Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Investor Presentation (February 2013)
93 slides from Encompass Health's investor presentation, Feb 27, 2013
Slide 1: Investor Reference Book
Post Q4 2012 Earnings Release – Last updated February 27, 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 4-16 17-31 32-41 42-45 46-50 51-54 55-59 60-70 71-82 83-86 Reconciliat ions to GAAP………………………………………………………………………………………………………………………………………………………..87-93 Growth……………………………………………………………………………………………………………………………………… Operational Init iat ives…………………………………………………………………………………………………………….. Guidanc
Slide 4: Our Company
Portfolio – As of December 31, 2012 100 Inpatient Rehabilitation Hospitals (“IRF”) • 29 operate as JV’s with Acute Care Hospitals 24 Outpatient Rehabilitation Satellite Clinics 25 Hospital-Based Home Health Agencies 27 + Puerto Rico Number of States ~ 22,700 Employees Key Statistics – 2012 ~ $2.2 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 2012) 1. Neurological 22.5% 2. Stroke 16.7% 3. Other orthopedic conditions 9.8% 4. Fracture of the lower extremity 9.8% 5. Debility 9.4% 6. Knee/Hip replacement 8.5% 7. Brain Injury 8.1% 8. Cardiac conditions 3.7% 9. Spinal cord injury 3.8% 10. All other 7.7
Slide 7: Our Quality
24 26 28 30 32 34 36 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 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 admissi
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: 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 10: Our Payors
Medicaid – 1.1% Varies by state Other Third-Party Payors – 1.9% 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 10 Prospective Payment System (
Slide 11: 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 12: Our Track Record
$1,608 $1,701 $1,785 $1,878 $2,027 $2,162 2007 2008 2009 2010 2011 2012 Revenue Our Track Record ($ in millions) (1) Reconciliation to GAAP provided on slides 53 and 88 - 93. (2) 2010 includes an income tax benefit of ~$741 million primarily due to the reversal of a substantial portion of the valuat
Slide 13: Our Track Record: Leverage and Free Cash Flow
$2.04 $1.81 $1.66 $1.51 $1.25 $1.25 0 1 2 3 4 5 6 7 $1.00 $1.25 $1.50 $1.75 $2.00 $2.25 YE 2007 YE 2008 YE 2009 YE 2010 YE 2011 YE 2012 Total Debt 6.7x 2.5x Our Track Record 13 Leverage Ratio (1) (billions) ($79) $9 $155 $181 $243 $268 $11 ($70) ($20) $30 $80 $130 $180 $230 2007 2008 2009 2010 2011
Slide 14: Managing through Medicare Payment 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 15: Our Assets
15 3,240 Licensed Beds in CON States Our Assets 100 (1) Inpatient Rehabilitation Hospitals; 6,656 Licensed Beds (2) 3,416 Licensed Beds in Non-CON States 24 Own Hospital Building Only 42 Own Building and Land 34 Lease Building and Land A Certificate of Need (CON) is a legal document required in many
Slide 16: 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 17: Industry Structure
Industry Structure 17
Slide 18: 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 19: 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 20: 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 21: 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 22: Geographic Distribution of IRFs, 2010
Geographic Distribution of IRFs, 2010 22 Source: MedPAC Report to Congress, Medicare Payment Policy, March 2012 – page 235
Slide 23: Supply of IRFs remained stable in 2010
Supply of IRFs remained stable in 2010 23 Source: MedPAC Report to Congress, Medicare Payment Policy, March 2012 – page 238 IRF Statistics 2002 2004 2008 2009 2010 2002- 2004 2004- 2008 2008- 2009 2009- 2010 Medicare spending (in billions) $5.65 $6.43 $5.95 $6.03 $6.32 6.7% -1.9% 1.3% 4.8% Number of
Slide 24: Inpatient Rehabilitation Sector Margins
24 Inpatient Rehabilitation Sector Margins Type of IRF 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 All IRFs 10.8% 17.8% 16.7% 13.4% 12.4% 11.9% 9.5% 8.4% 8.7% 9.6% Urban 11.3 18.2 16.9 13.5 12.6 12.1 9.7 8.6 9.1 Rual 5.9 12.5 13.9 11.8 10.6 10.0 7.6 6.3 5.5 Freestanding 18.5 22.9 24.7 20.7 17.
Slide 25: Post-Acute Care 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 26: 60% Rule: Medicare Regulation for Rehabilitation Hospitals
“60% Rule”: Medicare Regulation for Rehabilitation Hospitals 26 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 27: IRF Qualifying Conditions
Inpatient Rehabilitation Hospital (IRF): Qualifying Conditions 27 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 28: Site Neutral Payments – A Complicated Issue
Site Neutral Payments – A Complicated Issue (Post-Acute Payment Reform Background) 28 (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 29: Different Levels of Services
Different Levels of Services Rehab Hospital Nursing Home Average Length of Stay (1) = 13.1 days Average Length of Stay (2) = 30 days Discharge to Home (percent) (2) = 81.1% Discharge to Home (percent) (2) = 45.5% Requirements: Requirements: Rehab hospitals must also satisfy regulatory/policy require
Slide 30: CMS: Inpatient Rehabilitation vs. Skilled Nursing
30 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 31: 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 32: Historical Perspective
Historical Perspective 32
Slide 33: 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 34: Historical Perspective: 2007-2008
Historical Perspective 34 $307 $323 $364 $410 $466 $506 2007 2008 2009 2010 2011 2012 Adjusted EBITDA (1) (1) Reconciliation to GAAP provided on slides 53 and 88 - 93. 2007: Focused on Debt Reduction and Settlement Resolution • Divested surgery centers, outpatient, and diagnostic divisions • Used pr
Slide 35: Historical Perspective: 2009
$50 $90 $130 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Historical Perspective 35 2009 Adjusted EBITDA (1) = $363.7 (1) Reconciliation to GAAP provided on slides 53, 88 – 91, and 93. (millions) 2009: Focused on Debt Reduction with Increased Emphasis on Organic Gr
Slide 36: Historical Perspective: 2010
$50 $90 $130 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Historical Perspective 36 2010 Adjusted EBITDA (1) = $409.6 (1) Reconciliation to GAAP provided on slides 53, 88 – 91, and 93. (millions) 2009 Adjusted EBITDA (1) = $363.7 2010: Focused on Debt Reduction wit
Slide 37: Historical Perspective: 2011
$50 $90 $130 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 2011 Adjusted EBITDA (2) = $466.2 Historical Perspective 37 2010 Adjusted EBITDA (2) = $409.6 (1) The Budget Control Act of 2011 includes a reduction of up to 2% to Medicare payments for all providers upon e
Slide 38: Historical Perspective: 2012
$50 $90 $130 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 2011 Adjusted EBITDA (2) = $466.2 Historical Perspective 38 2010 Adjusted EBITDA (2) = $409.6 (1) 2013 – 2015 business model on slide 43 supersedes 2012 – 2014 business model. (2) Reconciliation to GAAP prov
Slide 39: Revenues & Expenses
Revenues & Expenses 39 (1) Employees per occupied bed, or “EPOB,” is calculated by dividing the number of full-time equivalents, including an estimate of full- time equivalents from the utilization of contract labor, by the number of occupied beds during each period. The number of occupied beds is d
Slide 40: Adjusted EBITDA
Adjusted EBITDA (1) 40 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year (Millions) 2012 2012 2012 2012 2011 2011 2011 2011 2010 2010 2010 2010 2012 2011 2010 Net operating revenues 552.9$ 537.0$ 533.4$ 538.6$ 518.1$ 497.7$ 505.1$ 506.0$ 490.9$ 460.8$ 467.3$ 458.6$ 2,161.9$ 2,026.9$ 1,877.6$ Less Provis
Slide 41: Outstanding Share Summary and Warrant Information
Outstanding Share Summary and Warrant Information (Millions) Q4 Q4 2012 2011 2012 2011 2010 2009 2008 2007 Basic shares outstanding (1) (2) 94.7 93.3 94.6 93.3 92.8 88.8 83.0 78.7 Diluted shares outstanding (1) (2) (3) 108.0 109.1 108.1 109.2 108.5 103.3 96.4 92.0 FY FY FY 2012 2011 2010 Basic share
Slide 42: Business Outlook 2013 to 2015
Business Outlook 2013 to 2015 (as of February 27, 2013) 42
Slide 43: Business Outlook: 2013 to 2015
Business Outlook: 2013 to 2015 (1) Business Model • Adjusted EBITDA CAGR: 4-8% (2)(3) • Adjusted Free Cash Flow CAGR: 10-14% (2)(3)(4) Strategy 2012 2013 2014 2015 Delevering Maintained < 3.0x Debt to Adjusted EBITDA < 3.0x Debt to Adjusted EBITDA (subject to shareholder value-creating opportunities
Slide 44: 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% 2.9% 2.9% Healt
Slide 45: 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 46: Guidance
Guidance (as of February 27, 2013) 46
Slide 47: 2013 Guidance - Adjusted EBITDA
2013 Guidance - Adjusted EBITDA(1) 47 2013 Adjusted EBITDA = $506 million to $516 million 2012 1) One-time bonus, net of an assumed 2.25% merit increase beginning October 1, 2012 2) Approx. $6 million reduction in group medical and workers’ compensation reserves due to favorable trends in claims 3)
Slide 48: 2013 Guidance - EPS
2013 Guidance - EPS Earnings per Share from Continuing Operations Attributable to HealthSouth (1) (before any share repurchase activity) $1.50 to $1.56 Considerations: Higher depreciation and amortization related to recent capital expenditures Assumes provision for income tax of approx. 40% in 2
Slide 49: Income Tax Considerations
Income Tax Considerations GAAP Considerations: •As of 12/31/12, the Company’s federal NOL had a balance of approx. $1.0 billion. • The Company has a remaining valuation allowance of approx. $40 million, primarily related to state NOLs. Cash Tax Payments: • The Company expects to pay approx. $8 milli
Slide 50: Adjusted Free Cash Flow Considerations
Adjusted Free Cash Flow (1) Considerations (1) Reconciliation to GAAP provided on slide 52 (2) Definition of adjusted free cash flow is net cash provided by operating activities of continuing operations minus capital expenditures for maintenance, net settlements on interest rate swaps, dividends pai
Slide 51: Free Cash Flow
Free Cash Flow 51
Slide 52: Adjusted Free Cash Flow
Adjusted Free Cash Flow (Millions) 2012 2011 2012 2011 2010 2009 2008 2007 109.3$ 129.5$ 411.5$ 342.7$ 331.0$ 406.1$ 227.2$ 230.6$ (0.5) 0.3 (2.0) (9.1) (13.2) (5.7) (32.5) (3.3) Capital expenditures for maintenance (1) (15.0) (15.7) (83.0) (50.8) (37.9) (33.2) (41.5) (22.4) Net sett lements on inte
Slide 53: Adjusted Free Cash Flow Reconciliation
(Millions) 2012 2011 2012 2011 2010 2009 2008 2007 Net cash provided by operating activities 109.3$ 129.5$ 411.5$ 342.7$ 331.0$ 406.1$ 227.2$ 230.6$ Provision for doubtful accounts (7.2) (6.1) (27.0) (21.0) (16.4) (30.7) (23.0) (28.5) Professional fees—accounting, tax, and legal 2.9 4.8 16.1 21.0 17
Slide 54: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow 54 Growth Debt Reduction Shareholder Distribution (1) 2012 includes the purchase of the real estate (previously subject to an operating lease) associated with our joint venture hospital in Fayetteville, AR for approx. $15 million, half of which was reimburse
Slide 55: Refinancing and Delevering
Refinancing and Delevering 55
Slide 56: Debt Schedule
Debt Schedule (1) Redeemed 10% of the 2018 and 2022 notes in October 2012 (2) Based on 2012 and 2011 Adjusted EBITDA of $505.9 million and $466.2 million, respectively; reconciliation to GAAP provided on slides 53, 88, 89, and 93. 56 Change S&P Moody Dec. 31, Dec. 31, in Debt (Millions) Corporate BB
Slide 57: Debt and Liquidity
($ Billions) Year-End 2010 Goal: 3.75x to 4.00x (1) Based on 2008 and 2012 Adjusted EBITDA of $322.6 million and $505.9 million, respectively; reconciliation to GAAP provided on slides 53 and 88-93. Debt and Liquidity Dec. 31, Dec. 31, 2012 2011 Cash Available 132.8$ 30.1$ Revolver Total Line 600.0$
Slide 58: 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) $40 LC $600 Revolver L+175 December 31, 2012 (1) $560 Undrawn • 10% of the outstanding principal is currently callable per annum
Slide 59: 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 2.5x, respectively Restricted payments: Share repurchase (2) $200 million (shared with other restricted payment basket) Other debt repurchase (2) $20
Slide 60: Growth
Growth 60
Slide 61: 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 62: 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 63: De Novo Market Selection Process
De Novo Market Selection Process 63 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 64: 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 65: Illustrative De Novo Timeline
Illustrative De Novo Timeline 65 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 66: Portfolio Growth: De Novo Assumptions and Timing
Portfolio Growth: De Novo (40 bed) Assumptions and Timing 66 (1) Future cash payback periods may increase when the Company exhausts its significant NOLs (slide 49). (2) Does not include Middletown, DE, Williamson Co., TN, or Newnan, GA where CON awards are under appeal All projects have minimum IRR
Slide 67: 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 68: Portfolio Growth: Acquisition Assumptions, Timing and Performance
Portfolio Growth: Acquisition Assumptions, Timing and Performance 68 (1) Future cash payback periods may increase when the Company exhausts its significant NOLs (slide 49). Acquisition Assumptions Investment Considerations Value Added • Cash Payback (1) = 4 to 6 years • Target: 2 acquisitions/Year •
Slide 69: Future Growth: Complementary Post-Acute Care Services
69 Acute Care Hospital Discharge Long-Term Acute Care Hospital (1) 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 #
Slide 70: 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 71: Operational Initiatives
Operational Initiatives 71
Slide 72: Operational Strategy
Operational Strategy Excellence in … 72 • 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 73: 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 74: 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 75: 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 • Ins
Slide 76: CIS Cost
CIS Cost 76 • 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 77: TeamWorks: Care Management
TeamWorks: Care Management 77 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 78: 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 79: HealthSouth Management Reporting
HEALTHSOUTH MANAGEMENT REPORTING ome —_ e& oi = _ co
Slide 80: BEACON: Management Reporting
80 BEACON: Management Reporting (1) (1) Numbers in screen shot have been modified for presentation and do not represent actual results. Provides regional presidents and hospital leadership near real-time data to run the business Benchmarking – side-by-side hospital comparison to promote best pra
Slide 81: BEACON: SmartSystem Analytics
81 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 82: Operational Initiatives: SmartSystem
Operational Initiatives: SmartSystem 82 $887 $883 $869 $827 2009 2010 2011 2012 Supply Cost per Discharge 82 Completed initiatives: • Dialysis • Food • Pharmacy • Office Supplies • Outside patient service • Therapy equipment • Supply costs per discharge have been reduced while acuity is increasing.
Slide 83: Operational Metrics
Operational Metrics 83
Slide 84: Expense Metrics as Percent of Revenue
• Salaries and Benefits reflects continued improvement from productivity gains and growing revenue base. • Hospital-related Expenses includes other operating (1), supplies, and occupancy. • General and Administrative excludes stock-based compensation. • Provision for Doubtful Accounts varies based o
Slide 85: Operational and Labor Metrics
Operational and Labor Metrics (1) Represents discharges from HealthSouth’s 98 consolidated hospitals in Q4 2012, 97 consolidated hospitals in Q3 2012; 96 consolidated hospitals in Q2 2012, Q1 2012, and Q4 2011; 94 consolidated hospitals in Q3 2011, Q2 2011, Q1 2011, Q4 2010, and Q3 2010; 92 consolid
Slide 86: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) 2012 2011 2012 2011 2010 Medicare 73.6% 72.8% 73.4% 72.0% 70.5% Medicaid 1.1% 1.4% 1.2% 1.6% 1.8% Workers' compensation 1.4% 1.5% 1.5% 1.6% 1.6% Managed care and other discount plans (1) 19.2% 19.5% 19.3% 19.8% 21.3% Other third-party payors 1.9% 2.0% 1.8% 2.0%
Slide 87: Reconciliations to GAAP
Reconciliations to GAAP 87
Slide 88: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1) (1) (2) – Notes on slide 93. (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income 56.8$ 59.9$ 59.9$ 59.3$ 235.9$ Loss (income) from disc ops, net of tax, attributable to Hea
Slide 89: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1) (1) (2) – Notes on slide 93. 89 (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 90: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA (1) (1) (2) – Notes on slide 93. (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 91: 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 Total Per Share Total Per Share Total Per Share Net income 53.5$ 3.6$ 24.8$ 46.9$ 128.8$ (Income) loss from disc ops, net of tax, attributable to HealthSouth (1.8) (5.2) 5.6 (16.3
Slide 92: 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 718.7$ 281.8$ Income from disc ops, net of tax, attributable to HealthSouth (462.4) (32.5) Net income attributable to noncontrolling interests (65.3) (29.4) Income from
Slide 93: Reconciliation Notes for Slides 88-92
Reconciliation Notes for Slides 88-92 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