Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q4 2013 Earnings Presentation
98 slides from Encompass Health's earnings presentation, Feb 25, 2014
Slide 1: Post Q4 2013 Earnings Release Investor Reference Book
Post Q4 2013 Earnings Release Last updated February 25, 2014 I N V E S T O R R E F E R E N C E B O O K
Slide 2: Forward-Looking Statements
The information contained in this presentation includes certain estimates, projections and other forward- looking information that reflect our current outlook, views and plans with respect to future events, including legislative and regulatory developments, strategy, capital expenditures, developmen
Slide 3: Table of Contents
Table of Contents 4-18 19-36 37-47 48-51 52-55 56-60 61-65 66-76 77-88 89-92 Reconciliat ions to GAAP………………………………………………………………………………………………………………………………………………………..93-98 Growth……………………………………………………………………………………………………………………………………… Operational Init iat ives…………………………………………………………………………………………………………….. Guidanc
Slide 4: Our Company: Portfolio as of December 31, 2013
Portfolio – As of December 31, 2013 103 Inpatient Rehabilitation Hospitals (“IRF”) • 31 operate as JV’s with Acute Care Hospitals 20 Outpatient Rehabilitation Satellite Clinics 25 Hospital-Based Home Health Agencies 28 + Puerto Rico Number of States ~ 23,600 Employees Key Statistics – 2013 ~ $2.3 Bi
Slide 5: Our Hospitals
Our Hospitals Major Services • Rehabilitation Physicians: manage and treat medical needs of patients • Rehabilitation Nurses: oversee treatment programs of patients • Physical Therapists: address physical function, mobility, safety • Occupational Therapists: promote independence and re-integration •
Slide 6: Our Patients
Our Patients 6 Most Common Conditions (Q4 2013) 1. Neurological 23.2% 2. Stroke 16.4% 3. Other orthopedic conditions 9.7% 4. Fracture of the lower extremity 9.2% 5. Knee/Hip replacement 8.2% 6. Brain injury 8.1% 7. Debility 7.9% 8. Major multiple trauma 4.4% 9. Spinal cord injury 3.8% 10. All other
Slide 7: Our Quality
7 Our Quality • Inpatient rehabilitation hospitals evaluate all patients at admission and upon discharge to determine their functional status. − FIM is the tool for measuring functional independence. • The difference between the FIM scores at admission and upon discharge is called the “FIM Gain.”
Slide 8: Our Cost-Effectiveness
Total Inpatient Rehabilitation Facilities (IRFs): 1,134 8 Our Cost-Effectiveness (1) The 99 for HLS does not include HealthSouth Rehabilitation Hospital of Ocala, FL (opened December 2012), HealthSouth Rehabilitation Hospital of Littleton, CO (opened May 2013), or HealthSouth Rehabilitation Hospital
Slide 9: CMS Fiscal Year 2014 IRF Final Rule Rate Setting File Analysis
CMS Fiscal Year 2014 IRF Final Rule Rate Setting File Analysis Notes: (1) All data provided was filtered and compiled from the Centers for Medicare and Medicaid Services (CMS) Fiscal Year 2014 IRF Final Rule rate setting file found at http://www.cms.gov/Medicare/Medicare-Fee-for-Service- Payment/Inp
Slide 10: Our Payors (Q4 2013)
Workers’ Comp/ Patients/Other Our Payors (Q4 2013) 10 Managed Care (includes managed Medicare, which represents~8% of total revenues) Other Third-Party Payors – 1.8% Medicaid- 1.2% Varies by state Prospective Payment System (“PPS”) – Payments based on Case Mix Groups (“CMGs”) • Diagnosis of patient’
Slide 11: Our Discharge Growth vs. Industry
Our Discharge Growth vs. Industry 11 1.4% 3.3% 2.9% 2.5% (0.5%) 2.3% 0.0% (0.7%) 2010 2011 2012 2013 Same Store HealthSouth vs. Industry HLS Same Store UDS Industry Sites Medicare Enrollment (Age 65+) is growing at approx. 3% per year. TeamWorks = standardized and enhanced sales & marketing Be
Slide 12: Growth by Same Store and New Store
Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 St Vincent's 1.3% 1.2% 1.2% 1.3% New Store 1.0% 2.1% 2.5% 2.8% 2.6% 1.1% 0.4% 1.0% 1.1% 1.2% 1.2% 0.7% 1.7% 2.5% 2.5% Same Store 1.5% 0.6% 3.4% 5.0% 3.5% 4.0% 1.7% 5.0% 1.9% 1.7% 3
Slide 13: Our Track Record
$1,785 $1,878 $2,027 $2,162 $2,273 2009 2010 2011 2012 2013 Revenue Our Track Record 109,106 112,514 118,354 123,854 129,988 2009 2010 2011 2012 2013 (1) Reconciliation to GAAP provided on slides 60 and 94 - 98. (2) 2010 includes an income tax benefit of ~$741 million primarily due to the reversal o
Slide 14: Our Track Record (con't)
Our Track Record (con’t) 14 $1.66 $1.51 $1.25 $1.25 $1.52 1 1.5 2 2.5 3 3.5 4 4.5 5 0 1 2 3 4 2009 2010 2011 2012 2013 (billions) Leverage Ratio (1) 4.6x 2.8x Total Debt $155 $181 $243 $268 $331 0 20 40 60 80 100 120 140 25 75 125 175 225 275 325 2009 2010 2011 2012 2013 $119 (millions) Adjusted Fre
Slide 15: Our Assets
15 Our Assets 103 (1) Inpatient Rehabilitation Hospitals: 6,825 Licensed Beds(2) 49 Own Building and Land 26 Own Building Only 28 Lease Building and Land (1) 2 of the 103 HealthSouth hospitals are nonconsolidated. Of those 2, 1 is own building only, and 1 is own building and land. (2) Excludes 151 l
Slide 16: Our Joint Venture Partnerships
16 Our Joint Venture Partnerships 2 Equity Method Joint Ventures 29 Consolidated Joint Venture Hospitals 72 Consolidated 100% Ownership 31 joint venture hospitals in place include major healthcare systems : • Barnes-Jewish • University of Virginia Medical Center • Vanderbilt University • Geisinger H
Slide 17: Our Preparation for Shifts to Coordinated Care Delivery Models
31 joint venture hospitals with acute care systems already in place (examples include): • Barnes-Jewish • University of Virginia Medical Center • Vanderbilt University Our Preparation for Shifts to Coordinated Care Delivery Models Participation in new delivery models: • Exploring ACO participation i
Slide 18: Our Strong and Sustainable Business Fundamentals
Our Strong and Sustainable Business Fundamentals • Bed expansion at existing hospitals • Flexible de novo strategy • Flexible IRF acquisition and unit consolidation strategy • Ability to pursue other post-acute sectors opportunistically Growth Opportunities • Strong balance sheet; ample liquidity, n
Slide 19: Industry Structure
Industry Structure 19
Slide 20: National Healthcare Spending
Person a l He a lt hc a re: $2,360. 4 Source: Center for Medicare & Medicaid Services, National Health Expenditure Data for calendar year 2012 – Table 2 Overall Healthcare Spending Hospital Care Includes Inpatient Rehabilitation, Long-Term Care Hospitals $882.3 $151.5 $752.3 $138.2 $77.8 $358.3 Nurs
Slide 21: Medicare 2012 Spending
Medicare 2012 Spending = $565.9 Billion (1) (1) Percentages are based upon total Medicare spending of $565.9 billion (does not include administrative expenses), Center of Medicare & Medicaid Services, Medicare Trustee’s Report May 2013 – page 10 (2) Inpatient Hospital includes spending for acute car
Slide 22: Continuum of Healthcare Services
Preventive Routine health care that includes screenings, check-ups, and patient counseling to prevent illnesses, disease, or other health problems Acute Medical treatment of diseases for which a patient is treated for a brief but severe episode of illness Ambulatory Medical care delivered on an outp
Slide 23: Medicare Spending on Post-Acute Services
23 Medicare Spending on Post-Acute Services 1.8% 2.1% 2.2% 2.1% 1.9% 1.5% 1.4% 1.3% 1.2% 1.2% 1.2% 1.2% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Inpatient rehabilitation spending (% of total Medicare spending) Total Medicare Spending on Post-Acute Ser
Slide 24: Geographic Distribution of IRFs, 2011
Geographic Distribution of IRFs, 2011 24 Source: MedPAC Report to Congress, Medicare Payment Policy, March 2013 – page 217
Slide 25: Supply of IRFs remained stable in 2011
Supply of IRFs remained stable in 2011 25 Source: MedPAC Report to Congress, Medicare Payment Policy, March 2013 – page 221 Note: IRF (inpatient rehabilitation facility). For all years, the rural/urban breakdown is by Core-Based Statistical Area (CBSA) definition. For 2011, two facilities are missin
Slide 26: Inpatient Rehabilitation Sector Margins
26 Inpatient Rehabilitation Sector Margins Type of IRF 2004 2006 2008 2009 2010 2011 All IRFs 100% 16.7% 12.4% 9.5% 8.4% 8.7% 9.6% Urban 91.4 17.0 12.6 9.7 8.6 9.1 10.3 Rural 8.6 13.9 10.6 7.6 6.3 5.4 5.7 Freestanding 44.6 24.7 17.5 18.2 20.3 21.4 22.9 Hospital based 55.4 12.2 9.6 4.1 0.3 -0.3 -0.8
Slide 27: Inpatient Rehabilitation Standardized Comparison of Costs
27 Inpatient Rehabilitation Standardized Comparison of Costs Note: IRF (Inpatient rehabilitation facility). Costs per discharge are standardized for the wage index, case mix, and outliers. Government-owned facilities operate in a different financial context from other facilities, so costs are not ne
Slide 28: Post-Acute Care Settings and Readmission Rates
Post-Acute Care ("PAC") Setting Percent Discharged from Hospital to PAC Setting Percent Rehospitalized after Using PAC Setting Percent Died in PAC Setting Skilled Nursing Facility 17.3% 22.0% 5.4% Home Health 16.0% 18.1% 0.8% Long-Term Care Hospital 1.0% 10.0% 15.5% Inpatient Rehabilitation 3.2% 9.4
Slide 29: 60% Rule: Medicare Regulation for Rehabilitation Hospitals
“60% Rule”: Medicare Regulation for Rehabilitation Hospitals 29 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. The 60% Rule requires at least 60% of
Slide 30: IRF Qualifying Conditions
Inpatient Rehabilitation Hospital (IRF): Qualifying Conditions 30 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 10. Polyarthritis (includes “joint replacement”) Original Qualifying Conditio
Slide 31: Alternative to Re-Setting 60% Rule: Cap IRF Outlier Payments
Alternative to ”Re-Setting” “60% Rule” to “75% Rule”: Cap IRF Outlier Payments @ 10% 31 Hospital Deciles HLS Non-HLS Total HLS Non-HLS Total % HLS Non-HLS Total 90-100 - 114 114 -$ 112,760,917$ 112,760,917$ 52.6% N/A 2,087$ 2,087$ 80-90 - 113 113 -$ 38,619,910$ 38,619,910$ 18.0% N/A 1,261$ 1,261$ 70
Slide 32: IRF-PPS Fiscal Year 2014 Final Rule: Key Provisions
32 • The final rule would implement a net 1.8% market basket increase. ― 2.6% market basket increase ― (30 bps) Affordable Care Act reduction ― (50 bps) Affordable Care Act productivity reduction • Final rule includes updates to the IRF facility-level rural, low-income patient and teaching status ad
Slide 33: Site Neutral Payments – A Complicated Issue
Site Neutral Payments – A Complicated Issue (Post-Acute Payment Reform Background) 33 (1) Post-Acute Care Payment Reform Demonstration Report to Congress Supplement—Interim Report, May 2011, RTI International 2005: • The Deficit Reduction Act of 2005 directed CMS to conduct a study aimed at reformin
Slide 34: Different Levels of Services: Rehab Hospital vs. Nursing Home
Different Levels of Services Rehab Hospital Nursing Home Average Length of Stay (1) = 13.0 days Average Length of Stay (2) = 30 days Covered Days per Admission (1) = 27.2 days Discharge to Home (percent) (2) = 81.1% Discharge to Home (percent) (2) = 45.5% Requirements: Requirements: Rehab hospitals
Slide 35: CMS: Inpatient Rehabilitation vs. Skilled Nursing
35 CMS: Inpatient Rehabilitation vs. Skilled Nursing “… MedPAC’s analysis of recent quality measure data related to rehospitalizations suggests that quality of care within SNFs has not been improving … Since 2000, one outcome measure (the risk-adjusted rate of rehospitalization for any of five care-
Slide 36: Future Regulatory Risk
Future Regulatory Risk Inpatient Rehabilitation Facility Skilled Nursing Facility Long-Term Acute Care Hospital Home Health Hospice 1. Re-basing payment system No Yes; Rebased in FY 2012 (-12.6%) Starting in FY 2016, LTCHs will be paid “site-neutral payment” rates for certain types of cases; such ca
Slide 37: Historical Perspective
Historical Perspective 37
Slide 38: Historical Perspective: Massive Restructuring Effort 2004 thru early 2008
Historical Perspective: Massive Restructuring Effort 2004 thru early 2008 December 2004 June 2005 December 2005 June 2006 December 2006 June 2007 December 2007 Reached DOJ/CMS Settlement ($325M) Filed 2000- 2003 Form 10-K Completed Senior Notes Offering ($1.0B) Announced Divestitures Finalized Secur
Slide 39: Historical Perspective
39 • Continued focus on delevering (approx. $151 million in debt repaid) • Focused on organic growth; TeamWorks sustainability module rolled out • Issued 5 million shares for securities litigation settlement (Q3) • Received first Medicare market basket update in 18 months (Q4) • Reinvigorated develo
Slide 40: Historical Perspective: 2011
40 Historical Perspective (1) The Budget Control Act of 2011 included a reduction of up to 2% to Medicare payments for all providers that began on April 1, 2013 (as modified by H.R. 8). The reduction was made from whatever level of payment would otherwise have been provided under Medicare law and re
Slide 41: Historical Perspective: 2012
41 Historical Perspective • Established 2012 – 2014 business model (1) ― 2.5-3.5% discharge growth; 5-8% Adjusted EBITDA CAGR ― 12-17% adjusted free cash flow CAGR • Purchased 46,645 shares of our convertible perpetual preferred stock for $46.5 million • Upgraded to Ba3 and BB– by Moody’s and S&P, r
Slide 42: Historical Perspective: 2013
42 Historical Perspective • Established 2013 – 2015 business model (1) (includes sequestration(2)) ― 2.5-3.5% discharge growth; 4-8% Adjusted EBITDA CAGR;10-14% adjusted free cash flow CAGR • Completed tender offer for 9.5% of then-outstanding common shares (Q1) • Entered into agreements with the IR
Slide 43: Managing Through Medicare Payment Cuts and Recession
MMSEA (Final Establishment of 60% rule) Sequestration Begins Price Increase: Less PPACA Adjustment PPACA Signed Into Law CMS Implements New Coverage Criteria for IRF Admissions 1st Medicare IRF Price Increase Since 2007 Medicare Price Rollback & 18-Month Freeze 43 HealthSouth has successfully manage
Slide 44: Revenues & Expenses
Revenues & Expenses 44 (1) Employees per occupied bed, or “EPOB,” is calculated by dividing the number of full-time equivalents, including an estimate of full-time equivalents from the utilization of contract labor, by the number of occupied beds during each period. The number of occupied beds is de
Slide 45: Adjusted EBITDA
Adjusted EBITDA (1) 45 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 (Millions) 2013 2013 2013 2013 2012 2012 2012 2012 2013 2012 2011 Net operating revenues 572.1$ 564.0$ 564.5$ 572.6$ 552.9$ 537.0$ 533.4$ 538.6$ 2,273.2$ 2,161.9$ 2,026.9$ Less: Provision for doubtful accounts (3.6) (8.0) (7.0) (7.4) (7.2) (7.0) (6.5) (
Slide 46: Outstanding Share Summary, Warrant Information, Conversion Price
Outstanding Share Summary, Warrant Information, Conversion Price (Millions) Q4 Q4 2013 2012 2013 2012 2011 2010 2009 Basic shares outstanding (1) (2) (3) (4) 86.4 94.7 88.1 94.6 93.3 92.8 88.8 Diluted shares outstanding (1) (2) (3) (4) (5) 100.8 108.0 102.1 108.1 109.2 108.5 103.3 Q4 FY FY FY 2013 2
Slide 47: Outstanding Share Summary, Warrant Information and Conversion Rate Notes
Outstanding Share Summary, Warrant Information and Conversion Rate Notes 47 (1) The Company purchased 9,119,450 common shares in Q1 2013 through a tender offer at a price of $25.50 per share. (2) On July 25, 2013, the Company’s board of directors approved the initiation of a quarterly cash dividend
Slide 48: Business Outlook 2014 to 2016
Business Outlook 2014 to 2016 (as of February 25, 2014) 48
Slide 49: Business Outlook: 2014 to 2016
Business Outlook: 2014 to 2016(1) Business Model • Adjusted EBITDA CAGR: 4-8% (2) • Continued strong free cash flow generation Strategy Leverage < 3.0x Debt to Adjusted EBITDA < 3.0x Debt to Adjusted EBITDA (subject to shareholder value-creating opportunities) Core Growth Same-store Growth (Includes
Slide 50: Business Outlook: Revenue Assumptions
Business Outlook: Revenue Assumptions Revenue Volume • 2.5% to 3.5% annual growth (excludes acquisitions) • Includes bed expansions, de novos and unit consolidations Pricing 72% 8% 20% FY 2014 (3) FY 2015 FY 2016 Q4 13 - Q3 14 Q4 14 - Q3 15 Q4 15 - Q3 16 Market basket update (1) 2.6% 2.9% 2.9% Healt
Slide 51: Business Outlook: Expense Assumptions
Business Outlook: Expense Assumptions Expense Salaries & Benefits (1) Hospital Expenses • Other operating expenses and supply costs tracking with inflation • Occupancy costs declining as a percent of revenue • Bad debt expense of approx. 1.3% to 1.5 % 2014 2015 2016 Merit increases 2.0-2.5% 2.0-2.5%
Slide 52: Guidance
Guidance (as of February 25, 2014) 52
Slide 53: 2014 Guidance - Adjusted EBITDA
2014 Guidance - Adjusted EBITDA(1) 53 2014 Adjusted EBITDA $555 million to $565 million (1) Reconciliation to GAAP provided on slides 60, 94, and 98. Considerations for full-year 2014: Revenue growth of 4.0% to 5.0% before sequestration ― Discharge growth between 2.5% and 3.5% ― Revenue per discha
Slide 54: 2014 Guidance - Earnings Per Share
2014 Guidance - Earnings Per Share Earnings per Share from Continuing Operations Attributable to HealthSouth (1) $ 1.86 to $ 1.91 Considerations: Higher depreciation and amortization related to recent capital investments Higher interest expense and amortization of debt discounts and fees related
Slide 55: Income Tax Considerations
Income Tax Considerations GAAP Considerations: •As of 12/31/13, the Company’s federal NOL had a gross balance of approx. $929 million. ― Includes the approx. $283 million increase in the federal NOL (on a gross basis) as a result of the April 25, 2013 agreements with the IRS • The Company has a rema
Slide 56: Free Cash Flow
Free Cash Flow 56
Slide 57: Adjusted Free Cash Flow
Adjusted Free Cash Flow (1) Considerations (1) Reconciliation to GAAP is provided on slide 59. (2) Definition of adjusted free cash flow is net cash provided by operating activities of continuing operations minus capital expenditures for maintenance, dividends paid on preferred stock, distributions
Slide 58: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow 58 Growth in Core Business Debt Reduction Shareholder Distribution (1) Issued $320 million of 2.0% Convertible Senior Subordinated Notes due 2043 in exchange for 257,110 shares of the Company’s 6.5% Series A Convertible Perpetual Preferred Stock. Excluding f
Slide 59: Adjusted Free Cash Flow
Adjusted Free Cash Flow (Millions) 2013 2012 2013 2012 2011 2010 2009 100.9$ 109.3$ 470.3$ 411.5$ 342.7$ 331.0$ 406.1$ 0.5 (0.5) 1.9 (2.0) (9.1) (13.2) (5.7) Capital expenditures for maintenance (1) (20.5) (15.0) (74.8) (83.0) (50.8) (37.9) (33.2) Net settlements on interest rate swaps - - - - (10.9
Slide 60: Reconciliation of Net Cash from Operating Activities to Adjusted Free Cash Flow
(Millions) 2013 2012 2013 2012 2011 2010 2009 Net cash provided by operating activities 100.9$ 109.3$ 470.3$ 411.5$ 342.7$ 331.0$ 406.1$ Provision for doubtful accounts (3.6) (7.2) (26.0) (27.0) (21.0) (16.4) (30.7) Professional fees—accounting, tax, and legal 1.7 2.9 9.5 16.1 21.0 17.2 8.8 Interest
Slide 61: Refinancing and Delevering
Refinancing and Delevering 61
Slide 62: Debt Maturity Profile
$287 Senior Notes (2) 8.125% ($ in millions) $272 Senior Notes 7.25% $253 Senior Notes (2) 7.75% $275 Senior Notes (2) 5.75% 2014 2017 2018 2018 2019 2020 2021 2022 2023 2024 2043 $45 Drawn + $36 LC Debt Maturity Profile $600 Revolver L+175 December 31, 2013 (1) (2) $519 Undrawn • 10% of the outstan
Slide 63: Debt and Liquidity
63 Debt and Liquidity (1) Based on 2009 and 2013 Adjusted EBITDA of $363.7 million and $551.6 million, respectively; reconciliation to GAAP provided on slides 59, 60, and 94-98. Dec. 31, Dec. 31, 2013 2012 Cash Available 64.5$ 132.8$ Revolver Total Line 600.0$ 600.0$ Less: - Draws (45.0) - - Letters
Slide 64: Debt Schedule
Debt Schedule (1) In November 2013, the Company redeemed $30.2 million and $27.9 million of its 7.25% Senior Notes due 2018 and its 7.75% Senior Notes due 2022, respectively. (2) On November 18, 2013, the Company closed separate, privately negotiated exchange agreements under which it issued $320 mi
Slide 65: Credit Agreement Key Covenants
Credit Agreement Key Covenants (1) All Transactions are subject to no defaults under covenants and pro forma leverage of less than 4.5x and interest coverage of at least 2.75x Transaction Limitations Acquisitions No additional limitations Unsecured debt issuance No additional limitations Restricted
Slide 66: Growth
Growth 66
Slide 67: Organic Growth: A Strategic Framework
Demographics + population growth and changes (weighted by age) = Rehab CAGR Growth goals for the market and/or hospital Sales and Marketing Strategies • Defining “upstream” opportunities • Identifying CMS-13 discharges • “Converting” CMS-13 patients to rehab Market Dynamics • Existing IRF beds • Man
Slide 68: Organic Growth: Compounded Annual Growth Rate (CAGR)
Organic Growth: Compounded Annual Growth Rate (CAGR) (1) (1) Numbers in map are for illustrative purposes only and do not represent actual results. (2)“Weighted for Rehab Services” - methodology weights growth in rehab age groups higher. % CAGR Rehab by Zip Code Weighted for Rehab Services (1) (2) O
Slide 69: De Novo Market Selection Process
De Novo Market Selection Process 69 Active Development List Corporate Assessment Strategic Approach • Build • Buy • JV Regional President Priority Assessment “Deep Dive” Market Assessments Potential Opportunity List (160 opportunities identified) National Market Assessment (3,141 counties in 48 stat
Slide 70: De Novo Evaluation Process
• No guarantee on timeframe or ultimate success • Input from design, operations and real estate • ~ Six acres with building expansion capability • Proximity to acute-care providers • Permitting • Land • IRR • NPV • Cash payback ..... CON Approval Site Selection Cost Assessment Pro forma Financials E
Slide 71: Illustrative De Novo Timeline
Illustrative De Novo Timeline 71 Day 1 CON Process Construction With CON Permitting & Design Planning & Zoning Groundbreaking Opening Construction Permitting & Design Planning & Zoning Groundbreaking Month 20 Opening Day 1 Without CON 6 months to 3 years 20 months
Slide 72: Portfolio Growth: De Novo (40 bed) Assumptions and Timing
Portfolio Growth: De Novo (40 bed) Assumptions and Timing 72 (1) Future cash payback periods may increase when the Company exhausts its NOLs (slide 55). (2) Does not include Franklin, TN; CON award is under appeal (3) Pre-opening expenses include expenses for training new employees on the clinical i
Slide 73: De Novo Occupancy and EBITDA Trends
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1 2 3 4 5 6 7 8 9 10 11 12 Mesa Loudoun Bristol Cypress Ocala Littleton Stuart HLS Avg. 2013 Occupancy Months (1) Hospital EBITDA = earnings before interest, taxes, depreciation and amortization directly attributable to the related hospital De Novo Occupan
Slide 74: Portfolio Growth: Acquisition Assumptions, Timing and Performance
Portfolio Growth: Acquisition Assumptions, Timing and Performance 74 (1) Future cash payback periods may increase when the Company exhausts its NOLs (slide 55). (2) Census for Q4 2013 Acquisition Assumptions Investment Considerations Value Added • Price varies depending on size, market, and physical
Slide 75: Potential Expansion: Post-Acute Care Services
75 Acute Care Hospital Discharge Long-Term Acute Care Hospital Hospice Inpatient Rehabilitation Facility (1) Skilled Nursing Facility Home Health (1) (Highest Acuity) (Lowest Acuity) Potential Expansion: Post-Acute Care Services Medicare Spending (billions) $5.4 $13.8 $6.5 $28.8 $18.4 # of Discharge
Slide 76: Summary: Multiple Avenues Available for Sustained Growth
76 Summary: Multiple Avenues Available for Sustained Growth The IRF patient population is experiencing favorable long-term demographic trends: • Aging of baby boomer generation • Increased average life expectancy • Low threat of technological obsolescence • The Company continues to have excellent or
Slide 77: Operational Initiatives
Operational Initiatives 77
Slide 78: Operational Strategy
Operational Strategy Excellence in … 78 • Care Management TeamWorks project • Identify trends and establish “best practices” for the prevention of acute care transfers • Provide a robust rehabilitation specific clinical education program for nurses and therapists • BEACON management reporting system
Slide 79: CIS Standardization Improves Patient Safety and Operational Efficiencies
CIS Standardization Improves Patient Safety and Streamlines Operational Efficiencies Pre-Admission Assessment & Approval Discharge Planning and Patient Education • Patient History • Problems and Diagnoses •Orders and Results • Plan of Care • Workflow Alerts and Reminders • Treatment and Intervention
Slide 80: CIS Benefits and Value Proposition
CIS Benefits and Value Proposition • Streamline sales and marketing process • Clinical charge capture efficiency • Real time awareness of therapy intensity (higher intensity associated with better outcomes) • Enterprise standardized clinical documentation and coding processes • Workflow management,
Slide 81: CIS Timeline
• Installed ACE IT in HealthSouth Rehabilitation Hospital of Northern VA hospital • Pilot project kickoff in August; designated “ACE IT” • Core team assembled; pilot hospitals identified • Cerner selected for pilot • Signed contract with Cerner for Company-wide implementation starting in 2012 • Inst
Slide 82: CIS Cost
CIS Cost 82 • No incentive payments (i.e. “HITECH”) for inpatient rehabilitation hospitals (1) – Only acute care hospitals are eligible • Installation cost will vary by hospital depending on items such as size and physical plan. – Installation cost expected to be in a range of $1 million to $1.5 mil
Slide 83: TeamWorks: Care Management
TeamWorks: Care Management 83 Goals • Improve operational effectiveness, patient satisfaction, and quality outcomes • Engage interdisciplinary teams • Reduce: ― Complication rates ― Cost per case ― Payor denials • Increase: ― Quality outcomes ― Patient involvement in care decisions • Standardize “Ca
Slide 84: CPR: Comfort, Professionalism, Respect
CPR: Comfort, Professionalism, Respect • All employees trained in the CPR campaign. • Hospital-based trained facilitators will work directly with employees. • A series of short videos is used to depict common scenarios of patient/staff situations. • Facilitator training is highly interactive, encour
Slide 85: HealthSouth Management Reporting
HEALTHSOUTH MANAGEMENT REPORTING ome —_ e& oi = _ co
Slide 86: BEACON: Management Reporting
86 BEACON: Management Reporting (1) (1) Numbers in screen shot have been modified for presentation and do not represent actual results. Provides regional and hospital leadership near real-time data to run the business Benchmarking – side-by-side hospital comparison to promote best practices Qu
Slide 87: BEACON: SmartSystem Analytics
87 BEACON: SmartSystem Analytics Standardized best practices and purchasing Optimize vendor relationships through Electronic Data Interchange (EDI) and vendor consolidation National procurement contracts awarded through standardized RFP processes Leverage scale to receive competitive terms a
Slide 88: Operational Initiatives: SmartSystem
Operational Initiatives: SmartSystem 88 88 Completed initiatives: • Dialysis • Food • Pharmacy • Office Supplies • Outside patient service • Therapy equipment • Supply costs per discharge have been reduced while acuity is increasing. • Savings have more than offset the effect of inflation. $887 $883
Slide 89: Operational Metrics
Operational Metrics 89
Slide 90: Operational Metrics: Expense Efficiencies
• Salaries and Benefits reflects continued improvement from productivity gains and growing revenue base. • Hospital-related Expenses includes other operating (1), supplies, and occupancy. • General and Administrative excludes stock-based compensation. • Provision for Doubtful Accounts varies based o
Slide 91: Operational and Labor Metrics
Operational and Labor Metrics (1) Represents discharges from HealthSouth’s 101 consolidated hospitals in Q4 2013, Q3 2013 and Q2 2013; 98 consolidated hospitals in Q1 2013 and Q4 2012; 97 consolidated hospitals in Q3 2012; 96 consolidated hospitals in Q2 2012, Q1 2012, and Q4 2011; 94 consolidated h
Slide 92: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) 2013 2012 2013 2012 2011 Medicare 74.7% 73.6% 74.5% 73.4% 72.0% Medicaid 1.2% 1.2% 1.2% 1.2% 1.6% Workers' compensation 1.2% 1.4% 1.2% 1.5% 1.6% Managed care and other discount plans, including Medicare Adv antage(1) 18.3% 19.2% 18.5% 19.3% 19.8% Other third-par
Slide 93: Reconciliations to GAAP
Reconciliations to GAAP 93
Slide 94: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1) (1) (2) (3) – See notes on slide 98. 94 (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income 65.9$ 179.0$ 72.3$ 64.2$ 381.4$ Loss (income) from disc ops, net of tax, attribu
Slide 95: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1) (1) (2) (3) – See notes on slide 98. (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income 56.8$ 59.9$ 59.9$ 59.3$ 235.9$ Loss (income) from disc ops, net of tax, attributabl
Slide 96: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1) (1) (2) (3) – See notes on slide 98. 96 (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income 91.5$ 32.3$ 68.3$ 62.5$ 254.6$ (Income) loss from disc ops, net of tax, attribut
Slide 97: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1) (in millions, except per share data) Total Per Share Total Per Share Net income 128.8$ 939.8$ Income from disc ops, net of tax, attributable to HealthSouth (17.7) (9.2) Net income attributable to noncontrolling interests (34.0) (40.8) Income from c
Slide 98: Reconciliation Notes for Slides 94-97
Reconciliation Notes for Slides 94-97 98 1. 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 financial measure. Management and some members of the investment community ut