Encompass Health Corporation · NYSE:EHC
Encompass Health — 35th Annual J.P. Morgan Healthcare Conference 2017
27 slides from Encompass Health's conference presentation, Jan 10, 2017
Slide 1: 2017 J.P. Morgan Healthcare Conference
2017 J.P. MORGAN HEALTHCARE CONFERENCE San Francisco, CA│January 10, 2017 Mark Tarr, President and Chief Executive Officer
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 HealthSouth's current outlook, views and plans with respect to future events, including legislative and regulatory developments, strate
Slide 3: HealthSouth: A Leading Provider of Post-Acute Care
HealthSouth: A Leading Provider of Post-Acute Care IRF Market Share Largest owner and operator of IRFs 21% of Licensed Beds 28% of Medicare Patients Served Home Health and Hospice Market Share 4th largest provider of Medicare-certified skilled home health services Inpatient Rehabilitation Encompass
Slide 4: Leading Positions in Quality of Care
Leading Positions in Quality of Care IRF Quality Home Health Quality Discharge to Community 3.8 78.7% Percent of cases 78.0% discharged to 77.1% Quality of Care 74.4% 75.2% 75.7% the community, Star Ratings(2) including home or home with 3.2 99% of Encompass' home home health. health agencies are Hi
Slide 5: Leading Position in Cost Effectiveness - IRFs
Leading Position in Cost Effectiveness(3) - IRFs Avg. Est. Avg. Est. Total Medicare pays Avg. Total Cost Payment Avg. Medicare Case per per HealthSouth less Beds Discharges Mix Discharge Discharge per discharge, per IRF per IRF(5) Index(6) for FY 2017 for FY 2017 on average, and HLS(4) = 119 68 956
Slide 6: Leading Position in Cost Effectiveness - Home Health
Leading Position in Cost Effectiveness - Home Health Encompass' average revenue per episode Average Effective is 12.4% higher due 2015 Revenue Visits Revenue Cost to higher acuity Episodes per Episode per Episode per Visit per Visit patient mix. Encompass 137,568 $3,072 19 $162 $72 Encompass' cost p
Slide 7: IRF-Home Health Clinical Collaboration (All Payors)
IRF-Home Health Clinical Collaboration (All Payors) All Markets Overlap Markets* Clinical collaboration rate with 17.1% HealthSouth IRFs increased by 12.4% Collaboration Rate 730 basis points over Q4 2015 Collaboration Rate 28.2% Collaboration Rate 4,051 20.9% 2,821 Collaboration Rate 2,735 3,963 19
Slide 8: Both Segments Benefit from a Demographic Tailwind
Both Segments Benefit from a Demographic Tailwind: Expanding Medicare Beneficiary Population Key Observations: • The growth rate of Medicare beneficiaries increased in 2011 to an approx. 3% CAGR as “baby boomers” started turning 65. • In 2030, the Medicare population is projected to increase to 81 m
Slide 9: CMS: Driving Change Toward Integrated Delivery Payment Models
CMS: Driving Change Toward Integrated Delivery Payment Models, Value-Based Purchasing, and Site Neutrality >> 30% of Medicare fee-for-service payments via integrated delivery >> 50% of Medicare fee-for-service payment models (e.g., bundled payments via integrated delivery payments; accountable care
Slide 10: Well-Positioned for the Progression Towards Site Neutrality
HealthSouth 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. HealthSouth’s rehabilitation hospitals have the physical constru
Slide 11: 2016 Summary
2016 Summary GROWTH u Integrated Reliant and CareSouth u Opened or acquired four new hospitals(8) 10 IRF projects underway u Expanded existing hospitals by 83 beds(8) u Acquired or opened 10 home health agencies and 8 hospice locations(9) OPERATIONAL INITIATIVES u Expanded clinical enhancements to
Slide 12: Priorities for 2017
Priorities for 2017 GROWTH u Expand network of freestanding IRFs Demographic trends driving increasing demand for IRF services IRFs are best positioned to expand service offering in the progression towards site neutrality Continue emphasis on joint venture opportunities to enhance positioning
Slide 13: Priorities for 2017
Priorities for 2017 GROWTH OPERATIONAL INITIATIVES u Develop and implement initial risk sharing strategies Implement collaborator and/or preferred provider agreements in select CJR markets (includes SHFFT) Design and pilot commercial bundle with select Medicare Advantage plans u Enhance clinical
Slide 14: IRF-PPS Fiscal Year 2017 Final Rule: Key Provisions
IRF-PPS Fiscal Year 2017 Final Rule: Key Provisions Update to Payment Rates The final rule: Company Observations • Implemented a net 1.65% market basket increase – 2.7% market basket increase Pricing: – (75 bps) Affordable Care Act reduction • Net pricing impact to HealthSouth – (30 bps) Affordable
Slide 15: HH-PPS Calendar Year 2017 Final Rule: Key Provisions
HH-PPS Calendar Year 2017 Final Rule: Key Provisions Update to Payment Rates The final rule: Company Observations • Implemented a net 2.5% market basket increase – 2.8% market basket increase – (30 bps) Affordable Care Act productivity reduction Pricing: • Implemented the final year of the four-year
Slide 16: Guidance
Guidance 2016 2017 Guidance Preliminary Guidance Net Operating Revenues Net Operating Revenues $3,650 million to $3,700 million $3,850 million to $3,950 million Adjusted EBITDA(10) Adjusted EBITDA(10) $785 million to $795 million $800 million to $820 million Adjusted Earnings per Share Adjusted Earn
Slide 17: Adjusted EBITDA Guidance Bridge
Adjusted EBITDA(10) Guidance Bridge 2016 2017 (In Millions) ($21) $32 to $62 ($2) $800 to $820 ($4) $785 to $795 2016 Indirect Growth Impact Sale of 2017 Adjusted EBITDA Medical from Operations of 2017 Pediatric Adjusted EBITDA Guidance Range Education Adjustment Home Health Home Health Business Gui
Slide 18: 2017 Guidance Considerations
2017 Guidance Considerations Inpatient Rehabilitation Home Health and Hospice u Estimated 1.9% increase in Medicare u Estimated 3.6%, or ~$21 million, net pricing for Q1 through Q3; ~1.0% for Q4 Medicare pricing reduction for CY 2017 (see page 22) (see page 22) u Salary increase of ~3.0% u Salary in
Slide 19: Adjusted Free Cash Flow and Tax Assumptions
Adjusted Free Cash Flow(12) and Tax Assumptions Certain Cash Flow Items 2015 2016 2017 (In Millions) Actuals Estimates Assumptions • Cash interest expense $128.6 ~$160 $150 to $160 (net of amortization of debt discounts and fees) • Cash payments for taxes, net $9.4 ~$35 $120 to $175 u Tax Considerat
Slide 20: Free Cash Flow Priorities
Free Cash Flow Priorities (In Millions) 2015 2016 2017 Highest Priority Actuals Estimates Assumptions IRF bed expansions $20.8 ~$20 $30 to $40 Growth New IRF’s in Core - De novos 47.8 ~75 85 to 105 Business - Acquisitions 786.2 — TBD - Replacement hospitals — ~10 10 to 20 New home health and hospice
Slide 21: Business Outlook 2017 to 2019
Business Outlook 2017 to 2019(16) Business Model • Adjusted EBITDA CAGR: 5% - 9%* • Strong free cash flow generation 2017 2018 2019 • Quarterly cash dividends Shareholder • Opportunistic repurchases Distributions - (~$96 million authorization remaining as of December 31, 2016) Strategy Component • T
Slide 22: Business Outlook 2017 to 2019: Revenue Assumptions
Business Outlook 2017 to 2019: Revenue Assumptions Inpatient Rehabilitation Home Health & Hospice* Volume (Includes New Stores) • 3+% annual discharge growth • 10+% annual episode growth • 10% to15% annual episode growth Approx. 73% of Revenue • Includes $35-$40 Approx. 82% ofmillion Revenueper Medi
Slide 23: Business Outlook 2017 to 2019: Labor and Other Expense Assumptions
Business Outlook 2017 to 2019: Labor and Other Expense Assumptions Inpatient Rehabilitation Home Health and Hospice Salaries and Benefits 2017 2018 2019 Salary increases 2.75-3.25% 2.75-3.25% 2.75-3.25% Benefit costs increases 5-10% 5-10% 5-10% Salaries Percent of Salaries & Benefits Salaries & Bene
Slide 24: Appendix
24 Appendix HEALTHSOUTH,
Slide 25: Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow
Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow(12) Full Year ($millions) 2015 Net cash provided by operating activities $ 484.8 Impact of discontinued operations 0.7 Net cash provided by operating activities of continuing operations 485.5 Capital expenditures
Slide 26: End Notes
End Notes (1) Data compares HealthSouth hospitals to hospitals comprising the Uniform Data System for Medical Rehabilitation (“UDSMR”), a data gathering and analysis organization for the rehabilitation industry which represents approximately 70% of the industry, including HealthSouth sites. Data is
Slide 27: End Notes
End Notes (11) HealthSouth provides adjusted earnings per share from continuing operations attributable to HealthSouth (“adjusted EPS”), which is a non-GAAP measure. The Company believes the presentation of adjusted EPS provides useful additional information to investors because it provides better c
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