Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Q3 2014 Earnings Presentation
103 slides from Encompass Health's earnings presentation, Nov 21, 2014
Slide 1: Post Q3 2014 Earnings Release Investor Reference Book
Post Q3 2014 Earnings Release INVESTOR REFERENCE BOOK Last updated November 20, 2014
Slide 2: Forward-Looking Statements
2 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, capital expenditures, developm
Slide 3: Table of Contents
3 Table of Contents Our Company ....................................................................................................................................... 4-18 Industry Structure ............................................................................................................
Slide 4: Portfolio and Key Statistics
4 1. Neurological 23.2% 2. Stroke 16.9% 3. Other orthopedic conditions 9.6% 4. Fracture of the lower extremity 8.7% 5. Debility 8.6% Portfolio – As of November 1, 2014 105 Inpatient Rehabilitation Hospitals (“IRF”) ž32 operate as JV’s with Acute Care Hospitals 16 Outpatient Rehabilitation Satellite
Slide 5: Our Hospitals
5 Our Hospitals 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: promote independence and re-integration
Slide 6: Our Patients
6 Our Patients Referral Sources: 93% Acute Care Hospitals 6% Physician Offices/Home 1% Skilled Nursing Facilities Census Data(1) - Population Growth by Age 5 Year CAGR Age 2015-2020 2020-2025 2025-2030 65 to 69 years 2.4% 2.1% 0.1% 70 to 74 years 5.2% 2.5% 2.1% 75 to 79 years 4.3% 5.3% 2.6% 80 to 84
Slide 7: Our Quality
7 Our Quality • Inpatient rehabilitation hospitals evaluate all patients at admission and upon discharge to determine their functional status. — FIM® is the tool for measuring functional independence. • The difference between the FIM® scores at admission and upon discharge is called the “FIM® Gain.”
Slide 8: Our Cost-Effectiveness
8 Total Inpatient Rehabilitation Facilities (IRFs): 1,142 Our Cost-Effectiveness • The Avg. Est. Total Payment per Discharge has not been reduced by 2% for sequestration.(4) • Medicare pays HealthSouth less per discharge, on average, and HealthSouth treats a higher acuity patient. Avg. Beds per IRF
Slide 9: CMS Fiscal Year 2015 IRF Final Rule Rate Setting File Analysis
9 CMS Fiscal Year 2015 IRF Final Rule Rate Setting File Analysis (1) All data provided was filtered and compiled from the Centers for Medicare and Medicaid Services (CMS) Fiscal Year 2015 IRF Final Rule rate setting file found at http://www.cms.gov/Medicare/Medicare-Fee-for-Service- Payment/Inpatien
Slide 10: Our Payors
10 Workers’ Comp/ Patients/Other Our Payors (Q3 2014) Medicaid- 2.2% Varies by state Prospective Payment System (“PPS”) - Payments based on Case Mix Groups (“CMGs”) • Diagnosis of patient’s treatment - Fixed payment per CMG adjusted for: • Acuity/severity • Regional wage differential • Patient outco
Slide 11: Our Discharge Growth vs. Industry
11 Our Discharge Growth vs. Industry ▪ Medicare Enrollment (Age 65+) is growing at approx. 3% per year. ▪ TeamWorks = standardized and enhanced sales & marketing ▪ Bed additions to existing facilities will enhance organic growth. — 51 beds will be added in 2014 — 68 beds added in 2013 — 95 beds adde
Slide 12: Our New-Store/Same-Store Growth
12 10.0 8.0 6.0 4.0 2.0 0.0 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Our New-Store/Same-Store Growth HealthSouth's volume growth is driven by bed expansions and new IRFs. Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3
Slide 13: Our Track Record
13 Revenue 2009 2010 2011 2012 2013 Trailing 4 Qtrs. $1,785 $1,878 $2,027 $2,162 $2,273 $2,365 2009 2010 2011 2012 2013 Trailing 4 Qtrs. $364 $410 $466 $506 $552 $579 Discharge Volume 2009 2010 2011 2012 2013 Trailing 4 Qtrs. 109,106 112,514 118,354 123,854 129,988 132,956 Income from Continuing Ope
Slide 14: Our Track Record (con't)
14 2009 2010 2011 2012 2013 Trailing 4 Qtrs. $155 $181 $243 $268 $331 $332 $119 $99 Our Track Record (con’t) 2009 2010 2011 2012 2013 Trailing 4 Qtrs. Pro Forma $1.66 $1.51 $1.25 $1.25 $1.52 $1.65 $1.45 (billions) Leverage Ratio(1) Total Debt (millions) Adjusted Free Cash Flow(2) Cash Interest Expen
Slide 15: Our Assets
15 Our Assets 105(1) Inpatient Rehabilitation Hospitals: 7,011 Licensed Beds(2) 27 Lease Building and Land A Certificate of Need (CON) is a legal document required in many states and some federal jurisdictions before proposed acquisitions, expansions, or creations of facilities are allowed. 3,550 Li
Slide 16: Our Joint Venture Partnerships
16 Our Joint Venture Partnerships 1 Equity Method Joint Venture Hospital 31 Consolidated Joint Venture Hospitals 73 Consolidated 100% Ownership 32 joint venture hospitals in place include major healthcare systems: • Barnes-Jewish • University of Virginia Medical Center • Vanderbilt University • Geis
Slide 17: Our Preparation for Shifts to Coordinated Care Delivery Models
17 Our Preparation for Shifts to Coordinated Care Delivery Models • Evolutionary rather than revolutionary • Strong balance sheet and free cash flow enhance flexibility 33 joint venture hospitals with acute care systems already in place (examples include): • Barnes-Jewish • University of Virginia Me
Slide 18: Our Strong and Sustainable Business Fundamentals
18 Our Strong and Sustainable Business Fundamentals • Focused labor management • Continued improvements in supply chain • Significant operating leverage of G&A and occupancy expenses Cost-Effectiveness Financial Strength • Strong balance sheet; ample liquidity, no near-term maturities • Minimal cash
Slide 19: Industry Structure
19 Industry Structure
Slide 20: Overall Healthcare Spending
20 Source: Centers for Medicare & Medicaid Services, National Health Expenditure Data for calendar year 2012 – Table 2 Overall Healthcare Spending Hospital Care Includes Inpatient Rehabilitation, Long-Term Care Hospitals $151.5 $752.3 $138.2 $77.8 $358.3 Nursing Care Facilities and Continuing Care R
Slide 21: Medicare 2013 Spending
21 Medicare 2013 Spending = $582.9 Billion(1) $ 28.4B Skilled Nursing $136.8B Inpatient Hospital(2) $68.6B Physician Payments $41.8B Outpatient Hospital $18.4B Home Health $69.3B Other Services(3) $145.9B Medicare Managed Care $69.3B Outpatient Rx $6.7B (1%) Inpatient Rehabilitation Hospitals (Inclu
Slide 22: Continuum of Healthcare Services
22 Continuum of Healthcare Services Preventive Routine health care that includes screenings, check-ups, and patient counseling to prevent illnesses, disease, or other health problems Ambulatory Medical care delivered on an outpatient basis. e.g., blood tests, X-rays, endoscopy, certain biopsies, cer
Slide 23: Medicare Spending on Post-Acute Services
23 Medicare Spending on Post-Acute Services Post-Acute Settings 2012 Medicare Margin Projected 2014 Medicare Margin Sources: (1) 13.8% 12.0% 14.4% 12.6% 11.1% 11.8% 7.1% 6.5% Skilled nursing facilities Home health agencies Inpatient rehabilitation hospitals Long-term acute care hospitals 2001 2002 2
Slide 24: Geographic Distribution of IRFs, 2012
24 Geographic Distribution of IRFs, 2012 Source: MedPAC Report to Congress, Medicare Payment Policy, March 2014 – page 243
Slide 25: Supply of IRFs remained stable in 2012
25 Supply of IRFs remained stable in 2012 Average Annual Change Type of IRF 2004 2005 2006 2008 2010 2011 2012 2004-2008 2008-2011 All IRFs 1,221 1,235 1,225 1,202 1,179 1,165 1,166 -0.4% -1.0% Urban 1,024 1,027 1,018 1,001 981 972 973 -0.6 -1.0 Rural 197 208 207 201 198 193 193 0.5 -1.3 Freestandin
Slide 26: Inpatient Rehabilitation Sector Margins
26 Inpatient Rehabilitation Sector Margins Share of Medicare discharges Margins Type of IRF 2012 2004 2006 2008 2009 2010 2011 2012 All IRFs 100% 16.7% 12.4% 9.3% 8.4% 8.7% 9.8% 11.1% Urban 91.2 17.0 12.6 9.5 8.6 9.0 10.2 11.4 Rural 8.8 13.9 10.6 7.2 5.9 5.6 6.1 7.3 Freestanding 45.3 24.7 17.5 18.1
Slide 27: Inpatient Rehabilitation Standardized Comparison of Costs
27 Inpatient Rehabilitation Standardized Comparison of Costs Type of IRF Mean Adjusted Cost Per Discharge All IRFs $15,738 Hospital based 16,592 Freestanding 12,469 Nonprofit 15,824 For profit 14,858 Government 17,644 Urban 15,349 Rural 17,747 Number of beds 1 to 10 17,653 11 to 21 16,462 22 to 59 1
Slide 28: Post-Acute Care Setting Comparison
28 Post-Acute Care ("PAC") Setting Percent Discharged from Hospital to PAC Setting Percent Rehospitalized after Using PAC Setting Percent Died in PAC Setting Skilled Nursing Facility 17.3% 22.0% 5.4% Home Health 16.0% 18.1% 0.8% Long-Term Care Hospital 1.0% 10.0% 15.5% Inpatient Rehabilitation 3.2%
Slide 29: 60% Rule: Medicare Regulation for Rehabilitation Hospitals
29 “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 30: IRF Qualifying Conditions
30 Inpatient Rehabilitation Hospital (IRF): Qualifying Conditions 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 10. Osteoarthritis (after less intensive setting 11. Rheumatoid arthritis (af
Slide 31: Alternative: Cap IRF Outlier Payments at 10%
31 Alternative to “Re-Setting” “60% Rule” to “75% Rule”: Cap IRF Outlier Payments @ 10% Source: FY 2015 CMS Final Rule Rate Setting File (see slide 9) # 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-
Slide 32: IRF-PPS Fiscal Year 2015 Final Rule: Key Provisions
32 IRF-PPS Fiscal Year 2015 Final Rule: Key Provisions (1) (1) The Budget Control Act of 2011 included a reduction of up to 2% to Medicare payments for all providers that began on April 1, 2013 (as modified by H.R. 8). The reduction was made from whatever level of payment would otherwise have been p
Slide 33: IMPACT Act of 2014
33 IMPACT Act of 2014 - Enacted October 6, 2014 (1) Quality reporting requirements and potential penalties were enabled for IRFs as part of the Healthcare Reform Bill (PPACA). The IMPACT ACT of 2014 requires additional quality and clinical data for IRFs to be subject to the original 2% penalty. Sour
Slide 34: Different Levels of Services
34 Different Levels of Services Rehab Hospital Nursing Home Average length of stay (1) = 12.9 days Covered days per admission (1) = 27.4 days Discharge to community (1) = 69.9% Discharge to community (1) = 30.6% Requirements: Requirements: Rehab hospitals must also satisfy regulatory/policy requirem
Slide 35: CMS: Inpatient Rehabilitation vs. Skilled Nursing
35 CMS: Inpatient Rehabilitation vs. Skilled Nursing Source: http://www.gpo.gov/fdsys/pkg/FR-2011-08-08/pdf/2011-19544.pdf “… MedPAC’s analysis of recent quality measure data related to rehospitalizations suggests that quality of care within SNFs has not been improving … Since 2000, one outcome meas
Slide 36: Specific Post-Acute Regulatory Changes
36 Specific Post-Acute Regulatory Changes Future Regulatory Risk Inpatient Rehabilitation Facility Skilled Nursing Facility Long-Term Acute Care Hospital Home Health Hospice 1. Re-basing payment system No Yes; Rebased in FY 2012 (-12.6%) Starting in FY 2016, LTCHs will be paid “site- neutral payment
Slide 37: Future Regulatory Risk
37 Future Regulatory Risk Inpatient Rehabilitation Facility Skilled Nursing Facility Long-Term Acute Care Hospital Home Health Hospice 6. Other Changes to ICD-9-CM Codes under Presumptive testing for compliance review periods beginning on or after Oct.1, 2015; PAI changes to record mode/minutes of t
Slide 38: Historical Perspective
38 Historical Perspective
Slide 39: Massive Restructuring Effort 2004 thru early 2008
39 Historical Perspective: Massive Restructuring Effort 2004 thru early 2008 December 2004 June 2005 December 2005 June 2006 December 2006 June 2007 December 2007 Received Tax Recovery ($440M) June 2008 Reached DOJ/ CMS Settlement ($325M) Filed 2000-2003 Form 10-K Completed Senior Notes Offering ($1
Slide 40: Historical Perspective: 2009-2010
40 • Continued focus on delevering (approx. $151 million in debt repaid) • Focused on organic growth; TeamWorks sustainability module rolled out • Issued 5 million shares for securities litigation settlement (Q3) • Received first Medicare market basket update in 18 months (Q4) • Reinvigorated develo
Slide 41: Historical Perspective: 2011
41 $200 $150 $100 $50 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Historical Perspective YOY Growth 13.8 % (millions) (1) The Budget Control Act of 2011 included a reduction of up to 2% to Medicare payments for all providers that began on April 1, 2013 (as modified by
Slide 42: Historical Perspective: 2012
42 $200 $150 $100 $50 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Historical Perspective YOY Growth 8.5 % (1) 2014 - 2016 business model on slide 51 supersedes 2012 – 2014 business model. (2) Reconciliation to GAAP provided on slides 62, 96-99, and 101 (millions) 2011
Slide 43: Historical Perspective: 2013
43 $200 $150 $100 $50 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Historical Perspective (1) 2014 - 2016 business model on slide 51 supersedes 2013 - 2015 business model. (2) The Budget Control Act of 2011 included a reduction of up to 2% to Medicare payments for all p
Slide 44: Historical Perspective: 2014
44 $200 $150 $100 $50 Q111 Q211 Q311 Q411 Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413 Q114 Q214 Q314 Historical Perspective (1) Reconciliation to GAAP provided on slides 62, 96-99, and 101 YOY Growth 6.7 % (millions) 2011 Adjusted EBITDA(1) = $466.2 2012 Adjusted EBITDA(1) = $505.9 2013 Adjusted EBITDA(
Slide 45: Managed through Medicare payment cuts and recession
45 HealthSouth has successfully managed through Medicare payment cuts and an economic recession… Recession Adjusted EBITDA ($millions) Discharges Sequestration Anniversaried Sequestration Began Medicare Price Rollback & 18-Month Freeze MMSEA (Final Establishment of 60% rule) 1st Medicare IRF Price I
Slide 46: Revenues & Expenses
46 Revenues & Expenses Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year Revenues (millions) 2014 2014 2014 2013 2013 2013 2013 2012 2012 2012 2012 2013 2012 Inpatient $ 563.7 $ 569.7 $ 558.2 $ 537.5 $ 528.8 $ 527.4 $ 537.1 $ 518.1 $ 498.9 $ 495.0 $ 500.6 $ 2,130.8 $ 2,012.6 Outpatient and other 33.2 34.7
Slide 47: Adjusted EBITDA History
47 Adjusted EBITDA History (1) Q3 Q2 Q1 Q4 Q3 Q2 Q1 9 Months Full Year (Millions) 2014 2014 2014 2013 2013 2013 2013 2014 2013 2013 2012 Net operating revenues $ 596.9 $ 604.4 $ 591.2 $ 572.1 $ 564.0 $ 564.5 $ 572.6 $1,792.5 $1,701.1 $2,273.2 $2,161.9 Less: Provision for doubtful accounts (8.2) (9.3
Slide 48: Outstanding Share Summary, Warrant Information, Conversion Price
48 Outstanding Share Summary, Warrant Information, Conversion Price (1)(2)(3)(4) – Notes on slide 49 Weighted Average for the Period Q3 9 months Full Year (Millions) 2014 2013 2014 2013 2013 2012 2011 2010 2009 Basic shares outstanding (1) (2) (3) 86.5 86.2 86.8 88.7 88.1 94.6 93.3 92.8 88.8 Diluted
Slide 49: Outstanding Share Summary Notes
49 Outstanding Share Summary, Warrant Information, and Conversion Price Notes (1) The Company purchased 9,119,450 common shares in Q1 2013 through a tender offer at a price of $25.50 per share. (2) 10 million warrants (pre-October 2006 reverse split) were issued in connection with a January 2004 loa
Slide 50: Business Outlook 2014 to 2016
50 Business Outlook 2014 to 2016 (as of November 20, 2014)
Slide 51: Business Outlook: 2014 to 2016
51 (1) If legislation affecting Medicare is passed, HealthSouth will evaluate its effect on the Company’s business model. (2) This is a multi-year CAGR; annual results may fall outside the range. Reconciliation to GAAP provided on slides 62, 96, 97, and 101. Strategy Key Operational Initiatives Pote
Slide 52: Business Outlook: Revenue Assumptions
52 Business Outlook: Revenue Assumptions Volume • 2.5% to 3.5% annual growth (excludes acquisitions) • Includes bed expansions, de novos and unit consolidations 2% Sequestration (2) Medicare Pricing FY 2014 Q413 - Q314 FY 2015 (3) Q414 - Q315 FY 2016 Q415 - Q316 Market basket update (1) 2.6% 2.9% 2.
Slide 53: Business Outlook: Expense Assumptions
53 Business Outlook: Expense Assumptions General and Administrative ~4% of revenue (excludes stock-based compensation) Expense Salaries & Benefits (1) 2014 2015 2016 Merit increases 2.0-2.5% 2.0-2.5% 2.0-2.5% Benefit costs increases 5-8% 5-8% 5-8% Hospital Expenses • Other operating expenses and sup
Slide 54: Guidance
54 Guidance (as of November 20, 2014)
Slide 55: 2014 Guidance - Adjusted EBITDA
55 2014 Guidance - Adjusted EBITDA(1) Considerations for October through December: Ÿ Revenue growth of 6.3% to 7.4% ― Discharge growth between 4.8% and 5.6% ― Revenue per discharge growth between 2.3% and 2.6% ― Lower outpatient revenues Ÿ Q4 2013 benefited from reductions to self-insurance reserves
Slide 56: 2014 Guidance – EPS
56 2014 Guidance – EPS EPS Guidance Actual Low High (In Millions, Except Per Share Data) 2013 2014 Adjusted EBITDA $ 551.6 $ 575 $ 580 Interest expense and amortization of debt discounts and fees (100.4) (110) Depreciation and amortization (94.7) (107) Stock-based compensation expense (24.8) (25) Ot
Slide 57: Income Tax Considerations
57 Income Tax Considerations GAAP Considerations: • As of 9/30/14, the Company’s federal NOL had a gross balance of approx. $688 million. • The Company has a remaining valuation allowance of approx. $30 million related to state NOLs. Cash Tax Payment: • In 2014, the Company expects to pay approx. $1
Slide 58: Free Cash Flow
58 Free Cash Flow
Slide 59: Adjusted Free Cash Flow
59 (1) Reconciliation to GAAP is provided on slide 61. (2) Definition of adjusted free cash flow is net cash provided by operating activities of continuing operations minus capital expenditures for maintenance, dividends paid on preferred stock, distributions to noncontrolling interests, and nonrecu
Slide 60: Priorities for Reinvesting Free Cash Flow
60 Priorities for Reinvesting Free Cash Flow Objectives Achieved «« Remain s Highest Priorit y (millions) 2013 9 Months 2014 Actuals Actuals Assumptions Bed expansions (target ~80 beds/yr) and unit consolidations $24.9 $16.4 $25 to $35 New IRF's (target 4-6/yr) 55.5 44.9 55 to 75 Fairlawn transactio
Slide 61: Adjusted Free Cash Flow History
61 Adjusted Free Cash Flow History (1) Q3 9 Months Full Year (Millions) 2014 2013 2014 2013 2013 2012 2011 2010 2009 Net cash provided by operating activities $ 139.6 $ 142.6 $ 374.7 $ 369.4 $ 470.3 $ 411.5 $ 342.7 $ 331.0 $ 406.1 Impact of discontinued operations (0.2) 1.2 1.0 1.4 1.9 (2.0) (9.1) (
Slide 62: Net Cash from Operating Activities Reconciled to Adjusted EBITDA
62 Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q3 9 months Full Year (Millions) 2014 2013 2014 2013 2013 2012 2011 2010 2009 Net cash provided by operating activities $139.6 $142.6 $374.7 $369.4 $470.3 $411.5 $342.7 $331.0 $ 406.1 Provision for doubtful accounts (8.2) (8.
Slide 63: Refinancing and Delevering
63 Refinancing and Delevering
Slide 64: Debt Maturity Profile
64 2014 2018 2019 2019 2020 2021 2022 2023 2024 2043 $287 Senior Notes (3) 8.125% $456 Senior Notes (3) 5.75% $256 Conv. Sr. Sub. Notes (4) 2.0% $252 Senior Notes (3) 7.75% $568 Undrawn $0 Drawn + $32 LC • 10% of the outstanding principal is callable per annum at 103%. • In October, we gave notice o
Slide 65: Debt and Liquidity
65 S&P Moodys Corporate Rating BB- Ba3 Stable Stable Revolver Rating BB+ Baa3 Senior Notes Rating BB- Ba3 Debt and Liquidity (1) Liquidity Credit Ratings (1) Based on 2009 and trailing 4 quarters Adjusted EBITDA of $363.7 million and $579.1 million, respectively; reconciliation to GAAP provided on s
Slide 66: Debt Schedule
66 Debt Schedule Credit Rating Pro Forma Pro Forma Change in S&P Moody Post Issuance Sept. 30, Dec. 31, Debt vs. (Millions) Corporate BB- Ba3 and Redemption (1) 2014 2013 YE 2013 Advances under $600 million revolving credit facility, September 2019 - 1 Month LIBOR +175bps (1) BB+ Baa3 $ — $ — $ 45.0
Slide 67: Credit Agreement Key Covenants
67 Credit Agreement Key Covenants (1) All transactions are subject to no defaults under covenants and pro forma leverage of less than 4.5x and interest coverage of at least 2.75x. Transaction Limitations Acquisitions No additional limitations Unsecured debt issuance No additional limitations Restric
Slide 68: Growth
68 Growth
Slide 69: Organic Growth: A Strategic Framework
69 Organic Growth: A Strategic Framework Bottoms-up approach to HealthSouth’s growth projections Market Dynamics • Existing IRF beds • Managed care penetration • Competition Sales and Marketing Strategies • Defining “upstream” opportunities • Identifying CMS-13 discharges • “Converting” CMS-13 patie
Slide 70: Organic Growth: Compounded Annual Growth Rate
70 Organic Growth: Compounded Annual Growth Rate (CAGR) (1) Weighted for Rehab Services (1) (2) % CAGR Weighted for Rehab Services Treasure Coast Primary 2.64% Treasure Coast SSA – Glades 1.47% Treasure Coast SSA – Martin 2.92% Okeechobee 2.34% Treasure Coast Tertiary 2.24% Combined 2.45% State of F
Slide 71: De Novo Market Selection Process
71 De Novo Market Selection Process Active Development List Corporate Assessment Strategic Approach • Build • Buy • JV Regional President Priority Assessment “Deep Dive” Market Assessments Potential Opportunity List (160 opportunities identified) • Population and Demographics • IRF Conversion Rates
Slide 72: De Novo Evaluation Process
72 De Novo Evaluation Process Market Selection CON Approval • No guarantee on timeframe or ultimate success Site Selection • Input from design, operations and real estate • ~ Seven acres for initial construction and future expansion • Proximity to acute-care providers Cost Assessment • Permitting •
Slide 73: Illustrative De Novo Timeline
73 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
Slide 74: Investment Considerations
74 Investment Considerations • Cash Payback (1) = 5 to 7 years • Inclusive of CON costs (where applicable) • Includes cost of CIS installation • May be structured as a joint venture • Prototype includes all private rooms • A minimum of 30 patients treated for zero revenue (Medicare certification) •
Slide 75: De Novo Occupancy and EBITDA Trends
75 Mesa Loudoun Bristol Cypress Ocala Littleton Stuart HLS Avg. 2013 Occupancy 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 6 7 8 9 10 11 12 Months De Novo Occupancy and EBITDA(1) Trends Occupancy Sustained Positive EBITDA Range (1) Hospital EBITDA = earnings before interest, taxes, depreci
Slide 76: Portfolio Growth: Acquisition Assumptions, Timing and Performance
76 Portfolio Growth: Acquisition Assumptions, Timing and Performance Unit/Equity Acquisitions Location Beds Date Acquired Worcester, MA (2) 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 Acquisition Locat
Slide 77: Potential Expansion: Post-Acute Care Services
77 Potential Expansion: Post-Acute Care Services Acute Care Hospital Home Health (1)Hospice Long-Term Acute Care Hospital Inpatient Rehabilitation Facility (1) Skilled Nursing Facility Discharge Medicare Spending (billions) $5.3 $15.1 $6.7 $28.4 $18.3 # of Discharges 140,463 1,274,000 373,000 2,396,
Slide 78: Multiple Avenues Available for Sustained Growth
78 Summary: Multiple Avenues Available for Sustained Growth • The Company continues to have excellent organic growth opportunities, including bed expansions and unit consolidations. — Nondiscretionary nature of many conditions served — Track record of consistent market share gains • Organic growth w
Slide 79: Operational Initiatives
79 Operational Initiatives
Slide 80: Operational Strategy
80 Operational Strategy Excellence in … • 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 • BEACON management reporting system
Slide 81: CIS Standardization Improves Patient Safety
81 CIS Standardization Improves Patient Safety and Streamlines 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 •Treatment and Interventions
Slide 82: CIS Benefits and Value Proposition
82 CIS Benefits and Value Proposition Operational Efficiencies Cost-Effectiveness • Automated medication administration at the point of care • Clinical data repository (reporting and outcomes) • Real time patient condition awareness • Rule driven identification of preventable adverse medical events
Slide 83: CIS Timeline
83 • Installed ACE IT in HealthSouth Rehabilitation Hospital of Northern VA hospital • Pilot project kickoff in August; designated “ACE IT” • Core team assembled; pilot hospitals identified • Cerner selected for pilot • Signed contract with Cerner for Company-wide implementation starting in 2012 • I
Slide 84: CIS Cost
84 CIS Cost • No incentive payments (i.e. “HITECH”) for inpatient rehabilitation hospitals(1) — Only acute care hospitals are eligible • Installation cost will vary by hospital depending on items such as size and physical plan. — Installation cost expected to be in a range of $1 million to $1.5 mill
Slide 85: TeamWorks: Care Management
85 TeamWorks: Care Management Goals • Improve operational effectiveness, patient satisfaction, and quality outcomes • Engage interdisciplinary teams • Reduce: — Complication rates — Cost per case — Payor denials • Increase: — Quality outcomes — Patient involvement in care decisions • Standardize “Ca
Slide 86: CPR: Comfort, Professionalism, Respect
86 CPR: Comfort, Professionalism, Respect • All employees trained in the CPR campaign • Hospital-based trained facilitators work directly with employees. • A series of short videos is used to depict common scenarios of patient/staff situations. • Facilitator training is highly interactive, encouragi
Slide 87: HealthSouth Management Reporting
HEALTHSOUTH MANAGEMENT REPORTING
Slide 88: BEACON: Management Reporting
88 BEACON: Management Reporting (1) (1) Numbers in screen shot have been modified for presentation and do not represent actual results. Beacon -“Proprietary Operation Management Tool” üProvides regional and hospital leadership near real-time data to run the business ü Benchmarking – side-by-side hos
Slide 89: BEACON: SmartSystem Analytics
89 BEACON: SmartSystem Analytics ü Standardized best practices and purchasing ü Optimize vendor relationships through Electronic Data Interchange (EDI) and vendor consolidation ü National procurement contracts awarded through standardized RFP processes ü Leverage scale to receive competitive terms a
Slide 90: Operational Initiatives: SmartSystem
90 Operational Initiatives: SmartSystem Completed initiatives: • Dialysis • Food • Pharmacy • Office Supplies • Outside patient service • Therapy equipment Supply Cost per Discharge 2009 2010 2011 2012 2013 Trailing 4 Qtrs $887 $883 $869 $827 $811 $821 5.4% 5.3% 5.1% 4.7% 4.6% 4.6% Supplies as a per
Slide 91: Operational Metrics
91 Operational Metrics
Slide 92: Operational Metrics: Expense Efficiencies
92 • Salaries and Benefits reflects continued improvement from productivity gains and growing revenue base. • Hospital-related Expenses includes other operating (1), supplies, and occupancy. • General and Administrative excludes stock-based compensation. • Provision for Doubtful Accounts varies base
Slide 93: Operational and Labor Metrics
93 Operational and Labor Metrics Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2014 2014 2014 2013 2013 2013 2013 2012 2012 2012 2012 2013 2012 (In Millions) Net patient revenue- inpatient $ 563.7 $ 569.7 $ 558.2 $ 537.5 $ 528.8 $ 527.4 $ 537.1 $ 518.1 $ 498.9 $ 495.0 $ 500.6 $ 2,130.8 $ 2,012.6 Net pa
Slide 94: Payment Sources (Percent of Revenues)
94 Payment Sources (Percent of Revenues) (1) Managed Medicare revenues represent ~8%, 7%, 8%, 8%, 8%, 8%, and 7% of total revenues for Q3 2014, Q3 2013, 9 months 2014, 9 months 2013, and full-years 2013, 2012, 2011, respectively. Q3 9 Months Full Year 2014 2013 2014 2013 2013 2012 2011 Medicare 73.5
Slide 95: Reconciliations to GAAP
95 Reconciliations to GAAP
Slide 96: Reconciliation of Net Income to Adjusted EBITDA 2014
96 Reconciliation of Net Income to Adjusted EBITDA (1) 2014 Q1 Q2 Q3 9 Months (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Net Income $ 61.5 $ 97.9 $ 64.8 $ 224.2 Loss (income) from disc ops, net of tax, attributable to HealthSouth 0.1 (3.8) 0.
Slide 97: Reconciliation of Net Income to Adjusted EBITDA 2013
97 Reconciliation of Net Income to Adjusted EBITDA (1) 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 98: Reconciliation of Net Income to Adjusted EBITDA 2012
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