Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Investor Presentation (August 2016)
122 slides from Encompass Health's investor presentation, Aug 19, 2016
Slide 1: Investor Reference Book
INVESTOR REFERENCE BOOK Last updated August 19, 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 and non-GAAP notice
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-8 The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Slide 4: Guidance
4 Guidance (as of August 19, 2016)
Slide 5: Revised Guidance - as of August 19, 2016
5 Refer to pages 119-122 for end notes. Revised Guidance - as of August 19, 2016 Adjusted EBITDA Adjusted Earnings per Share from Continuing Operations Attributable to HealthSouth(1) Net Operating Revenues Previous Full-Year Guidance (Provided on April 26, 2016) Revised 2016 Full-Year Guidance (Prov
Slide 6: Guidance Considerations
6 Inpatient Rehabilitation u Full-year contribution from Reliant and other 2015 acquisitions and openings Ÿ Transitioning to HLS business model u Continued evolution of payor mix Ÿ Managed care and Medicaid increases expected to moderate in 2016 as compared to 2015 u Estimated 1.6% increase in Medic
Slide 7: Adjusted Free Cash Flow and Tax Assumptions
7 Adjusted Free Cash Flow(2) and Tax Assumptions Reconciliations to GAAP provided on pages 95-117. Refer to pages 119-122 for end notes. Certain Cash Flow Items (millions) 6 Months 2016 Actual 2016 Assumptions 2015 Actual • Cash interest expense (net of amortization of debt discounts and fees) $81.2
Slide 8: Free Cash Flow Priorities
8 Note: 2015 amounts for debt borrowings include ~$208 million related to the Reliant hospitals' capital lease obligations.See the debt schedule on page 64. Refer to pages 119-122 for end notes. Free Cash Flow Priorities (In Millions) 6 Months 2016 2016 2015 Actuals Assumptions Actuals IRF bed expan
Slide 9: The Company
9 The Company
Slide 10: HealthSouth: A Leading Provider of Post-Acute Care
10 Note: One of the 121 IRFs and two of the 182 adult home health locations are nonconsolidated. These locations are accounted for using the equity method of accounting. HealthSouth: A Leading Provider of Post-Acute Care 58% of HealthSouth's IRFs are located within a 30-mile radius of an Encompass l
Slide 11: Inpatient Rehabilitation Segment
11 Inpatient Rehabilitation Segment Major Services • Rehabilitation Physicians: manage and treat medical conditions and oversee rehabilitation program • Rehabilitation Nurses: provide personal care and oversee treatment plan for patients • Physical Therapists: address physical function, mobility, st
Slide 12: Home Health and Hospice Segment (Encompass)
12 Major Services • Skilled Nurses: comprehensively assess, teach, train, and manage care related to injury or illness • Home Health Aides: provide personal care and assistance with ADLs • Physical Therapists: address physical function, mobility, strength, balance, and safety • Occupational Therapis
Slide 13: Encompass Partnership
13 States with an Encompass presence Encompass Partnership • 4th largest provider of Medicare-focused (83% Medicare) skilled home health services in the U.S. with 218 locations across 24 states • Approx. 7,600 employees making 3.8 million total patient visits annually • Approx. revenue of $609 milli
Slide 14: IRF-Home Health Clinical Collaboration
14 IRF-Home Health Clinical Collaboration (all discharges) * Generally defined as a HealthSouth IRF located within a 30-mile radius of an Encompass location. All Markets Q2 2015 Q2 2016 17,907 19,977 2,116 3,23810.6%Collaboration Rate 13.9% Collaboration Rate Overlap Markets* Q2 2015 Q2 2016 9,041 1
Slide 15: Payors and Payment Methodology
15 Managed Care Per Diem/Visit or CMG/Episodes - Negotiated rate - Some are “tiered” for acuity/severity Per Diem/Visit or CMG/Episodes - Negotiated rate - Some are “tiered” for acuity/severity Other Variety of methodologies Prospective Payment System (“PPS”) - IRF: Paid per discharge by Case Mix Gr
Slide 16: IRF Patient Mix and Referral Sources
16 Acute Care Hospitals -- 37% Physician Offices / Community -- 34% IRFs / LTCHs / SNFs -- 29% IRF Patient Mix Referral Sources: Rehabilitation Impairment Category* (Q2 2016): • Physicians and acute care hospital case managers are key decision makers. • All IRF patients must meet reasonable and nece
Slide 17: Quality of Care
17 2014 2015 YTD 2016 10.6% 10.6% 10.5% 10.7% 10.6% 10.7% 2014 2015 YTD 2016 14.5% 13.9% 13.0% 11.4% 10.7% 10.2% 2014 2015 YTD 2016 74.4% 75.2% 75.7% 77.1% 78.0% 78.5% Home Health QualityIRF Quality Discharge to Community Discharge to Skilled Nursing Discharge to Acute Hospital Percent of cases disc
Slide 18: Independent Research: IRFs a Better Rehabilitation Option than SNFs
18 Independent Research Concludes IRFs are a Better Rehabilitation Option than SNFs “If the hospital suggests sending your loved one to a skilled nursing facility after a stroke, advocate for the patient to go to an inpatient rehabilitation facility instead…”* “Whenever possible, the American Stroke
Slide 19: Clinical Quality Initiatives
19 Solution: Utilize extensive proprietary database of IRF patients to engage in predictive modelling to identify patients at risk for acute care transfer and implement intervention strategies as part of the plan of care. Solution: Implement a multidisciplinary reconciliation process using HealthSou
Slide 20: IRF Cost Effectiveness
20 Total Inpatient Rehabilitation Facilities: 1,133 IRF Cost Effectiveness(8) The Avg. Est. Total Payment per Discharge has not been reduced by 2% for sequestration.(12) Medicare pays HealthSouth less per discharge, on average, and HealthSouth treats a higher acuity patient. Avg. Beds per IRF Avg. M
Slide 21: Home Health Cost Effectiveness
21 2015 AverageRevenue Visits Effective Revenue Cost Episodes per Episode per Episode per Visit per Visit Encompass 137,568 $3,072 19 $162 $72 Public Peer Average 259,215 $2,732 17* $161 $84* Encompass Compared to Peer Average 12.4% 11.8% 0.6% (14.3)% Home Health Cost Effectiveness Average revenue p
Slide 22: IRF New-Store/Same-Store Growth
22 IRF New-Store/Same-Store Growth 25.0 20.0 15.0 10.0 5.0 0.0 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016Discharges Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Fairlawn(13) 0.6% 1
Slide 23: Home Health New-Store/Same-Store Growth
23 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Home Health New-Store/Same-Store Growth Admissions Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 New Store 11.9% 13.6% 15.7% 37.4% 43.5% 41.6% Same Store* —% —% —% —% 12.6% 11.1% Encompass owned locations** 1
Slide 24: HLS: Strong and Sustainable Business Fundamentals
24 • Largest provider of inpatient rehabilitation services • 4th largest provider of Medicare-certified skilled home health services • Consistent delivery of high-quality, cost-effective care • Enhanced utilization of technology (e.g., clinical, data management, and technology-enabled business proce
Slide 25: Revenue, Adjusted EBITDA, Adjusted EPS and Free Cash Flow Track Record
25 Adjusted EPS(1) Track Record 2011 2012 2013 2014 2015 Trailing 4 Qtrs $2,027 $2,162 $2,273 $2,406 $3,163 $3,488($ millions) 2011 2012 2013 2014 2015 Trailing 4 Qtrs $466 $506 $552 $578 $683 $753 ’11-’15 CAGR = 10.0 %($ millions) ’11-’15 CAGR = 11.8 % Adjusted EBITDA 2011 2012 2013 2014 2015 Trail
Slide 26: Business Outlook 2016 to 2018
26 Business Outlook 2016 to 2018 (as of August 19, 2016)
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 * Outpatient and hospice, which services accounted for 4.4% of total operating revenues as of December 31, 2015,are not included in the pricing assumptions. Refer to pages 119-122 for end notes. • 10% to15% annual episode growth • Includes $35-$40 million per annum in agency acquisitions Volume I
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 increases 5-10% 5-10% 5-10% Hospital Expenses •
Slide 30: IRF-PPS Fiscal Year 2017 Final Rule
30 CMS: • Adopted four new claims-based quality reporting measures beginning October 1, 2016 to satisfy the reporting requirements of the IMPACT Act: – Discharge to Community; – Medicare Spending Per Beneficiary (MSPB); – Potentially Preventable 30-Day Post-Discharge Readmission Measure for IRFs; an
Slide 31: HH-PPS Calendar Year 2017 Proposed Rule
31 Pricing: • Net pricing impact to Encompass expected to be a reduction of approx. 3.0% - 4.0% for CY 2017 before sequestration(12) (see page 28) • The recalibration of case-mix weights and the conversion of outlier payments to a cost-per-unit methodology are considered budget neutral in the propos
Slide 32: IMPACT Act of 2014
32 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 33: Growth
33 Growth
Slide 34: Key Demographic Tailwind: Expanding Medicare Beneficiary Population
34 Key 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 million beneficiaries f
Slide 35: Multi-faceted IRF Growth Strategy
35 1,600 1,400 1,200 1,000 800 600 400 200 0 125 120 115 110 105 100 95 90 85 80 2011 2012 2013 2014 2015 Projected 2016 % Increase in licensed beds 3% 3% 4% 18% 2% Total number of licensed beds 6,461 6,656 6,825 7,095 8,404 8,531* Total number of IRFs 99 100 103 107 121 123 Multi-faceted IRF Growth
Slide 36: Disciplined Approach to Joint Ventures / De Novos / Acquisitions
36 Disciplined Approach to Joint Ventures / De Novos / Acquisitions Considerations: – Demographics – Forecasted growth in the number of patients requiring rehab-level of care – Presence of other IRFs; SNFs – Bed need – Geographic proximity to other HLS IRFs and Encompass agencies – Willingness of se
Slide 37: IRF Acute Care Joint Venture Partnerships
37 • • HealthSouth's IRF joint ventures began in 1991. • HealthSouth's joint venture hospital partners own equity that ranges from 2.5% to 50%. • 33 of 34 hospitals are consolidated joint ventures, with one accounted for under the equity method. IRF Acute Care Joint Venture Partnerships 34* joint ve
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: De Novo Investment Considerations
39 Investment Considerations • IRR objective of 13% (after tax) • Includes CON costs (where applicable) • Includes cost of CIS installation • May be structured through a joint venture • Prototype includes all private rooms • Minimum of 30 patients treated for zero revenue (Medicare certification) •
Slide 40: IRF De Novo Occupancy and EBITDA Trends
40 Cypress (10/2011) Ocala (12/2012) Littleton (05/2013) Stuart (06/2013) Altamonte Springs (10/2014) Newnan (12/2014) Middletown (12/2014) Franklin (12/2015) HLS average 2015 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 Occup
Slide 41: New IRFs: Assumptions for Individual Hospital Acquisitions
41 New IRFs: Assumptions for Individual Hospital Acquisitions Unit/Equity Acquisitions Location Beds DateAcquired Worcester, MA(13) 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: Home Health and Hospice Growth Strategy
42 • Highly complementary business to core home health services • Prioritization of Encompass home health markets * No Encompass hospice offering in over 84% of Encompass' current home health locations • Ability to leverage existing EHHI infrastructure • Strong demand due to cost effectiveness of ho
Slide 43: Home Health Growth Pipeline
43 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 2014 Home Health Growth Pipeline Ÿ Approx. $18 billion home health market is highly fragmented with over 12,400 home health agencies. Ÿ Approx. 94% of these have annual re
Slide 44: Hospice Growth Pipeline
44 Freestanding Hospital/SNF based Home Health based 4,000 3,000 2,000 1,000 0 2000 2007 2011 2012 2013 2014 1,069 2,103 2,491 2,643 2,844 3,027807 704 608 591 578 559 378 443 486 492 503 506 Hospice Growth Pipeline Ÿ In 2014, Medicare hospice spending totaled approx. $15 billion. Ÿ More than 1.3 mi
Slide 45: Multiple Avenues Available for Sustained Growth in Both Segments
45 Summary: Multiple Avenues Available for Sustained Growth in Both Segments • 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 addition
Slide 46: Alternative Payment Models
46 Alternative Payment Models
Slide 47: CMS: Driving Change Toward Integrated Delivery Payment Models
47 CMS: Driving Change Toward Integrated Delivery Payment Models, Value-Based Purchasing Future Post-Acute Providers (Timing?) Inpatient Rehabilitation Facilities • Full range: low acuity g high acuity • 24/7 nursing coverage • Eliminates payment silos Home-Based Post-Acute Services • More care in t
Slide 48: Degree of Provider Integration and Accountability
48 Degree of Provider Integration and Accountability Level of Financial Ris k Both segments are highly competitive TODAY Position both segments to be highly competitive TOMORROW Fee-for-service Value-based purchasing (payments tied to outcomes) Capitation Population health management (Accountable Ca
Slide 49: Coordinated Care Models
49 • HCHB manages entire patient work flow (pg 69). • Full utilization of capabilities in leading-edge technology are embedded in culture, driving superior clinical, operational and financial outcomes (pg 69). • Electronic clinical information system in 92 IRFs allows for interfacing with all major
Slide 50: Accountable Care Organizations (ACOs)
50 Accountable Care Organizations (ACOs) As of January 2016, there were 477 Medicare ACOs serving approx. 9 million Medicare beneficiaries. Performance results so far have been mixed. Pioneer ACOs (9 ACOs / ~275,000 Medicare beneficiaries) • 32 Pioneer ACOs launched since program’s inception; 9 rema
Slide 51: Bundled Payments
51 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 52: Bundling Participation - Inpatient Rehabilitation
52 Model 2 HLS Referral Source Bundle Type % of HLS MedicareDischarges % of Total HLS Discharges 127 acute care hospitals participating in Model 2 / Phase 2 in 82 HLS IRF markets(21) Bundles selected for Model 2 participation are chosen from a list of 48 BPCI-eligible bundles. 3.6% 2.6% Approx. 800
Slide 53: Bundling Participation - Home Health and Hospice
53 Bundling Participation - Home Health and Hospice The CJR Model represents a significant opportunity for Encompass because 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 t
Slide 54: Comprehensive Care for Joint Replacement Model - Background
54 Comprehensive Care for Joint Replacement Model - Background Source: https://innovation.cms.gov/initiatives/cjr The Comprehensive Care for Joint Replacement Model (“CJR”) is a payment model for episodes of care related to knee and hip replacements under Medicare. This five-year model began April 1
Slide 55: CJR Model - How Does It Work?
55 If episode spending < target price, acute care hospital receives additional payment from Medicare*. If episode spending > target price, acute care hospital returns a portion of the Medicare episode payment. CJR Model - How Does It Work? POST-ACUTE CARE PROVIDERS Acute care hospitals are accountab
Slide 56: CJR Model - Collaborators
56 CJR Model - How Does It Work? - Collaborators Reconciliation Payment Limit Repayment Limit Payment Limits for CJR Acute Care Hospitals 20 10 0 -10 -20 % of Ta rg et Pr ic e D iff er en ce 2016 2017 2018 2019 2020 Year of Implementation 5% 5% 10% 20% 20% (5)% (10)% (20)% (20)% Risk Sharing is Allo
Slide 57: CJR Model - Potential Impact to HealthSouth
57 CJR Model - What's the Potential Impact to HealthSouth? Source: 2014 Medicare claims data * Complicating comorbidities include conditions such as diabetes, morbid obesity, and congestive heart failure. ~30% of HealthSouth's fractures and ~40% of HealthSouth's replacements have complicating comorb
Slide 58: CJR Model - HealthSouth's Strategies
58 CJR Model - HealthSouth's Strategies Opportunities Outweigh the Risks Increase the number of CJR discharges in all markets where HealthSouth has a cost advantage ü Present the empirical data to referral sources ü Further improve advantage by reducing acute care transfers and discharges to SNFs th
Slide 59: Home Health Value-Based Purchasing Model
59 Medicare-certified home health agencies that provide services in the following states will be required to participate in the model: 1. Arizona 3 2. Florida 15 3. Iowa — 4. Maryland 1 5. Massachusetts 2 6. Nebraska — 7. North Carolina 6 8. Tennessee 5 9. Washington — Encompass Agencies 32 In the c
Slide 60: Capital Structure
60 Capital Structure
Slide 61: Debt Maturity Profile - Face Value
61 Debt Maturity Profile - Face Value * This chart does not include ~$284 million of capital lease obligations or ~$43 million of other notes payable. See the debt schedule on page 64. 2015 2019 2020 2020 2021 2022 2023 2024 2025 2043 $350 Senior Notes 5.75% $1,200 Senior Notes 5.75% $320 Conv. Sr.
Slide 62: Financial Leverage, Liquidity and Credit Ratings
62 S&P Moody's Corporate Rating BB- Ba3 Outlook Negative Stable Revolver Rating BB+ Baa3 Senior Notes Rating B+ B1 Financial Leverage and Liquidity (1) Liquidity Credit Ratings 2011 2012 2013 2014 2015 Trailing 4 Qtrs $1.25 $1.25 $1.52 $2.11 $3.17 $3.09 (billions) Leverage Ratio(22) Total Debt 4.1x
Slide 63: IRF Real Estate Portfolio
63 37 Lease Building and Land A CON (Certificate of Need) is a regulatory requirement in approx. 50% of states and some federal jurisdictions that require state authorization prior to proposed acquisitions, expansions, or construction of new hospitals. 56 Own Building and Land* 28 Own Building Only
Slide 64: Debt Schedule
64 Debt Schedule Reconciliations to GAAP provided on pages 95-117. Change in June 30, Dec. 31, Debt vs. ($millions) 2016 2015 YE 2015 Advances under $600 million revolving credit facility, July 2020 - LIBOR +200bps $ 150.0 $ 130.0 $ 20.0 Term loan facility, July 2020 - LIBOR +200bps 432.3 443.3 (11.
Slide 65: 2.0% Convertible Senior Subordinated Notes Due 2043
65 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 66: Information Technology
66 Information Technology
Slide 67: IRF Clinical Information System
67 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 68: IRF Proprietary Management System: Beacon
68 IRF Proprietary Management System: Beacon
Slide 69: Home Health Information System: Homecare Homebase
69 Home Health Information System: Homecare Homebase 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 provi
Slide 70: Operational Metrics
70 Operational Metrics
Slide 71: Inpatient Rehabilitation Expense Metrics
71 Salaries and Benefits Hospital-Related Expenses Provision for Doubtful Accounts 48.4 21.5 1.0 48.6 20.8 1.2 47.9 20.7 1.1 48.3 20.7 1.3 49.4 20.9 1.7 49.0 20.4 2.0 • Salaries and Benefits includes group medical costs and is impacted by staffing levels based on patient volumes. ◦ Salaries and Bene
Slide 72: Pre-Payment Claims Denials - Inpatient Rehabilitation Segment
72 Pre-Payment Claims Denials - Inpatient Rehabilitation Segment Background Ÿ For several years, under programs designated as “widespread probes,” certain Medicare Administrative Contractors (“MACs”) have conducted pre-payment claim reviews and denied payment for certain diagnosis codes. – Pre-payme
Slide 73: Inpatient Rehabilitation Operational and Labor Metrics
73 Inpatient Rehabilitation Operational and Labor Metrics Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2016 2016 2015 2015 2015 2015 2015 (In Millions) Net patient revenue-inpatient $ 721.2 $ 719.4 $ 696.8 $ 625.1 $ 618.7 $ 606.6 $ 2,547.2 Net patient revenue-outpatient and other revenues 31.4 29.8 29.1 26.5 26.6 23
Slide 74: Home Health and Hospice Operational Metrics
74 Home Health and Hospice Operational Metrics Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2016 2016 2015 2015 2015 2015 2015 (In Millions) Net home health revenue $ 157.1 $ 150.9 $ 144.4 $ 118.3 $ 111.5 $ 103.9 $ 478.1 Net hospice and other revenue 11.0 9.7 9.0 8.7 7.6 6.4 31.7 Net operating revenues $ 168.1 $ 160
Slide 75: Payment Sources (Percent of Revenues)
75 Payment Sources (Percent of Revenues) Inpatient Rehabilitation Segment Home Health and Hospice Segment Consolidated Q2 Q2 Q2 6 Months Full Year 2016 2015 2016 2015 2016 2015 2016 2015 2015 Medicare 73.1% 72.7% 82.3% 83.9% 74.7% 74.5% 75.1% 74.7% 74.9% Medicare Advantage 7.8% 7.8% 9.0% 7.2% 8.1% 7
Slide 76: Industry Structure
76 Industry Structure
Slide 77: Overall Healthcare Spending
77 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 78: Medicare Spending
78 Source: Centers for Medicare & Medicaid Services, Medicare Trustee’s Report July 2016 – page 10 and MedPAC, Medicare Payment Policy, June 2016 Data Book - pages 110 and 185 Medicare 2015 Spending = $647.6 Billion $ 29.8B Skilled Nursing $141.7B Inpatient Hospital $70.3B Physician Payments $46.5B
Slide 79: Continuum of Healthcare Services
79 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 80: Post-Acute Care Services
80 Post-Acute Care Services Acute Care Hospital Home Health Long-Term Acute Care Hospital Inpatient Rehabilitation Facility Skilled Nursing Facility Discharge Medicare Spending (billions) $5.1 $7.1 $29.1 $17.9 # of Discharges 134,000 376,000 2,344,173 3,400,000 Length of Stay 26.3 days 12.8 days 40
Slide 81: Medicare Spending on Post-Acute Services
81 $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 2016 Medicare Margin 12.5% 10.7% 10.8% 8.8% 12.5% 13.9% 4.9% 4.6% Skilled nursing facilities Home health
Slide 82: Different Levels of Services: Rehab Hospital vs Nursing Home
82 Different Levels of Services Rehab Hospital Nursing Home Average length of stay = 12.8 days Average length of stay = 40 days Discharge to community = 76.1% Discharge to community = 37.6% Requirements: Requirements: Rehab hospitals must also satisfy regulatory/policy requirements for hospitals, in
Slide 83: Supply of IRFs is Relatively Stable
83 Supply of IRFs is Relatively Stable Average Annual Change Share of Medicare DischargesType of IRF 2004 2006 2008 2010 2012 2013 2014 2006-2013 2013-2014 All IRFs 100% 1,221 1,225 1,202 1,179 1,166 1,161 1,177 -0.9% 1.4% Urban 93 1,024 1,018 1,001 981 973 977 1,013 -0.7 3.7 Rural 7 197 207 201 198
Slide 84: Inpatient Rehabilitation Sector Margins
84 Inpatient Rehabilitation Sector Margins Share of Medicare discharges Margins Type of IRF 2014 2004 2006 2008 2010 2011 2012 2013 2014 All IRFs 100% 16.7% 12.4% 9.3% 8.7% 9.7% 11.2% 11.6% 12.5% Urban 93 17.0 12.6 9.5 9.0 10.2 11.6 12.0 13.0 Rural 7 13.2 10.1 6.9 4.7 4.8 6.5 6.5 6.4 Freestanding 48
Slide 85: Inpatient Rehabilitation Standardized Comparison of Costs
85 Inpatient Rehabilitation Standardized Comparison of Costs Type of IRF Mean Adjusted Cost Per Discharge All IRFs $15,330 Hospital based 16,325 Freestanding 11,883 Nonprofit 16,565 For profit 13,044 Government 16,317 Urban 15,034 Rural 17,036 Number of beds 1 to 10 18,875 11 to 24 15,606 25 to 64 1
Slide 86: 60% Rule: Medicare Regulation for Rehabilitation Hospitals
86 “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 87: IRF Qualifying Conditions
87 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 IRF Qualifying Conditions 1. Stroke 2. Brain injury 3. Amputation 4. Spinal cord 5. Fracture of the femur 6. Neurological disorder 7. Multip
Slide 88: Inpatient Rehabilitation Outlier Payments
88 Inpatient Rehabilitation Outlier Payments(8) # 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 $ — $ 120,926,079 $ 120,926,079 49.9% N/A $ 2,368 $ 2,368 80-90 — 113 113 $ — $ 45,316,04
Slide 89: Segment Operating Results
89 Segment Operating Results
Slide 90: Inpatient Rehabilitation Segment Adjusted EBITDA
90 Inpatient Rehabilitation Segment Adjusted EBITDA Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2016 2016 2015 2015 2015 2015 2015 Net operating revenues: (In Millions) Inpatient $ 721.2 $ 719.4 $ 696.8 $ 625.1 $ 618.7 $ 606.6 $ 2,547.2 Outpatient and other 31.4 29.8 29.1 26.5 26.6 23.7 105.9 Total segment revenue
Slide 91: Home Health and Hospice Segment Adjusted EBITDA
91 Home Health and Hospice Segment Adjusted EBITDA Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2016 2016 2015 2015 2015 2015 2015 Net operating revenues: (In Millions) Home health revenue $ 157.1 $ 150.9 $ 144.4 $ 118.3 $ 111.5 $ 103.9 $ 478.1 Hospice revenue 11.0 9.7 9.0 8.7 7.6 6.4 31.7 Total segment revenue 168.
Slide 92: Segment Operating Results Q2 2016
92 Segment Operating Results Q2 2016 Q2 2015 IRF Home Health and Hospice Reclasses HealthSouthConsolidated IRF Home Health and Hospice Reclasses HealthSouthConsolidated Net operating revenues $ 752.6 $ 168.1 $ — $ 920.7 $ 645.3 $ 119.1 $ — $ 764.4 Less: Provision for doubtful accounts (14.5) (0.9) —
Slide 93: Segment Operating Results Six Months 2016
93 Segment Operating Results Reconciliations to GAAP provided on pages 95-117. Six Months Ended June 30, 2016 Six Months Ended June 30, 2015 IRF Home Health and Hospice Reclasses HealthSouthConsolidated IRF Home Health and Hospice Reclasses HealthSouthConsolidated Net operating revenues $ 1,501.8 $
Slide 94: Segment Operating Results Year Ended December 31, 2015
94 Segment Operating Results Year Ended December 31, 2015 IRF Home Health and Hospice Reclasses HealthSouth Consolidated Net operating revenues $ 2,653.1 $ 509.8 $ — $ 3,162.9 Less: Provision for doubtful accounts (44.7) (2.5) — (47.2) 2,608.4 507.3 — 3,115.7 Operating Expenses: Inpatient Rehabilita
Slide 95: Reconciliations to GAAP
95 Reconciliations to GAAP
Slide 96: Reconciliation of Net Income to Adjusted EBITDA 2016
96 Reconciliation of Net Income to Adjusted EBITDA(28) 2016 Q1 Q2 6 Months (in millions, except per share data) Total Per Share Total Per Share Total Per Share Net Income $ 76.7 $ 81.2 $ 157.9 Loss from disc ops, net of tax, attributable to HealthSouth 0.1 0.1 0.2 Net income attributable to noncontr
Slide 97: Reconciliation of Net Income to Adjusted EBITDA 2015
97 Reconciliation of Net Income to Adjusted EBITDA(28) 2015 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 $ 59.0 $ 60.2 $ 67.8 $ 65.8 $ 252.8 Loss (income) from disc ops, net of tax, attributable
Slide 98: Reconciliation of Net Income to Adjusted EBITDA 2014
98 Reconciliation of Net Income to Adjusted EBITDA(28) 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 99: Reconciliation of Net Income to Adjusted EBITDA 2013
99 Reconciliation of Net Income to Adjusted EBITDA(28) 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, attributable
Slide 100: Reconciliation of Net Income to Adjusted EBITDA 2011-2012
100 Reconciliation of Net Income to Adjusted EBITDA(28) 2011 2012 (in millions, except per share data) Total Per Share Total Per Share Net income $ 254.6 $ 235.9 Income from disc ops, net of tax, attributable to HealthSouth (49.9) (4.5) Net income attributable to noncontrolling interests (45.9) (50.
Slide 101: Reconciliation of Segment Adjusted EBITDA to Income Before Income Tax
101 Reconciliation of Segment Adjusted EBITDA to Income from Continuing Operations Before Income Tax Expense Three Months Ended Six Months Ended Year Ended June 30, June 30, December 31, 2016 2015 2016 2015 2015 (In Millions) Total segment Adjusted EBITDA $ 230.1 $ 189.5 $ 449.6 $ 370.8 $ 774.1 Gene
Slide 102: Adjusted EPS - Three Months Ended June 30, 2016
102 For the Three Months Ended June 30, 2016 Adjustments As Reported Professional Fees - Accounting, Tax, and Legal Mark-to- Market Adjustment for Stock Appreciation Rights Loss on Early Extinguishment of Debt Sale of Hospital As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA* $ 20
Slide 103: Adjusted EPS - Q1 2016
103 Adjusted EPS(1) - Q1 2016 For the Three Months Ended March 31, 2016 Adjustments As Reported Professional Fees - Accounting, Tax, and Legal Mark-to- Market Adjustment for Stock Appreciation Rights Loss on Early Extinguishment of Debt As Adjusted (In Millions, Except Per Share Amounts) Adjusted EB
Slide 104: Adjusted EPS - YTD 2016
104 Adjusted EPS(1) - YTD 2016 For the Six Months Ended June 30, 2016 Adjustments As Reported Professional Fees - Accounting, Tax, and Legal Mark-to- Market Adjustment for Stock Appreciation Rights Loss on Early Extinguishment of Debt Sale of Hospital As Adjusted (In Millions, Except Per Share Amoun
Slide 105: Adjusted EPS - Three Months Ended December 31, 2015
105 For the Three Months Ended December 31, 2015 Adjustments As Reported Gov’t, Class Action, & Related Settlements Pro. Fees - Acct., Tax, & Legal Income Tax Valuation Allowance & Other Adj. Transaction Costs Loss on Early Exting. of Debt As Adjusted (In Millions, Except Per Share Amounts) Adjusted
Slide 106: Adjusted EPS - Three Months Ended September 30, 2015
106 For the Three Months Ended September 30, 2015 Adjustments As Reported Professional Fees - Accounting, Tax, and Legal Transaction Costs Mark-to-Market Adjustment for Stock Appreciation Rights As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA* $ 165.4 $ — $ — $ — $ 165.4 Deprecia
Slide 107: Adjusted EPS - Three Months Ended June 30, 2015
107 For the Three Months Ended June 30, 2015 Adjustments As Reported Professional Fees - Accounting, Tax, and Legal Transaction Costs Loss on Early Extinguishment of Debt As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA* $ 169.5 $ — $ — $ — $ 169.5 Depreciation and amortization (3
Slide 108: Adjusted EPS - Three Months Ended March 31, 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 - Six Months Ended June 30, 2015
109 For the Six Months Ended June 30, 2015 Adjustments As Reported Government, Class Action, and Related Settlements Professional Fees - Accounting, Tax, and Legal Transaction Costs Loss on Early Exting. of Debt As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA* $ 325.6 $ — $ — $ —
Slide 110: Adjusted EPS - 2015
110 Adjusted EPS(1) - 2015 For the Year Ended December 31, 2015 Adjustments As Reported Gov’t, Class Action, & Related Settlements Pro. Fees - Acct., Tax, & Legal Income Tax Valuation Allowance & Other Adj. Transaction Costs Loss on Early Exting. of Debt Mark-to-Market Adjustment for Stock Appreciat
Slide 111: Adjusted EPS - Year Ended December 31, 2014
111 For the Year Ended December 31, 2014 Adjustments As Reported Gov't, Class Action, and Related Settlements Pro. Fees - Acct, Tax, and Legal Transaction Costs Gain on Consolidation of Fairlawn Rehabilitation Hospital Loss on Early Exting. of Debt Income Tax Valuation Adjustment As Adjusted (In Mil
Slide 112: Adjusted EPS - Year Ended December 31, 2013
112 For the Year Ended December 31, 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 Millio
Slide 113: Adjusted EPS - Year Ended December 31, 2012
113 For the Year Ended December 31, 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 Exting. of Debt Income Tax Valuation Allowance Adjustment Settlement of Income Tax
Slide 114: Adjusted EPS - Year Ended December 31, 2011
114 For the Year Ended December 31, 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)
Slide 115: Adjusted Free Cash Flow History
115 Adjusted Free Cash Flow History(2) Q2 6 Months Full Year (Millions) 2016 2015 2016 2015 2015 2014 2013 2012 2011 Net cash provided by operating activities $ 152.2 $ 102.9 $ 311.9 $ 204.9 $ 484.8 $ 444.9 $ 470.3 $ 411.5 $ 342.7 Impact of discontinued operations 0.3 0.2 0.5 0.3 0.7 1.2 1.9 (2.0) (
Slide 116: Adjusted Free Cash Flow - 2015
116 Adjusted Free Cash Flow(2) - 2015 2015 (Millions) Q1 Q2 Q3 Q4 Full Year Net cash provided by operating activities $ 102.0 $ 102.9 $ 163.3 $ 116.6 $ 484.8 Impact of discontinued operations 0.1 0.2 0.5 (0.1) 0.7 Net cash provided by operating activities of continuing operations 102.1 103.1 163.8 1
Slide 117: Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA
117 Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q2 6 Months Full Year (Millions) 2016 2015 2016 2015 2015 2014 2013 2012 2011 Net cash provided by operating activities $152.2 $102.9 $311.9 $204.9 $484.8 $444.9 $470.3 $411.5 $342.7 Provision for doubtful accounts (15.4) (1
Slide 118: Share Information
118 Share Information Refer to pages 119-122 for end notes. Weighted Average for the Period Q2 6 Months Full Year (Millions) 2016 2015 2016 2015 2015 2014 2013 Basic shares outstanding(3) 89.3 89.8 89.4 88.4 89.4 86.8 88.1 Convertible perpetual preferred stock(3) — 0.8 — 2.0 1.0 3.2 10.5 Convertible
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 useful additional information to i
Slide 121: End Notes, con't.
121 End Notes, con't. (9) The 119 for HLS excludes the inpatient rehabilitation hospital at HealthSouth Rehabilitation Hospital of Franklin (opened December 2015); CHI St. Vincent Hot Springs Rehabilitation Hospital, an affiliate of HealthSouth (opened February 2016); and HealthSouth Rehabilitation
Slide 122: End Notes, con't.
122 End Notes, con't. (26) Represents home health admissions from 187 consolidated locations in Q2 2016; 184 consolidated locations in Q1 2016 and Q4 2015; 141 consolidated locations in Q3 2015; 139 consolidated locations in Q2 2015; and 143 consolidated locations in Q1 2015. (27) Represents hospice