Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q2 2015 Earnings Presentation
109 slides from Encompass Health's earnings presentation, Sep 8, 2015
Slide 1: Investor Reference Book Post Q2 2015 Earnings Release
INVESTOR REFERENCE BOOK Post Q2 2015 Earnings Release Last updated September 8, 2015 HealthSouth is a leading provider of post-acute healthcare services, offering both facility-based and home-based post-acute services in 33 states and Puerto Rico through its network of inpatient rehabilitation hospi
Slide 2: Forward-Looking Statements
2 The information contained in this presentation includes certain estimates, projections and other forward- looking information that reflect HealthSouth's current outlook, views and plans with respect to future events, including legislative and regulatory developments, strategy, capital expenditures
Slide 3: Table of Contents
3 Table of Contents Guidance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-6 The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Slide 4: Guidance (as of September 8, 2015)
4 Guidance (as of September 8, 2015)
Slide 5: 2015 Guidance - Adjusted EBITDA
5 2015 Guidance - Adjusted EBITDA* u Inpatient rehabilitation segment considerations for July 1, 2015 through December 31, 2015: Ÿ Discharge growth between 7% and 8% (includes Cardinal Hill in Lexington, KY and the Savannah, GA transactions closed in Q2 2015) Ÿ Revenue growth between 8.5% and 10.0%
Slide 6: 2015 Guidance - EPS
6 2015 Guidance - EPS EPS Guidance Actual Low High (In Millions, Except Per Share Data) 2014 2015 Adjusted EBITDA $ 577.6 $ 670 $ 680 Interest expense and amortization of debt discounts and fees (109.2) (123) Depreciation and amortization (107.7) (134) Stock-based compensation expense (23.9) (28) Ot
Slide 7: The Company
7 The Company
Slide 8: Inpatient Rehabilitation Portfolio - As of June 30, 2015
8 Refer to pages 105-109 for end notes. Inpatient Rehabilitation Portfolio - As of June 30, 2015 109 Inpatient Rehabilitation Hospitals • 33 operate as JV’s with Acute Care Hospitals 29 Number of States (plus Puerto Rico) ~ 25,100 Employees Key Statistics - Trailing 4 Quarters ~ $2.5 Billion Revenue
Slide 9: Acquisition of Reliant
9 Acquisition of: • Acquisition adds 11 inpatient rehabilitation hospitals in Texas, Massachusetts, and Ohio with a total of 902 beds. • Reliant generated approx. $249 million of revenue in 2014. • All 11 hospitals are leased, and 7 of those leases are treated as capital leases for accounting purpos
Slide 10: Acquisition of CareSouth
10 Acquisition of: • Encompass' acquisition of the home health agency operations of CareSouth Health System adds 45 home health locations in 7 states across the southeast and mid- atlantic region. • $170 million cash purchase price. • CareSouth generated approx. $104 million of revenue in 2014. Ÿ Le
Slide 11: Inpatient Rehabilitation Segment
11 Inpatient Rehabilitation Segment 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 independenc
Slide 12: IRF Quality and Patients
12 IRF Quality and Patients • 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 th
Slide 13: IRF Cost Effectiveness
13 Total Inpatient Rehabilitation Facilities: 1,134 IRF Cost Effectiveness(11) The Avg. Est. TotalPayment per Discharge has not been reduced by 2% for sequestration.(15) Medicare pays HealthSouth less per discharge, on average, and HealthSouth treats a higher acuity patient. Avg. Beds per IRF Avg. M
Slide 14: IRF New-Store/Same-Store Growth
14 10.0 8.0 6.0 4.0 2.0 0.0 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 IRF New-Store/Same-Store Growth Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013
Slide 15: IRF Acute Care Joint Venture Partnerships
15 • HealthSouth's IRF joint ventures began in 1991. • HealthSouth's joint venture hospital partners own equity that ranges from 2.5% to 50%. • 32 of 33 agreements are consolidated joint ventures, with one accounted for under the equity method. IRF Acute Care Joint Venture Partnerships 33 joint vent
Slide 16: IRF Real Estate Portfolio
16 28 Lease Building and Land A CON (Certificate of Need) is a regulatory requirement in approx. 50% of states and some federal jurisdictions that require state authorization prior to proposed acquisitions, expansions, or construction of new hospitals. 54 Own Building and Land(21) 27 Own Building On
Slide 17: Home-Based Services
17 Home-Based Services • Skilled Nursing: provide specialized care to each patient based on individualized plans; all services are performed by registered and licensed practical/vocational nurses • Physical Therapy: work with patients and physicians to improve mobility and overall quality of life •
Slide 18: Encompass Outcomes and Patient Satisfaction
18 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 2013 HH U.S. Avg. 16.8% 15.5% 15.6% 14.9% 15.6% 15.6% 15.9% 15.2% 16.4% 18.6% Encompass Outcomes and Patient Satisfaction Lower Re-hospitalization Rates than National Average ~16% Lower Average Re-hospitalization Rate than In
Slide 19: Encompass Quality
19 Encompass Quality Source: https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-Sheets/2015-Fact- Sheets-items/2015-07-16.html What is CMS' Home Health "Star Rating"? • Designed to help patients compare and ultimately choose amongst home health agencies • Calculated using information from patien
Slide 20: Encompass Cost Effectiveness
20 Encompass Cost Effectiveness Average revenue per episode is 14.5% higher than public peers due to Encompass' higher acuity patient mix, which provides higher reimbursement and demands a higher visit utilization. 22.1% lower cost per visit as a result of density in markets and industry-leading eff
Slide 21: Encompass Operations
21 Key operational drivers: • Staff productivity and caregiver optimization • Full utilization of the capabilities of Homecare Homebase (HCHB) • Employee culture of excellence • Daily monitoring towards goals • Weekly exception reports from agency directors • Approx. 70% of visits conducted by full-
Slide 22: Payors and Payment Methodology
22 Workers' Comp/ Patients/Other - 2.8% Variety of methodologies Medicaid - 3.1% Prospective Payment System (“PPS”) - IRF: Paid per discharge based on Case Mix Groups (“CMGs”) - Home Health: Paid per 60-day episodes of care based on Home Health Resource Groups ("HHRGs") - Hospice: Paid per diem base
Slide 23: Track Record 2010-2014
23 2010 2011 2012 2013 2014 Trailing 4 Qtrs. $181 $243 $268 $331 $311 $322 Revenue 2010 2011 2012 2013 2014 Trailing 4 Qtrs. $1,878 $2,027 $2,162 $2,273 $2,406 $2,715 Adjusted EBITDA* 2010 2011 2012 2013 2014 Trailing 4 Qtrs. $410 $466 $506 $552 $578 $606 Track Record ’10-’14 CAGR = 6.4 % ’10-’14 CA
Slide 24: Strong and Sustainable Business Fundamentals
24 Strong and Sustainable Business Fundamentals • Focused labor management • Continued improvements in supply chain • Significant operating leverage of G&A and occupancy expenses Cost-Effectiveness • Strong balance sheet; ample liquidity, no near-term maturities • Minimal cash income tax expense ($1
Slide 25: Free Cash Flow
25 Free Cash Flow
Slide 26: Adjusted Free Cash Flow and Tax Assumptions
26 * Reconcilliation to GAAP provided on slide 28. Refer to pages 105-109 for end notes. Adjusted Free Cash Flow(28) and Tax Assumptions Certain Cash Flow Items(28) (millions) 6 Months 2015 Actual 2015 Assumptions 2014 Actual • Cash interest expense(25) $56.4 $106 to $111 $96.5 • Cash payments for t
Slide 27: Priorities for Reinvesting Free Cash Flow
27 Priorities for Reinvesting Free Cash Flow* Opportunities (in millions) 6 Months 2015 2015 2014 Actuals Assumptions Actuals IRF bed expansions $10.1 $30 to $40 $23.6 New IRF's - De novos 15.0 40 to 60 53.7 - Acquisitions 56.5 TBD 20.2 New home health and hospice acquisitions 21.1 30 to 40 674.6 $1
Slide 28: Adjusted Free Cash Flow History
28 Adjusted Free Cash Flow History(28) Q2 6 Months Full-Year (Millions) 2015 2014 2015 2014 2014 2013 2012 2011 2010 Net cash provided by operating activities $ 102.9 $ 128.0 $ 204.9 $ 235.1 $ 444.9 $ 470.3 $ 411.5 $ 342.7 $ 331.0 Impact of discontinued operations 0.2 1.0 0.3 1.2 1.2 1.9 (2.0) (9.1)
Slide 29: Net Cash from Operating Activities Reconciled to Adjusted EBITDA
29 Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q2 6 Months Full-Year (Millions) 2015 2014 2015 2014 2014 2013 2012 2011 2010 Net cash provided by operating activities $102.9 $128.0 $204.9 $235.1 $444.9 $470.3 $411.5 $342.7 $ 331.0 Provision for doubtful accounts (10.9) (9
Slide 30: Growth
30 Growth
Slide 31: Multi-faceted IRF Growth Strategy
31 % Increase in beds 3% 3% 4% 19% Total number of beds 6,461 6,656 6,825 7,095 8,473 Total number of IRFs 99 100 103 107 123 1,600 1,400 1,200 1,000 800 600 400 200 0 130 110 90 70 50 2011 2012 2013 2014 2015 est. Multi-faceted IRF Growth Strategy 2015 projected total bed count increase of approx.
Slide 32: New IRFs: Illustrative De Novo Timeline
32 New IRFs: Illustrative De Novo Timeline Day 1 With CON Permitting & Design Planning & Zoning Groundbreaking Permitting & Design Planning & Zoning Groundbreaking Day 1 Without CON 6 months to 3 years 20 months CON Process Construction Construction Opening Month 20 Opening In California, the design
Slide 33: De Novo Investment Considerations
33 Investment Considerations • IRR objective of 13% (after tax) • Inclusive of CON costs (where applicable) • Includes cost of CIS installation • May be structured as a joint venture • Prototype includes all private rooms • Minimum of 30 patients treated for zero revenue (Medicare certification) • C
Slide 34: IRF De Novo Occupancy and EBITDA Trends
34 Cypress Ocala Littleton Stuart Altamonte Springs Johnson City Newnan Middletown HLS Avg. 2014 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 IRF De Novo Occupancy and EBITDA(35) Trends Occupancy Sustained Positive EBITDA Range Refer to pages 105-109 for en
Slide 35: New IRFs: Assumptions for Hospital Acquisitions
35 New IRFs: Assumptions for Individual Hospital Acquisitions Unit/Equity Acquisitions Location Beds Date Acquired Worcester, MA(2) 110 Q2 2014 San Antonio, TX 34 Q3 2012 Ft. Smith, AR 30 Q3 2010 Little Rock, AR 23 Q1 2010 Altoona, PA 18 Q4 2009 Arlington, TX 30 Q3 2008 IRF Acquisitions Location Dat
Slide 36: Multi-faceted Encompass Growth Strategy
36 Organic Growth • Strong demand due to cost effectiveness of home-based care • Strong organic growth from existing agencies • Integration of legacy HealthSouth home health agencies • Scale and density in attractive geographies * Encompass currently located in states that represent approx. 48% of t
Slide 37: Home Health Organic Growth
37 Home Health Organic Growth Encompass has consistently produced strong same-store admissions growth in its home health agencies, as illustrated in an analysis of same- store branch cohorts. Since 2008, on a cumulative basis (including existing and acquired branches), same-store admissions have con
Slide 38: Home Health Growth Pipeline
38 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 $ (M ill io ns ) 1996 1998 2000 2002 2004 2006 2008 2010 2012 Home Health Growth Pipeline Ÿ Approx. $18 billion home health market is highly fragmented with over 12,600 home health agencies. Ÿ Approx. 95% of these have annual revenue
Slide 39: Hospice Growth Pipeline
39 Hospice Growth Pipeline Ÿ In 2013, Medicare hospice spending totaled approx. $15.1 billion. Ÿ More than 1.3 million Medicare beneficiaries received hospice services from over 3,900 providers in 2013. Ÿ Between 2000 and 2013, Medicare spending for hospice increased more than 400%, driven by greate
Slide 40: Clinical Collaboration with HealthSouth IRF Network
40 HealthSouth 70% non-overlap 24% Clinical Collaboration with HealthSouth IRF Network ~72,300 HealthSouth discharges referred to home health in 2014 Non-Medicare FFS Discharges (Our current focus is on the Medicare beneficiary population.) 14% 4%Discharges in markets where a JV acute care partner o
Slide 41: Example of Clinical Collaboration Model: Premier ACO Partnership
41 • In Q2 2014, Encompass was selected as Premier’s exclusive preferred home health provider. • Premier ACO includes approx. 20,000 covered lives in north Texas and southern Oklahoma. • Limited overlap in referral base results in virtually no cannibalization of existing business. Example of Clinica
Slide 42: Summary: Multiple Avenues Available for Sustained Growth
42 Summary: Multiple Avenues Available for Sustained Growth • The Company continues to have excellent organic growth opportunities in both inpatient rehabilitation, home health, and hospice. — Track record of consistent market share gains — IRF organic growth supplemented by bed additions — Maturati
Slide 43: Capital Structure
43 Capital Structure
Slide 44: Debt Maturity Profile - Face Value
44 Refer to pages 105-109 for end notes. 2016 2019 2020 2020 2021 2022 2023 2024 2043 $300 Senior Notes 5.125% $1,200 Senior Notes 5.75% $320 Conv. Sr. Sub. Notes(6a) 2.0% $226 Senior Notes 7.75% Revolver$0 Drawn + $33 reserved for LCs Holders have a put option in 2020 Debt Maturity Profile - Face V
Slide 45: Financial Leverage and Liquidity
45 S&P Moody's Corporate Rating BB- Ba3 Negative Outlook Revolver Rating BB+ Baa3 Senior Notes Rating B+ B1 Financial Leverage and Liquidity (1) Liquidity Credit Ratings 2010 2011 2012 2013 2014 Pro forma Trailing 4 Quarters $1.51 $1.25 $1.25 $1.52 $2.13 $2.32 (billions) Leverage Ratio(23) Total Deb
Slide 46: Debt Schedule
46 * Reconciliation to GAAP provided on slides 29, 99, and 100. Refer to pages 105-109 for end notes. Debt Schedule June 30, 2015 Pro forma for Financing Transactions Through August 31, 2015(24) June 30, 2015(30)(31) Dec. 31, 2014 Pro forma Change in Debt vs. YE 2014($millions) Advances under $600 m
Slide 47: 2.0% Convertible Senior Subordinated Notes due 2043
47 2.0% Convertible Senior Subordinated Notes due 2043 Background • In November 2013, the Company issued $320 million of 2.0% Convertible Senior Subordinated Notes due 2043 in exchange for 257,110 shares of its 6.5% Series A Convertible Perpetual Preferred Stock. • The Company viewed the Convertible
Slide 48: Credit Agreement Key Covenants
48 Credit Agreement Key Covenants(37) (including July 2015 amendment to credit agreement) All transactions are subject to no defaults under covenants and pro forma leverage of less than 4.50x and interest coverage of at least 3.00x. Transaction Limitations Acquisitions No additional limitations Unse
Slide 49: Outstanding Share Summary, Warrant Information, and Conversion Price
49 Outstanding Share Summary, Warrant Information, and Conversion Price Weighted Average for the Period Q2 6 Months Full-Year (Millions) 2015 2014 2015 2014 2014 2013 2012 Basic shares outstanding(7)(39)(40) 89.8 86.7 88.4 87.0 86.8 88.1 94.6 Diluted shares outstanding(6)(7)(39)(40) 101.5 100.6 101.
Slide 50: Business Outlook 2015 to 2017
50 Business Outlook 2015 to 2017 (as of September 8, 2015)
Slide 51: Increasing Medicare Beneficiary Population
51 5 Year CAGR Age 2015-2020 2020-2025 2025-2030 65 to 69 years 2.5% 2.1% 0.2% 70 to 74 years 5.3% 2.6% 2.2% 75 to 79 years 4.5% 5.4% 2.7% 80 to 84 years 2.4% 4.6% 5.6% 85 to 89 years 0.5% 2.7% 4.9% Total 65 to 89 3.4% 3.2% 2.4% Key Observations: The growth rate of Medicare beneficiaries increased i
Slide 52: Trends Point to an Integrated Post-Acute Delivery Model
52 Present Future Current Trends Point to an Integrated Post-Acute Delivery Model Inpatient Rehabilitation Facilites Long-Term Acute Care Hospitals Home Health Skilled Nursing Facilities Hospice Value-Based Payments Collaborative Care Models Site-Neutral Payments Facility-Based Post Acute Services •
Slide 53: Strategy: Post-Acute Provider of Choice
53 Strategy: Position HealthSouth as the post-acute provider of choice through the provision of comprehensive, coordinated facility-based and home-based post- acute services Source: http://www.phca.org/docs/Affordable%20Care%20Act%20Update%20Presentation-FINAL-101613.pdf Degree of Provider Integrati
Slide 54: Positioned to Succeed in Coordinated Care Delivery Models
54 • Homecare Homebase manages entire patient work flow. • Full utilization of capabilities in leading-edge technology are embedded in culture, driving superior clinical, operational and financial outcomes. • Electronic clinical information system in 73 IRFs allows for interfacing with all major acu
Slide 55: Key Elements of our Strategy
55 Key Elements of our Strategy Target Market: Continue to focus on the Medicare beneficiary population Operational/Clinical Growth Financial ü Maintain focus on best-in-class clinical outcomes ü Continue commitment to clinicaland operational technology leadership ü Develop coordinated clinicalpathw
Slide 56: Business Outlook: 2015 to 2017
56 • Same-store IRF Growth • New-store IRF Growth (De novos, acquisitions/JVs) • Same-store Home Health and Hospice Growth • New-store Home Health and Hospice Growth (acquisitions) Core Growth Strong Balance Sheet Key Operational Initiatives Shareholder Distributions Opportunistic Growth Business Ou
Slide 57: Volume and Pricing Assumptions
57 • 10% to15% annual episode growth • Includes $35-$40 million per annum in agency acquisitions Volume Inpatient Rehabilitation Home Health & Hospice Medicare Pricing Inpatient Rehabilitation Approx. 74% of Revenue Home Health Approx. 83% of Revenue FY 2015(43) Q414-Q315 FY 2016(43) Q415-Q316 FY 20
Slide 58: Labor and Other Expense Assumptions
58 Inpatient Rehabilitation Home Health and Hospice Business Outlook: Labor and Other Expense Assumptions Salaries & Benefits ~70% Hospital Expenses ~30% Salaries and Benefits 2015 2016 2017 Merit increases 2.25-2.75% 2.5-3.0% 2.5-3.0% Benefit costs 6-10% 6-10% 6-10% Hospital Expenses • Other operat
Slide 59: Information Technology
59 Information Technology
Slide 60: IRF Clinical Information System
60 IRF Clinical Information System (“CIS”): Improved Patient Safety and Streamlined 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 •Treatme
Slide 61: CIS Benefits and Value Proposition
61 CIS Benefits and Value Proposition Operational Efficiencies Cost Effectiveness • Automated medication administration at the point of care • Clinical data repository (reporting and outcomes) • Real time patient condition awareness • Rule driven identification of preventable adverse medical events
Slide 62: CIS Timeline
62 • 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 • I
Slide 63: CIS Cost
63 CIS Cost • No incentive payments (i.e. “HITECH”) for inpatient rehabilitation hospitals(45) — Only acute care hospitals are eligible • Installation cost will vary by hospital depending on items such as size and physical plan. — Installation cost in a range of $1 million to $1.5 million per hospit
Slide 64: IRF Proprietary Management System: Beacon
64 IRF Proprietary Management System: Beacon
Slide 65: Encompass Uses a Highly Integrated Technology Platform
65 Encompass Uses a Highly Integrated Technology Platform Clinical Ÿ HCHB manages the entire patient workflow and provides field clinicians with access to patient records, diagnostic information, and notes from prior visits via a mobile application. Ÿ Real-time, customized feedback and instructions
Slide 66: Operational Metrics
66 Operational Metrics
Slide 67: IRF Expense Metrics
67 Salaries and Benefits Hospital-Related Expenses Provision for Doubtful Accounts 49.1 22.0 0.9 48.4 21.5 1.0 48.6 20.8 1.2 47.9 20.7 1.1 48.3 20.7 1.3 48.9 21.1 1.7 • Salaries and Benefits reflects continued improvement from productivity gains and growing revenue base. • Hospital-related Expenses
Slide 68: IRF Operational and Labor Metrics
68 IRF Operational and Labor Metrics Refer to pages 105-109 for end notes. Q2 Q1 Q4 Q3 Q2 Q1 Full-Year 2015 2015 2014 2014 2014 2014 2014 (In Millions) Net patient revenue-inpatient $ 618.7 $ 606.6 $ 580.9 $ 563.7 $ 569.7 $ 558.2 $ 2,272.5 Net patient revenue-outpatient and other revenues 26.6 23.7
Slide 69: Home Health & Hospice Segment
69 Home Health & Hospice Segment Encompass Home Health and Hospice HealthSouth's 25 Legacy Home Health Agencies Q2 Q1 Q4 Q3 Q2 Q1 Full-Year Q4 Q3 Q2 Q1 Full-Year 2015 2015 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 (In Millions) Net home health revenue $ 111.5 $ 103.9 $ 95.2 $ 89.5 $ 85.1 $ 7
Slide 70: Payment Sources (Percent of Revenues)
70 Payment Sources (Percent of Revenues) Inpatient Rehabilitation Segment Home Health and Hospice Segment Consolidated Q2 Q2 Q2 6 Months Full Year 2015 2014 2015 2014 2015 2014 2015 2014 2014 2013 Medicare 72.7% 73.9% 83.9% 96.8% 74.5% 74.1% 74.7% 74.7% 74.1% 74.5% Medicaid 2.6% 1.8% 5.8% —% 3.1% 1.
Slide 71: History Recast by Segment
71 History Recast by Segment
Slide 72: Inpatient Rehabilitation Segment Adjusted EBITDA History
72 Inpatient Rehabilitation Segment Adjusted EBITDA History Q2 Q1 Q4 Q3 Q2 Q1 Full-Year 2015 2015 2014 2014 2014 2014 2014 Net operating revenues: (In Millions) Inpatient $ 618.7 $ 606.6 $ 580.9 $ 563.7 $ 569.7 $ 558.2 $ 2,272.5 Outpatient and other 26.6 23.7 24.9 26.2 27.4 26.3 104.8 Total segment
Slide 73: Home Health and Hospice Segment Adjusted EBITDA History
73 Home Health and Hospice Segment Adjusted EBITDA History Q2 Q1 Q4 Q3 Q2 Q1 Full-Year 2015 2015 2014 2014 2014 2014 2014 Net operating revenues: (In Millions) Home health revenue $ 111.5 $ 103.9 $ 7.6 $ 7.0 $ 7.3 $ 6.7 $ 28.6 Hospice revenue 7.6 6.4 — — — — — Total segment revenue 119.1 110.3 7.6 7
Slide 74: History Recast by Segment - Q1 2015 and Q1 2014
74 History Recast by Segment (9.4) Three Months Ended March 31, 2015 Three Months Ended March 31, 2014 Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Net o
Slide 75: History Recast by Segment - Q2 2015 and Q2 2014
75 History Recast by Segment Three Months Ended June 30, 2015 Three Months Ended June 30, 2014 Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Net operating
Slide 76: History Recast by Segment - Six Months
76 History Recast by Segment Six Months Ended June 30, 2015 Six Months Ended June 30, 2014 Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Net operating rev
Slide 77: History Recast by Segment - Q3 and Q4 2014
77 History Recast by Segment Three Months Ended September 30, 2014 Three Months Ended December 31, 2014 Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Net
Slide 78: History Recast by Segment - Twelve Months 2014
78 Twelve Months Ended December 31, 2014 Inpatient Rehabilitation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Net operating revenues $ 2,377.3 $ 28.6 $ — $ 2,405.9 Less: Provision for doubtful accounts (31.2) (0.4) — (31.6) 2,346.1 28.2 — 2,374.3 Operating Expenses: Inpatien
Slide 79: Industry Structure
79 Industry Structure
Slide 80: National Healthcare Spending
80 Overall Healthcare Spending Hospital Care Includes Inpatient Rehabilitation, Long-Term Care Hospitals $777.9 $148.2 $79.8 $370.0 Nursing Care Facilities and Continuing Care Retirement Communities Professional Services Other Health, Residential and Personal Care Home Health Care Retail of Medical
Slide 81: Medicare 2013 Spending
81 Medicare 2013 Spending = $582.9 Billion $ 28.4B Skilled Nursing $136.8B Inpatient Hospital(51) $68.6B Physician Payments $41.8B Outpatient Hospital $18.4B Home Health $69.3B Other Services(52) $145.9B Medicare Managed Care $69.3B Outpatient Rx $6.8B (1%) Inpatient Rehabilitation Hospitals (Includ
Slide 82: Continuum of Healthcare Services
82 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 Ambulat
Slide 83: Post-Acute Care Services
83 Post-Acute Care Services Acute Care Hospital Home HealthHospice Long-Term Acute Care Hospital Inpatient Rehabilitation Facility Skilled Nursing Facility Discharge Medicare Spending (billions) $5.5 $15.1 $6.8 $28.8 $17.9 # of Discharges 138,000 1,300,000 373,000 2,365,743 3,500,000 Length of Stay
Slide 84: Medicare Spending on Post-Acute Services
84 $35 $30 $25 $20 $15 $10 $5 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Medicare Spending on Post-Acute Services Post-Acute Settings 2013 Medicare Margin Projected 2015 Medicare Margin Sources: (1) 13.1% 10.5% 12.7% 10.3% 11.4% 12.6% 6.6% 4.6% Skilled nursing facilities Hom
Slide 85: Different Levels of Services: Rehab Hospital vs Nursing Home
85 Different Levels of Services Rehab Hospital Nursing Home Average length of stay = 12.9 days Covered days per admission = 27.6 days Discharge to community = 75.9% Discharge to community = 37.5% Requirements: Requirements: Rehab hospitals must also satisfy regulatory/policy requirements for hospita
Slide 86: Supply of IRFs Remained Stable
86 Supply of IRFs Remained Stable Average Annual Change Share of Medicare DischargesType of IRF 2004 2006 2008 2010 2012 2013 2006-2012 2012-2013 All IRFs 100% 1,221 1,225 1,202 1,179 1,166 1,161 -0.8% -0.4% Urban 92 1,024 1,018 1,001 981 973 977 -0.8 0.4 Rural 8 197 207 201 198 193 184 -1.2 -4.7 Fr
Slide 87: Inpatient Rehabilitation Sector Margins
87 Inpatient Rehabilitation Sector Margins Share of Medicare discharges Margins Type of IRF 2013 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 All IRFs 100% 16.7% 13.4% 12.3% 11.8% 9.3% 8.4% 8.7% 9.9% 11.3% 11.4% Urban 92 17.0 13.6 12.6 12.0 9.5 8.7 9.0 10.3 11.7 11.8 Rural 8 13.2 11.1 10.1 9.5
Slide 88: Inpatient Rehabilitation Standardized Comparison of Costs
88 Inpatient Rehabilitation Standardized Comparison of Costs Type of IRF Mean Adjusted Cost Per Discharge All IRFs $16,517 Hospital based 17,627 Freestanding 12,474 Nonprofit 17,233 For profit 14,632 Government 18,740 Urban 15,969 Rural 19,431 Number of beds 1 to 10 20,173 11 to 21 17,676 22 to 59 1
Slide 89: 60% Rule: Medicare Regulation for Rehabilitation Hospitals
89 “60% Rule”: Medicare Regulation for Rehabilitation Hospitals 1983 1983: 75% Rule established -- Requires 75% of IRF patients to have a qualifying condition if the IRF is to maintain reimbursement on a “cost plus” basis vs. “prospective” ( i.e., fixed) basis. 2002 2004 2007 2002: IRF reimbursement
Slide 90: IRF Qualifying Conditions
90 IRF Qualifying Conditions 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. Osteoarthritis (after less intensive setting) 11. Rheumatoid arthritis (after less intensive setting) 12. Join
Slide 91: Inpatient Rehabilitation Outlier Payments
91 Inpatient Rehabilitation Outlier Payments(11) # of Hospitals Total Outlier Payments Avg Outlier Payment per Discharge Hospital Deciles HLS Non- HLS Total HLS Non-HLS Total % HLS Non-HLS Total 90-100 — 113 113 $ — $ 116,635,933 $ 116,635,933 50.1% N/A $ 2,467 $ 2,467 80-90 — 113 113 $ — $ 43,394,8
Slide 92: IMPACT Act of 2014
92 IMPACT Act of 2014 - Enacted October 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 t
Slide 93: CCJR Payment Model
93 CCJR Payment Model - Proposed for January 1, 2016 Company observations and considerations with respect to the CCJR: ▪ On July 9, 2015, CMS announced a proposal for the Comprehensive Care for Joint Replacement (“CCJR”) payment model. The model proposes to hold acute care hospitals accountable for
Slide 94: IRF-PPS Fiscal Year 2016 Final Rule: Key Provisions
94 IRF-PPS Fiscal Year 2016 Final Rule: Key Provisions Source: http://www.gpo.gov/fdsys/pkg/FR-2015-08-06/pdf/2015-18973.pdf Refer to pages 105-109 for end notes. New Quality Reporting Update to Payment Rates HealthSouth Observations Pricing: • Net pricing impact to HealthSouth expected to be approx
Slide 95: HH-PPS Calendar Year 2016 Proposed Rule: Key Provisions
95 HH-PPS Calendar Year 2016 Proposed Rule: Key Provisions Source: https://s3.amazonaws.com/public-inspection.federalregister.gov/2015-16790.pdf Refer to pages 105-109 for end notes. New Quality Reporting Update to Payment Rates HealthSouth Observations Pricing: • Net pricing impact to Encompass exp
Slide 96: Specific Post-Acute Regulatory Changes
96 Specific Post-Acute Regulatory Changes Regulatory Risks Inpatient Rehabilitation Facility Skilled Nursing Facility Long-Term Acute Care Hospital Home Health Hospice 1. Re-basing payment system No No Starting in FY 2016, LTCHs will be paid blended “site-neutral payment” rates for certain types of
Slide 97: Future Regulatory Risk
97 Future Regulatory Risk Inpatient Rehabilitation Facility Skilled Nursing Facility Long-Term Acute Care Hospital Home Health Hospice 6. Other Changes to ICD-9-CM Codes under Presumptive testing for compliance review periods beginning on or after Oct.1, 2015; PAI changes to record mode/minutes of t
Slide 98: Reconciliations to GAAP
98 Reconciliations to GAAP
Slide 99: Reconciliation of Net Income to Adjusted EBITDA 2015
99 Reconciliation of Net Income to Adjusted EBITDA(54) 2015 Q1 Q2 Six Months (in millions, except per share data) Total Per Share Total Per Share Total Per Share Net Income $ 59.0 $ 60.2 $ 119.2 Loss from disc ops, net of tax, attributable to HealthSouth 0.3 1.6 1.9 Net income attributable to noncon
Slide 100: Reconciliation of Net Income to Adjusted EBITDA 2014
100 Reconciliation of Net Income to Adjusted EBITDA(54) 2014 Q1 Q2 Q3 Q4 Full Year (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net Income $ 61.5 $ 97.9 $ 64.8 $ 57.5 $ 281.7 Loss (income) from disc ops, net of tax, attributable
Slide 101: Reconciliation of Net Income to Adjusted EBITDA 2013
101 Reconciliation of Net Income to Adjusted EBITDA(54) 2013 Q1 Q2 Q3 Q4 Full Year (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, attributabl
Slide 102: Reconciliation of Net Income to Adjusted EBITDA 2012
102 Reconciliation of Net Income to Adjusted EBITDA(54) 2012 Q1 Q2 Q3 Q4 Full Year (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
Slide 103: Reconciliation of Net Income to Adjusted EBITDA 2010-2011
103 Reconciliation of Net Income to Adjusted EBITDA(54) 2010 2011 (in millions, except per share data) Total Per Share Total Per Share Net income $ 939.8 $ 254.6 Income from disc ops, net of tax, attributable to HealthSouth (9.2) (49.9) Net income attributable to noncontrolling interests (40.8) (45.
Slide 104: End Notes
104 End Notes
Slide 105: End Notes
105 End Notes (1) Beginning Q1 2015, HealthSouth's legacy 25 home health agencies are included in the home health and hospice segment. The 2014 results for these agencies have been recast and reported in the 2014 results for the home health and hospice segment. The $72 million Adjusted EBITDA guidan
Slide 106: End Notes, con't.
106 End Notes, con't. (11) Source: FY 2016 CMS Final Rule Rate Setting File and the last publicly available Medicare cost reports (FYE 2013/2014) or in the case of new IRFs, the June 2015 CMS Provider of Service File. a. All data provided was filtered and compiled from the Centers for Medicare and M
Slide 107: End Notes, con't.
107 End Notes, con't. (22) Public peer average represents data from four publicly traded home health providers. (23) The leverage ratio is based on trailing four quarter Adjusted EBITDA of $606.4 million and 2010 Adjusted EBITDA of $409.6 million. Pro forma 2015 leverage with trailing four quarters
Slide 108: End Notes, con't.
108 End Notes, con't. (38) The maximum amount limitations are subject to increase by a “grower” basket equal to 50% of excess cash flow plus certain other amounts including net cash proceeds from certain equity issuances. (39) The Company purchased 9,119,450 common shares in Q1 2013 through a tender
Slide 109: End Notes: Non-GAAP Measures
109 (54) 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 utilize Adjusted EBITDA as a financia