Encompass Health Corporation · NYSE:EHC
Encompass Health — Investor Presentation (May 2023)
64 slides from Encompass Health's investor presentation, May 31, 2023
Slide 1: Investor Reference Book
Investor Reference Book Published: May 31, 2023
Slide 2: Forward-looking statements
Encompass Health 2 Forward-looking statements The information contained in this Investor Reference Book includes certain estimates, projections and other forward-looking information that reflect Encompass Health’s current outlook, views and plans with respect to future events, including the business
Slide 3: Table of contents
Encompass Health 3 Business outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-7 Company overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Slide 4: Glossary of terms and abbreviations
Encompass Health 4 Glossary of terms and abbreviations Medicare • Medicare refers to traditional Medicare / Medicare Fee-for-Service (FFS) programs. Medicare Advantage (“MA”) • Medicare Advantage may also be referred to as Medicare Managed Care or Medicare Part C and refers to the private health pla
Slide 5: Business Outlook
Business Outlook ——e a
Slide 6: Attractive healthcare sector; industry leading position
Encompass Health 6 Attractive healthcare sector Ÿ Large addressable market indicated by low conversion rate of presumptively eligible inpatient rehabilitation patients Ÿ Aging demographic driving increased demand for rehabilitation services Ÿ Supply of licensed IRF beds increased only modestly over
Slide 7: Business outlook 2023-2027 growth targets
Encompass Health 7l 7 6 to 10 de novos per year 80 to 120 bed additions per year 6% to 8% discharge CAGR Business outlook 2023 - 2027 Growth targets de novos opened 8 9 in 2021 in 2022 bed additions 117 87 in 2021 in 2022 discharge growth 8.7% 6.8% in 2021 in 2022 recent results
Slide 8: Company Overview
Company Overview
Slide 9: Largest owner and operator of IRFs
Encompass Health 9 ~35,000 employees Rehabilitation hospitals “IRFs” IRFs under development* *IRFs under development - previously announced under development as of April 27, 2023 Company overview Largest owner and operator of IRFs 2022 key statistics ~211,100 patient discharges ~$4.35 billion in rev
Slide 10: Largest owner and operator of IRFs; clinical expertise
Encompass Health 10 Company overview Largest owner and operator of IRFs Clinical expertise in Joint Commission specialty accreditations* Number of EHC hospitals with accreditation and EHC’s % of all such accreditations • Stroke rehabilitation accreditations - 132 EHC hospitals (~63%) • Hip fracture
Slide 11: Inpatient rehabilitation hospitals
Encompass Health 11 Inpatient rehabilitation hospitals Encompass Health provides advanced therapy and nursing services to patients requiring intensive inpatient rehabilitative care. Company overview Care delivery model Primary services include: • Independent physician oversight of plan of care • 24/
Slide 12: Care delivery model
Encompass Health 12 Company overview Care delivery model Independent physicians Independent physicians manage and treat medical conditions as well as oversee the plan of care and medical rehabilitation program. Physician services include: Ÿ Review and approve pre-admission screenings Ÿ Develop an in
Slide 13: Our patients
Encompass Health 13 Company overview Our patients IRF admission criteria At the time of admission, a patient must: • require the active and ongoing therapeutic intervention of multiple therapy disciplines • be expected to actively participate in, and benefit from, an intensive rehabilitation therapy
Slide 14: High quality clinical results
Encompass Health 14 Company overview High quality clinical results Discharge to Community Discharge to SNF Discharge to Acute Care Higher is better Lower is better Lower is better Percent of patients discharged to the community, including home or home with home health. Percent of patients discharged
Slide 15: Leading position in cost effectiveness
Encompass Health 15 # of IRFs Avg. beds per IRF Avg. Medicare discharges per IRF(4) Avg. est. total cost per discharge for FY 2024 Avg. est. total payment per discharge for FY 2024 Encompass Health(3) = 152 67 833 $16,627 $24,307 Free-standing = (Non-Encompass Health) 196 57 530 $22,351 $26,378 Hosp
Slide 16: Payors and payment methods
Encompass Health 16 65.3% 15.1% 11.6% 4.2% 3.8% % of 2022 Revenues Medicare Prospective Payment System (“PPS”) - paid per discharge by Case Mix Group (“CMG”) Medicare Advantage CMG or per diem - Negotiated rate - Some are “tiered” for acuity/severity Managed Care Per diem or CMG - Negotiated rate -
Slide 17: Disciplined approach to new store growth
Encompass Health 17 Disciplined approach to new store growth Considerations for entering a new market: – Market demographics and growth potential – CON requirements (initial and for expansion) – Presence of other inpatient rehabilitation services – Acute care hospital presence and discharge patterns
Slide 18: Joint venture partnerships with acute care providers
Encompass Health 18 61 joint venture hospitals in place with major healthcare systems including: Joint ventures with acute care hospitals facilitate integrated care delivery Ascension St. John Hospital System Ballad Health Barnes-Jewish Cleveland Clinic Martin Health Geisinger Health System Lee Heal
Slide 19: Cash flow and liquidity
Encompass Health 19 Company overview Cash flow and liquidity $330.2 $340.1 2021 2022 $— $250.0 $500.0 2021 2022 0.0 2.5 5.0 *Historical financial results reflect Enhabit Home Health and Hospice as discontinued operations. Adjusted Free Cash Flow*(7) Able to fund our growth primarily through free cas
Slide 20: Real estate holdings
Encompass Health 20 Company overview Real estate holdings Own ~76% of IRF real estate Rationale for real estate ownership Leases are effectively structured as long- term, fixed rate, non-prepayable debt with annual rent escalators Ownership providers greater flexibilty in managing real estate portfo
Slide 21: Industry Overview
Industry Overview
Slide 22: Continuum of healthcare services
Encompass Health 22 Preventive Routine health care (screenings, check-ups, patient counseling) to prevent illnesses, disease, or other health problems Acute Medical treatment of diseases or injuries for which a patient receives inpatient treatment for a brief but severe episode of illness Ambulatory
Slide 23: Health consumption spending
Encompass Health 23 H ea lt h co ns um pt io n sp en di ng *: $ 3, 79 2. 5 (in billions) Source: Centers for Medicare & Medicaid Services, National Health Expenditure Data (Historical), Table 2 - 2021. * Excludes Net Cost of Private Health Insurance of $255.7 billion. National healthcare spending: $
Slide 24: Medicare 2021 spending
Encompass Health 24Source: Centers for Medicare & Medicaid Services, Medicare Trustees’ Report 2022 – page 12; and MedPAC, Medicare Payment Policy, March 2023 - pages 203, 237, 259 and 285. 12% 2% 8% 4% 9% 42% 17%3% 3% Industry overview Medicare 2021 spending Total Medicare spending Medicare spendin
Slide 25: Post-acute care settings comparison
Encompass Health 25 Acute care hospital Home health Inpatient rehabilitation hospital Skilled nursing facility Medicare spending ($ billions) $8.5 $28.5 $16.9* # of Discharges/Beneficiaries^ ~379,000 ~1,700,000 ~3,000,000^ Average length of stay 12.9 days 34.5 days N/A # of Providers ~1,181 ~14,700
Slide 26: Medicare spending on post-acute services
Encompass Health 26 (P er ce nt ) 1.6% 1.5% 1.5% 1.6% 1.5% 1.6% 1.6% 1.6% 1.6% 1.7% 1.3% 1.7% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 $0 $5 $10 $15 $20 $25 $30 $35 Percent of total
Slide 27: IRF qualifying conditions
Encompass Health 27 CMS requires that 60% of an IRF’s admissions must have at least one medical diagnosis or functional impairment from a list of 13 compliant conditions (“CMS-13”). Industry overview IRF qualifying conditions CMS-13 qualifying conditions 1 Stroke 2 Brain injury 3 Amputation 4 Spinal
Slide 28: Regulatory history 2009-2022
Encompass Health 28 Industry overview Regulatory history 2009 - 2022 We have demonstrated the ability to adapt in the face of numerous and significant regulatory, legislative and operating environment changes. 2009 2010 2011 2012 2013 2014* 2015* Global recession External Factors IRF-specific regula
Slide 29: Regulatory history 2009-2022 (cont.)
Encompass Health 29 Industry overview Regulatory history 2009 - 2022 (cont.) We have demonstrated the ability to adapt in the face of numerous and significant regulatory, legislative and operating environment changes. 2016* 2017* 2018* 2019* 2020 2021 2022 External Factors IRF-specific regulatory up
Slide 30: Growth
Growth
Slide 31: Rationale for continued expansion of IRF capacity
Encompass Health 31 Growth Our rationale for continued expansion of IRF capacity Large, under penetrated and growing market Ÿ ~13% estimated national conversion rate to IRF(9) Ÿ Aging demographic (~5% population growth CAGR for our average age patient) Ÿ Relatively static supply of licensed IRF beds
Slide 32: IRF growth strategy
Encompass Health 32 0 100 200 300 400 500 100 110 120 130 140 150 160 170 2018 2019 2020 2021 2022 2023(P) Bed additions 26 152 117 117 87 98 De novos (bed count) 169 120 170 350 410 339 De novos (new hospitals) 4 3 4 8 9 7 Total number of IRFs(10) 130 133 137 145 153 160 Total number of licensed be
Slide 33: IRF demand continues to grow
Encompass Health 33 Demand continues to benefit from a demographic tailwind: growth in the Medicare beneficiary population Age 80+Age 70-79Age 65-69 • The growth rate of Medicare beneficiaries increased to an ~3% CAGR in 2011, as “Baby Boomers” started turning age 65. ◦ ~10,000 Baby Boomers turn 65
Slide 34: IRF supply / demand imbalance continues to widen
Encompass Health 34 Po pu la ti on in m ill io ns # of IRFs 12 12 14 14 15 16 17 17 17 17 18 18 19 16 16 17 18 19 19 20 21 22 24 24 25 26 10 11 11 11 11 11 11 12 12 13 13 13 13 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 0 20 40 60 0 200 400 600 800 1,000 1,200 1,400 IRF supply
Slide 35: IRF admission criteria and conversion rate
Encompass Health 35 IRF admission criteria u At the time of admission, a patient must: ü require the active and ongoing therapeutic intervention of multiple therapy disciplines ü be expected to actively participate in, and benefit from, an intensive rehabilitation therapy program ü receive supervisi
Slide 36: Medicare levels of service required - IRF vs. SNF
Encompass Health 36 Growth Medicare levels of service required - IRF vs. SNF Industry averages IRF SNF Quality metrics FFS average length of stay 12.9 days 34.5 days Discharge to community rate 67.6% 43.5% CMS requirements for IRFs vs. SNFs IRF SNF Regulatory Facility must satisfy regulatory and pol
Slide 37: Proven growth model since 2009
Encompass Health 37 Growth Proven growth model since 2009 46% JV hospitals De novo hospitals-wholly owned Acquisitions-wholly owned De novo hospitals-JV Acquisitions-JV 69 hospitals added since 2009 41% joint ventures 69% increase in number of hospitals Data as of April 27, 2023.
Slide 38: Robust de novo development pipeline
Encompass Health 38 Growth Robust de novo development pipeline 21 De novos announced and underway* - total pipeline exceeds 50 Market considerations Ÿ Demographics in and potential growth of local market Ÿ State CON, licensure and other regulatory requirements Ÿ Presence of other inpatient rehabilit
Slide 39: Typical de novo capital cost and timeline
Encompass Health 39 • Prototype hospital includes all private rooms • Core infrastructure of building anticipates future expansion (accretive to financial returns) • Factors that impact costs/timeline: ◦ CON status ◦ State regulatory requirements ◦ Local planning and zoning approvals ◦ Other locatio
Slide 40: De novo occupancy and EBITDA trends - 2021
Encompass Health 40 Months 1 2 3 4 5 6 7 8 9 10 11 12 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Occupancy Sustained positive EBITDA *EBITDA = earnings before interest, taxes, depreciation, and amortization directly attributable to the related hospital. Growth De novo occupancy and EBITDA* trends -
Slide 41: De novo occupancy and EBITDA trends - 2022
Encompass Health 41 Months 1 2 3 4 5 6 7 8 9 10 11 12 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Occupancy Sustained positive EBITDA *EBITDA = earnings before interest, taxes, depreciation, and amortization directly attributable to the related hospital. Growth De novo occupancy and EBITDA* trends - 2022
Slide 42: Bed additions
Encompass Health 42 Growth Bed additions Proven ability to enter new markets and boost returns with subsequent bed additions Hospitals built since 200952 Of the newly constructed hospitals built 2009 to 2020: Ÿ 52% have added beds Ÿ 23% have had beds added more than once Data as of April 27, 2023.
Slide 43: Operational Initiatives
Operational Initiatives oa
Slide 44: Operational initiatives summary
Encompass Health 44 Operational initiatives Summary Build market share in high acuity, IRF appropriate conditions • Utilize extensive database on IRF eligible patients to continuously refine clinical protocols and improve patient outcomes Develop and implement post-acute solutions, clinical initiati
Slide 45: Build market share in high acuity conditions: stroke
Encompass Health 45 Operational initiatives Build market share in high acuity conditions Increase stroke patient market share through education and awareness 2017 2018 2019 2020 2021 2022 30 ,6 14 32 ,3 48 34 ,4 69 34 ,3 30 36 ,5 69 39 ,0 04 EHC Discharges Stroke Market Share* Stroke as a % of Payor
Slide 46: Independent research on IRFs vs. SNFs for stroke
Encompass Health 46 Operational initiatives Build market share in high acuity conditions Independent research concludes IRFs are a better rehabilitation option for stroke patients compared to SNFs *AHA/ASA press release, “Inpatient rehab recommended over nursing homes for stroke rehab,” issued May 4
Slide 47: In-house dialysis service through Tablo system
Encompass Health 47 Operational initiatives Build market share in high acuity conditions Implement in-house dialysis service through Tablo system Historically, dialysis has been provided by third- party vendors either onsite or offsite. Ÿ In 2022, patients receiving hemodialysis represented 5.1% of
Slide 48: Post-acute clinical innovation model
Encompass Health 48 Operational initiatives Post-acute clinical innovation model
Slide 49: Post-acute solutions
Encompass Health 49 Trademarked system developed in 2015 to predict a patient’s risk of being transferred back to an acute care hospital. 40 clinical variables are considered in the risk analysis with risk levels assigned to each patient. High risk levels generate action items for the clinical staff
Slide 50: ReACT and readmission prevention
Encompass Health 50 "ReACT" and Readmission prevention • Standardized and improved infection control practices across the Company. These practices and oversight provided clinicians with tools to successfully navigate the COVID-19 pandemic. • Applied evidence- based decision making Sepsis/SIRS alert
Slide 51: Therapy and clinical technologies
Encompass Health 51 Operational initiatives Therapy and clinical technologies Therapy Technology The therapy innovations committee reviews and recommends state of the art technology for our hospitals to ensure our therapy teams have the equipment and the training to provide the best care (recent imp
Slide 52: Culture of collaboration and emphasis on best practices
Encompass Health 52 Operational initiatives Culture of collaboration and emphasis on best practices Collaboration among our 157 hospital teams supports continuous learning and deployment of best practices •Strategic development as market dynamics change Standardization across all hospitals Value of
Slide 53: Information Technology
Information Technology (Ea)
Slide 54: Investment thesis and strategy
Encompass Health 54 Information technology Investment thesis and strategy Our digital health strategy is based on leveraging our: • clinical expertise • exceptionally large post-acute datasets • business and technology partners (e.g., Oracle Cerner) • and our proven capabilities in – enterprise EMR
Slide 55: Clinical information system
Encompass Health 55 Information technology Clinical information system
Slide 56: Beacon management reporting
Encompass Health 56 Information technology Beacon management reporting Standardize the process, then automate it Enterprise scalability Proprietary large patient datasets Clinical and business knowledge Continuous improvement Proprietary Management System • Proprietary operations management system t
Slide 57: Patient / caregiver communication portal
Encompass Health 57 Information technology Patient / caregiver communication portal MyEncompass Health caregiver application The app shows a patient’s real-time progress toward their goals and an overview of their care plan in a secure manner. Information in the app is regularly updated by interfaci
Slide 58: Reconciliations to GAAP
Reconciliations to GAAP m/e
Slide 59: Net cash from operating activities to Adjusted EBITDA
Encompass Health 59 Reconciliation Net cash provided by operating activities to Adjusted EBITDA(8) For the Year Ended December 31, ($ in millions) 2022 2021 Net cash provided by operating activities $ 705.8 $ 715.8 Interest expense and amortization of debt discounts and fees 175.7 164.3 (Loss) gain
Slide 60: Net income to Adjusted EBITDA
Encompass Health 60 Reconciliation Net income to Adjusted EBITDA(8) For the Year Ended December 31, ($ in millions) 2022 2021 Net income $ 365.9 $ 517.2 Income from discontinued operations, net of tax, attributable to Encompass Health (15.2) (114.1) Net income attributable to noncontrolling interest
Slide 61: Net cash from operating activities to adjusted free cash flow
Encompass Health 61 Reconciliation Net cash provided by operating activities to adjusted free cash flow(7) For the Year Ended December 31, ($ in millions) 2022 2021 Net cash provided by operating activities $ 705.8 $ 715.8 Impact of discontinued operations (52.3) (151.1) Net cash provided by operati
Slide 62: End Notes
End Notes mn ae
Slide 63: End notes (1)-(9)
Encompass Health 63 (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 clini
Slide 64: End notes (10)-(12)
Encompass Health 64 (10) 2018 total number of licensed beds and total number of IRFs include the consolidation of the Ft. Worth market (decrease of 60 beds) and the de-licensure of 20 SNF beds at a Dallas IRF. 2019 total number of licensed beds includes the de-licensure of 25 SNF beds at Round Rock,