Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Investor Day (June 2015)
65 slides from Encompass Health's investor day presentation, Jun 10, 2015
Slide 1: 2015 Investor Day
HealthSouth is a leading provider of post-acute healthcare services, offering both facility-based and home-based post-acute services in 33 states and Puerto Rico through its network of inpatient rehabilitation hospitals, home health agencies, and hospice agencies. 2015 Investor Day June 10, 2015
Slide 2: Forward-Looking Statements
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, capita
Slide 3: Agenda
Agenda 8:30AM to 8:50AM HealthSouth’s Strategy - Positioned for Growth in an Evolving Landscape Jay Grinney, President & CEO 8:50AM to 9:15AM Inpatient Rehabilitation Strategy Mark Tarr, Executive Vice President and COO 9:15AM to 9:55AM Home Health and Hospice Strategy April Anthony, Chief Exe
Slide 4: HealthSouth's Strategy: Positioned for Growth in an Evolving Landscape
HealthSouth’s Strategy: Positioned for Growth in an Evolving Landscape Jay Grinney President and Chief Executive Officer 2015 Investor Day | June 10, 2015
Slide 5: Company Overview: A Leading Provider of Post-Acute Care
Company Overview: A Leading Provider of Post-Acute Care Inpatient Rehabilitation Hospitals Home Health Locations Hospice Locations Pediatrics Locations New Inpatient Rehabilitation Hospitals under development Inpatient Rehabilitation Home Health and Hospice(1) Portfolio - As of May 1, 2015 Portfolio
Slide 6: Increasing Medicare Beneficiary Population
Increasing Medicare Beneficiary Population Key Observations: Census Data - Population Growth by Age • The growth rate of Medicare 5 Year CAGR As the 1946-1965 baby boom generation beneficiaries increased in 2011 from Age 2015-2020 2020-2025 2025-2030 65 to 69 years 2.5% 2.1% 0.2% reaches 65, the gro
Slide 7: Trend: Value-Based Payments
Trend: Value-Based Payments HHS “Goals” for Value-Based From FFS to Capitation Payment Models • ACOs and Bundled Payments Capitation Level of Financial Risk • HHS has set a goal of tying 30 percent of traditional, Shared risks or fee-for-service, Medicare payments to quality or value through alterna
Slide 8: Trend: Collaborative Care Model - ACOs
Trend: Collaborative Care Model - ACOs Pioneer ACOs Medicare Shared Savings Program (MSSP) As of (19 ACOs / ~600,000 Medicare beneficiaries) (404 ACOs / ~7.3 million Medicare beneficiaries) April 2015, • • A total of 432 MSSP ACOs have launched since 2012, there are A total of 32 Pioneer ACOs have l
Slide 9: Trend: Collaborative Care Models - Bundled Payments
Trend: Collaborative Care Models - Bundled Payments Bundled Payments Initiative (BPCI) The BPCI program currently tests four types of bundles • Approx. 7,000 providers (and growing) currently (i.e. “Models”): participate in BPCI. Model 1: • A typical bundling structure covers episodic costs All acut
Slide 10: Trend: Site-neutral Payments
Trend: Site-neutral Payments • Site-neutral Payment refers to the concept of paying providers the same amount for patients with identical diagnoses, irrespective of where the patient receives the care. • The concept has been discussed for many years and while, on the surface, it has some merit, CMS
Slide 11: Current Trends Point to an Integrated Post-Acute Delivery Model
Current Trends Point to an Integrated Post-Acute Delivery Model Present Future Long-Term Acute Care Hospitals Facility-Based Post-Acute Services • Full range: low acuity -> high acuity Inpatient Rehabilitation Facilities Value-Based • 24/7 nursing coverage Payments • Eliminates payment silos Collabo
Slide 12: Strategy: Position HealthSouth as the post-acute provider of choice
Strategy: Position HealthSouth as the post-acute provider of choice through the provision of comprehensive, coordinated facility-based and home-based post-acute services Position both segments to be Capitation highly competitive tomorrow Level of Financial Risk Shared risks Shared savings Bundled pa
Slide 13: Key Elements of Our Strategy
Key Elements of Our Strategy Target Market: Continue to focus on the Medicare beneficiary population Operational/Clinical Growth Maintain focus on best-in- Continue to expand IRF portfolio; IRFs are better class clinical outcomes positioned to treat all post-acute facility-based Continued comm
Slide 14: Post-Acute Facility Based Service Strategy
Post-Acute Facility Based Service Strategy Mark Tarr Executive Vice President and Chief Operating Officer 2015 Investor Day | June 10, 2015
Slide 15: IRF Strategic Advantages
IRF Strategic Advantages • Largest portfolio of strategically located, well designed physical assets – 109 IRFs ; 82 owned(2) and 27 long-term, real estate leases • High-quality, industry-leading outcomes • Cost effective operations • Integrated technology platform Proprietary operational management
Slide 16: Largest Owner and Operator of Freestanding IRFs
Largest Owner and Operator of Freestanding IRFs IRF Marketshare 9% of IRFs 18% of Licensed Beds 21% of Patients Served Avg. Beds per HealthSouth IRF 3,887 Licensed 68 Beds in CON Avg. Discharges States vs. 3,495(3) per HealthSouth Licensed Beds in IRF Annually Non-CON States 109 Inpatient Rehabilita
Slide 17: High-Quality Patient Outcomes
High-Quality Patient Outcomes (4) HealthSouth Average UDSMR Average without HealthSouth FIM® Gain (5) is based on the functional change from 36.8 37.5 37.6 admission to 35.5 35.6 36.4 35.4 35.4 discharge of an 18 point assessment. 27.7 27.8 27.9 28.0 28.1 28.3 28.2 28.4 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Slide 18: Cost Effective Service Provider
Cost Effective Service Provider(6) Total Inpatient Rehabilitation Facilities (IRFs): 1,131 Avg. Est. The Avg. Est. Total Avg. Est. Total Payment per Discharge has Avg. Total Cost Payment not been reduced by 2% for Avg. Medicare Case per per sequestration.(10) Beds Discharges Mix Discharge Discharge
Slide 19: Strong Technology Platform: Proprietary Management Reporting System
Strong Technology Platform: Proprietary Management Reporting System(11) Operations Management Tool Supply Chain and Procurement • Provides regional and hospital • Standardized best practices and leadership near real-time data to run purchasing the business • Optimize vendor relationships • Benchmark
Slide 20: Strong Technology Platform – Clinical Information System
Strong Technology Platform – Clinical Information System Facilitates patient Pre-Admission Assessment Document Imaging & Approval information exchange Treatment Plan • Installed in 68 • Computerized Physician Order HealthSouth hospitals Entry (CPOE) • Clinical Decision Support (CDS) Referral Hospita
Slide 21: Strong Acute Care Joint Venture Partnerships
Strong Acute Care Joint Venture Partnerships • HealthSouth’s IRF joint ventures began in 1991. • HealthSouth’s joint venture hospital partners own equity that ranges from 2.5% to 50%. • 32 of 33 agreements are consolidated joint ventures, with one accounted for under the equity method. 33 joint vent
Slide 22: Collaborative Care Initiatives – Bundled Payments
Collaborative Care Initiatives – Bundled Payments Model 2 includes acute care hospital Model 2 Model 3 stay and post acute care. • Selected DRGs + post- • PAC only for Episodes acute period selected DRGs • All Part A and B • All Part A and B services (hospital, services (hospital inpatient, hospital
Slide 23: HealthSouth Hospitals in BPCI Phase 2 – Model 3
HealthSouth Hospitals in BPCI “Phase 2” – Model 3 Model 3: Hospital BPCI Episode Episode Phase 2 Effective Under BPCI Model 3, Length Date episodes are triggered, Rusk Rehabilitation Hospital Stroke 60 days April 1, 2015 (Columbia, MO) or “initiated,” by a PAC HealthSouth-Treasure Coast Simple Pneum
Slide 24: Multi-Faceted Growth Strategy
Multi-Faceted Growth Strategy Incremental Beds Total IRFs 2015 projected total bed De Novos 500 120 count increase of 110 approx. 6% 400 100 • Cardinal Hill (232 beds) 300 90 • Savannah, GA (50 beds) Acquisitions/JVs 80 • Franklin, TN (40 beds) 200 70 • Bed expansions (approx. 100 103 beds) 60 Bed E
Slide 25: Home Health & Hospice Strategy
Home Health & Hospice Strategy April Anthony Chief Executive Officer - Encompass 2015 Investor Day | June 10, 2015
Slide 26: Home Health & Hospice Strategic Advantages
Home Health & Hospice Strategic Advantages • Encompass: 5th largest provider of Medicare-certified skilled home health services • Industry leading patient outcomes and satisfaction • Expertise in managing mobile workforce leads to culture of excellence • Integrated and scalable technology platform •
Slide 27: Clinical Excellence Drives Superior Outcomes and Patient Satisfaction
Clinical Excellence Drives Superior Outcomes and Patient Satisfaction Culture of excellence that embraces technology ensures clinical consistency Lower Re-hospitalization Rates Than National Average High Patient Satisfaction Scores ~16% Lower Average Re-hospitalization Rate Than Industry Consistentl
Slide 28: Home Health and Hospice Operations
Home Health and Hospice Operations Encompass’ core operational strength is managing a mobile workforce. Key operational drivers: • Staff productivity and caregiver optimization • Full utilization of the capabilities of Homecare Homebase (HCHB) • Employee culture of excellence • Daily monitoring towa
Slide 29: Highly Integrated Technology Platform
Highly Integrated Technology Platform Full utilization of Clinical Management And Operations capabilities in • HCHB manages the entire patient workflow and • Best-in-class data management and reporting provides field clinicians with access to patient ensures managers have access to relevant data lea
Slide 30: Well Positioned for Clinical Collaboration Models
Well Positioned for Clinical Collaboration Models Key Attributes Positioned as an Ideal Partner Scale and Density in Attractive Markets Highly Integrated Technology Platform Low Cost Provider Data-Driven Management Strong Data Management Clinical Excellence – A Better Way to Care Ability to Manage C
Slide 31: Example of Clinical Collaboration Model: Premier ACO Partnership
Example of Clinical Collaboration Model: Premier ACO Partnership Overview: • In Q2 2014, Encompass was selected as Premier’s exclusive preferred home health provider. • Premier ACO includes approx. 20,000 covered lives in the Dallas metro area. • Limited overlap in referral base results in virtually
Slide 32: 5th Largest Provider of Medicare-Certified Skilled Home Health Services
5th Largest Provider of Medicare-Certified Skilled Home Health Services 137 Home Health Locations 21 Hospice Locations 8 Pediatrics Locations Home Health and Hospice Marketshare • Leading market positions based on Medicare revenue: ̶ #1 Texas, Oklahoma, New Mexico, Idaho ̶ #3 Colorado, Utah ̶ #4 Vir
Slide 33: Home Health Organic Growth
Home Health Organic Growth Encompass has Admissions Growth by Vintage Year consistently produced strong same-store 8,000 admissions growth in 7,000 its home health Admissions from first full year of operations agencies, as 6,000 2014 Admissions illustrated in an analysis of same-store 5,000 branch c
Slide 34: Clinical Collaboration with HealthSouth IRF Network
Clinical Collaboration with HealthSouth IRF Network • Approx. 54%, or approx. 72,300, of HealthSouth’s IRF discharges were referred to home health in 2014. ̶ Approx. 9%, or approx. 6,750, were discharged to a HealthSouth or Encompass owned home health agency. ̶ Approx. 21%, or approx. 15,400 Medicar
Slide 35: Home Health Growth Pipeline
Home Health Growth Pipeline • Approx. $18 billion home health Home Health Agencies Over Time market is highly fragmented with 13,000 The number of home health agencies over 12,600 home health agencies. 12,000 is at an all-time high and presents consolidation opportunities. • Approx. 95% of these hav
Slide 36: Hospice Growth Pipeline
Hospice Growth Pipeline Acquisition Strategy for • In 2013, Medicare hospice spending totaled approx. $15.1 billion. Hospice • More than 1.3 million Medicare beneficiaries received hospice • Medicare focus services from over 3,900 providers in 2013. • Strong clinical practice • Between 2000 and 2013
Slide 37: Break 9:55 AM to 10:05 AM
Break 9:55 AM to 10:05 AM 2015 Investor Day | June 10, 2015
Slide 38: Financial Strategy
Financial Strategy Doug Coltharp Executive Vice President and Chief Financial Officer 2015 Investor Day | June 10, 2015
Slide 39: Financial Position: Strategic Advantages
Financial Position: Strategic Advantages Appropriate Strong and Cost-efficient, financial Control of consistent flexible capital leverage real estate free cash flow and substantial portfolio generation structure liquidity 38
Slide 40: Strong and Consistent Free Cash Flow Generation
Focus shifted to growth and Strong and Consistent Free Cash Flow*(13) Generation shareholder distributions (millions) beginning in 2013 Other (debt paydown, share repurchase, etc.) $331(14) $311(15) Purchases of Leased Properties New IRFs $268 Bed Expansions $243 $144 Dividends on Common Stock $127
Slide 41: Cost-Effective, Flexible Capital Structure
HealthSouth is Positioned with a Cost-Effective, Flexible Capital Structure HealthSouth is positioned with a cost-efficient, flexible capital structure. Debt Maturity Profile (face value) Pro forma March 31, 2015 for Redemption(16)(17) ($ in millions) In March 2015, the Company issued $300 million C
Slide 42: Appropriate Financial Leverage and Substantial Liquidity
Appropriate Financial Leverage and Substantial Liquidity Liquidity (billions) Total Debt Pro Forma $2.5 Leverage ratio(20) 4 3.7x 3.6x March 31, March 31, 3.5 2015(16) 2015 $2.0 $2.13 $2.15 Cash Available $ 66.3 $ 208.3 3 Revolver $ 600.0 $ 600.0 2.5 Less $1.5 $1.51 $1.52 -Draws (170.0) (10.0) 2 -Le
Slide 43: Control of Real Estate Portfolio: Inpatient Rehabilitation Hospitals
Control of Real Estate Portfolio: 109 Inpatient Rehabilitation Hospitals – 7,382 Licensed Beds(3) 3,887 Licensed Beds in CON States 55 Own Building and Land(2) 27 Own Building Only 27 Lease Building and Land 3,495 Licensed Beds in Non-CON States A CON (Certificate of Need) is a regulatory requiremen
Slide 44: 2015 Guidance - Adjusted EBITDA
2015 Guidance - Adjusted EBITDA* (as of June 9, 2015) Adjusted EBITDA u $670 million to $680 million u Inpatient rehabilitation segment considerations for April 1, 2015 through December 31, 2015: Discharge growth between 6% and 7% (includes Cardinal Hill in Lexington, KY and the Net Adjusted EBITD
Slide 45: 2015 Guidance – EPS
2015 Guidance – EPS (as of June 9, 2015) Earnings per Share from Continuing Operations Attributable to HealthSouth u $ 2.13 to $ 2.19 EPS Guidance Actual Low High Considerations: (In Millions, Except Per Share Data) 2014 2015 Adjusted EBITDA Interest expense and amortization of debt $ 577.6 $ 670 $
Slide 46: Wrap Up
Wrap Up Jay Grinney President and Chief Executive Officer 2015 Investor Day | June 10, 2015
Slide 47: Business Outlook: 2015 to 2017
Business Outlook: 2015 to 2017(26) (as of June 9, 2015) Business Model • Adjusted EBITDA* CAGR: 5% - 9% (2014 base-year Adjusted EBITDA includes an estimate for Encompass)(27) • Continued strong free cash flow generation 2015 2016 2017 • Quarterly cash dividends Shareholder • Opportunistic repurchas
Slide 48: Q&A
Q&A 2015 Investor Day | June 10, 2015
Slide 49: Investor Relations
Investor Relations Mary Ann Arico, Chief Investor Relations Officer Ross Comeaux, Director Investor Relations Amy Gibson, Administrative Coordinator 2015 Investor Day | June 10, 2015
Slide 50: Appendix
Appendix 2015 Investor Day | June 10, 2015
Slide 51: 2015 Guidance - Adjusted EBITDA
2015 Guidance - Adjusted EBITDA* (as of June 9, 2015) (millions) 2014 2015 $26 to $36 $72 $670 to $680 $8 $2 $4 $8 $578 A. Approx. $8 million in pre- C. Approx. $4 million opening cost for four new litigation settlement Reflects: - the addition of Cardinal Hill (158 hospitals (Approx. $2 million D.
Slide 52: Priorities for Reinvesting Free Cash Flow
Priorities for Reinvesting Free Cash Flow* (in millions) Q1 2015 2015 2014 Actuals Assumptions Actuals Remains Highest IRF Bed Expansions $3.7 $30 to $40 $23.6 New IRFs - De novos 4.5 40 to 60 53.7 Priority Growth in Core New IRFs - Acquisitions — TBD 20.2 Business New home health and hospice 7.3 30
Slide 53: Adjusted Free Cash Flow and Tax Assumptions
Adjusted Free Cash Flow* and Tax Assumptions GAAP Tax Certain Cash Flow Items(13) Q1 2015 2015 2014 Considerations: (millions) Actual Assumptions Actual • As of 3/31/15, the Company’s federal NOL Cash interest expense(31) $28.5 $106 to $111 $96.5 had a gross balance of approx. $559 million. Cash pay
Slide 54: Adjusted Free Cash Flow History
Adjusted Free Cash Flow History(13) Q1 Full-Year (Millions) 2015 2014 2014 2013 2012 2011 2010 Net cash provided by operating activities $ 102.0 $ 107.1 $ 444.9 $ 470.3 $ 411.5 $ 342.7 $ 331.0 Impact of discontinued operations 0.1 0.2 1.2 1.9 (2.0) (9.1) (13.2) Net cash provided by operating 102.1 1
Slide 55: Our New-Store/Same-Store IRF Growth
Our New-Store/Same-Store IRF Growth HealthSouth's IRF volume growth is driven by bed expansions and new IRFs. Altamonte Springs, FL (50 beds) Johnson City, TN (26 beds) Cypress, TX (40 beds) Ocala, FL Augusta, GA (58 beds) Newnan, GA (50 beds) Cincinnati, OH (40 beds) (40 beds) Littleton, CO (40 bed
Slide 56: Debt Schedule
Debt Schedule Pro Forma Credit Rating Pro Forma Post Change in S&P Moody's 8.125% Senior Notes Mar. 31, Dec. 31, Debt vs. ($millions) BB- Ba3 Redemption(16) 2015(16)(28) 2014 YE 2014 Advances under $600 million revolving credit facility, September 2019 - LIBOR +175bps(18)(28) BB+ Baa3 $ 170.0 $ 10.0
Slide 57: History Recast by Segment
History Recast by Segment Three Months Ended March 31, 2015 Three Months Ended March 31, 2014 Inpatient Home Health Reclass- HealthSouth Inpatient Home Health Reclass- HealthSouth Rehabilitation and Hospice ifications Consolidated Rehabilitation and Hospice ifications Consolidated Net operating reve
Slide 58: History Recast by Segment
History Recast by Segment Three Months Ended June 30, 2014 Three Months Ended September 30, 2014 Inpatient Home Health Reclass- HealthSouth Inpatient Home Health Reclass- HealthSouth Rehabilitation and Hospice ifications Consolidated Rehabilitation and Hospice ifications Consolidated Net operating r
Slide 59: History Recast by Segment
History Recast by Segment Three Months Ended December 31, 2014 Year Ended December 31, 2014 Inpatient Home Health and Reclass- HealthSouth Inpatient Home Health and Reclass- HealthSouth Rehabilitation Hospice ifications Consolidated Rehabilitation Hospice ifications Consolidated Net operating revenu
Slide 60: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(34) 2015 Q1 (in millions, except per share data) Total Per Share Net Income $ 59.0 Loss from disc ops, net of tax, attributable to HealthSouth 0.3 Net income attributable to noncontrolling interests (16.5) Income from continuing operations attributable
Slide 61: Reconciliation of Net Income to Adjusted EBITDA
Reconciliation of Net Income to Adjusted EBITDA(34) 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 to
Slide 62: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q1 Full-Year (Millions) 2015 2014 2014 2013 Net cash provided by operating activities $ 102.0 $ 107.1 $ 444.9 $ 470.3 Provision for doubtful accounts (11.6) (7.5) (31.6) (26.0) Professional fees—accounting, tax, and legal 2.2 1.
Slide 63: End Notes
End Notes (1) Beginning in Q1 2015, HealthSouth's legacy 25 home health agencies are included in the home health and hospice segment. The 2014 results for these agencies have been recast and reported in the 2014 results for the home health and hospice segment. The $72 million of Adjusted EBITDA guid
Slide 64: End Notes, con't.
End Notes, con't. (11) Numbers in screen shot have been modified for presentation and do not represent actual results. (12) As of May 1, 2015, we had 33 joint ventures. Does not include joint ventures that have been announced but not finalized (Jackson, TN). (13) Definition of adjusted free cash flo
Slide 65: End Notes, con't.
End Notes, con't. (22) Earnings per share are determined using income from continuing operations attributable to HealthSouth. (23) The income allocated to participating securities, the convertible perpetual preferred dividends, and the repurchase premium on preferred stock need to be subtracted from