Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Investor Day (November 2010)
97 slides from Encompass Health's investor day presentation, Nov 10, 2010
Slide 1: 2010 Investor Day
1 Exhibit 99.1 November 11, 2010 | Palace Hotel | New York 2010 INVESTOR DAY
Slide 2: Forward-Looking Statements
Exhibit 99.1 The information contained in this presentation includes certain estimates, projections and other forward-looking information that reflect our current views with respect to future events and financial performance. These estimates, projections and other forward-looking information are bas
Slide 3: Video
Exhibit 99.1 Video Higher Level of Care video located under the Events and Presentations page on http://investor.healthsouth.com. The video link is located in the list of documents associated with the Nov. 11, 2010 Investor Day.
Slide 4: HealthSouth Leadership
Exhibit 99.1 HealthSouth Leadership Doug Coltharp Executive Vice President, Chief Financial Officer Mark Tarr Executive Vice President, Operations Mary Ann Arico Chief Investor Relations Officer MaryAnn.Arico@ healthsouth.com (205) 969-6175 Andy Price Senior Vice President, Chief Accounting Officer
Slide 5: Agenda
8:30 a.m. 9:00 a.m. I. Inpatient Rehabilitation: “The Basics” II. Historical Perspective III. Business Outlook A. Deleveraging Jay Grinney Doug Coltharp 9:30 a.m. Q&A 9:45 a.m. Break 10:00 a.m. III. Business Outlook B. Growth C. Key Operational Initiatives IV. HealthSouth Value Proposition Mark Tarr
Slide 6: HealthSouth Today
Inpatient Rehabilitation Hospitals (“IRF”) Outpatient Rehabilitation Satellite Clinics Long-Term Acute Care Hospitals (“LTCH”) Hospital-Based Home Health Agencies Employees Revenue in 2009 Inpatient Discharges in 2009 Outpatient Visits in 2009 Number of States Exchange (Symbol) Largest Provider of I
Slide 7: The Basics: The Post-Acute Care Continuum
Discharge Long-Term Acute Care Hospital Hospice Inpatient Rehabilitation Facility Skilled Nursing Facility Home Health (Lowest Acuity) Exhibit 99.1 Acute Care Hospital (Highest Acuity) “The Basics”: The Post-Acute Care Continuum Source: MedPac, CMS and Wall Street research.
Slide 8: The Basics: Medicare Spending on Post-Acute Services
Inpatient rehabilitation spending as a % of Medicare has been declining and now is essentially flat. Exhibit 99.1 Source : Centers for Medicare and Medicaid Services, Office of the Actuary (MedPAC June 2010 Data Book - Page 130), 2009 and 2010 Medical Trustee Report “The Basics”: Medicare Spending o
Slide 9: The Basics: The Inpatient Rehabilitation Industry
Exhibit 99.1 “The Basics”: The Inpatient Rehabilitation Industry (1) Does not include HealthSouth Rehabilitation Hospital of Northern Virginia; Rehabilitation Hospital of Southwest Virginia; Rehabilitation Hospital of Mesa, AZ; Rehabilitation Hospital of Fredericksburg, VA; Desert Canyon Rehabilitat
Slide 10: The Basics: Our Patients
Exhibit 99.1 “The Basics”: Our Patients Most Common Conditions (YTD 2010) 1. Stroke 17.6% 2. Neurological 15.3% 3. Fracture of the lower extremity 11.1% 4. Debility 11.0% 5. Knee/Hip replacement 9.4% 6. Other orthopedic conditions 9.3% 7. Brain injury 7.4% 8. Cardiac conditions 4.3% 9. Spinal cord i
Slide 11: The Basics: Payors
Payment Methodology Payor Source Exhibit 99.1 “The Basics”: Payors (1) Prospective Payment Systems (“PPS”) • Payments based on Case Mix Groups (“CMGs”) – Diagnosis of patient’s illness • Fixed payment per CMG adjusted for: – Acuity/severity – Regional wage differential • Per diems for “short stays”
Slide 12: Agenda
8:30 a.m. 9:00 a.m. I. Inpatient Rehabilitation: “The Basics” II. Historical Perspective III. Business Outlook A. Deleveraging Jay Grinney Doug Coltharp 9:30 a.m. Q&A 9:45 a.m. Break 10:00 a.m. III. Business Outlook B. Growth C. Key Operational Initiatives IV. HealthSouth Value Proposition Mark Tarr
Slide 13: Historical Perspective: 2007
2007 Adjusted Consolidated EBITDA = $318.3 (1) Exhibit 99.1 Historical Perspective 2007: • Completed divestitures of non-core segments (surgery, imaging, O/P therapy) • Used proceeds plus tax refund to repay $1.4 billion of debt • Reduced G&A to match residual business size • Piloted TeamWorks sales
Slide 14: Historical Perspective: 2008
$318.3 2008 Adjusted Consolidated EBITDA = $341.2 (1) Exhibit 99.1 Historical Perspective 2008: • Established 2008-2010 business model • 4% discharge growth; 5-8% Adjusted Consolidated EBITDA growth; 15-20% adjusted EPS growth • Balanced deleveraging and growth/development strategies • Completed Tea
Slide 15: Historical Perspective: 2009
$318.3 $341.2 2009 Adjusted Consolidated EBITDA = $383.0 (1) Exhibit 99.1 Historical Perspective 2009: • Continued focus on deleveraging (~$151 million repaid) • Focused on organic growth; TeamWorks sustainability module rolled out • Issued 5 million shares for securities litigation settlement (Q3)
Slide 16: Historical Perspective: YTD 2010
$318.3 $341.2 $383.0 YTD 2010 Adjusted Consolidated EBITDA = $310.6 (1) Exhibit 99.1 Historical Perspective • Healthcare reform passed; reduced future market basket updates • Weak acute care referral volumes • Adjusted annual volume growth target to 2.5-3.5% • Development efforts pay off • 2 de novo
Slide 17: Historical Performance
Exhibit 99.1 Historical Performance (1) ($ in millions, except adjusted EPS) Adjusted EBITDA (1) Reconciliation to GAAP provided on slides 92-97.
Slide 18: Historical Performance: Leverage Ratio
Exhibit 99.1 Historical Performance Leverage Ratio (1) (billions) (1) Based on trailing, four-quarter Adjusted Consolidated EBITDA of $405.3 million; reconciliation to GAAP provided on slides 22, 92-97. Interest Expense $229 $122
Slide 19: Agenda
8:30 a.m. 9:00 a.m. I. Inpatient Rehabilitation: “The Basics” II. Historical Perspective III. Business Outlook A. Deleveraging Jay Grinney Doug Coltharp 9:30 a.m. Q&A 9:45 a.m. Break 10:00 a.m. III. Business Outlook B. Growth C. Key Operational Initiatives IV. HealthSouth Value Proposition Mark Tarr
Slide 20: Business Outlook: 2011 to 2013
Business Model • Adjusted Consolidated EBITDA CAGR: 5-8% (1) • Adjusted Free Cash Flow CAGR: 12-17% (1) Deleveraging (2) Goal: < 4.0x debt to EBITDA Goal: ~ 3.5x debt to EBITDA Longer-Term Goal: ~ 3.0x debt to EBITDA Growth Organic growth (includes capacity expansions) De novos (~ 2-3/year) IRF acqu
Slide 21: Business Model: EPS Considerations
Exhibit 99.1 Business Model: EPS Considerations • Factors impacting adjusted earnings per share: – Incremental interest expense from October 2010 refinancing – Magnitude and timing of calling the 10.75% notes – Loss on early extinguishment of debt – The valuation allowance against the deferred tax a
Slide 22: Adjusted Free Cash Flow (2007-2009 and 4Q Trailing)
Exhibit 99.1 Adjusted Free Cash Flow (2007 - 2009 and 4Q Trailing)
Slide 23: Business Outlook: 2011 to 2013
Deleveraging (2) Goal: < 4.0x debt to EBITDA Goal: ~ 3.5x debt to EBITDA Longer-Term Goal: ~ 3.0x debt to EBITDA Growth Organic growth (includes capacity expansions) De novos (~ 2-3/year) IRF acquisitions (~ 2-3/year) Opportunistic, disciplined acquisitions of complementary post-acute services Key O
Slide 24: Debt Maturity Profile
Annualized Cash Effect of Refinancing Cash Increased interest expense (2) $18.0 Reduction in principal amortization requirements ($7.5) Total increase in cash payments $10.5 S&P Moodys Corporate Rating B to B+ B2 to B1 Revolver Rating BB- to BB Ba3 to Ba1 Senior Notes Rating CCC+ to B+ Caa1 to B2 Ex
Slide 25: Credit Agreement Key Covenant Comparison
Old Agreement New Agreement Acquisitions $300 million per annum Limited by compliance with leverage and interest coverage covenants initially established at 5.0x and 2.5x respectively Restricted payments: 10.75% repurchase No specific basket (see other debt repurchase) Unlimited up to 4.5x leverage
Slide 26: Q4 2010 Refinancing Impact
Estimated Q4 2010 $ $ per Share (1) Loss on early extinguishment of debt $12.0 ($ 0.11) Increase in interest expense 4.0 (0.04) Decrease in amortization of debt discounts and fees (0.6) 0.01 Total Q4 2010 refinancing impact $ 15.4 ($ 0.14) Exhibit 99.1 Q4 2010 Refinancing Impact (millions, except pe
Slide 27: Deleveraging: Options for Addressing the 10.75% Notes
Sources $ Million (1) Assumed Call Price (3) Annual Interest Savings Cash on hand $100.0 105.375 $10.2 Revolving credit facility (LIBOR + 350 bps) (2) $100.0 105.375 $6.4 New senior notes (assumed coupon of 7.50%) $100.0 105.375 $2.7 We can utilize a number of sources to repay/refinance the 10.75% n
Slide 28: Deleveraging: Estimated Change in Certain Cash Items
Exhibit 99.1 Deleveraging: Estimated Change in Certain Cash Items Not inclusive of any repayment or refinancing of the 10.75% notes (1) Interest rate swaps expire in March 2011, see slide 86. (millions)
Slide 29: Deleveraging: Potential Uses of Free Cash Flow
Free cash flow is allocated predominantly on economic return. Exhibit 99.1 Deleveraging: Potential Uses of Free Cash Flow • $500 million of 10.75% notes due 2016 • Growth in core business • Bed expansions • Hospital acquisitions • Acute care IRF unit acquisition/consolidation • De novo hospitals • L
Slide 30: Deleveraging: Use of the Revolver to Refinance the 10.75% Notes
Refinancing capacity within the revolver is limited by liquidity considerations Exhibit 99.1 Deleveraging: Use of the Revolver to Refinance the 10.75% Notes • Liquidity should be sufficient to address: – Short-term disruptions to the financial system – Short-term disruptions to our business – Unfore
Slide 31: Deleveraging: Summary
Exhibit 99.1 Deleveraging: Summary • Deleveraging the balance sheet remains a priority. • The 10.75% notes have an initial call date of June 2011 and represent our most attractive debt repayment/refinancing opportunity. • We have at least three potential funding sources for reducing the 10.75% notes
Slide 32: Agenda
8:30 a.m. 9:00 a.m. I. Inpatient Rehabilitation: “The Basics” II. Historical Perspective III. Business Outlook A. Deleveraging Jay Grinney Doug Coltharp 9:30 a.m. Q&A 9:45 a.m. Break 10:00 a.m. III. Business Outlook B. Growth C. Key Operational Initiatives IV. HealthSouth Value Proposition Mark Tarr
Slide 33: Business Outlook: 2011 to 2013
Deleveraging (2) Goal: < 4.0x debt to EBITDA Goal: ~ 3.5x debt to EBITDA Longer-Term Goal: ~ 3.0x debt to EBITDA Growth Organic growth (includes capacity expansions) De novos (~ 2-3/year) IRF acquisitions (~ 2-3/year) Opportunistic, disciplined acquisitions of complementary post-acute services Key O
Slide 34: Organic Growth: Revenue Assumptions
Volume • 2.5% to 3.5% annual growth • Includes bed expansions, de novos and unit consolidations • Excludes acquisitions Medicare Managed Care Exhibit 99.1 Organic Growth: Revenue Assumptions Revenue Other (1) We believe based on the 2011 Medicare rule for IRFs, HealthSouth should realize an increase
Slide 35: Organic Growth: A Strategic Framework
Demographics + population growth and changes (weighted by age) = Rehab CAGR Growth goals for the market and/or hospital Sales and Marketing Strategies Defining “upstream” opportunities Identifying CMS-13 discharges “Converting” CMS-13 patients to rehab Market Dynamics Existing IRF beds Managed care
Slide 36: Organic Growth: Compounded Annual Growth Rate (CAGR)
Exhibit 99.1 Organic Growth: Compounded Annual Growth Rate (CAGR) (1) (1) Numbers in map are for illustrative purposes only and do not represent actual results. (2) “Weighted for Rehab Services” - methodology weights growth in rehab age groups higher. % CAGR Rehab by Zip Code Weighted for Rehab Serv
Slide 37: Organic Growth: Expense Assumptions
Salaries & Benefits (1) Hospital Expenses • Other operating and supplies tracking with inflation Salaries & Benefits Hospital Expenses Exhibit 99.1 Organic Growth: Expense Assumptions Expense 4.5% of revenue (excludes stock-based compensation) (1) 85% Salary; 15% Benefits
Slide 38: Business Outlook: 2011 to 2013
Deleveraging (2) Goal: < 4.0x debt to EBITDA Goal: ~ 3.5x debt to EBITDA Longer-Term Goal: ~ 3.0x debt to EBITDA Growth Organic growth (includes capacity expansions) De novos (~ 2-3/year) IRF acquisitions (~ 2-3/year) Opportunistic, disciplined acquisitions of complementary post-acute services Key O
Slide 39: Market Selection Process
Active Development List Corporate Priority Assessment Strategic Approach • Build • Buy • JV Regional President Assessment Existing IRF Assessment Target Opportunity List (160 opportunities identified) National Market Assessment ( 3,141 counties in 48 states studied) Exhibit 99.1 Market Selection Pro
Slide 40: De Novo Evaluation Process
CON Approval Site Selection Cost Assessment Pro forma Financials Execution NO GO GO Market Selection GO NO GO Exhibit 99.1 • Design • Construction De Novo Evaluation Process
Slide 41: Illustrative De Novo Timeline
Exhibit 99.1 Illustrative De Novo Timeline Day 1 CON Process Construction With CON Design Planning & Zoning Month 20 Groundbreaking Month 32 Opening Construction Design Planning & Zoning Month 11 Groundbreaking Month 20 Opening Day 1 Without CON
Slide 42: Illustrative De Novo Pro forma (40 bed)
Capital Cost $ Range (millions) Low High Construction, design, permitting, etc. $11.0 $14.5 Land 1.5 3.5 Equipment 2.5 3.0 $15.0 $21.0 Pre-opening Expenses (thousands) Low High Operating $200 $300 Salaries, wages and benefits 150 200 $350 $500 Exhibit 99.1 Illustrative De Novo Pro forma (40 bed)
Slide 43: De Novo Occupancy and EBITDA Trends
Exhibit 99.1 (1) Hospital EBITDA = earnings before interest, taxes, depreciation and amortization directly attributable to the related hospital. De Novo Occupancy and EBITDA (1) Trends Sustained, positive EBITDA Sustained, positive EBITDA Sustained, positive EBITDA Expect sustainable, positive EBITD
Slide 44: Business Outlook: 2011 to 2013
Deleveraging (2) Goal: < 4.0x debt to EBITDA Goal: ~ 3.5x debt to EBITDA Longer-Term Goal: ~ 3.0x debt to EBITDA Growth Organic growth (includes capacity expansions) De novos (~ 2-3/year) IRF acquisitions (~ 2-3/year) Opportunistic, disciplined acquisitions of complementary post-acute services Key O
Slide 45: IRF Acquisition Performance
Date Acquired Acquired Census Current Census Vineland Q3 2008 26 39 Desert Canyon Q2 2010 16 32 Sugar Land Q3 2010 26 36 Ft. Smith Q3 2010 15 37 Exhibit 99.1 IRF Acquisition Performance Value added by HealthSouth • TeamWorks approach to sales/marketing • Labor management tools and “best practices” •
Slide 46: Business Outlook: 2011 to 2013
Deleveraging (2) Goal: < 4.0x debt to EBITDA Goal: ~ 3.5x debt to EBITDA Longer-Term Goal: ~ 3.0x debt to EBITDA Growth Organic growth (includes capacity expansions) De novos (~ 2-3/year) IRF acquisitions (~ 2-3/year) Opportunistic, disciplined acquisitions of complementary post-acute services Key O
Slide 47: Acquisition Assessment: The Post-Acute Care Continuum
Discharge Long-Term Acute Care Hospital Hospice Inpatient Rehabilitation Facility Skilled Nursing Facility Home Health (Lowest Acuity) Exhibit 99.1 Acute Care Hospital (Highest Acuity) Acquisition Assessment: The Post-Acute Care Continuum Source: MedPac, CMS and Wall Street research.
Slide 48: Acquisition Assessment: Complementary Services
Exhibit 99.1 Acquisition Assessment: Complementary Services (1) (1) Reflects opinions of HealthSouth Management
Slide 49: Future Regulatory Risk
Future Regulatory Risk Inpatient Rehabilitation Facility Skilled Nursing Facility Long-Term Acute Care Hospital Home Health 1. Re-basing payment system No Yes; RUGS IV and MDS 3.0 being implemented FY 2011/2012 No Yes; would be required as part of PPACA starting in 2014 2. Major outlier payment adju
Slide 50: Growth: Summary
Exhibit 99.1 Growth: Summary • Growth strategies will complement deleveraging priority. - “Highest and best use” of FCF will determine where to invest. • The company continues to have excellent organic growth opportunities. - Superior outcomes + efficient operations - Above-average “Rehab CAGRs” - N
Slide 51: Business Outlook: 2011 to 2013
Key Operational Initiatives • Labor / outcomes / quality optimization • TeamWork s = Care Management • “CPR” (Comfort, Professionalism, Respect) Initiative Growth Organic growth (includes capacity expansions) De novos (~ 2-3/year) IRF acquisitions (~ 2-3/year) Opportunistic, disciplined acquisitions
Slide 52: Operational Performance: Quality
Exhibit 99.1 Operational Performance: Quality FIM Gain Change in Functional Independence Measurement (based on an 18 point assessment) from admission to discharge LOS Efficiency Functional gain divided by length of stay (1) Average = Expected, Risk-adjusted
Slide 53: Operational Metrics: Volume
Exhibit 99.1 (2) Includes 89 consolidated HealthSouth inpatient rehabilitation hospitals and six long-term acute care hospitals. Operational Metrics: Volume Quarterly Discharges • Bed additions will help facilitate organic growth: ― ~ 100 beds will be added in 2010. UDS Industry Sites (1) HLS Same S
Slide 54: Operational Metrics: Expense Efficiencies
3.62 3.53 3.49 EPOB (1) Exhibit 99.1 Operational Metrics: Expense Efficiencies (1) Employees per occupied bed. (% of Net Operating Revenues)
Slide 55: Operational Strategy
Exhibit 99.1 Operational Strategy Excellence in … • Initiate Care Management TeamWorks project • Identify trends and establish “best practices” for the prevention of acute care transfers • Provide a robust rehabilitation specific clinical education program for nurses and therapists • Develop and rol
Slide 56: TeamWorks: Care Management
Design a HealthSouth Care Management Playbook to be implemented across all hospitals Referral Management Pre-authorization / Pre- certification Patient Assessment Care Delivery & Documentation Interdisciplinary Team Process Denials & Approvals Outcomes Analysis Effective & Efficient Care Management
Slide 57: TeamWorks: Care Management Project Overview
Pilot Process Finalize Training Modules Implement Current State Assessment Future State Vision Design Process Exhibit 99.1 October - November 2010 Test the application of the newly designed Playbook, tools, processes and forms. Gather feedback and improve the process for the 2011 implementation. Dec
Slide 58: CPR: Comfort, Professionalism, Respect
CPR is an in-house course designed to train all employees to realize that even minor encounters between staff and patients can have a memorable impact on the patient’s entire experience. Exhibit 99.1 CPR: Comfort, Professionalism, Respect • All employees will be trained in the CPR campaign. • Hospit
Slide 59: BEACON: HealthSouth Management Reporting
BEACON HEALTHSOUTH MANAGEMENT REPORTING
Slide 60: BEACON: Hospital-Specific
Exhibit 99.1 BEACON: Hospital-Specific (1) (1) Numbers in screen shot have been modified for presentation and do not represent actual results.
Slide 61: BEACON: Regional Roll-up
Exhibit 99.1 BEACON: Regional Roll-up (1) (1) Numbers in screen shot have been modified for presentation and do not represent actual results.
Slide 62: Clinical Information Systems in Healthcare
CIS adoption is not solely responsible for these results, AND … adoption of CIS in healthcare is very slow! Exhibit 99.1 Clinical Information Systems in Healthcare • Clinical information systems (CIS) are a key component of successful quality, safety and patient satisfaction initiatives in healthcar
Slide 63: EMR Adoption Model 2005-2009
Stage 2 Clinical Data Repository, Controlled Medical Vocabulary, may have Document Imaging; Health Info Exchange capable Stage 3 Digital Radiology Stage 4 Computerized Physician Order Enter, Clinical Decision Support (clinical protocols) Stage 5 Closed loop medication administration, 5 rights with b
Slide 64: EMR Adoption Model
Exhibit 99.1 EMR Adoption Model • Most U.S. hospitals are at Stage 3 (Foundation Stage) or below. • Stages 0, 1 and 2 are slowing. • Stage 3 is growing the fastest. – 10% in 2005 - 50.9% in 2009 • Advanced Stages 3 through 7: – Require only one service or unit to be implemented – Reduce medical erro
Slide 65: HealthSouth Clinical Information Technology: Current State
Exhibit 99.1 HealthSouth Clinical Information Technology Current State
Slide 66: Vendor Selection Process
2005 Request for Proposal 2007 Project on hold 2009 Cerner final selection July 2009 Core team assembled Exhibit 99.1 Vendor Selection Process 13 vendors responded; 3 finalists Due to business unit divestitures Why Cerner? • Inpatient rehabilitation-specific application • Integrated solution meeting
Slide 67: SSS SSS SSS SSS
SSS SSS SSS SSS Focused online documentation (physician, nursing, therapy) Real-time patient condition awareness (medical and functional) from any team member support device Clinical data repository (reporting and outcomes) Electronic Medical Record Medication administration system with point of car
Slide 68: Video
Exhibit 99.1 Video CIS video located under the Events and Presentations page on http://investor.healthsouth.com. The video link is located in the list of documents associated with the Nov. 11, 2010 Investor Day.
Slide 69: Project Timeline
Next Steps Analyze BRS Review with Board Finalize Vendor Negotiations Plan Implementation Exhibit 99.1 Project Timeline Project On Hold (Divestitures) Clinical Visioning Cerner Selected Feb 2009 Vendor Evaluations Project Restart & Vendor Re-evaluations Pilot Contract Negotiation Jun 2009 Pilot “Go-
Slide 70: Key Operational Initiatives: Summary
Exhibit 99.1 Key Operational Initiatives: Summary • Strong track record of providing high-quality, cost-effective care – Functional gains exceed industry norms – Consistent market share gains – Disciplined expense management • Targeted operational strategies to achieve excellence in: – Clinical care
Slide 71: Agenda
8:30 a.m. 9:00 a.m. I. Inpatient Rehabilitation: “The Basics” II. Historical Perspective III. Business Outlook A. Deleveraging Jay Grinney Doug Coltharp 9:30 a.m. Q&A 9:45 a.m. Break 10:00 a.m. III. Business Outlook B. Growth C. Key Operational Initiatives IV. HealthSouth Value Proposition Mark Tarr
Slide 72: The HealthSouth Value Proposition
Poised for Growth Financial Strength/Strong Cash Flow Generation Industry Leading Position Attractive Healthcare Sector Exhibit 99.1 (1) Reconciliation to GAAP provided on slides 22, 92-97. The HealthSouth Value Proposition
Slide 73: Agenda
8:30 a.m. 9:00 a.m. I. Inpatient Rehabilitation: “The Basics” II. Historical Perspective III. Business Outlook A. Deleveraging Jay Grinney Doug Coltharp 9:30 a.m. Q&A 9:45 a.m. Break 10:00 a.m. III. Business Outlook B. Growth C. Key Operational Initiatives IV. HealthSouth Value Proposition Mark Tarr
Slide 74: Appendix
Exhibit 99.1 Appendix
Slide 75: HealthSouth Rehabilitation Hospital Profile
Exhibit 99.1 HealthSouth Rehabilitation Hospital Profile Major Services • Rehabilitation Physicians: manage and treat medical needs of patients • Rehabilitation Nurses: oversee treatment programs of patients • Physical Therapists: address physical function, mobility, safety • Occupational Therapists
Slide 76: Cost-Effective Care
Freestanding (2) Units (2) Total HealthSouth Hospitals (2) Number of IRFs 230 941 1,171 91 Average # of Discharges per IRF 708 243 335 942 Outlier Payments as % of Total Payments 1.45% 4.08% 3.00% 0.26% Average Estimated Total Payment per Discharge for FY 2011 $16,777 $17,231 $17,042 $16,197 Average
Slide 77: Readmission Rates
Exhibit 99.1 Readmission Rates Note: Use of home health care and hospice is based on care that starts within three days of discharge. Other PAC care starts within one day of discharge. Home health use includes episodes that overlap an inpatient stay. Source : Medicare Payment Advisory Commission, “A
Slide 78: Portfolio Growth: Cash Payback Period
Cash Payback Period Acquisitions Bed Expansions (2) De novos (1) Exhibit 99.1 Portfolio Growth ~ 100 beds in 2010 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 (1) Assumes average investment per bed: ~ $450K. (2) Assumes average investment per bed: $100K to $250K.
Slide 79: Revenues & Expenses (Q3 2010 vs. Q3 2009)
ES Revenues & Expenses (Q3 2010 vs. Q3 2009) Q3 Q3 Increase/ Revenues (millions) 2010 2009 (Decrease) Inpatient $ 4518 § 429.2 5.3% Outpatient and other 38.9 41.2 (5.6%) Consolidated net operating $ 490.7 $ 470.4 43% (Actual Amounts) Discharges 28,828 28,125 2.5% Net patient revenue / discharge $ 15
Slide 80: Revenues & Expenses (Sequential)
ES Revenues & Expenses (Sequential) Q3 Q2 Increase/ Revenues (millions; 2010 2010 (Decrease) Inpatient $ 4518 § 4562 (1.0%) Outpatient and other 38.9 40.7 (4.4%) Consolidated net operating $ 490.7 $ 496.9 (1.2%) (Actual Amounts) Discharges 28,828 29,016 (0.6%) Net patient revenue / discharge $ 15,67
Slide 81: Revenues & Expenses (9 Months 2010 vs. 2009)
ES Revenues & Expenses (? Months 2010 vs. 9 Months 2009) 9 Months 9 Months Increase/ Revenues (millions) 2010 2009 (Decrease) Inpatient $ 1,359.8 $ 1,297.7 4.8% Outpatient and other 118.8 127.2 (6.6%) Consolidated net operating $ 1,478.6 $ 14249 3.8% (Actual Amounts) Discharges 85,842 84,203 1.9% Ne
Slide 82: Adjusted Consolidated EBITDA
Adjusted Consolidated EBITDA Change Q3 9 Months +$4.6M +$22.3M +4.8% +7.7% Improvements driven by : Pricing Volume Disciplined expense management Improvements benefited from : Lower bad debt expense Offset by : Ramp up of new hospitals Higher non-controlling interests expense Increased self-insuranc
Slide 83: Adjusted Free Cash Flow (2010 vs. 2009)
Exhibit 99.1 Adjusted Free Cash Flow (2010 vs. 2009) (1) Q3 2009 working capital benefited as a result of $19 million for working capital related to the interest payment accrual timing and $28 million in receivables due to suspension of Medicare denials and enhanced collections.
Slide 84: 2010 Guidance: Adjusted Consolidated EBITDA
Original Guidance (Feb. 23, 2010) $397 million to $407 million Revised Guidance (Aug. 2, 2010) $402 million to $410 million Revised Guidance (Oct. 29, 2010) $407 million to $412 million • Discharge volume growth of 2.5% to 3.5% • Q4 2010 bad debt ~ 1.5% • Net Medicare market basket price increase of
Slide 85: 2010 Guidance: Adjusted Earnings per Share
Original Guidance (Feb. 23, 2010) $1.60 to $1.70 Revised Guidance (Aug. 2, 2010) $1.66 to $1.74 Revised Guidance (Oct. 29, 2010) $1.57 to $1.62 Impact of refinancing: • $12.0 million or $0.11 per diluted share loss on early extinguishment of debt • $3.4 million or $0.03 per diluted share higher inte
Slide 86: Debt Outstanding, Liquidity and Swaps
Year-End 2010 Goal: 3.75x to 4.00x Exhibit 99.1 Debt to EBITDA 6.3x 6.3x 5.3x 4.3x 4.1x (1) (billions) (1) Based on trailing, four-quarter Adjusted Consolidated EBITDA of $405.3 million; reconciliation to GAAP provided on slides 92-97. (2) Cash settlements flow through investing activities for swaps
Slide 87: Debt Schedule and Interest Expense
Exhibit 99.1 Debt Schedule and Interest Expense (1) Based on trailing, four-quarter Adjusted Consolidated EBITDA of $405.3 million; reconciliation to GAAP provided on slides 92-97. (2) Based on debt balances on September 30, 2010. (3) Assumes 3 month LIBOR of 0.39%.
Slide 88: Non-Operating Cash/Tax Position
Exhibit 99.1 Non-Operating Cash/Tax Position Cash Refunds as of Sept. 30, 2010 • Federal tax recoveries virtually complete. • State tax refunds in progress. – Approximately $2.2 million received in Q3 2010. – Approximately $7.0 million net receivable on the balance sheet. Future Cash Tax Payments •
Slide 89: Payment Sources
Exhibit 99.1 Payment Sources (1 ) Managed Medicare revenues represent ~ 8%, 9%, 8%, 9% and 8% of total revenues for Q3 2010, Q3 2009, 9 months 2010, 9 months 2009 and 2009, respectively, and are included in “Managed care and other discount plans.”
Slide 90: ( 3) Excludes approximately full-time equivalents, who are considered part of corporate overhead with
Exhibit 99.1 ( 3) Excludes approximately 400 full-time equivalents, who are considered part of corporate overhead with their salaries and benefits included in general and administrative expenses in the Company’s consolidated statements of operations. Full-time equivalents included in the above table
Slide 91: Outstanding Share Summary
Exhibit 99.1 Outstanding Share Summary (millions) (1) Does not include 2.0 million warrants issued in connection with a January 2004 loan repaid to Credit Suisse First Boston. In connection with this transaction, we issued warrants to the lender to purchase two million shares of our common stock. Ea
Slide 92: Net Cash Provided by Operating Activities
Exhibit 99.1 (1) Notes on page 97. Net Cash Provided by Operating Activities
Slide 93: (1 ) (2) (3) (4) - Notes on page 97.
Exhibit 99.1 (1 ) (2) (3) (4) - Notes on page 97.
Slide 94: (1 ) (2) (3) (4) - Notes on page 97.
Exhibit 99.1 (1 ) (2) (3) (4) - Notes on page 97.
Slide 95: (1 ) (2) (3) (4) - Notes on page 97.
Exhibit 99.1 (1 ) (2) (3) (4) - Notes on page 97.
Slide 96: (1 ) (2) (3) (4) - Notes on page 97.
Exhibit 99.1 (1 ) (2) (3) (4) - Notes on page 97.
Slide 97: Reconciliation Notes
Exhibit 99.1 Reconciliation Notes 1. Adjusted income from continuing operations and Adjusted Consolidated EBITDA are non-GAAP financial measures. The Company’s leverage ratio (total consolidated debt to Adjusted Consolidated EBITDA for the trailing four quarters) is, likewise, a non-GAAP financial m