Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Investor Presentation (January 2016)
123 slides from Encompass Health's investor presentation, Jan 11, 2016
Slide 1: Investor Reference Book
INVESTOR REFERENCE BOOK Last updated January 11, 2016 HealthSouth is a leading provider of post-acute healthcare services, offering both facility-based and home-based post-acute services in 34 states and Puerto Rico through its network of inpatient rehabilitation hospitals, home health agencies, and
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 January 11, 2016)
4 Guidance (as of January 11, 2016)
Slide 5: Guidance
5 $675 million to $685 million $2.20 to $2.26 Adjusted EBITDA Adjusted Earnings per Share from Continuing Operations Attributable to HealthSouth(1) Guidance $3,150 million to $3,170 million Net Operating Revenues 2015 2016 Net Operating Revenues $3,550 million to $3,650 million Adjusted EBITDA $765
Slide 6: 2016 Guidance Considerations
6 2016 Guidance Considerations Inpatient Rehabilitation • Full-year contribution from Reliant Ÿ Transitioning to HLS business model • Continued evolution of payor mix Ÿ Managed care and Medicaid increases expected to moderate in 2016 • Estimated 1.6% increase in Medicare revenue per discharge • Mode
Slide 7: The Company
7 The Company
Slide 8: HealthSouth: A Leading Provider of Post-Acute Care
8 Inpatient Rehabilitation Portfolio - As of December 31, 2015 121 Inpatient Rehabilitation Hospitals • 33 operate as JV’s with Acute Care Hospitals 29 Number of States(plus Puerto Rico) ~ 27,100 Employees HealthSouth: A Leading Provider of Post-Acute Care Encompass Home Health and Hospice Portfolio
Slide 9: Acquisitions of CareSouth and Reliant
9 Acquisition of Acquired November 2, 2015 Ÿ Added 44* home health and 3 hospice locations in 7 states across the southeast and mid-atlantic —new markets of Alabama, Georgia, North Carolina, South Carolina, and Tennessee —improves market share in key states of Florida and Virginia Ÿ 14 new overlap m
Slide 10: Inpatient Rehabilitation Segment
10 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 11: IRF Quality and Patients
11 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 12: IRF Cost Effectiveness
12 Total Inpatient Rehabilitation Facilities: 1,134 IRF Cost Effectiveness(3) The Avg. Est. TotalPayment per Discharge has not been reduced by 2% for sequestration.(7) Medicare pays HealthSouth less per discharge, on average, and HealthSouth treats a higher acuity patient. Avg. Beds per IRF Avg. Med
Slide 13: New-Store/Same-Store IRF Growth
13 Refer to page 120-123 for end notes. 12.0 10.0 8.0 6.0 4.0 2.0 0.0 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 Q3 2015 New-Store/Same-Store IRF Growth Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 201
Slide 14: IRF Acute Care Joint Venture Partnerships
14 • • 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 hospitals are consolidated joint ventures, with one accounted for under the equity method. IRF Acute Care Joint Venture Partnerships 33* joint ve
Slide 15: IRF Real Estate Portfolio
15 39 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. 55 Own Building and Land(10) 27 Own Building On
Slide 16: Home-Based Services
16 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 17: Encompass Home Health Compare Measures
17 Encompass Meets or Exceeds the National Average in 18/22 Home Health Compare Measures • Influenza immunization received • Pneumococcal polysaccharide vaccine received • Heart failure symptoms addressed • Diabetic foot care and patient education • Pain assessment conducted • Pain interventions imp
Slide 18: Encompass Outcomes and Patient Satisfaction
18 30-Day Readmission Rate Patient Satisfaction Metrics 15.5% 16.9% Encompass National Average This is the all-cause re-admission rate within 30 days of start of care or resumption of care. 80% 84% 86% 86% 90% 79% 84% 84% 85% 88% % of Patients Recommend Your Agency % of Patients Rated Agency 9-10 Sp
Slide 19: Encompass Cost Effectiveness
19 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 20: Encompass Operations
20 Key operational drivers: • Staff productivity and caregiver optimization • Full utilization of the capabilities of Homecare Homebase (HCHB) • Employee culture of excellence; received 18 "Best Places to Work" awards in 2015 • Daily monitoring towards goals • Weekly exception reports from agency di
Slide 21: Payor Sources and Payment Methodology
21 Workers' Comp/ Patients/Other - 2.6% Variety of methodologies Medicaid - 3.4% 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 22: Financial Track Record
22 Adjusted EPS*(1) Track Record 2010 2011 2012 2013 2014 2015 Estimate $1,878 $2,027 $2,162 $2,273 $2,406 $3,150($ millions) 2010 2011 2012 2013 2014 2015 Guidance $410 $466 $506 $552 $578 $675 ’10-’14 CAGR = 9.0 %($ millions) ’10-’14 CAGR = 6.4 % Adjusted EBITDA* 2010 2011 2012 2013 2014 2015 Guid
Slide 23: Strong and Sustainable Business Fundamentals
23 HLS: Strong and Sustainable Business Fundamentals • Effective labor management • Continued improvements in supply chain • Operating leverage of G&A and occupancy expenses Cost-Effectiveness • Strong balance sheet and liquidity, no significant near-term maturities • Substantial free cash flow gene
Slide 24: Business Outlook 2016 to 2018
24 Business Outlook 2016 to 2018 (as of January 11, 2016)
Slide 25: Key Demographic Tailwind: Expanding Medicare Population
25 Key Demographic Tailwind: Expanding Medicare Beneficiary Population Key Observations: • The growth rate of Medicare beneficiaries increased in 2011 from a 2% CAGR to an approx. 3% CAGR as “baby boomers” started turning 65. • In 15 years (2030), the Medicare population is projected to increase to
Slide 26: Strategy: Post-Acute Provider of Choice
26 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 27: Business Outlook: 2016 to 2018
27 • 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 28: Volume and Medicare Pricing Assumptions
28 • 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. 73% of Revenue Home Health Approx. 84% of Revenue FY 2016(13) Q415-Q316 FY 2017 Q416-Q317 Mngt. Est
Slide 29: Labor and Other Expense Assumptions
29 Inpatient Rehabilitation Home Health and Hospice Business Outlook: Labor and Other Expense Assumptions Salaries & Benefits ~70% Hospital Expenses ~30% Salaries and Benefits 2016 2017 2018 Merit increases 2.5-3.0% 2.75-3.25% 2.75-3.25% Benefit costs 5-10% 5-10% 5-10% Hospital Expenses • Other oper
Slide 30: Free Cash Flow
30 Free Cash Flow
Slide 31: Adjusted Free Cash Flow and Tax Assumptions
31 Adjusted Free Cash Flow*(15) and Tax Assumptions Certain Cash Flow Items (millions) 2016 Assumptions 2015 Estimates 2014 Actual • Cash interest expense (net of amortization of debt discounts and fees) $165 to $175 ~$130 $96.5 • Cash payments for taxes, net of refunds $20 to $40 ~$12 $16.4 • Worki
Slide 32: Free Cash Flow Priorities
32 Free Cash Flow Priorities (In Millions) 2016 2015 2014 Assumptions Estimates Actuals IRF bed expansions $20 to $30 ~$25 $23.6 New IRF's - De novos 70 to 90 ~50 53.7 - Acquisitions TBD ~786 20.2 New home health and hospice acquisitions 30 to 40 ~200 674.6 $120 to $160, excluding IRF acquisitions ~
Slide 33: Adjusted Free Cash Flow History
33 Adjusted Free Cash Flow History(15) Q3 9 Months Full-Year (Millions) 2015 2014 2015 2014 2014 2013 2012 2011 2010 Net cash provided by operating activities $ 163.3 $ 139.6 $ 368.2 $ 374.7 $ 444.9 $ 470.3 $ 411.5 $ 342.7 $ 331.0 Impact of discontinued operations 0.5 (0.2) 0.8 1.0 1.2 1.9 (2.0) (9.
Slide 34: Net Cash from Operating Activities Reconciled to Adjusted EBITDA
34 Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q3 9 Months Full-Year (Millions) 2015 2014 2015 2014 2014 2013 2012 2011 2010 Net cash provided by operating activities $163.3 $139.6 $368.2 $374.7 $444.9 $470.3 $411.5 $342.7 $ 331.0 Provision for doubtful accounts (10.7) (8
Slide 35: Growth
35 Growth
Slide 36: Multi-faceted IRF Growth Strategy
36 % Increase in beds 3% 3% 4% 18% Total number of beds 6,461 6,656 6,825 7,095 8,404 Total number of IRFs 99 100 103 107 121 1,600 1,400 1,200 1,000 800 600 400 200 0 130 120 110 100 90 80 70 60 50 2011 2012 2013 2014 2015 est. Multi-faceted IRF Growth Strategy 2015 projected total bed count increa
Slide 37: IRF Growth Pipeline
37 IRF Growth Pipeline Typical Development Pipeline Factors: • CON process/timeline • Fair market valuation of contributed assets (joint ventures only) • Partnership complexities HLS Value Proposition CAPEX to build free-standing IRF, freeing up space for medical / surgical beds Increased acute care
Slide 38: New IRFs: Illustrative De Novo Timeline
38 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 39: New IRFs: Investment Considerations
39 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 40: IRF De Novo Occupancy and EBITDA Trends
40 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* Trends Occupancy Sustained Positive EBITDA Range * Hospital EBITDA = earnings bef
Slide 41: New IRFs: Hospital Acquisitions
41 New IRFs: Assumptions for Individual Hospital Acquisitions Unit/Equity Acquisitions Location Beds Date Acquired Worcester, MA(8) 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 42: Multi-faceted Encompass Growth Strategy
42 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. 64% of t
Slide 43: Home Health Organic Growth
43 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 44: Home Health Growth Pipeline
44 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 # of Ag en ci es 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 45: Hospice Growth Pipeline
45 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 46: Clinical Collaboration with HealthSouth IRF Network
46 HealthSouth 70% non-overlap 25% Clinical Collaboration with HealthSouth IRF Network ~75,900 HealthSouth discharges referred to home health in year-to- date November 2015 Non-Medicare FFS Discharges (Our current focus is on the Medicare beneficiary population.) 12% 4%Discharges in markets where a
Slide 47: Clinical Collaboration Model: Premier ACO Partnership
47 • 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 48: Summary: Multiple Avenues for Sustained Growth
48 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 49: Capital Structure
49 Capital Structure
Slide 50: Debt Maturity Profile
50 2015 2019 2020 2020 2021 2022 2023 2024 2025 2043 $350 Senior Notes 5.75% $1,200 Senior Notes 5.75% $320 Conv. Sr. Sub. Notes 2.0% $300 Senior Notes 5.125% $120 Drawn + $34 reserved for LC's Holders have a put option in 2020 September 30, 2015: Pro Forma Post Acquisitions of Reliant and CareSouth
Slide 51: Credit Ratings, Leverage and Liquidity
51 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 $3.20 (billions) Leverage Ratio(20) Total Deb
Slide 52: Debt Schedule
52 Debt Schedule Pro Forma Sept. 30, 2015 Post Acquisitions of Reliant and CareSouth and $50M Redemption of 2022 Notes Pro Forma Change in Debt vs. YE 2014($millions) September 30, 2015 December 31, 2014 Advances under $600 million revolving credit facility, July 2020 - LIBOR +200bps(6)(7) $ 120.0 $
Slide 53: 2.0% Convertible Senior Subordinated Notes Due 2043
53 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 54: Credit Agreement Key Covenants
54 Credit Agreement Key Covenants(27) All transactions are subject to no defaults under covenants and pro forma leverage of less than 4.5x and interest coverage of at least 3.00x. Transaction Limitations Acquisitions No additional limitations Unsecured debt issuance No additional limitations Restric
Slide 55: Share Information
55 Share Information Weighted Average for the Period Q3 9 Months Full-Year (Millions) 2015 2014 2015 2014 2014 2013 2012 Basic shares outstanding(28)(30)(31) 90.6 86.5 89.1 86.8 86.8 88.1 94.6 Diluted shares outstanding(28)(29)(30)(31) 101.5 100.5 101.4 100.7 100.7 102.1 108.1 End of Period Q3 9 Mon
Slide 56: Information Technology
56 Information Technology
Slide 57: IRF Clinical Information System
57 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 58: CIS Benefits and Value Proposition
58 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 59: CIS Timeline
59 • 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 60: CIS Cost
60 CIS Cost • No incentive payments (i.e. “HITECH”) for inpatient rehabilitation hospitals(32) — 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 61: IRF Proprietary Management System: Beacon
61 IRF Proprietary Management System: Beacon
Slide 62: Encompass Integrated Technology Platform
62 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 63: Operational Metrics
63 Operational Metrics
Slide 64: Expense Metrics
64 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 49.3 21.0 1.6 • Salaries and Benefits reflects continued improvement from productivity gains and growing revenue base. • Hospital-related Expenses
Slide 65: IRF Operational and Labor Metrics
65 IRF Operational and Labor Metrics Refer to pages 120-123 for end notes. Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full-Year 2015 2015 2015 2014 2014 2014 2014 2014 (In Millions) Net patient revenue-inpatient $ 625.1 $ 618.7 $ 606.6 $ 580.9 $ 563.7 $ 569.7 $ 558.2 $ 2,272.5 Net patient revenue-outpatient and other rev
Slide 66: Home Health and Hospice Operational Metrics
66 Home Health and Hospice Operational Metrics Refer to pages 120-123 for end notes. Home Health & Hospice Segment Encompass Home Health and Hospice HealthSouth's 25 Legacy Home Health Agencies Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full-Year Q4 Q3 Q2 Q1 Full-Year 2015 2015 2015 2014 2014 2014 2014 2014 2014 2014 201
Slide 67: Payment Sources
67 Payment Sources (Percent of Revenues) * Medicare Advantage revenues represent approx. 8% of total revenues for all periods presented. Inpatient Rehabilitation Segment Home Health and Hospice Segment Consolidated Q3 Q3 Q3 9 Months Full-Year 2015 2014 2015 2014 2015 2014 2015 2014 2014 2013 Medicar
Slide 68: History Recast by Segment
68 History Recast by Segment
Slide 69: Inpatient Rehabilitation Segment Adjusted EBITDA History
69 Inpatient Rehabilitation Segment Adjusted EBITDA History Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full-Year 2015 2015 2015 2014 2014 2014 2014 2014 Net operating revenues: (In Millions) Inpatient $ 625.1 $ 618.7 $ 606.6 $ 580.9 $ 563.7 $ 569.7 $ 558.2 $ 2,272.5 Outpatient and other 26.5 26.6 23.7 24.9 26.2 27.4 26.3
Slide 70: Home Health and Hospice Segment Adjusted EBITDA History
70 Home Health and Hospice Segment Adjusted EBITDA History Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full-Year 2015 2015 2015 2014 2014 2014 2014 2014 Net operating revenues: (In Millions) Home health revenue $ 118.3 $ 111.5 $ 103.9 $ 7.6 $ 7.0 $ 7.3 $ 6.7 $ 28.6 Hospice revenue 8.7 7.6 6.4 — — — — — Total segment reven
Slide 71: History Recast by Segment: Q1 2015
71 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 72: History Recast by Segment: Q2 2015
72 History Recast by Segment (9.4) 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 ope
Slide 73: History Recast by Segment: Q3 2015
73 History Recast by Segment Three Months Ended September 30, 2015 Three Months Ended September 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
Slide 74: History Recast by Segment: Nine Months 2015
74 History Recast by Segment Nine Months Ended September 30, 2015 Nine Months Ended September 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 o
Slide 75: History Recast by Segment: Q4 and Full Year 2014
75 Three Months Ended December 31, 2014 Year 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 operating revenues $ 605.8 $ 7.6 $
Slide 76: Alternative Payment Models
76 Alternative Payment Models
Slide 77: CMS: Driving Change Toward Integrated Delivery Payment Models
77 CMS: Driving Change Toward Integrated Delivery Payment Models, Value-Based Purchasing Future Post-Acute Providers (Timing?) Inpatient Rehabilitation Facilities Home Health Skilled Nursing Facilities Hospice • Full range: low acuity high acuity • 24/7 nursing coverage • Eliminates payment silos
Slide 78: Accountable Care Organizations (ACOs)
78 Accountable Care Organizations (ACOs) As of April 2015, there were 423 Medicare ACOs serving approx. 8 million Medicare beneficiaries. Performance results so far have been mixed. Pioneer ACOs (16 ACOs / ~500,000 Medicare beneficiaries) • 32 Pioneer ACOs launched since program’s inception; 16 rema
Slide 79: Bundled Payments
79 Bundled Payments How the Retrospective Models Work Ÿ The BPCI “convener” is responsible for bringing providers together to provide a continuum of services throughout an episode of care. The BPCI "awardee" is the entity that bears the financial risk and receives the shared savings from CMS. Ÿ Each
Slide 80: Bundling Participation - Inpatient Rehabilitation
80 Bundling Participation - Inpatient Rehabilitation Model 2 HLS Referral Source Bundle Type % of HLS MedicareDischarges % of Total HLS Discharges 122 acute care hospitals participating in Model 2 / Phase 2 in 79 HLS IRF markets Bundles selected for Model 2 participation are chosen from a list of 48
Slide 81: Bundling Participation - Home Health and Hospice
81 Bundling Participation - Home Health and Hospice The CJR Model represents a significant opportunity for Encompass as home health agencies are expected to capture additional share as discharges bypass SNFs altogether or lower the length of stay in a SNF. 52 Encompass providers have selected the fo
Slide 82: CJR Payment Model
82 CJR Payment Model In the 67 geographic areas included in the CJR rule, LEJR patients account for 1.8% of HealthSouth's total Medicare discharges and 1.3% of HealthSouth's overall discharges. Discharges from HealthSouth's IRFs In the CJR payment model, Medicare will continue to reimburse providers
Slide 83: CJR Payment Model - HLS Opportunities
83 CJR Payment Model – HLS Opportunities Source: DHG Healthcare and Dobson l DaVanzo & Associates research using CMS Public Use Files 11-13 Discharge destination for all Medicare lower extremity joint replacements (% of 2011-2013 episodes) IRFs SNFs Home Health Other, includinghome self-care 9.6% 37
Slide 84: Coordinated Care Models: Positioned to Succeed
84 • 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 83 IRFs allows for interfacing with all major acu
Slide 85: Industry Structure
85 Industry Structure
Slide 86: Overall Healthcare Spending
86 Overall Healthcare Spending Hospital Care Includes Inpatient Rehabilitation, Long-Term Care Hospitals $801.6 $150.4 $83.2 $401.0 Nursing Care Facilities and Continuing Care Retirement Communities Professional Services Other Health, Residential and Personal Care Home Health Care Retail of Medical
Slide 87: Medicare 2014 Spending
87 Medicare 2014 Spending = $613.3 Billion $ 28.8B Skilled Nursing $139.2B Inpatient Hospital $69.2B Physician Payments $44.1B Outpatient Hospital $17.8B Home Health $68.0B Other Services $159.7B Medicare Managed Care $77.7B Outpatient Rx $7.0B (1%) Inpatient Rehabilitation Hospitals (Included in In
Slide 88: Continuum of Healthcare Services
88 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 89: Post-Acute Care Services
89 Post-Acute Care Services Acute Care Hospital Home HealthHospice Long-Term Acute Care Hospital Inpatient Rehabilitation Facility Skilled Nursing Facility Discharge Medicare Spending (billions) $5.4 $15.1 $7.0 $28.8 $17.8 # of Discharges 134,000 1,324,000 375,000 2,365,743 3,400,000 Length of Stay
Slide 90: Medicare Spending on Post-Acute Services
90 $35 $30 $25 $20 $15 $10 $5 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Medicare Spending on Post-Acute Services Post-Acute Settings 2014 Medicare Margin Projected 2015 Medicare Margin Sources: (1) 12.5% 10.5% 10.8% 10.3% 12.5% 12.6% 4.9% 4.6% Skilled nursing facilitie
Slide 91: Different Levels of Services
91 Different Levels of Services Rehab Hospital Nursing Home Average length of stay = ~13 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 hospital
Slide 92: Supply of IRFs Remained Stable
92 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 93: Inpatient Rehabilitation Sector Margins
93 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 94: Inpatient Rehabilitation Standardized Comparison of Costs
94 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 95: 60% Rule: Medicare Regulation for Rehabilitation Hospitals
95 “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 96: IRF Qualifying Conditions
96 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 97: Inpatient Rehabilitation Outlier Payments
97 Inpatient Rehabilitation Outlier Payments(3) # 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 $ — $ 43,394,85
Slide 98: IMPACT Act of 2014
98 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 99: IRF-PPS Fiscal Year 2016 Final Rule
99 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 120-123 for end notes. New Quality Reporting Update to Payment Rates HealthSouth Observations Pricing: • Net pricing impact to HealthSouth expected to be approx
Slide 100: HH-PPS Calendar Year 2016 Final Rule
100 HH-PPS Calendar Year 2016 Final Rule: Key Provisions Source: https://s3.amazonaws.com/public-inspection.federalregister.gov/2015-27931.pdf Refer to pages 120-123 for end notes. New Quality Reporting Update to Payment Rates HealthSouth Observations Pricing: • Net pricing impact to Encompass expec
Slide 101: Reconciliations to GAAP
101 Reconciliations to GAAP
Slide 102: Reconciliation of Net Income to Adjusted EBITDA: 2015
102 Reconciliation of Net Income to Adjusted EBITDA(39) Refer to pages 120-123 for end notes. 2015 Q1 Q2 Q3 9 Months (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Net Income $ 59.0 $ 60.2 $ 67.8 $ 187.0 Loss (income) from disc ops, net of tax, a
Slide 103: Reconciliation of Net Income to Adjusted EBITDA: 2014
103 Reconciliation of Net Income to Adjusted EBITDA(39) 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 104: Reconciliation of Net Income to Adjusted EBITDA: 2013
104 Reconciliation of Net Income to Adjusted EBITDA(39) 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 105: Reconciliation of Net Income to Adjusted EBITDA: 2012
105 Reconciliation of Net Income to Adjusted EBITDA(39) 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 106: Reconciliation of Net Income to Adjusted EBITDA: 2010-2011
106 Reconciliation of Net Income to Adjusted EBITDA(39) 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 107: Segment Adjusted EBITDA Reconciliation
107 Three Months Ended Nine Months Ended Year Ended September 30, September 30, December 31, 2015 2014 2015 2014 2014 (In Millions) Total segment Adjusted EBITDA $ 186.9 $ 162.5 $ 557.7 $ 505.9 $ 669.2 General and administrative expenses (30.6) (27.5) (97.3) (88.4) (124.8) Depreciation and amortizat
Slide 108: Adjusted EPS Reconciliation: Q1 2015
108 For the Three Months Ended March 31, 2015 Adjustments As Reported Government, Class Action, and Related Settlements Professional Fees - Accounting, Tax, and Legal Loss on Early Extinguishment of Debt As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA* $ 156.1 $ — $ — $ — $ 156.1
Slide 109: Adjusted EPS Reconciliation: Q2 2015
109 For the Three Months Ended June 30, 2015 Adjustments As Reported Professional Fees - Accounting, Tax, and Legal Reliant / CareSouth Transaction Costs Loss on Early Extinguishment of Debt As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA* $ 169.5 $ — $ — $ — $ 169.5 Depreciation
Slide 110: Adjusted EPS Reconciliation: Q3 2015
110 For the Three Months Ended September 30, 2015 Adjustments As Reported Government, Class Action, and Related Settlements Professional Fees - Accounting, Tax, and Legal Reliant / CareSouth Transaction Costs Loss on Early Extinguishment of Debt As Adjusted (In Millions, Except Per Share Amounts) Ad
Slide 111: Adjusted EPS Reconciliation: Nine Months 2015
111 For the Nine Months Ended September 30, 2015 Adjustments As Reported Government, Class Action, and Related Settlements Professional Fees - Accounting, Tax, and Legal Reliant / CareSouth Transaction Costs Loss on Early Extinguishment of Debt As Adjusted (In Millions, Except Per Share Amounts) Adj
Slide 112: Adjusted EPS Reconciliation: 2014
112 2014 Adjustments As Reported Gov't, Class Action, and Related Settlements Pro. Fees - Acct, Tax, and Legal Encompass Transaction Costs Gain on Consolidation of Fairlawn Rehabilitation Hospital Loss on Early Exing. of Debt Income Tax Valuation Adjustment As Adjusted (In Millions, Except Per Share
Slide 113: Adjusted EPS Reconciliation: 2013
113 2013 Adjustments As Reported Gov't, Class Action, and Related Settlements Pro. Fees - Acct., Tax, and Legal Loss on Early Exting. of Debt Income Tax Valuation Allowance Adjustment Settlement of Income Tax Claims Repurchase of Preferred Stock As Adjusted (In Millions, Except Per Share Amounts) Ad
Slide 114: Adjusted EPS Reconciliation: 2012
114 2012 Adjustments As Reported Gov't, Class Action, and Related Settlements Pro. Fees - Acct, Tax, and Legal Gain on Consolidation of St. Vincent Rehabilitation Hospital Loss on Early Exing. of Debt Income Tax Valuation Allowance Adjustment Settlement of Income Tax Claims As Adjusted (In Millions,
Slide 115: Adjusted EPS Reconciliation: 2011
115 2011 Adjustments As Reported Gov't, Class Action, and Related Settlements Pro. Fees - Acct., Tax, and Legal Loss on Early Exting. of Debt Income Tax Valuation Allowance Adjustment Settlement of Income Tax Claims As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA* $ 466.2 $ — $ —
Slide 116: Adjusted EPS Reconciliation: 2010
116 2010 Adjustments As Reported Gov't, Class Action, and Related Settlements Pro. Fees - Acct., Tax, and Legal Loss on Interest Rate Swaps Loss on Early Exting. of Debt Release of Income Tax Valuation Allowance Settlement of Income Tax Claims As Adjusted (In Millions, Except Per Share Amounts) Adju
Slide 117: Reconciliation of Income from Continuing Operations: 2015
117 2015 Q1 Q2 Q3 9 Months (In Millions) Income from continuing operations attributable to HealthSouth $ 42.8 $ 44.5 $ 50.4 $ 137.7 Government, class action, and related settlements 8.0 — 8.0 Professional fees - accounting, tax, and legal 2.2 0.1 0.4 2.7 Reliant/CareSouth transaction costs — 3.3 2.3
Slide 118: Reconciliation of Income from Continuing Operations: 2010-2014
118 Year Ended December 31, 2014 2013 2012 2011 2010 (In Millions) Income from continuing operations attributable to HealthSouth $ 216.5 $ 324.7 $ 180.5 $ 158.8 $ 889.8 Government, class action, and related settlements (1.7) (23.5) (3.5) (12.3) 1.1 Professional fees - accounting, tax, and legal 9.3
Slide 119: End Notes
119 End Notes
Slide 120: End Notes
120 End Notes (1) HealthSouth is providing adjusted earnings per share from continuing operations attributable to HealthSouth (“adjusted earnings per share”), which is a non-GAAP measure. The Company believes the presentation of adjusted earnings per share provides a better measure of its ongoing pe
Slide 121: End Notes, con't.
121 End Notes, con't. (8) HealthSouth acquired an additional 30% equity interest in Fairlawn Rehabilitation Hospital in Worcester, MA from its joint venture partner. This transaction increased HealthSouth's ownership interest from 50% to 80% and resulted in a change in accounting for the hospital fr
Slide 122: End Notes, con't.
122 End Notes, con't. (24) In November 2015, the Company completed the optional redemption of $50 million of the outstanding principal amount of its existing 7.75% senior notes due 2022. Pursuant to the terms of the notes, the redemption was made at a price of 103.875%. The redemption was funded usi
Slide 123: End Notes, con't.
123 End Notes, con't. (36) Represents home health admissions from 141 locations in Q3 2015, 139 locations in Q2 2015, and 143 locations in Q1 2015. Encompass had 115 home health locations as of December 31, 2014. (37) Represents hospice admissions from 23 locations in Q3 2015 and 21 locations in Q2