Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q1 2013 Earnings Presentation
96 slides from Encompass Health's earnings presentation, May 17, 2013
Slide 1: Post Q1 2013 Earnings Release Investor Reference Book
Post Q1 2013 Earnings Release Last updated May 17, 2013 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 4-17 18-34 35-44 45-48 49-53 54-57 58-62 63-73 74-85 86-89 Reconciliat ions to GAAP………………………………………………………………………………………………………………………………………………………..90-96 Growth……………………………………………………………………………………………………………………………………… Operational Init iat ives…………………………………………………………………………………………………………….. Guidanc
Slide 4: Our Company: Portfolio as of May 15, 2013
Portfolio – As of May 15, 2013 102 Inpatient Rehabilitation Hospitals (“IRF”) • 30 operate as JV’s with Acute Care Hospitals 22 Outpatient Rehabilitation Satellite Clinics 25 Hospital-Based Home Health Agencies 28 + Puerto Rico Number of States ~ 23,000 Employees Key Statistics – Trailing 4 Quarters
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 (Q1 2013) 1. Neurological 23.0% 2. Stroke 16.3% 3. Other orthopedic conditions 9.5% 4. Fracture of the lower extremity 9.5% 5. Debility 9.4% 6. Knee/Hip replacement 7.1% 7. Brain Injury 7.7% 8. Cardiac conditions 3.9% 9. Spinal cord injury 3.5% 10. All other 10.
Slide 7: Quality: FIM Gain
24 26 28 30 32 34 36 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 Our Quality FIM Gain is based on the change from admission to discharge of an 18 point assessment. HealthSouth UDS Average (1) 7 • Inpatient rehabilitation hospitals evaluate all patients at ad
Slide 8: Our Cost-Effectiveness
Avg. Beds per IRF Avg. Medicare Discharges per IRF (2) Avg. Est. Total Cost per Discharge for FY 2013 Avg. Est. Total Payment per Discharge for FY 2013 HLS (1) = 97 67 896 $12,371 $17,301 Free- standing (Non-HLS) = 135 52 597 $16,251 $18,603 Hospital Units = 907 23 231 $18,857 $18,249 Total 1,139 30
Slide 9: Cost-Effectiveness: IRF-PPS Outlier Payments by Decile
Our Cost-Effectiveness: IRF-PPS Outlier Payments by Decile 9 Hospital Deciles HLS Non-HLS Total HLS Non-HLS Total % HLS Non-HLS Total 90-100 - 113 113 -$ 104,345,905$ 104,345,905$ 50.9% N/A 2,187$ 2,187$ 80-90 1 113 114 301,874$ 38,356,930$ 38,658,804$ 18.9% 236$ 1,095$ 1,065$ 70-80 1 113 114 166,04
Slide 10: CMS Fiscal Year 2013 IRF Rate Setting File Analysis
CMS Fiscal Year 2013 IRF Rate Setting File Analysis Notes: (1) All data provided was filtered and compiled from the Centers for Medicare and Medicaid Services (CMS) Fiscal Year 2013 IRF rate setting file found at http://www.cms.gov/InpatientRehabFacPPS/07_DataFiles.asp#. The data presented was devel
Slide 11: Our Payors (Q1 2013)
Medicaid – 1.1% Varies by state Other Third-Party Payors – 1.7% Variety of methodologies Workers’ Comp/ Patients / Other Variety of methodologies Managed Care (includes managed Medicare, which represents ~8% of total revenues) Medicare Payment Methodology Payor Source 11 Prospective Payment System (
Slide 12: Historic Discharge Growth vs. Industry
HealthSouth’s volume growth has outpaced competitors’ (1) Data provided by UDSMR, a data gathering and analysis organization for the rehabilitation industry; represents ~70% of industry, including HealthSouth sites. (2) Includes consolidated HealthSouth inpatient rehabilitation hospitals classified
Slide 13: Our Track Record
$1,701 $1,785 $1,878 $2,027 $2,162 $2,196 2008 2009 2010 2011 2012 Trailing 4 Qtrs Revenue Our Track Record ($ in millions) (1) Reconciliation to GAAP provided on slides 56 and 91 - 96. (2) 2010 includes an income tax benefit of ~$741 million primarily due to the reversal of a substantial portion of
Slide 14: Our Track Record: Leverage and Free Cash Flow
$1.81 $1.66 $1.51 $1.25 $1.25 $1.38 0 1 2 3 4 5 6 $1.00 $1.25 $1.50 $1.75 $2.00 YE 2008 YE 2009 YE 2010 YE 2011 YE 2012 Trailing 4 Qtrs Total Debt 5.6x 2.7x Our Track Record 14 Leverage Ratio (1) (billions) $9 $155 $181 $243 $268 $309 $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 2008 2009 2010 2011 2
Slide 15: Managed Through Medicare Cuts and Recession
PPACA Signed Into Law MMSEA (Final Establish- ment of 60% rule) Medicare Price Rollback & 18 Month Freeze 1st Medicare IRF Price Increase Since 2007 CMS Implements New Coverage Criteria for IRF Admissions Price Increase: Less PPACA Adjustment RECESSION 25,000 25,500 26,000 26,500 27,000 27,500 28,00
Slide 16: Our Assets
16 3,288 Licensed Beds in CON States Our Assets 102 (1) Inpatient Rehabilitation Hospitals; 6,744 Licensed Beds (2) 3,456 Licensed Beds in Non-CON States 24 Own Hospital Building Only 44 Own Building and Land 34 Lease Building and Land A Certificate of Need (CON) is a legal document required in many
Slide 17: Strong and Sustainable Business Fundamentals
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, no ne
Slide 18: Industry Structure
Industry Structure 18
Slide 19: National Healthcare Spending
Person a l He a lt hc a re: $2,279. 3 Source: Center for Medicare & Medicaid Services, National Health Expenditure Data for calendar year 2011 – Table 2 Overall Healthcare Spending Hospital Care Includes Inpatient Rehabilitation, Long-Term Care Hospitals $850.6 $149.3 $723.1 $133.1 $74.3 $348.9 Nurs
Slide 20: Medicare 2011 Spending
Medicare 2011 Spending = $546.5 Billion (1) (1) Percentages are based upon total Medicare spending of $546.5 billion, net of recoveries (CBO March 2012 Medicare Baseline - page 2) (2) Inpatient Hospital includes spending for acute care hospitals along with, inpatient rehabilitation and long-term car
Slide 21: 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 22: Medicare Spending on Post-Acute Services
$0 $10 $20 $30 $40 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Total Medicare Spending on Post-Acute Services $63.5 billion in 2011 Note: These numbers are program spending only and do not include beneficiary copayments. Sources: Center for Medicare & Medicaid Services, Medicare Trustees
Slide 23: Geographic Distribution of IRFs, 2011
Geographic Distribution of IRFs, 2011 23 Source: MedPAC Report to Congress, Medicare Payment Policy, March 2013 – page 217
Slide 24: Supply of IRFs Remained Stable in 2011
Supply of IRFs remained stable in 2011 24 Source: MedPAC Report to Congress, Medicare Payment Policy, March 2013 – page 218 Annual change IRF Statistics 2002 2004 2006 2008 2009 2010 2011 2002- 2004 2004- 2008 2008- 2010 2010- 2011 Medicare spending (in billions) $4.97 $6.58 $6.22 $5.93 $6.03 $6.14
Slide 25: Inpatient Rehabilitation Sector Margins
25 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 26: Inpatient Rehabilitation Standardized Comparison of Costs
26 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 27: 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 28: 60% Rule: Medicare Regulation for Rehabilitation Hospitals
“60% Rule”: Medicare Regulation for Rehabilitation Hospitals 28 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 29: IRF Qualifying Conditions
Inpatient Rehabilitation Hospital (IRF): Qualifying Conditions 29 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 30: IRF-PPS Fiscal Year 2014 Proposed Rule: Key Provisions
30 • The proposed rule would implement a net 1.8% market basket increase. ― 2.5% market basket increase ― (30 bps) Affordable Care Act reduction ― (40 bps) Affordable Care Act productivity reduction • Proposed rule includes updates to the IRF facility-level rural, low-income percentage and teaching
Slide 31: Site Neutral Payments: A Complicated Issue
Site Neutral Payments – A Complicated Issue (Post-Acute Payment Reform Background) 31 (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 32: 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 33: CMS: Inpatient Rehabilitation vs. Skilled Nursing
33 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 34: 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; RUGS IV and MDS 3.0 parity adjustment implemented in FY 2012 (-12.6%) No Yes; CY 2012 re-weighted case weights and payment from high
Slide 35: Historical Perspective
Historical Perspective 35
Slide 36: Massive Restructuring Effort 2004 through 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 37: Historical Perspective: 2008-2009
Historical Perspective 37 $323 $364 $410 $466 $506 2008 2009 2010 2011 2012 Adjusted EBITDA (1) (1) Reconciliation to GAAP provided on slides 56 and 91 - 96. 2008: Focused on Achieving Balance between Debt Reduction and Organic Growth • Established 2008-2010 business model ― 4% discharge growth; 5-8
Slide 38: Historical Perspective: 2010
$50 $100 $150 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Historical Perspective 38 2010 Adjusted EBITDA (1) = $409.6 (1) Reconciliation to GAAP provided on slides 56, 91 – 94, and 96. (millions) 2010: Focused on Debt Reduction with Increased Emphasis on Organic Growth • Healthc
Slide 39: Historical Perspective: 2011
$50 $100 $150 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 2011 Adjusted EBITDA (2) = $466.2 Historical Perspective 39 2010 Adjusted EBITDA (2) = $409.6 (1) The Budget Control Act of 2011 included a reduction of up to 2% to Medicare payments for all providers upon executive order
Slide 40: Historical Perspective: 2012
$50 $100 $150 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 2011 Adjusted EBITDA (2) = $466.2 Historical Perspective 40 2010 Adjusted EBITDA (2) = $409.6 (1) 2013 – 2015 business model on slide 46 supersedes 2012 – 2014 business model. (2) Reconciliation to GAAP provided on slides
Slide 41: Historical Perspective: 2013
$50 $100 $150 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 2011 Adjusted EBITDA (1) = $466.2 Historical Perspective 41 2010 Adjusted EBITDA (1) = $409.6 (1) Reconciliation to GAAP provided on slides 56, 91 – 94, and 96. (millions) 2012 Adjusted EBITDA (1) = $505.9 2013: Focus on
Slide 42: Revenues & Expenses
Revenues & Expenses 42 (1) Employees per occupied bed, or “EPOB,” is calculated by dividing the number of full-time equivalents, including an estimate of full- time equivalents from the utilization of contract labor, by the number of occupied beds during each period. The number of occupied beds is d
Slide 43: Adjusted EBITDA
Adjusted EBITDA (1) 43 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 (Millions) 2013 2012 2012 2012 2012 2011 2011 2011 2011 2012 2011 Net operating revenues 572.6$ 552.9$ 537.0$ 533.4$ 538.6$ 518.1$ 497.7$ 505.1$ 506.0$ 2,161.9$ 2,026.9$ Less Provision for doubtful accounts (7.4) (7.2) (7.0) (6.5) (6.3) (6.1) (5.1) (
Slide 44: Outstanding Share Summary and Warrant Information
Outstanding Share Summary and Warrant Information (Millions) Q1 Q1 2013 2012 2012 2011 2010 2009 2008 2007 Basic shares outstanding (1) (2) (3) 94.0 94.5 94.6 93.3 92.8 88.8 83.0 78.7 Diluted shares outstanding (1) (2) (3) (4) 107.1 108.7 108.1 109.2 108.5 103.3 96.4 92.0 Q1 Q1 FY FY 2013 2012 2012
Slide 45: Business Outlook 2013 to 2015
Business Outlook 2013 to 2015 (as of May 17, 2013) 45
Slide 46: Business Outlook: 2013 to 2015
Business Outlook: 2013 to 2015 (1) Business Model • Adjusted EBITDA CAGR: 4-8% (2) • Adjusted Free Cash Flow CAGR: 10-14% (2)(3) Strategy 2012 2013 2014 2015 Delevering < 3.0x Debt to Adjusted EBITDA < 3.0x Debt to Adjusted EBITDA (subject to shareholder value-creating opportunities) Core Growth Sam
Slide 47: 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 2013 (3) FY 2014 FY 2015 Q4 12 - Q3 13 Q4 13 - Q3 14 Q4 14 - Q3 15 Market basket update (1) 2.7% 2.5% 2.9% Healt
Slide 48: 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. 1.1% to 1.3% 2013 2014 2015 Merit increases (2) 0.5-0.6% 2.0-2
Slide 49: Guidance
Guidance (as of May 17, 2013) 49
Slide 50: 2013 Guidance - Adjusted EBITDA
2013 Guidance - Adjusted EBITDA(1) 50 2013 Adjusted EBITDA = $506 million to $516 million Based on results of Q1 2013, HealthSouth expects its 2013 full-year results to be at the high end of, or greater than, this guidance range. 2012 1) One-time bonus, net of an assumed 2.25% merit increase beginni
Slide 51: 2013 Guidance - EPS
2013 Guidance - EPS Earnings per Share from Continuing Operations Attributable to HealthSouth (1) $1.61 to $1.68 (Updated to reflect the higher interest expense and lower share count as a result of the tender) Considerations: Higher depreciation and amortization related to recent capital expenditu
Slide 52: Income Tax Considerations
Income Tax Considerations GAAP Considerations: •As of 3/31/13, the Company’s federal NOL had a balance of approx. $906 million. •As a result of the April 25, 2013 agreements with the IRS, the Company will increase its federal NOL (on a gross basis) by at least $260 million in Q2 2013. • The Company
Slide 53: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations (1) Reconciliation to GAAP provided on slide 55 (2) Definition of adjusted free cash flow is net cash provided by operating activities of continuing operations minus capital expenditures for maintenance, net settlements on interest rate swaps, dividends pai
Slide 54: Free Cash Flow
Free Cash Flow 54
Slide 55: Adjusted Free Cash Flow
Adjusted Free Cash Flow (Millions) 2013 2012 2012 2011 2010 2009 2008 121.4$ 81.0$ 411.5$ 342.7$ 331.0$ 406.1$ 227.2$ 0.7 (0.4) (2.0) (9.1) (13.2) (5.7) (32.5) Capital expenditures for maintenance (1) (18.9) (19.1) (83.0) (50.8) (37.9) (33.2) (41.5) Net sett lements on interest rate swaps (2) - - -
Slide 56: Reconciliation of Net Cash from Operating Activities to Adjusted Free Cash Flow
(Millions) 2013 2012 2012 2011 2010 2009 2008 Net cash provided by operating activities 121.4$ 81.0$ 411.5$ 342.7$ 331.0$ 406.1$ 227.2$ Prov ision for doubtful accounts (7.4) (6.3) (27.0) (21.0) (16.4) (30.7) (23.0) Professional fees—accounting, tax, and legal 1.4 3.6 16.1 21.0 17.2 8.8 44.4 Interes
Slide 57: Priorities for Free Cash Flow
Priorities for Free Cash Flow 57 Growth Debt Reduction Shareholder Distribution (1) Pre-payment made for acquisition of Walton Rehabilitation Hospital (2) 2012 includes the purchase of the real estate (previously subject to an operating lease) associated with our joint venture hospital in Fayettevil
Slide 58: Refinancing and Delevering
Refinancing and Delevering 58
Slide 59: Debt Schedule
Debt Schedule (1) Based on 4 Qtr. trailing and 2012 Adjusted EBITDA of $518.2 million and $505.9 million, respectively; reconciliation to GAAP provided on slides 56, 91, 92, and 96. 59 Change S&P Moody March 31, Dec. 31, in Debt (Millions) Corporate BB- Ba3 2013 2012 vs. YE 2012 Advances under $600
Slide 60: Debt and Liquidity
($ Billions) Year-End 2010 Goal: 3.75x to 4.00x (1) Based on 2008 and trailing 4 quarters Adjusted EBITDA of $322.6 million and $518.2 million, respectively; reconciliation to GAAP provided on slides 56 and 91-96. Debt and Liquidity March 31, Dec. 31, 2013 2012 Cash Available 80.1$ 132.8$ Revolver T
Slide 61: Debt Maturity Profile
Debt Maturity Profile 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 $303 Senior Notes 7.25% $286 Senior Notes 8.125% $281 Senior Notes 7.75% ($ in millions) $36 LC $600 Revolver L+175 March 31, 2013 (1) $442 Undrawn • 10% of the outstanding principal is currently callable per annum at
Slide 62: Credit Agreement Key Covenants
Credit Agreement Key Covenants (1) Terms Acquisitions Limited by compliance with leverage and interest coverage covenants currently requiring 4.5x and 2.75x, respectively Restricted payments: Share repurchase (2) $200 million (shared with other restricted payment basket) Other debt repurchase (2) $2
Slide 63: Growth
Growth 63
Slide 64: 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 65: Organic Growth: Compounded Annual Growth Rate
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 66: De Novo Market Selection Process
De Novo Market Selection Process 66 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 67: 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 68: Illustrative De Novo Timeline
Illustrative De Novo Timeline 68 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 69: Portfolio Growth: De Novo (40 bed)
Portfolio Growth: De Novo (40 bed) Assumptions and Timing 69 (1) Future cash payback periods may increase when the Company exhausts its significant NOLs (slide 52). (2) Does not include Middletown, DE or Franklin, TN where CON awards are under appeal All projects have minimum IRR target of 15% (pre-
Slide 70: De Novo Occupancy and EBITDA Trends
(1) Hospital EBITDA = earnings before interest, taxes, depreciation and amortization directly attributable to the related hospital. De Novo Occupancy and EBITDA(1) Trends 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1 2 3 4 5 6 7 8 9 10 11 12 Petersburg Fredericksburg Mesa Loudoun Bristol Cypress Oca
Slide 71: Portfolio Growth: Acquisition Assumptions, Timing and Performance
Portfolio Growth: Acquisition Assumptions, Timing and Performance 71 (1) Future cash payback periods may increase when the Company exhausts its significant NOLs (slide 52). Acquisition Assumptions Investment Considerations Value Added • Cash Payback (1) = 4 to 6 years • Target: 2 acquisitions/Year •
Slide 72: Future Growth: Complementary Post-Acute Care Services
72 Acute Care Hospital Discharge Long-Term Acute Care Hospital Hospice Inpatient Rehabilitation Facility (1) Skilled Nursing Facility Home Health (1) (Highest Acuity) (Lowest Acuity) Future Growth: Complementary Post-Acute Care Services Medicare Spending (billions) $5.4 $13.0 $6.7 $31.8 $19.6 # of D
Slide 73: Growth: Summary
• The Company has adequate cash to fund growth. • The Company continues to have excellent organic growth opportunities. Located in Medicare growth markets Nondiscretionary nature of many conditions served Track record of consistent market share gains • De novos and targeted IRF acquisitions wi
Slide 74: Operational Initiatives
Operational Initiatives 74
Slide 75: Operational Strategy
Operational Strategy Excellence in … 75 • 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 76: CIS Standardization Improves Patient Safety and 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 77: 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 78: 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 79: CIS Cost
CIS Cost 79 • 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 80: TeamWorks: Care Management
TeamWorks: Care Management 80 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 81: 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 82: HealthSouth Management Reporting
HEALTHSOUTH MANAGEMENT REPORTING ome —_ e& oi = _ co
Slide 83: BEACON: Management Reporting
83 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 84: BEACON: SmartSystem Analytics
84 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 85: Operational Initiatives: SmartSystem
Operational Initiatives: SmartSystem 85 $887 $883 $869 $827 $816 2009 2010 2011 2012 Trailing 4 Qtrs Supply Cost per Discharge 85 Completed initiatives: • Dialysis • Food • Pharmacy • Office Supplies • Outside patient service • Therapy equipment • Supply costs per discharge have been reduced while a
Slide 86: Operational Metrics
Operational Metrics 86
Slide 87: Expense Metrics as Percent of Revenue
• Salaries and Benefits reflects continued improvement from productivity gains and growing revenue base. • Hospital-related Expenses includes other operating (1), supplies, and occupancy. • General and Administrative excludes stock-based compensation. • Provision for Doubtful Accounts varies based o
Slide 88: Operational and Labor Metrics
Operational and Labor Metrics (1) Represents discharges from HealthSouth’s 98 consolidated hospitals in Q1 2013 and Q4 2012, 97 consolidated hospitals in Q3 2012; 96 consolidated hospitals in Q2 2012, Q1 2012, and Q4 2011; 94 consolidated hospitals in Q3 2011, Q2 2011, Q1 2011, and 2010. (2) Exclude
Slide 89: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) 2013 2012 2012 2011 2010 Medicare 74.7% 73.5% 73.4% 72.0% 70.5% Medicaid 1.1% 1.1% 1.2% 1.6% 1.8% Workers' compensation 1.3% 1.5% 1.5% 1.6% 1.6% Managed care and other discount plans (1) 18.5% 19.3% 19.3% 19.8% 21.3% Other third-party payors 1.7% 1.7% 1.8% 2.0%
Slide 90: Reconciliations to GAAP
Reconciliations to GAAP 90
Slide 91: Reconciliation of Net Income to Adjusted EBITDA: Q1 2013
Reconciliation of Net Income to Adjusted EBITDA (1) (1) (2) – Notes on slide 96. (in millions, except per share data) Total Per Share Net income 65.9$ Loss from disc ops, net of tax, attributable to HealthSouth 0.4 Net income attributable to noncontrolling interests (14.6) Income from continuing ope
Slide 92: Reconciliation of Net Income to Adjusted EBITDA: 2012
Reconciliation of Net Income to Adjusted EBITDA (1) (1) (2) – Notes on slide 96. (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, attributable to Hea
Slide 93: Reconciliation of Net Income to Adjusted EBITDA: 2011
Reconciliation of Net Income to Adjusted EBITDA (1) (1) (2) – Notes on slide 96. 93 (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, attributable to
Slide 94: Reconciliation of Net Income to Adjusted EBITDA: 2010
Reconciliation of Net Income to Adjusted EBITDA (1) (1) (2) – Notes on slide 96. (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income 50.5$ 57.5$ 41.9$ 789.9$ 939.8$ Income from disc ops, net of tax, attributable to HealthSou
Slide 95: Reconciliation of Net Income to Adjusted EBITDA: 2008-2009
Reconciliation of Net Income to Adjusted EBITDA (1) (in millions, except per share data) Total Per Share Total Per Share Net income 281.8$ 128.8$ Income from disc ops, net of tax, attributable to HealthSouth (32.5) (17.7) Net income attributable to noncontrolling interests (29.4) (34.0) Income from
Slide 96: Reconciliation Notes for Slides 91-95
Reconciliation Notes for Slides 91-95 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 util