Encompass Health Corporation · NYSE:EHC
Encompass Health — Investor Presentation (May 2018)
104 slides from Encompass Health's investor presentation, May 15, 2018
Slide 1: Investor Reference Book Post Q1 2018 Earnings Release
Investor Reference Book Post Q1 2018 Earnings Release Last Updated May 15, 2018 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,
Slide 2: Forward-Looking Statements
Forward-Looking Statements The information contained in this Investor Reference Book includes certain estimates, projections and other forward- looking information that reflect Encompass Health’s current outlook, views and plans with respect to future events, including legislative and regulatory dev
Slide 3: Table of Contents
Table of Contents Company Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-16 Investment Thesis and Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-24 Business Outlook, Including Guidance . . . . .
Slide 4: Company Overview
Company Overview Encompass Health is a leading provider of inpatient rehabilitation and home-based care committed to delivering high-quality, cost-effective, integrated care across the post-acute continuum. Encompass Health 4
Slide 5: A Leading Provider of Inpatient Rehabilitation and Home-Based Care
Encompass Health A Leading Provider of Inpatient Rehabilitation and Home-Based Care Market Overlap ~60% of EHC’s IRFs have an EHC home health location within an approximate 30-mile radius.* Portfolio as of March 31, 2018 Inpatient Rehabilitation Hospitals (“IRFs”) Home Health Locations Hospice Locat
Slide 6: Company Overview: Inpatient Rehabilitation
Company Overview Inpatient Rehabilitation Inpatient Rehabilitation 106 of the Company’s IRFs hold one or more disease-specific certifications from The Joint Commission’s Disease-Specific Hospitals Care Certification Program.(1) Major Services • Rehabilitation Physicians: manage and treat medical con
Slide 7: Company Overview: Home Health and Hospice
Company Overview Home Health and Hospice The Company offers evidence-based specialty programs Home Health Agencies related to: Post-Operative Care, Fall Prevention, Chronic Disease Management, and Transitional Care. Major Services • Skilled Nurses: comprehensively assess, teach, train, and manage ca
Slide 8: IRF and Home Health Patient Mix
IRF Patient Mix Home Health Patient Mix Referral Sources: Referral Sources: Acute Care Hospitals – 91% Acute Care Hospitals – 35% Physician Offices / Community – 7% Physician Offices / Community – 38% Skilled Nursing Facilities – 2% IRFs / LTCHs / SNFs – 27% Rehabilitation Impairment Category* Q1-18
Slide 9: Leading Positions in Quality of Care
Leading Positions in Quality of Care IRF Quality Home Health Quality Discharge to Community 3.8 79.4% Percent of cases 78.7% 79.2% discharged to Quality of Care 75.7% 76.0% 76.0% the community, Star Ratings(3) including home 3.3 96% of our home health agencies or home with home health. are 3 Stars o
Slide 10: Leading Position in Cost Effectiveness: Inpatient Rehabilitation
Leading Position in Cost Effectiveness Inpatient Rehabilitation Avg. Est. Avg. Est. Total Avg. Total Cost Payment Medicare pays Avg. Medicare Case per per Encompass Health Beds Discharges Mix Discharge Discharge less per discharge, # per IRF per IRF(5) Index(6) for FY 2019 for FY 2019 on average, an
Slide 11: Leading Position in Cost Effectiveness: Home Health
Leading Position in Cost Effectiveness Home Health Average Average revenue per Average Average Revenue episode is 5.7% 2017 Revenue Visits per Visit Cost Episodes per Episode per Episode (all payors) per Visit higher than the peer average due to higher Encompass acuity patient mix. Health 211,743 $2
Slide 12: New-Store/Same-Store Growth: Inpatient Rehabilitation
New-Store/Same-Store Growth Inpatient Rehabilitation Reliant (857 beds) 25.0 Franklin, TN (40 beds) Bryan, TX (49 beds) Broken Arrow, OK (22 beds) Pearland, TX 20.0 Hot Springs, AR (27 beds) (40 beds) Gulfport, MS (33 beds) 15.0 Lexington, KY (158 beds) Westerville, OH (60 beds) Savannah, GA (50 bed
Slide 13: New-Store/Same-Store Growth: Home Health
New-Store/Same-Store Growth Home Health Acquired CareSouth 70.0 (44 home health agencies in 7 states) in November 2015 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Admissions QQ11 22016016 QQ22 22016016 QQ33 22016016 QQ44 22016016 QQ11 22017017 QQ22 22017017 QQ33 22017017 QQ44 22017017 QQ11 22018018 New Store
Slide 14: Payors (Q1 2018)
Payors (Q1 2018) Payor Source % of Revenues Payment Methodology Prospective Payment System (“PPS”) - IRF: Paid per discharge by Case Mix Group (“CMG”) Home - Home Health: Paid per 60-day episode of care by Medicare Inpatient Home Health Resource Group (“HHRG”) Health & Rehab • An episode is paid in
Slide 15: Research: IRFs Better Option for Stroke Patients than SNFs
Independent Research Concludes IRFs are a Better Rehabilitation Option for Stroke Patients than SNFs “Whenever possible, the American Stroke Association strongly recommends that stroke patients be treated at an inpatient rehabilitation facility rather than a skilled nursing facility. While in an inp
Slide 16: Strong and Sustainable Business Fundamentals
Strong and Sustainable Business Fundamentals • Favorable demographic trends driving increased demand • Nondiscretionary nature of many conditions treated Attractive Healthcare Sectors • Highly fragmented post-acute sectors present acquisition and joint venture opportunities • Largest provider of inp
Slide 17: Investment Thesis and Strategy
Investment Thesis and Strategy Encompass Health’s ability to adapt to changes, build strategic relationships, and consistently provide high-quality, cost-effective care positions the Company for success in the evolving healthcare industry. Encompass Health 17
Slide 18: Investment Thesis
Investment Thesis Encompass Health is positioned to become the nation's leading provider of integrated post-acute services. The healthcare industry is evolving toward integrated delivery models and value-based care. Providers must be able to adapt to changes, build strategic relationships across the
Slide 19: Strategy
Strategy The Company’s strategy is to expand its network of inpatient rehabilitation hospitals and home health and hospice agencies, further strengthen its relationships with healthcare systems, provider networks, and payors in order to connect patient care across the healthcare continuum, and to de
Slide 20: Elements of Strategy
Elements of Strategy Institutional programs and advanced treatment protocols connect care and allow seamless transition of patients across the healthcare continuum Clinical Leverage technology to strengthen clinical data analytics Expertise and Integration of care transition coordinators High-Qualit
Slide 21: The Healthcare Landscape is Changing
The Healthcare Landscape is Changing. Current Post-Acute Providers Future Post-Acute Providers • Medicare payments/regulations are site • Medicare payments/regulations will be specific (e.g., 60% Rule, 3-Hour Rule, outcome focused. “preponderance” of one-to-one therapy). • Many existing regulations
Slide 22: Well-Positioned for Progression Towards Site Neutrality
The Company is Well-Positioned for the Progression Towards Site Neutrality as It Will be Able to Treat All Types of Post-Acute Patients by Leveraging Its Operational Expertise Across Its Network of Facility-Based and Home-Based Assets. The Company’s IRFs have the physical construct, clinical staffin
Slide 23: Improving Patient Experience Through Integrated Care Delivery
The Company Continues to Improve the Patient Experience Through Integrated Care Delivery Inpatient Rehabilitation–Home Health Clinical Collaboration (All Payors) Overlap Markets* 33.5% u As of March 31, 2018, ~60% of Encompass Collaboration Rate Health’s inpatient rehabilitation hospitals were 28.9%
Slide 24: Clinical Initiatives to Further Improve Quality
Clinical Initiatives to Further Improve Quality Reduce Acute Care Transfers Pain Control / Reducing Infection Control Clinical Collaboration (tracked in the IRF QRP*) the Use of Opioids Problem: Problem: Problem: Poor coordination of the discharge Acute care transfers can Problem: Infections are a t
Slide 25: Business Outlook, Including Guidance
Business Outlook, Including Guidance (as of May 15, 2018) Encompass Health 25
Slide 26: Priorities for 2018: Growth
Priorities for 2018 GROWTH u Expand portfolio of inpatient rehabilitation hospitals Ÿ Demographic trends driving increased demand for inpatient rehabilitation services Ÿ IRFs are best positioned to expand service offering in the progression towards site neutrality (see page 22) Ÿ Joint venture or wh
Slide 27: Priorities for 2018: Operational Initiatives and Capital Structure
Priorities for 2018 GROWTH OPERATIONAL INITIATIVES u Implement rebranding and name change (see page 33) u Continue to develop and implement post-acute patient navigation tools • Post-Acute Innovation Center ü Enhanced data analytics to design post-acute clinical pathways ü Formation of post-acute ne
Slide 28: Guidance - as of May 15, 2018
Guidance - as of May 15, 2018 Previous 2018 Full-Year Updated 2018 Full-Year Guidance Guidance (Provided Initially on April 26, 2018) Net Operating Revenues* Net Operating Revenues* $4,080 million to $4,190 million $4,110 million to $4,210 million Adjusted EBITDA(10) Adjusted EBITDA(10) $830 million
Slide 29: Impact of the New Revenue Recognition Accounting Standard
Impact of the New Revenue Recognition Accounting Standard u During the first quarter of 2018, Encompass Health adopted a new accounting standard (ASC 606 - Revenue from Contracts with Customers) which clarifies the standard for recognizing revenue. u The primary impact to the Company’s financial rep
Slide 30: 2018 Guidance Considerations
2018 Guidance Considerations Inpatient Rehabilitation Home Health and Hospice u Estimated 0.8% increase in Medicare pricing u Estimated 0.5% net Medicare pricing before reserves related to bad debt for Q1 reduction before reserves related to bad through Q3; ~1.2% for Q4 debt for CY 2018 u Salary inc
Slide 31: Adjusted Free Cash Flow Assumptions
Adjusted Free Cash Flow(12) Assumptions 3 Months Certain Cash Flow Items 2018 2018 2017 (millions) Actual Assumptions Actual • Cash interest expense (net of amortization of debt $34.6 $140 to $150 $145.7 discounts and fees) u Increased cash payments for taxes in 2018 primarily due to exhaustion of f
Slide 32: Uses of Free Cash Flow
Uses of Free Cash Flow 3 Months 2018 2018 2017 Actuals Assumptions Actuals IRF bed expansions $5.1 $30 to $40 $25.5 New IRFs - De novos 18.5 80 to 110 75.2 Growth in - Acquisitions — opportunistic 10.9 Core - Replacement IRFs and other 3.3 40 to 50 9.7 Business Home health and hospice acquisitions (
Slide 33: Rebranding and Name Change
Rebranding and Name Change u The Company’s rebranding and name change reinforce its existing strategy and position as an integrated provider of inpatient and home-based care. Ÿ Effective January 1, 2018, HealthSouth Corporation changed its name to Encompass Health Corporation, with a corresponding t
Slide 34: Business Outlook: 2018 to 2020
Business Outlook: 2018 to 2020 2018 2019 2020 • Implement rebranding and name change • Enhance clinical collaboration between the Company’s IRFs and home health locations Key • Develop and implement post-acute patient navigation tools (e.g., Post-Acute Operational Innovation Center) Initiatives • Re
Slide 35: Business Outlook 2018 to 2020: Revenue Assumptions
Business Outlook 2018 to 2020: Revenue Assumptions Volume Inpatient Rehabilitation* Home Health* (Includes New Stores) 3+% annual discharge growth 10+% annual admission growth Approx. 74% of Segment Revenue Approx. 86% of Segment Revenue Medicare Pricing FY 2018 FY 2019 FY 2020 CY 2018 CY 2019 CY 20
Slide 36: Business Outlook 2018 to 2020: Labor and Other Expense Assumptions
Business Outlook 2018 to 2020: Labor and Other Expense Assumptions Inpatient Rehabilitation Home Health and Hospice Salaries and Benefits 2018 2019 2020 Salary increases 2.75-3.25% 2.75-3.25% 2.75-3.25% Benefit costs increases 8-12%* 5-10% 5-10% % of Salaries and Benefits Salaries Salaries Salaries
Slide 37: IRF-PPS Fiscal Year 2019 Proposed Rule: Key Provisions
IRF-PPS Fiscal Year 2019 Proposed Rule: Key Provisions Update to Payment Rates Company Observations The proposed rule would: • Implement a net 1.35% market basket increase – 2.9% market basket increase Pricing: – (75 bps) healthcare reform reduction • Net pricing impact to the – (80 bps) healthcare
Slide 38: HH-PPS Calendar Year 2018 Final Rule: Key Provisions
HH-PPS Calendar Year 2018 Final Rule: Key Provisions Final Rule Update to 2018 Payment Rates Company Observations The final rule: • Implemented a net 1.0% market basket increase as established by the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015 and Pricing: • Implemented year three o
Slide 39: IMPACT Act of 2014
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 that
Slide 40: Growth
Growth Encompass Health is a leader in serving the post-acute patient population and has multiple avenues available for sustained growth in both segments. Favorable demographic trends are driving increased demand. Encompass Health 40
Slide 41: Multiple Avenues Available for Sustained Growth in Both Segments
The Company Has Multiple Avenues Available for Sustained Growth in Both Segments u The Company continues to have excellent organic growth opportunities in inpatient rehabilitation, home health, and hospice. — Track record of consistent market share gains — IRF organic growth supplemented by bed addi
Slide 42: Demographic Tailwind: Growth in Medicare Beneficiary Population
Both Segments Benefit from a Demographic Tailwind: Growth in the Medicare Beneficiary Population Projected Population of Age 65+ Baby Boomer wave reaches average age of Millions • The growth rate of Medicare an Encompass Health beneficiaries increased in 2011 to an Medicare patient (~76). approx. 3%
Slide 43: Multi-faceted Inpatient Rehabilitation Growth Strategy
Multi-faceted Inpatient Rehabilitation Growth Strategy 2017 bed count New Beds Total IRFs increase 1,600 132 • Gulfport, MS (33 beds) 127 1,400 122 • Westerville, OH (60 beds) De Novos 1,200 117 • Jackson, TN (48 beds) 112 1,000 107 • Pearland, TX (40 beds) Acquisitions 800 102 97 • Bed expansions (
Slide 44: Inpatient Rehabilitation Growth Pipeline
Inpatient Rehabilitation Growth Pipeline Disciplined Approach to New Store Growth The Company’s Value Proposition – $7.7 Billion Medicare IRF Market – CAPEX to build free-standing IRF, freeing up space for Considerations: ü medical/surgical beds in an acute care facility for a JV partner – Market de
Slide 45: Inpatient Rehabilitation Acute Care Joint Venture Partnerships
Inpatient Rehabilitation Acute Care Joint Venture Partnerships • The Company’s IRF joint ventures began in 1991 with Vanderbilt University Medical Center. • The Company’s joint venture acute care hospital partners own equity that ranges from 2.5% to 50%. • 41 of 42 IRFs are consolidated joint ventur
Slide 46: De Novo IRFs and Acquisitions
De Novo IRFs and Acquisitions De Novo IRFs Investment Considerations Operational Location Beds Joint • IRR objective of 13% (after tax) Date Venture • Joint venture capitalization Q4 2019 Murrieta, CA 50 • Certificate of Need (“CON”) costs, where applicable Q4 2019 Katy, TX 40 • Clinical Information
Slide 47: De Novo Costs and Timeline
De Novo Costs and Timeline • Prototype includes all private rooms Capital Cost (millions) Low High • Core infrastructure of building anticipates Construction, design, permitting, etc. $17 $21 future expansion (accretive to financial Land 2 3 returns) Equipment (including CIS) 3 4 • Factors that impa
Slide 48: IRF De Novo Occupancy and EBITDA Trends
IRF De Novo Occupancy and EBITDA* Trends Occupancy Sustained Positive EBITDA 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 6 7 8 9 10 11 12 Months Stuart (06/2013) Altamonte Newnan (12/2014) Middletown (12/2014) Springs (10/2014) Franklin (12/2015) Modesto (10/2016) Westerville (04/2017) Pea
Slide 49: Multi-faceted Home Health and Hospice Growth Strategy
Multi-faceted Home Health and Hospice Growth Strategy • Strong demand due to cost effectiveness of home-based care and implementation of alternative payment models Organic Growth • Strong organic growth from existing agencies • Located in markets with attractive demographics * Currently located in s
Slide 50: Home Health Growth Pipeline
Home Health Growth Pipeline Number of Home Health Agencies Over Time • $18.1 billion Medicare home health market is highly 13,000 The number of home health agencies fragmented with over 12,200 is near an all-time high and presents home health agencies. 12,000 significant consolidation opportunities.
Slide 51: Hospice Growth Pipeline
Hospice Growth Pipeline • Medicare hospice market is approx. $17 billion. Acquisition Strategy for • 1.4 million Medicare beneficiaries received hospice Hospice services from approx. 4,400 providers in 2016. • Build additional scale • Hospice use among Medicare beneficiaries has grown • Medicare foc
Slide 52: Alternative Payment Models
Alternative Payment Models Encompass Health 52
Slide 53: Accountable Care Organizations
Accountable Care Organizations (“ACOs”) As of Medicare Shared Savings Program (MSSP) January 2018, (2018 - 561 ACOs / 10.5 million Medicare beneficiaries) there were • Performance Year 4 (2016) results: ◦ 241 of 432 ACOs (56%) held spending below their benchmark. 619 ▪ 107 of these ACOs reduced heal
Slide 54: Bundled Payments
Bundled Payments The Bundled Payments for Care Improvement How the Retrospective Models Work (BPCI) initiative currently tests Ÿ The BPCI “convener” is responsible for bringing four types of bundles providers together to provide a continuum of services (i.e. “Models”): throughout an episode of care.
Slide 55: The Company's Participation in BPCI
The Company’s Participation in BPCI Model 3 Inpatient Rehabilitation Participating Bundle Length % of the Company’s BPCI Bundle IRFs (in days) Total Discharges Stroke 3 60 0.12% Simple Pneumonia 1 60 0.02% Sepsis 1 60 0.01% Double-lower extremity joint replacement 2 60 <0.01% Upper extremity joint r
Slide 56: Home Health Value-Based Purchasing Model
Home Health Value-Based Purchasing Model Over the long term, the Company believes it is well-positioned to benefit from a delivery system that rewards providers who are committed to providing high-quality care. In the calendar year 2016 HH-PPS final rule, Total Performance Scores (a numeric score ra
Slide 57: Capital Structure
Capital Structure Encompass Health is positioned with a cost-efficient, flexible capital structure. Encompass Health 57
Slide 58: Debt Maturity Profile - Face Value
Debt Maturity Profile - Face Value As of March 31, 2018* Callable beginning September 2020 ($ in millions) Callable beginning November 2017 $568 Available $1,200 Callable beginning Senior March 2018 Notes 5.75% $95 Drawn + Revolver $37 reserved Capacity for LC’s $291 $300 Senior $350 Senior Term Loa
Slide 59: Financial Leverage and Liquidity
Financial Leverage and Liquidity Total Debt Liquidity Leverage Ratio(20) (billions) March 31, December 31, 4.6x* 2018 2017 Cash Available $ 86.4 $ 54.4 Revolver $ 700.0 $ 700.0 Less: 3.0x - Draws (95.0) (95.0) 3.17 3.02 - Letters of Credit (37.2) (35.4) 2.8x Available $ 567.8 $ 569.6 2.58 2.58 Total
Slide 60: Debt Schedule
Debt Schedule Change in March 31, December 31, Debt vs. ($millions) 2018 2017 YE 2017 Advances under $700 million revolving credit facility, September 2022 - LIBOR +150bps $ 95.0 $ 95.0 $ — Term loan facility, September 2022 - LIBOR +150bps 291.0 294.7 (3.7) Bonds Payable: 5.125% Senior Notes due 20
Slide 61: IRF Real Estate Portfolio
IRF Real Estate Portfolio 127 Inpatient Rehabilitation Hospitals: 8,831 Licensed Beds 4,499 Licensed Beds in CON States As of March 31, 2018 59 Own Building and Land 29 Own Building Only 39 Lease Building and Land 4,332 Licensed Beds in Non-CON States 1 of the 127 IRFs is nonconsolidated. For that I
Slide 62: Overview of Rollover Shares Held by Home Health Management
Overview of Rollover Shares Held by Members of the Home Health and Hospice Management Team Background In connection with the 2014 acquisition of Encompass Home Health and Hospice: • Certain members of that management team rolled a portion of their pre- acquisition equity into the post-acquisition en
Slide 63: Information Technology
Information Technology Encompass Health utilizes information technology to improve patient care and generate operating efficiencies. Encompass Health 63
Slide 64: IRF Clinical Information System
IRF Clinical Information System (“CIS”): Improved Patient Safety and Streamlined Operational Efficiencies Pre-Admission Assessment Document & Approval Imaging Treatment Plan • Computerized Physician Order Entry ("CPOE") • Clinical Decision Referral Hospitals Support ("CDS") Quality Reporting Integra
Slide 65: IRF Proprietary Management System: Beacon
IRF Proprietary Management System: Beacon Encompass Health 65
Slide 66: Home Health and Hospice Information System: Homecare Homebase
Home Health and Hospice Information System: Homecare Homebase Homecare Homebase Clinical Management and Operations (“HCHB”) was born • HCHB manages the entire patient • Best-in-class data management and workflow and provides field clinicians reporting ensures managers have access out of the Company’
Slide 67: Operational Metrics
Operational Metrics Encompass Health 67
Slide 68: IRF Operational Metrics: Expense Efficiencies
IRF Operational Metrics: Expense Efficiencies •Salaries and Benefits includes group medical costs and is impacted by staffing levels based on patient (Percent of Net Operating Revenues) volumes. •IRF-related Expenses includes other operating expenses (excluding loss on disposal or impairment of asse
Slide 69: Pre-Payment Claims Denials - Inpatient Rehabilitation Segment
Pre-Payment Claims Denials - Inpatient Rehabilitation Segment Background Encompass Health reserves pre-payment claim denials as a reduction of • For several years, under programs designated as “widespread probes,” net operating revenues upon notice from a MAC a claim is under review. certain Medicar
Slide 70: Inpatient Rehabilitation Operational and Labor Metrics
Inpatient Rehabilitation Operational and Labor Metrics Q1 Q4 Q3 Q2 Q1 Full Year 2018 2017 2017 2017 2017 2017 (In Millions) Net patient revenue-inpatient $ 817.1 $ 776.9 $ 758.2 $ 751.5 $ 752.7 $ 3,039.3 Net patient revenue-outpatient and other revenues 23.2 25.5 25.3 26.1 25.1 102.0 Net operating r
Slide 71: Home Health and Hospice Operational Metrics
Home Health and Hospice Operational Metrics Q1 Q4 Q3 Q2 Q1 Full Year 2018 2017 2017 2017 2017 2017 (In Millions) Net home health revenue $ 185.2 $ 185.9 $ 179.3 $ 171.8 $ 163.7 $ 700.7 Net hospice revenue 20.5 20.5 18.8 17.0 15.6 71.9 Net operating revenues* $ 205.7 $ 206.4 $ 198.1 $ 188.8 $ 179.3 $
Slide 72: Payment Sources (Percent of Revenues)
Payment Sources (Percent of Revenues) Inpatient Rehabilitation Home Health and Consolidated Segment Hospice Segment Q1 Q1 Q1 Full Year 2018 2017 2018 2017 2018 2017 2017 Medicare 74.4% 73.7% 86.1% 85.0% 76.6% 75.8% 76.0% Medicare Advantage 8.6% 8.3% 9.7% 10.2% 8.8% 8.7% 8.6% Managed care 10.1% 10.9%
Slide 73: Industry Structure
Industry Structure Encompass Health 73
Slide 74: Overall Healthcare Spending
Overall Healthcare Spending National Healthcare Spending: $3,337.2 billion in 2016 (billions) $157.4 Investment $43.8 Government Administration $82.2 Government Public Health $441.7 Retail of Medical Products $92.4 Home Health Care $173.5 Other Health, Residential and Personal Care $881.2 Profession
Slide 75: Medicare 2016 Spending
Medicare 2016 Spending = $678.7 Billion $7.7B (1%) Inpatient Rehabilitation Hospitals (Included in Inpatient Hospitals) $ 29.1B Skilled Nursing Medicare Part A $141.3B Inpatient Hospital 4% 21% $69.9B Physician Payments Medicare Part B 15% $49.6B Outpatient Hospital $18.1B Home Health $16.8B Hospice
Slide 76: Continuum of Healthcare Services
Continuum of Healthcare Services Preventive Routine health care Post-Acute Ambulatory Acute (screenings, check- Medical care Palliative Medical care Medical ups, patient provided after a Medical care delivered on an treatment of counseling) to period of acute that is focused outpatient basis disease
Slide 77: Post-Acute Care Services
Post-Acute Care Services (Highest Acuity) (Lowest Acuity) Long-Term Inpatient Skilled Acute Care Home Discharge Acute Care Rehabilitation Nursing Hospital Health Hospital Hospital Facility Medicare Spending (billions) $5.1 $7.7 $29.1 $18.1* # of Discharges ~126,000 ~391,000 ~2,300,000 ~3,400,000 Len
Slide 78: Medicare Spending on Post-Acute Services
Medicare Spending on Post-Acute Services 6 Home health spending* 3.6 3.6 3.5 3.7 ) (% of total Medicare t 3.2 3.6 3.8 n 3.2 3.6 3.7 3.4 e 3.3 3.1 spending) c 2.9 r 2.8 2.7 e 3 P ( Inpatient rehabilitation 2.1 2.2 2.1 1.9 1.8 1.5 spending (% of total 1.4 1.3 1.2 1.2 1.2 1.2 1.2 1.2 1.1 1.1 0 Medicare
Slide 79: Different Levels of Services
Different Levels of Services Inpatient Rehabilitation Hospital Nursing Home Average length of stay = 12.7 days Average length of stay = 38.4 days Discharge to community = 76.9% Discharge to community = 39.5% Requirements: Requirements: IRFs must also satisfy regulatory/policy requirements for hospit
Slide 80: Supply of IRFs is Relatively Stable
Supply of IRFs is Relatively Stable Average Annual Change Share of Medicare Discharges Type of IRF 2016 2004 2006 2008 2010 2013 2014 2015 2016 2006-2013 2013-2016 All IRFs 100% 1,221 1,225 1,202 1,179 1,161 1,177 1,182 1,188 -0.8% 0.8% Urban 93 1,024 1,018 1,001 981 977 1,013 1,020 1,026 -0.6 1.6 R
Slide 81: Inpatient Rehabilitation Sector Margins
Inpatient Rehabilitation Sector Margins Share of Medicare discharges Margins Type of IRF 2016 2004 2006 2008 2010 2012 2013 2014 2015 2016 All IRFs 100% 16.7% 12.5% 9.4% 8.6% 11.2% 11.5% 12.4% 13.8% 13.0% Urban 93 17.0 12.8 9.6 9.0 11.6 11.9 12.8 14.2 13.2 Rural 7 13.2 10.0 6.9 4.7 6.5 6.0 6.2 8.3 9
Slide 82: Inpatient Rehabilitation Standardized Comparison of Costs
Inpatient Rehabilitation Standardized Comparison of Costs Quartile Characteristic Low Cost High Cost Median Standardized Type of IRF Cost Per Discharge Percent: Hospital based 38% 94% All IRFs $15,494 Freestanding 62 6 Hospital based 16,406 Median standardized Nonprofit 31 62 For profit 66 20 Freest
Slide 83: "60% Rule": Medicare Regulation for IRFs
“60% Rule”: Medicare Regulation for IRFs The 60% Rule requires at least 60% of all patients admitted must have at least one medical diagnosis or functional impairment from a list of 13 compliant conditions (a.k.a. “compliant conditions” or “CMS-13”). 1983 2002 2004 2007 1983: 75% Rule 2007: 75% Rule
Slide 84: IRF Qualifying Conditions
IRF Qualifying Conditions Original Qualifying Conditions Current Qualifying Conditions 1. Stroke 1. Stroke 2. Brain injury 2. Brain injury 3. Amputation 3. Amputation 4. Spinal cord 4. Spinal cord 5. Fracture of the femur 5. Fracture of the femur 6. Neurological disorder 6. Neurological disorder 7.
Slide 85: Inpatient Rehabilitation Outlier Payments
Inpatient Rehabilitation Outlier Payments(7) # of IRFs Total Outlier Payments Avg Outlier Payment per Discharge Non- Non- Non- IRF Encompass Encompass Encompass Encompass Encompass Encompass Deciles Health Health Total Health Health Total % Health Health Total 90-100 — 112 112 $ — $ 146,308,521 $ 14
Slide 86: Segment Operating Results
Segment Operating Results Encompass Health 86
Slide 87: Inpatient Rehabilitation Segment Adjusted EBITDA
Inpatient Rehabilitation Segment Adjusted EBITDA Q1 Q4 Q3 Q2 Q1 Full Year 2018 2017 2017 2017 2017 2017 Net operating revenues: (In Millions) Inpatient $ 817.1 $ 776.9 $ 758.2 $ 751.5 $ 752.7 3,039.3 Outpatient and other 23.2 25.5 25.3 26.1 25.1 102.0 Total segment revenue* 840.3 802.4 783.5 777.6 7
Slide 88: Home Health and Hospice Segment Adjusted EBITDA
Home Health and Hospice Segment Adjusted EBITDA Q1 Q4 Q3 Q2 Q1 Full Year 2018 2017 2017 2017 2017 2017 Net operating revenues: (In Millions) Home health revenue $ 185.2 $ 185.9 $ 179.3 $ 171.8 $ 163.7 $ 700.7 Hospice revenue 20.5 20.5 18.8 17.0 15.6 71.9 Total segment revenue* 205.7 206.4 198.1 188.
Slide 89: Segment Operating Results Q1 2018 and Q1 2017
Segment Operating Results Q1 2018 Q1 2017 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 840.3 $ 205.7 $ — $ 1,046.0 $ 777.8 $ 179.3 $ — $ 957.1 Operating Expenses: Inpatient Rehabilitation: Salaries and be
Slide 90: Segment Operating Results Year Ended December 31, 2017
Segment Operating Results Year Ended December 31, 2017 Home Health and (In Millions) IRF Hospice Reclasses Consolidated Net operating revenues $ 3,141.3 $ 772.6 $ — $ 3,913.9 Operating Expenses: Inpatient Rehabilitation: Salaries and benefits (1,603.8) — (550.8) (2,154.6) Other operating expenses(a)
Slide 91: Reconciliations to GAAP and Share Information
Reconciliations to GAAP and Share Information Encompass Health 91
Slide 92: Reconciliation of Net Income to Adjusted EBITDA - Q1 2018
Reconciliation of Net Income to Adjusted EBITDA(10) 2018 Q1 (in millions, except per share data) Total Per Share Net Income $ 105.2 Loss from disc ops, net of tax, attributable to Encompass Health 0.5 Net income attributable to noncontrolling interests (21.4) Income from continuing operations attrib
Slide 93: Reconciliation of Net Income to Adjusted EBITDA - 2017
Reconciliation of Net Income to Adjusted EBITDA(10) 2017 Q1 Q2 Q3 Q4 Full Year Per Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Total Share Net Income $ 84.4 $ 79.4 $ 85.1 $ 86.5 $ 335.4 Loss (income) from disc ops, net of tax, attributable to
Slide 94: Reconciliation of Segment Adjusted EBITDA to Income Before Tax
Reconciliation of Segment Adjusted EBITDA to Income from Continuing Operations Before Income Tax Expense Q1 Q4 Q3 Q2 Q1 Full Year 2018 2017 2017 2017 2017 2017 (In Millions) Total segment Adjusted EBITDA $ 257.3 $ 241.5 $ 235.1 $ 241.2 $ 229.3 $ 947.1 General and administrative expenses (61.1) (43.1
Slide 95: Adjusted EPS - Q1 2018
Adjusted EPS(11) - Q1 2018 For the Three Months Ended March 31, 2018 Adjustments Mark-to-Market Change in Adjustment for Fair Market Stock Value of As Compensation Income Tax Transaction Equity As Reported Expense Adjustments Costs Securities(26) Adjusted (In Millions, Except Per Share Amounts) Adju
Slide 96: Adjusted EPS - Q1 2017
Adjusted EPS(11) - Q1 2017 For the Three Months Ended March 31, 2017 Adjustments Mark-to-Market Adjustment on Stock Compensation Income Tax As Reported Expense Adjustments As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 200.8 $ — $ — $ 200.8 Depreciation and amortization (45.2)
Slide 97: Adjusted EPS - 2017
Adjusted EPS(11) - 2017 For the Year Ended December 31, 2017 Adjustments Mark-to- Market Adjustment for Stock Loss on Early As Appreciation Tax Reform Extinguishment Income Tax As Reported Rights(27) Impact(28) of Debt(29) Adjustments(30) Adjusted (In Millions, Except Per Share Amounts) Adjusted EBI
Slide 98: Adjusted Free Cash Flow History
Adjusted Free Cash Flow History(12) Q1 Full Year (Millions) 2018 2017 2017 Net cash provided by operating activities $ 216.3 $ 180.8 $ 658.3 Impact of discontinued operations 0.7 0.4 0.6 Net cash provided by operating activities of continuing operations 217.0 181.2 658.9 Capital expenditures for mai
Slide 99: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q1 Full Year (Millions) 2018 2017 2017 2016 2015 2014 2013 Net cash provided by operating activities $ 216.3 $ 180.8 $ 658.3 $ 640.2 $ 505.9 $ 458.9 $ 477.8 Professional fees — accounting, tax, and legal — — — 1.9 3.0 9.3 9.5 In
Slide 100: Share Information
Share Information Weighted Average for the Period Q1 Full Year 2018 2017 2017 2016 2015 Basic shares outstanding(13) 97.8 88.8 93.7 89.1 89.4 Convertible perpetual preferred stock(32) — — — — 1.0 Convertible senior subordinated notes(13) — 8.6 4.0 8.5 8.3 Restricted stock awards, dilutive stock opti
Slide 101: End Notes
End Notes Encompass Health 101
Slide 102: End Notes
End Notes (1) Under this program, Joint Commission accredited organizations, like the Company’s IRFs, may seek certification for chronic diseases or conditions such as brain injury or stroke rehabilitation by complying with Joint Commission standards, effectively using evidence-based clinical practi
Slide 103: End Notes, con't.
End Notes, con't. (11) The Company is providing adjusted earnings per share from continuing operations attributable to Encompass Health (“adjusted earnings per share”), which is a non-GAAP measure. The Company believes the presentation of adjusted earnings per share provides useful additional inform
Slide 104: End Notes, con't.
End Notes, con't. (20) The leverage ratio is based on trailing four quarters of Adjusted EBITDA of $845.6 million from Q2 2017 to Q1 2018. (21) Represents discharges from 126 consolidated hospitals in Q1 2018 and Q4 2017; 125 consolidated hospitals in Q3 2017; 124 consolidated hospitals in Q2 2017;