trends Sustained positive EBITDA Occupancy 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 6 7 8 9 10 11 12 Months Westerville (04/2017) Pearland (10/2017) Shelby County (04/2018) Bluffton (06/2018) Murrells Inlet** (09/2018) Lubbock (05/2019) Katy (09/2019) M
Slide 34: Multi-faceted home health and hospice growth strategy
Multi-faceted home health and hospice growth strategy • Strong demand due to cost effectiveness of home-based care and increasing preference of patients to be treated at home Organic growth • Strong organic growth from existing locations • Demographics * Currently located in states that represent ~7
Slide 35: Home health growth pipeline
Home health growth pipeline Number of home health agencies over time • $17.9 billion Medicare home health market is highly 13,000 The number of home health agencies fragmented with over 11,500 is near an all-time high and presents home health agencies. 12,000 significant consolidation opportunities.
Slide 36: Hospice growth pipeline
Hospice growth pipeline • Medicare hospice market is approx. $19.2 billion. • 1.5 million Medicare beneficiaries received Acquisition strategy for hospice hospice services from approx. 4,600 providers • Medicare focused in 2018. • Located in markets with significant • Hospice use among Medicare bene
Slide 37: Operational Initiatives
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. Encompass Health 37
Slide 38: Inpatient rehabilitation: Continue transition to IRF PAI Section GG
Inpatient rehabilitation: Continue transition to IRF PAI Section GG Elimination • Effective Oct. 1, 2019, CMS replaced the FIM™ TM functional independence measures with the of FIM Section GG functional outcome measures on the functional IRF-PAI for reporting and payment purposes. assessment • This n
Slide 39: Home health: Patient-Driven Groupings Model (PDGM)
Home health: Patient-Driven Groupings Model (PDGM) Effective January 1, 2020, PDGM, which relies more heavily on clinical characteristics: Move to the Ÿimplemented a 4.36% reduction in the base rate using assumed Patient Driven provider behavioral changes; Groupings Ÿeliminated therapy service use t
Slide 40: Improving patient experience through integrated care delivery
The Company continues to improve the patient experience and outcomes through integrated care delivery. Inpatient rehabilitation–home health clinical collaboration u Clinical collaboration (all payors) overlap markets* objectives: Ÿ Improve patient experience and outcomes 35.9% Ÿ Reduce total cost of
Slide 41: Clinical collaboration - all markets
Clinical collaboration - all markets To continue building its clinical collaboration platform, the Company will: • focus on increasing its number of new overlap markets and building density in current overlap markets and • use Care Transition Coordinators and TeamWorks best practices to enhance pati
Slide 42: Building stroke market share
Building stroke market share Leveraging our: • quality outcomes • strategic sponsorship with the AHA/ASA • clinical collaboration • joint commission certifications ~800,000 124 EHC IRFs strokes ~142,000 hold stroke-specific per year deaths from stroke certifications. in the U.S. Continue to increase
Slide 43: Building stroke market share
Building stroke market share Stroke market share EHC stroke payor mix 5.2% 2018 2019 Market share 4.9% Market share Other Other 25.2% 25.3% 4.7% Medicare FFS Medicare FFS Market share 34,465 Medicare Adv. 56.9% Medicare Adv. 54.8% 17.9% 19.9% 32,309 30,643 Stroke % of Payor 2018 2019 2017 2018 2019
Slide 44: Independent research concludes IRFs are better for stroke patients than SNFs
Independent research concludes IRFs are a better rehabilitation option for stroke patients than SNFs “Whenever possible, the American Stroke Association strongly recommends that stroke patients be treated at an inpatient rehabilitation facility rather than a skilled nursing facility.” “IRF patients
Slide 45: Department of Veterans Affairs endorses AHA/ASA Guidelines
The Department of Veterans Affairs endorses the AHA/ASA Guidelines in their 2019 Guidelines on Stroke Rehabilitation There are 18.2 million veterans and 9 million are served by the Veterans Administration each year. “The Management of Stroke Rehabilitation” issued November 2019 (https://annals.org/a
Slide 46: 2019 JAMA article comparing IRF vs SNF stroke outcomes
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 compared with patien
Slide 47: Post-acute innovation
Post-acute innovation Our post-acute solutions will leverage our clinical expertise, large post-acute datasets, EMR technologies, and strategic partnerships to drive improved patient outcomes and lower cost of care across the entire post-acute episode. 2018 2019 2020 Ÿ Modified and implemented Ÿ Ref
Slide 48: Home health: Review Choice Demonstration (RCD)
Home health: Review Choice Demonstration (RCD)* Overview State Start date Company locations Following the pause of the Pre-Claim Review Illinois June 1, 2019 3 Demonstration (“PCRD”) on April 1, 2017, CMS worked to revise PCRD to offer more flexibility and choice for Ohio September 30, 2019 1 provid
Slide 49: Evidence-based clinical initiatives to reduce readmissions
Evidence-based clinical initiatives to reduce readmissions and improve patient outcomes Reduce acute Infection Sepsis/SIRS Medication Reduce opioid care transfers control alert reconciliation use "ReACT" • Developed • Standardized and • Developed an • Implemented a • Implemented a predictive model t
Slide 50: Capital structure
Capital structure Encompass Health is positioned with a cost-efficient, flexible capital structure. Encompass Health 50
Slide 51: Debt maturity profile - face value
Debt maturity profile - face value Pro forma as of March 31, 2020*(12) ($ in millions) $963 Available Callable beginning Callable beginning Callable beginning (12) (12) (13) February 2023 February 2025 $0 Drawn + November 2017 $37 reserved Revolver for LCs capacity $800 $800 Callable beginning Senio
Slide 52: Financial leverage and liquidity
Financial leverage and liquidity Total debt Leverage ratio* (Billions) Liquidity Pro Forma March 31, December 31, March 31, (12) 2020 2019 2020 Cash available $ 338.4 $ 104.9 $ 94.8 3.8x** 3.8x Revolver 1,000.0 1,000.0 700.0 3.60 Less: - Draws — (350.0) (45.0) 3.02 3.06 - Letters of credit (36.7) (3
Slide 53: Debt schedule
Debt schedule Pro Forma Change in March 31, March 31, December 31, Debt vs. ($millions) 2020(12) 2020 2019 YE 2019 Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps $ — $ 350.0 $ 45.0 $ 305.0 Term loan facility, November 2024 - LIBOR +150bps 261.9 261.9 265.2 (3.3) B
Slide 54: IRF real estate portfolio
IRF real estate portfolio 134 inpatient rehabilitation hospitals: 9,322 licensed beds 3,806 licensed beds Own ~70% of IRF real estate in CON states As of March 31, 2020 64 own building and land 31 own building; lease land 39 lease building and land 5,516 licensed beds in non-CON states A CON is a re
Slide 55: Overview of rollover shares and SARs
Overview of rollover shares and SARs previously held by members of the home health and hospice management team Background In connection with the 2014 acquisition of Encompass Home Health and Hospice: • Certain members of that management team rolled a portion of their pre-acquisition equity into the
Slide 56: Alternative payment models
Alternative payment models Most models remain in the early or pilot stage and results have been mixed. Both of our segments continue to participate in various alternative payment model initiatives. Encompass Health 56
Slide 57: Accountable Care Organizations (ACOs)
Accountable Care Organizations (“ACOs”) Medicare Shared Savings Program (MSSP) (2020 - 517 ACOs / 11.2 million Medicare beneficiaries) • Performance Year 6 (2018) results: ◦ 364 of 548 ACOs (66%) held spending below their benchmark. ▪ 159 of these ACOs reduced health costs compared to their benchmar
Slide 58: Home Health Value-Based Purchasing Model
Home Health Value-Based Purchasing Model Over the long term, the Company believes it is well-positioned to benefit from a delivery system that rewards providers who are committed to providing high-quality care. In the calendar year 2016 HH-PPS final rule, CMS finalized a Home Health Value-Based Tota
Slide 59: Information technology
Information technology Encompass Health utilizes information technology to improve patient care and generate operating efficiencies. Encompass Health 59
Slide 60: IRF clinical information system
IRF clinical information system: improved patient outcomes and streamlined operational efficiencies Treatment plan Pre-admission assessment • Computerized Physician Order Document & approval Entry ("CPOE") imaging • Clinical Decision Support ("CDS") • Predictive algorithm and clinical protocols to i
Slide 61: IRF proprietary management system: Beacon
IRF Proprietary management system: Beacon Operations management tool Supply chain procurement Encompass Health 61
Slide 62: Home health and hospice information system: Homecare Homebase
Home health and hospice information system: Homecare Homebase Homecare Homebase Clinical Management and operations (“HCHB”) was born • HCHB manages the entire patient • Best-in-class data management and workflow and provides field clinicians reporting ensures managers have access out of the Company’
Slide 63: Medalogix predictive models for home health care
Medalogix’s predictive models for home health care help identify patients at risk for unplanned rehospitalization. Prompts continued Proactively identifies home touch points with discharged health patients who are patients to identify and potentially better suited prevent post-discharge and eligible
Slide 64: Operational metrics
Operational metrics Encompass Health 64
Slide 65: IRF operational metrics
IRF operational metrics: •SALARIES AND BENEFITS includes group expense efficiencies medical costs and is impacted by staffing levels based on patient volumes. (Percent of net operating revenues) •IRF-RELATED EXPENSES includes other operating expenses (excluding loss on disposal or impairment of asse
Slide 66: Pre-payment claims denials - inpatient rehabilitation segment
Pre-payment claims denials - inpatient rehabilitation segment Background Encompass Health reserves pre-payment claim denials as a reduction of • For several years prior to 2018, under programs designated as net operating revenues upon notice from a MAC a claim is under review. “widespread probes,” c
Slide 67: Post-payment auditor activity - inpatient rehabilitation segment
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 performance of Medicare c
Slide 68: Inpatient rehabilitation operational and labor metrics
Inpatient rehabilitation operational and labor metrics Q1 Q4 Q3 Q2 Q1 Full Year 2020 2019 2019 2019 2019 2019 (In Millions) Net patient revenue-inpatient $ 890.0 $ 873.5 $ 850.6 $ 851.8 $ 847.6 $ 3,423.5 Net patient revenue-outpatient and other revenues 19.2 23.2 21.7 22.1 22.5 89.5 Net operating re
Slide 69: Home health and hospice operational metrics
Home health and hospice operational metrics Q1 Q4 Q3 Q2 Q1 Full Year 2020 2019 2019 2019 2019 2019 (In Millions) Net home health revenue $ 224.8 $ 236.9 $ 238.9 $ 222.7 $ 219.5 $ 918.0 Net hospice revenue 48.0 50.8 50.4 38.4 34.4 174.0 Net operating revenues $ 272.8 $ 287.7 $ 289.3 $ 261.1 $ 253.9 $
Slide 70: Payment sources (percent of revenues)
Payment sources (percent of revenues) Inpatient Rehabilitation Home Health and Consolidated Segment Hospice Segment Q1 Q1 Q1 Full Year 2020 2019 2020 2019 2020 2019 2019 Medicare 70.5% 73.5% 83.0% 84.6% 73.4% 76.0% 75.1% Medicare Advantage 12.3% 9.8% 10.8% 10.0% 11.9% 9.8% 10.6% Managed care 9.9% 9.
Slide 71: Industry structure
Industry structure Encompass Health 71
Slide 72: Overall healthcare spending
Overall healthcare spending National healthcare spending: $3,649 billion in 2018 (billions) $174 Investment $48 Government administration $93 Government public health $456 Retail of medical products $102 Home health care $192 Other health, residential and personal care $965 Professional services $16
Slide 73: Medicare 2018 spending
Medicare 2018 spending = $741 billion $8 billion (1%) in billions Inpatient rehabilitation hospitals (Included in inpatient hospitals) $ 29 Skilled nursing Medicare Part A $146 Inpatient hospital 4% 20% $69 Physician payments Medicare Part B 13% $57 Outpatient hospital $18 Home health 9% $19 Hospice
Slide 74: Continuum of healthcare services
Continuum of healthcare services Preventive Ambulatory Acute Post-acute Palliative Routine health care Medical care Medical Medical care Medical care (screenings, check- delivered on an treatment of provided after a that is focused ups, patient outpatient basis diseases for period of acute on provid
Slide 75: Post-acute fee-for-service care services
Post-acute fee-for-service care services (Highest acuity) (Lowest acuity) Long-term Inpatient Skilled Acute care Home Discharge acute care rehabilitation nursing hospital health hospital hospital facility Medicare spending (billions) $4.2 $8.0 $28.5 $17.9* # of Discharges ~102,000 ~408,000 ~2,200,00
Slide 76: Medicare fee-for-service spending on post-acute services
Medicare fee-for-service spending on post-acute services 6 4.8 Home health fee-for- 4.3 4.1 4.1 ) 3.9 3.8 3.7 service spending* (% of t 3.5 3.5 n e total Medicare spending) c r e 3 P ( Inpatient rehabilitation 1.6 1.5 1.5 1.6 1.5 1.6 1.6 1.6 1.6 fee-for-service spending 0 (% of total Medicare 2010 2
Slide 77: Different fee-for-service levels of services
Different fee-for-service levels of services Inpatient rehabilitation hospital Nursing home 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): Requirements: IRFs must also satisfy regulatory/policy requ
Slide 78: Supply of IRFs is relatively stable
Supply of IRFs is relatively stable Share of Average annual Medicare Number of IRFs change FFS discharges 2013- 2017- Type of IRF 2018 2013 2014 2015 2016 2017 2018 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 1.1 -0.5 Rural 7 184
Slide 79: IRF supply and growing age 65+ population
Supply of IRFs remains relatively stable while the age 65+ population continues to grow IRF supply and demand • From 2010 to 2018, the 65+ population grew by 12.5MM or ~32%, compared to Age 65-69 Age 70-79 Age 80+ Total IRFs ~2% growth for the 64 and under population (total population growth of 60 1
Slide 80: Inpatient rehabilitation sector margins
Inpatient rehabilitation sector margins Aggregate FFS Medicare IRF margins remained high in 2018 Share of Medicare fee-for- Margins service discharges 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 14.3
Slide 81: 60% Rule: Medicare regulation for IRFs
“60% Rule”: Medicare regulation for IRFs(2) The 60% Rule requires at least 60% of all patients admitted must have at least one medical diagnosis or functional impairment from a list of 13 compliant conditions (a.k.a. “compliant conditions” or “CMS-13”).(2) 1983 2002 2004 2007 1983: 75% Rule 2007: 75
Slide 82: IRF qualifying conditions
IRF qualifying conditions(2) Original qualifying conditions Current qualifying conditions 1. Stroke 1. Stroke 2. Brain injury 2. Brain injury 3. Amputation 3. Amputation 4. Spinal cord 4. Spinal cord 5. Fracture of the femur 5. Fracture of the femur 6. Neurological disorder 6. Neurological disorder
Slide 83: Inpatient rehabilitation outlier payments
Inpatient rehabilitation outlier payments(7) # of IRFs Total outlier payments Avg outlier payment per discharge Non- Non- Non- IRF Encompass Encompass Encompass Encompass Encompass Encompass deciles Health Health Total Health Health Total % Health Health Total 90-100 — 111 111 $ — $ 145,723,251 $ 14
Slide 84: Segment operating results
Segment operating results Encompass Health 84
Slide 85: Inpatient rehabilitation segment Adjusted EBITDA
Inpatient rehabilitation segment Adjusted EBITDA Q1 Q4 Q3 Q2 Q1 Full Year (In millions) 2020 2019 2019 2019 2019 2019 Net operating revenues: Inpatient $ 890.0 $ 873.5 $ 850.6 $ 851.8 $ 847.6 $ 3,423.5 Outpatient and other 19.2 23.2 21.7 22.1 22.5 89.5 Total segment revenue 909.2 896.7 872.3 873.9 8
Slide 86: Home health and hospice segment Adjusted EBITDA
Home health and hospice segment Adjusted EBITDA Q1 Q4 Q3 Q2 Q1 Full Year (In Millions) 2020 2019 2019 2019 2019 2019 Net operating revenues: Home health revenue $ 224.8 $ 236.9 $ 238.9 $ 222.7 $ 219.5 $ 918.0 Hospice revenue 48.0 50.8 50.4 38.4 34.4 174.0 Total segment revenue 272.8 287.7 289.3 261.
Slide 87: Segment operating results Q1 2020 and Q1 2019
Segment operating results Q1 2020 Q1 2019 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 909.2 $ 272.8 $ — $ 1,182.0 $ 870.1 $ 253.9 $ — $ 1,124.0 Operating Expenses: Inpatient Rehabilitation: Salaries and
Slide 88: Segment operating results Year Ended December 31, 2019
Segment operating results Year Ended December 31, 2019 Home Health and (In Millions) IRF Hospice Reclasses Consolidated Net operating revenues $ 3,513.0 $ 1,092.0 $ — $ 4,605.0 Operating Expenses: Inpatient Rehabilitation: Salaries and benefits (1,813.1) — (758.9) (2,572.0) Other operating expenses(
Slide 89: Reconciliations to GAAP and share information
Reconciliations to GAAP and share information Encompass Health 89
Slide 90: Reconciliation of net income to Adjusted EBITDA 2020
Reconciliation of net income to Adjusted EBITDA(19) 2020 Q1 (in millions, except per share data) Total Per Share Net Income $ 108.7 Loss from disc ops, net of tax, attributable to Encompass Health 0.1 Net income attributable to noncontrolling interests (21.7) Income from continuing operations attrib
Slide 91: Reconciliation of net income to Adjusted EBITDA 2019
Reconciliation of net income to Adjusted EBITDA(19) 2019 Q1 Q2 Q3 Q4 Full Year Per Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Total Share Net Income $ 125.2 $ 110.9 $ 119.5 $ 90.2 $ 445.8 Loss from disc ops, net of tax, attributable to Encomp
Slide 92: Reconciliation of segment Adjusted EBITDA to income before tax
Reconciliation of segment Adjusted EBITDA to income from continuing operations before income tax expense Q1 Q4 Q3 Q2 Q1 Full Year 2020 2019 2019 2019 2019 2019 (in millions) Total segment Adjusted EBITDA $ 256.5 $ 274.7 $ 261.4 $ 283.0 $ 276.3 $ 1,095.4 General and administrative expenses (35.6) (64
Slide 93: Adjusted EPS - Q1 2020
Adjusted EPS(20) - Q1 2020 For the Three Months Ended March 31, 2020 Adjustments Change in Payroll Gov’t, Class Fair Market Gain on Taxes Action, & Value of Consolidation on As Related Income Tax Equity of Treasure SARs As Reported Settlements Adjustments Securities Coast Exercise Adjusted (In Milli
Slide 94: Adjusted EPS - Q1 2019
Adjusted EPS(20) - Q1 2019 For the Three Months Ended March 31, 2019 Adjustments Mark-to- Market Change in Payroll Adjustment Fair Market Taxes for Stock Value of on As Comp. Income Tax Transaction Equity SARs As Reported Expense Adjustments Costs Securities Exercise Adjusted (In Millions, Except Pe
Slide 95: Adjusted EPS - 2019
Adjusted EPS(20) - 2019 For the Year Ended December 31, 2019 Adjustments Mark-to- Loss Market on Change in Adjustment Early Fair Market Payroll for Stock Exting. Value of Gain on Taxes As Comp. of Income Tax Transaction Equity Consolidation on SARs As Reported Expense Debt Adjustments Costs Securiti
Slide 96: Adjusted Free Cash Flow History
Adjusted Free Cash Flow History(21) Q1 Full Year (In Millions) 2020 2019 2019 Net cash provided by operating activities $ 29.3 $ 159.9 $ 635.3 Impact of discontinued operations 0.1 3.0 4.4 Net cash provided by operating activities of continuing operations 29.4 162.9 639.7 Capital expenditures for ma
Slide 97: Net cash from operating activities reconciled to Adjusted EBITDA
Net cash provided by operating activities reconciled to Adjusted EBITDA Q1 Full Year (In Millions) 2020 2019 2019 2018 2017 2016 2015 Net cash provided by operating activities $ 29.3 $ 159.9 $ 635.3 $ 762.4 $ 658.3 $ 640.2 $ 505.9 Professional fees — accounting, tax, and legal — — — — — 1.9 3.0 Inte
Slide 98: Share information
Share information Weighted Average for the Period Q1 Full Year (Millions) 2020 2019 2019 2018 2017 Basic shares outstanding(24) 98.2 98.4 98.0 97.9 93.7 Convertible senior subordinated notes(24) — — — — 4.0 Restricted stock awards, dilutive stock options, restricted stock units, and common stock war
Slide 99: End Notes
End Notes Encompass Health 99
Slide 100: End Notes
End Notes (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 clinical practi
Slide 101: End Notes, con't.
End Notes, con't. (11) On April 16, 2020, CMS released its Notice of Proposed Rulemaking for Fiscal Year 2021 for inpatient rehabilitation facilities under the inpatient rehabilitation facility prospective payment system (the “2021 Proposed IRF Rule”). The 2021 Proposed IRF Rule would implement a ne
Slide 102: End Notes, con't.
End Notes, con't. (20) The Company is providing adjusted earnings per share from continuing operations attributable to Encompass Health (“adjusted earnings per share”), which is a non-GAAP measure. The Company believes the presentation of adjusted earnings per share provides useful additional inform