Encompass Health Corporation · NYSE:EHC
Encompass Health — Investor Presentation (August 2020)
106 slides from Encompass Health's investor presentation, Aug 13, 2020
Slide 1: Investor Reference Book Post Q2 2020 earnings release
Investor Reference Book Post Q2 2020 earnings release Last updated August 13, 2020 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 hospita
Slide 2: Forward-looking statements
Forward-looking statements The information contained in this Investor Reference Book includes certain estimates, projections and other forward- looking information that reflect Encompass Health’s current outlook, views and plans with respect to future events, including the COVID-19 pandemic and its
Slide 3: Table of contents
Table of contents Company overview. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-20 Investment thesis and strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-26 Growth . . . . . . . . . . . . . . . . . . .
Slide 4: Company overview
Company overview Encompass Health is a national leader in integrated healthcare services offering both facility-based and home-based patient care through its network of inpatient rehabilitation hospitals, home health agencies, and hospice agencies. The Company is committed to delivering high-quality
Slide 5: Leading provider of inpatient rehabilitation and home-based care
Encompass Health a leading provider of inpatient rehabilitation and home-based care Market overlap 89 of EHC’s IRFs have an EHC home health location within the service area.* Portfolio as of June 30, 2020** Inpatient rehabilitation hospitals (“IRFs”) Home health locations Hospice locations 17 Future
Slide 6: Company overview: inpatient rehabilitation hospitals
Company overview inpatient rehabilitation 124 of the Company’s IRFs hold one or more disease-specific Inpatient rehabilitation certifications from The Joint Commission’s Disease-Specific hospitals Care Certification Program.(1) Major services • Rehabilitation physicians: manage and treat medical con
Slide 7: Company overview: home health and hospice
Company overview home health and hospice The Company offers evidence-based specialty programs Home health agencies related to: post-operative care, fall prevention, chronic disease management, and transitional care. Major services • Skilled nurses: comprehensively assess, teach, train, and manage ca
Slide 8: IRF and home health patient mix
IRF patient mix Home health patient mix Admission sources: Admission sources: Acute care hospitals – 90% Acute care hospitals – 37% Physician offices / community – 8% Physician offices / community – 36% Skilled nursing facilities – 2% IRFs / LTCHs / SNFs – 27% YTD Demographics of all Medicare home h
Slide 9: High-quality care
High-quality care IRF quality Home health quality Discharge to community* 3.8 81.2% 81.0% Percent of cases Quality of care 79.9% 79.9% discharged to Star ratings(4) the community, 3.5 including home 97% of our home health agencies or home with are 3 Stars or higher; home health. 48% are 4 Stars or h
Slide 10: Leading position in cost effectiveness inpatient rehabilitation
Leading position in cost effectiveness inpatient rehabilitation Avg. est. Avg. est. total Avg. total cost payment Avg. Medicare per per Medicare pays beds discharges discharge discharge Encompass Health # per IRF per IRF(6) for FY 2021 for FY 2021 less per discharge, Encompass Health(5) = 133 68 967
Slide 11: Low cost leader home health
Low cost leader home health Cost per visit is 11.5% lower due to market density and operational Average efficiency: Average Average revenue 2019 revenue visits per visit Cost Ÿ Caregiver Episodes per episode* per episode (all payors) per visit optimization Encompass Ÿ 275,578 $2,972 17.1 $166 $77 Op
Slide 12: Recent volume trends
Recent volume trends u Inpatient rehabilitation patient census and home health starts of care reached a low point the week ended April 12, 2020 (Easter weekend). By the end of June 2020, Ÿ inpatient rehabilitation census rebounded to 95% of pre-pandemic levels. Ÿ home health starts of care rebounded
Slide 13: New-store/same-store growth: Inpatient Rehabilitation
New-store/same-store growth Inpatient Rehabilitation (9) Shelby County, AL (34 beds) Yuma, AZ (51 beds) Bluffton, SC (38 beds) Boise, ID (40 beds) Katy, TX (40 beds) Murrells Inlet, SC Sioux Falls, SD (40 beds) 15.0 Pearland, TX (29 beds) Lubbock, TX (40 beds) (40 beds) Coralville, IA (40 beds) Jack
Slide 14: New-store/same-store growth: Home Health
New-store/same-store growth Home Health Acquired Alacare Home Health & Hospice (23 home health locations in Alabama) 30.0 Acquired Camellia Healthcare in July 2019 (14 home health locations in 3 states) in May 2018 20.0 10.0 0.0 -10.0 -20.0 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2
Slide 15: New-store/same-store growth: Hospice
New-store/same-store growth Hospice Acquired Camellia Healthcare (18 hospice locations in 3 states) Acquired Alacare Home Health & Hospice 70.0 in May 2018 (23 hospice locations in Alabama) in July 2019 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q
Slide 16: Payors (YTD Q2 2020)
Payors (YTD Q2 2020) Payor source % of Revenues Payment methodology Prospective Payment System (“PPS”) - IRF: paid per discharge by Case Mix Group (“CMG”) Home Medicare Inpatient - Home health: paid per 30-day period of care rehab health & • A period is paid in two installments: hospice 1) Request f
Slide 17: Strong and sustainable business fundamentals
Strong and sustainable business fundamentals Ÿ Favorable demographic trends driving increasing demand Ÿ Attractive healthcare sectors Nondiscretionary nature of many conditions treated Ÿ Highly fragmented post-acute sectors present acquisition and joint venture opportunities Ÿ Largest provider of in
Slide 18: IRF-PPS fiscal year 2021 final rule: key provisions
IRF-PPS fiscal year 2021 final rule: key provisions Company observations Update to payment rates The final rule will: Pricing: • implement a net 2.4% market basket increase; • Net pricing impact to the • update case mix group relative weights and average length of stay values; • decrease the outlier
Slide 19: HH-PPS calendar year 2021 proposed rule: key provisions
HH-PPS calendar year 2021 proposed rule: key provisions Proposed rule updates to 2021 payment rates The proposed rule will: • implement a net 2.7% market basket increase (3.1% market basket Company observations update reduced by a 0.4% productivity adjustment); • implement a 0.1% reduction related t
Slide 20: IMPACT Act of 2014
IMPACT Act of 2014 - enacted Oct. 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 that re
Slide 21: Investment thesis and strategy
Investment thesis and strategy Encompass Health’s ability to adapt to changes, build strategic relationships, and consistently provide high-quality, cost-effective care positions the Company for success in the evolving healthcare industry. Encompass Health 21
Slide 22: Investment thesis
Investment thesis Encompass Health is one of the nation's leading providers of integrated post-acute services. The healthcare industry is evolving toward integrated delivery models and value-based care. Providers must be able to adapt to changes, build strategic relationships across the healthcare c
Slide 23: Strategy
Strategy The Company’s strategy is to expand its network of inpatient rehabilitation hospitals and home health and hospice locations, further strengthen its relationships with healthcare systems, provider networks, and payors in order to connect patient care across the healthcare continuum, and to d
Slide 24: Elements of strategy
Elements of strategy Diagnosis-specific treatment protocols drive high-quality outcomes Technology facilitates information flow across the provider continuum and supports the use of Clinical predictive analytics expertise Integration of care transition coordinators in a patient’s care plans ensures
Slide 25: The post-acute landscape continues to evolve
The post-acute landscape continues to evolve. Current post-acute providers Future post-acute providers • Medicare payments/regulations are site • Medicare payments/regulations will be specific (e.g., 60% Rule, 3-Hour Rule, condition and outcome focused. “preponderance” of one-to-one therapy, • Many
Slide 26: Well-positioned for integrated delivery models and site neutrality
We believe the Company is well-positioned for the progression towards integrated delivery models and post-acute site neutrality as it will be able to treat all types of post-acute patients by leveraging its operational expertise across its network of facility-based and home-based assets. The Company
Slide 27: Growth
Growth Encompass Health is a leader in serving the post-acute patient population and has multiple avenues available for sustained growth in both segments. Favorable demographic trends are driving increasing demand. Encompass Health 27
Slide 28: Multiple avenues available for sustained growth in both segments
The Company has multiple avenues available for sustained growth in both segments u The Company continues to have excellent organic growth opportunities in inpatient rehabilitation, home health, and hospice. — Track record of consistent growth — IRF organic growth supplemented by bed additions • Bed
Slide 29: Demographic tailwind: growth in Medicare beneficiary population
All business lines benefit from a demographic tailwind: growth in the Medicare beneficiary population Projected Population of Age 65+ • The growth rate of Medicare Millions beneficiaries increased in 2011 to an Baby Boomer wave reaches approx. 3% CAGR as “Baby Boomers” average age of an Encompass st
Slide 30: Multi-faceted inpatient rehabilitation growth strategy
Multi-faceted inpatient rehabilitation growth strategy 2019 Bed count New beds Total IRFs increase 400 140 135 • Lubbock, TX (40 beds) 130 • Boise, ID (40 beds) De novos 300 125 120 • Katy, TX (40 beds) 115 200 110 • Bed expansions (152 beds) Acquisitions 105 2020 Projected bed 100 count increase 10
Slide 31: Inpatient rehabilitation growth pipeline
Inpatient rehabilitation growth pipeline Disciplined approach to new store growth The Company’s value proposition – $8 billion Medicare IRF market – CAPEX to build free-standing IRF, freeing up space for Considerations: ü medical/surgical beds in an acute care facility for a JV partner – Market demo
Slide 32: Inpatient rehabilitation acute care joint venture partnerships
Inpatient rehabilitation acute care joint venture partnerships • The Company’s IRF joint ventures began in 1991 with Vanderbilt University Medical Center. • The Company’s joint venture acute care hospital partners own equity that ranges from 2.5% to 50%. 49* IRF joint venture hospitals in place with
Slide 33: De novo IRFs and acquisitions
De novo IRFs and acquisitions Joint # of New Beds Location Operations date venture? 2020 2021 2022 Investment considerations De novo IRFs: • IRR objective of 13% (after tax) Murrieta, CA Q1 2020 50 Sioux Falls, SD Q2 2020 40 • Joint venture capitalization Coralville, IA Q2 2020 Yes 40 • Certificate
Slide 34: De novo costs and timeline
De novo costs and timeline • Prototype includes all private rooms Capital cost (millions) Low High • Core infrastructure of building anticipates Construction, design, permitting, etc. $17 $24 future expansion (accretive to financial Land 2 5 returns) Equipment (including CIS) 3 5 • Factors that impa
Slide 35: IRF de novo occupancy and EBITDA trends
IRF de novo occupancy and EBITDA* trends Sustained positive EBITDA 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 Westerville (04/2017) Pearland (10/2017) Shelby County (04/2018) Bluffton (06/2018) Murrells Inlet** (09/2018) Lubbock (05/2019) Katy (09/2019) M
Slide 36: Multi-faceted home health and hospice growth strategy
Multi-faceted home health and hospice growth strategy • Strong demand due to cost effectiveness of home-based care and increasing preference of patients to be treated at home Organic growth • Strong organic growth from existing locations • Demographics * Currently located in states that represent ~7
Slide 37: Home health growth pipeline
Home health growth pipeline Number of home health agencies over time • $17.9 billion Medicare home health market is highly 13,000 The number of home health agencies fragmented with over 11,500 is near an all-time high and presents home health agencies. 12,000 significant consolidation opportunities.
Slide 38: Hospice growth pipeline
Hospice growth pipeline • Medicare hospice market is approx. $19.2 billion. • 1.5 million Medicare beneficiaries received Acquisition strategy for hospice hospice services from approx. 4,600 providers • Medicare focused in 2018. • Located in markets with significant • Hospice use among Medicare bene
Slide 39: Operational Initiatives
Operational Initiatives Our operational initiatives are designed to respond to regulatory changes, expand our services to more patients in need of our higher level of care, enhance our clinical expertise, and ensure the delivery of high-quality outcomes. Encompass Health 39
Slide 40: Inpatient rehabilitation: transition to IRF PAI Section GG
Inpatient rehabilitation: Continue transition to IRF PAI Section GG Elimination • Effective Oct. 1, 2019, CMS replaced the FIM™ TM functional independence measures with the of FIM Section GG functional outcome measures on the functional IRF-PAI for reporting and payment purposes. assessment • This n
Slide 41: Home health: Patient-Driven Groupings Model (PDGM)
Home health: Patient-Driven Groupings Model (PDGM) Effective January 1, 2020, PDGM, which relies more heavily on clinical characteristics: Move to the Ÿimplemented a 4.36% reduction in the base rate using assumed Patient Driven provider behavioral changes; Groupings Ÿeliminated therapy service use t
Slide 42: Improving patient experience through integrated care delivery
The Company continues to improve the patient experience and outcomes through integrated care delivery. Inpatient rehabilitation–home health clinical collaboration u The lower clinical (all payors) overlap markets* collaboration rate for YTD 2020 was driven by a higher mix of Medicare Advantage Clini
Slide 43: Building stroke market share
Building stroke market share Leveraging our: • quality outcomes • strategic sponsorship with the AHA/ASA • clinical collaboration • joint commission certifications ~800,000 124 EHC IRFs strokes ~142,000 hold stroke-specific per year deaths from stroke certifications. in the U.S. Continue to increase
Slide 44: Building stroke market share: payor mix
Building stroke market share Stroke market share 5.3% EHC stroke payor mix 5.2% Market share 2019 YTD Q2 2020 Market share 4.9% Market share Other Other 25.3% 26.5% 4.7% Medicare FFS Medicare FFS Market share 34,465 34,592 Medicare Adv. 54.8% 48.9% 19.9% Medicare Adv. 32,309 24.6% 30,643 YTD Q2 2017
Slide 45: Independent research: IRFs better than SNFs for stroke patients
Independent research concludes IRFs are a better rehabilitation option for stroke patients than SNFs “Whenever possible, the American Stroke Association strongly recommends that stroke patients be treated at an inpatient rehabilitation facility rather than a skilled nursing facility.” “IRF patients
Slide 46: Department of Veterans Affairs endorses AHA/ASA Guidelines
The Department of Veterans Affairs endorses the AHA/ASA Guidelines in their 2019 Guidelines on Stroke Rehabilitation There are 18.2 million veterans and 9 million are served by the Veterans Administration each year. “The Management of Stroke Rehabilitation” issued November 2019 (https://annals.org/a
Slide 47: 2019 JAMA article comparing IRF and SNF stroke outcomes
2019 JAMA published article comparing functional improvements of stroke patients receiving care in IRF vs SNF Conclusions This cohort study found that Medicare beneficiaries who received services at an IRF after a stroke demonstrated greater improvement in mobility and self-care compared with patien
Slide 48: Post-acute innovation
Post-acute innovation Our post-acute solutions will leverage our clinical expertise, large post-acute datasets, EMR technologies, and strategic partnerships to drive improved patient outcomes and lower cost of care across the entire post-acute episode. 2018 2019 2020 Ÿ Modified and implemented Ÿ Ref
Slide 49: Home health: Review Choice Demonstration (RCD)
Home health: Review Choice Demonstration (RCD)* Overview State Start date Company locations Following the pause of the Pre-Claim Review Illinois June 1, 2019 3 Demonstration (“PCRD”) on April 1, 2017, CMS worked to revise PCRD to offer more flexibility and choice for Ohio September 30, 2019 1 provid
Slide 50: Evidence-based clinical initiatives to reduce readmissions
Evidence-based clinical initiatives to reduce readmissions and improve patient outcomes Reduce acute Infection Sepsis/SIRS Medication Reduce opioid care transfers control alert reconciliation use "ReACT" • Standardized and • Developed improved infection • Developed an • Implemented a • Implemented a
Slide 51: Capital structure
Capital structure Encompass Health is positioned with a cost-efficient, flexible capital structure. Encompass Health 51
Slide 52: Debt maturity profile - face value
Debt maturity profile - face value As of June 30, 2020* ($ in millions) Callable beginning Callable beginning (14) (14) $964 February 2023 February 2025 Available Callable beginning November 2017(13) $0 Drawn + $36 reserved for LCs Revolver capacity Callable beginning $700 September 2020 Callable be
Slide 53: Financial leverage and liquidity
Financial leverage and liquidity (Billions) Total debt Liquidity Leverage ratio* June 30, 2020 December 31, 2019 4.2x*** Cash available $ 419.0 $ 94.8 3.8x** Revolver 1,000.0 1,000.0 3.58 Less: - Draws — (45.0) 3.02 3.06 - Letters of credit (36.3) (38.9) Available $ 963.7 $ 916.1 2.58 2.51 Total liq
Slide 54: Debt schedule
Debt schedule Change in June 30, December 31, Debt vs. ($millions) 2020 2019 YE 2019 Advances under $1 billion revolving credit facility, November 2024 - LIBOR +150bps $ — $ 45.0 $ (45.0) Term loan facility, November 2024 - LIBOR +150bps 258.0 265.2 (7.2) Bonds Payable: 5.125% Senior Notes due 2023
Slide 55: IRF real estate portfolio
IRF real estate portfolio 136 inpatient rehabilitation hospitals: 9,401 licensed beds 3,775 licensed beds Own ~70% of IRF real estate in CON states As of June 30, 2020 66 own building and land 32 own building; lease land 38 lease building and land 5,626 licensed beds in non-CON states A CON is a reg
Slide 56: Overview of rollover shares and SARs
Overview of rollover shares and SARs previously held by members of the home health and hospice management team Background In connection with the 2014 acquisition of Encompass Home Health and Hospice: • Certain members of that management team rolled a portion of their pre-acquisition equity into the
Slide 57: Alternative payment models
Alternative payment models Most models remain in the early or pilot stage and results have been mixed. Both of our segments continue to participate in various alternative payment model initiatives. Encompass Health 57
Slide 58: Accountable Care Organizations (ACOs)
Accountable Care Organizations (“ACOs”)* Medicare Shared Savings Program (MSSP) (2020 - 517 ACOs / 11.2 million Medicare beneficiaries) • Performance Year 6 (2018) results: ◦ 364 of 548 ACOs (66%) held spending below their benchmark. ▪ 159 of these ACOs reduced health costs compared to their benchma
Slide 59: Home Health Value-Based Purchasing Model
Home Health Value-Based Purchasing Model Over the long term, the Company believes it is well-positioned to benefit from a delivery system that rewards providers who are committed to providing high-quality care. In the calendar year 2016 HH-PPS final rule, CMS finalized a Home Health Value-Based Tota
Slide 60: Information technology
Information technology Encompass Health utilizes information technology to improve patient care and generate operating efficiencies. Encompass Health 60
Slide 61: IRF clinical information system
IRF clinical information system: improved patient outcomes and streamlined operational efficiencies Treatment plan Pre-admission assessment • Computerized Physician Order Document & approval Entry ("CPOE") imaging • Clinical Decision Support ("CDS") • Predictive algorithm and clinical protocols to i
Slide 62: IRF proprietary management system: Beacon
IRF Proprietary management system: Beacon Operations management tool Supply chain procurement Encompass Health 62
Slide 63: Home health and hospice information system: Homecare Homebase
Home health and hospice information system: Homecare Homebase Homecare Homebase Clinical Management and operations (“HCHB”) was born • HCHB manages the entire patient • Best-in-class data management and workflow and provides field clinicians reporting ensures managers have access out of the Company’
Slide 64: Medalogix predictive models for home health care
Medalogix’s predictive models for home health care help identify patients at risk for unplanned rehospitalization. Prompts continued Proactively identifies home touch points with discharged health patients who are patients to identify and potentially better suited prevent post-discharge and eligible
Slide 65: Operational metrics
Operational metrics Encompass Health 65
Slide 66: IRF operational metrics
IRF operational metrics: •SALARIES AND BENEFITS includes group expense efficiencies medical costs and is impacted by staffing levels based on patient volumes. •IRF-RELATED EXPENSES includes other (Percent of net operating revenues) operating expenses (excluding loss on disposal or impairment of asse
Slide 67: Pre-payment claims denials - inpatient rehabilitation segment
Pre-payment claims denials - inpatient rehabilitation segment Background Encompass Health reserves pre-payment claim denials as a reduction of • For several years prior to 2018, under programs designated as net operating revenues upon notice from a MAC a claim is under review. “widespread probes,” c
Slide 68: Post-payment auditor activity - inpatient rehabilitation segment
Post-payment auditor activity - inpatient rehabilitation segment CMS supplements its pre-payment audits with post-payment audits. CMS uses Comprehensive Error Rate Testing (“CERT”) auditors to identify trends driving errors. CMS also uses the CERT error rate to evaluate the performance of Medicare c
Slide 69: Inpatient rehabilitation operational and labor metrics
Inpatient rehabilitation operational and labor metrics Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2020 2020 2019 2019 2019 2019 2019 (In Millions) Net patient revenue-inpatient $ 808.0 $ 890.0 $ 873.5 $ 850.6 $ 851.8 $ 847.6 $ 3,423.5 Net patient revenue-outpatient and other revenues 16.5 19.2 23.2 21.7 22.1 22.5
Slide 70: Home health and hospice operational metrics
Home health and hospice operational metrics Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2020 2020 2019 2019 2019 2019 2019 (In Millions) Net home health revenue $ 201.8 $ 224.8 $ 236.9 $ 238.9 $ 222.7 $ 219.5 $ 918.0 Net hospice revenue 47.8 48.0 50.8 50.4 38.4 34.4 174.0 Net operating revenues $ 249.6 $ 272.8 $ 28
Slide 71: Payment sources (percent of revenues)
Payment sources (percent of revenues) Inpatient Home Health Rehabilitation and Hospice Consolidated Segment Segment Q2 Q2 Q2 6 Months Full Year 2020 2019 2020 2019 2020 2019 2020 2019 2019 Medicare 61.1% 72.1% 81.8% 84.7% 65.8% 74.9% 69.8% 75.4% 75.1% Medicare Advantage 20.1% 11.1% 11.7% 10.2% 18.2%
Slide 72: Industry structure
Industry structure Encompass Health 72
Slide 73: Overall healthcare spending
Overall healthcare spending National healthcare spending: $3,649 billion in 2018 (billions) $174 Investment $48 Government administration $93 Government public health $456 Retail of medical products $102 Home health care $192 Other health, residential and personal care $965 Professional services $16
Slide 74: Medicare 2018 spending
Medicare 2018 spending = $741 billion $8 billion (1%) in billions Inpatient rehabilitation hospitals (Included in inpatient hospitals) $ 29 Skilled nursing Medicare Part A $146 Inpatient hospital 4% 20% $69 Physician payments Medicare Part B 13% $57 Outpatient hospital $18 Home health 9% $19 Hospice
Slide 75: Continuum of healthcare services
Continuum of healthcare services Preventive Ambulatory Acute Post-acute Palliative Routine health care Medical care Medical Medical care Medical care (screenings, check- delivered on an treatment of provided after a that is focused ups, patient outpatient basis diseases for period of acute on provid
Slide 76: Post-acute fee-for-service care services
Post-acute fee-for-service care services (Highest acuity) (Lowest acuity) Long-term Inpatient Skilled Acute care Home Discharge acute care rehabilitation nursing hospital health hospital hospital facility Medicare spending (billions) $4.2 $8.0 $28.5 $17.9* # of Discharges ~102,000 ~408,000 ~2,200,00
Slide 77: Medicare fee-for-service spending on post-acute services
Medicare fee-for-service spending on post-acute services 6 4.8 Home health fee-for- 4.3 4.1 4.1 ) 3.9 3.8 3.7 service spending* (% of t 3.5 3.5 n e total Medicare spending) c r e 3 P ( Inpatient rehabilitation 1.6 1.5 1.5 1.6 1.5 1.6 1.6 1.6 1.6 fee-for-service spending 0 (% of total Medicare 2010 2
Slide 78: Different fee-for-service levels of services
Different fee-for-service levels of services Inpatient rehabilitation hospital Nursing home Average length of stay = 12.7 days Average length of stay = 38.2 days Discharge to community = 76.4% Discharge to community = 41.4% Requirements(2): Requirements: IRFs must also satisfy regulatory/policy requ
Slide 79: Supply of IRFs is relatively stable
Supply of IRFs is relatively stable Share of Average annual Medicare Number of IRFs change FFS discharges 2013- 2017- Type of IRF 2018 2013 2014 2015 2016 2017 2018 2017 2018 All IRFs 100% 1,161 1,177 1,182 1,188 1,178 1,170 0.4% -0.7% Urban 93 977 1,013 1,020 1,026 1,019 1,014 1.1 -0.5 Rural 7 184
Slide 80: IRF supply stable while age 65+ population grows
Supply of IRFs remains relatively stable while the age 65+ population continues to grow IRF supply and demand • From 2010 to 2018, the 65+ population grew by 12.5MM or ~32%, compared to Age 65-69 Age 70-79 Age 80+ Total IRFs ~2% growth for the 64 and under population (total population growth of 60 1
Slide 81: Inpatient rehabilitation sector margins
Inpatient rehabilitation sector margins Aggregate FFS Medicare IRF margins in 2018 Share of Medicare fee-for- Margins service discharges Type of IRF 2018 2008 2010 2012 2014 2015 2016 2017 2018 All IRFs 100% 9.4% 8.6% 11.2% 12.2% 13.9% 13.3% 13.9% 14.7% Urban 93 9.6 9.0 11.5 12.6 14.3 13.6 14.2 15.0
Slide 82: 60% Rule: Medicare regulation for IRFs
“60% Rule”: Medicare regulation for IRFs(2) The 60% Rule requires at least 60% of all patients admitted must have at least one medical diagnosis or functional impairment from a list of 13 compliant conditions (a.k.a. “compliant conditions” or “CMS-13”).(2) 1983 2002 2004 2007 1983: 75% Rule 2007: 75
Slide 83: IRF qualifying conditions
IRF qualifying conditions(2) Original qualifying conditions Current qualifying conditions 1. Stroke 1. Stroke 2. Brain injury 2. Brain injury 3. Amputation 3. Amputation 4. Spinal cord 4. Spinal cord 5. Fracture of the femur 5. Fracture of the femur 6. Neurological disorder 6. Neurological disorder
Slide 84: Inpatient rehabilitation outlier payments
Inpatient rehabilitation outlier payments(7) # of IRFs Total outlier payments Avg outlier payment per discharge Non- Non- Non- IRF Encompass Encompass Encompass Encompass Encompass Encompass deciles Health Health Total Health Health Total % Health Health Total 90-100 — 111 111 $ — $ 147,597,258 $ 14
Slide 85: Segment operating results
Segment operating results Encompass Health 85
Slide 86: Inpatient rehabilitation segment Adjusted EBITDA
Inpatient rehabilitation segment Adjusted EBITDA Q2 Q1 Q4 Q3 Q2 Q1 Full Year (In Millions) 2020 2020 2019 2019 2019 2019 2019 Net operating revenues: Inpatient $ 808.0 $ 890.0 $ 873.5 $ 850.6 $ 851.8 $ 847.6 $ 3,423.5 Outpatient and other 16.5 19.2 23.2 21.7 22.1 22.5 89.5 Total segment revenue 824.
Slide 87: Home health and hospice segment Adjusted EBITDA
Home health and hospice segment Adjusted EBITDA Q2 Q1 Q4 Q3 Q2 Q1 Full Year (In Millions) 2020 2020 2019 2019 2019 2019 2019 Net operating revenues: Home health revenue $ 201.8 $ 224.8 $ 236.9 $ 238.9 $ 222.7 $ 219.5 $ 918.0 Hospice revenue 47.8 48.0 50.8 50.4 38.4 34.4 174.0 Total segment revenue 2
Slide 88: Segment operating results Q2 2020
Segment operating results Q2 2020 Q2 2019 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 824.5 $ 249.6 $ — $ 1,074.1 $ 873.9 $ 261.1 $ — $ 1,135.0 Operating Expenses: Inpatient Rehabilitation: Salaries and
Slide 89: Segment operating results six months ended June 30, 2020
Segment operating results Six Months Ended June 30, 2020 Six Months Ended June 30, 2019 Home Home Health and Health and (In Millions) IRF Hospice Reclasses Consolidated IRF Hospice Reclasses Consolidated Net operating revenues $ 1,733.7 $ 522.4 $ — $ 2,256.1 $ 1,744.0 $ 515.0 $ — $ 2,259.0 Operating
Slide 90: Segment operating results year ended December 31, 2019
Segment operating results Year Ended December 31, 2019 Home Health and (In Millions) IRF Hospice Reclasses Consolidated Net operating revenues $ 3,513.0 $ 1,092.0 $ — $ 4,605.0 Operating Expenses: Inpatient Rehabilitation: Salaries and benefits (1,813.1) — (758.9) (2,572.0) Other operating expenses(
Slide 91: Reconciliations to GAAP and share information
Reconciliations to GAAP and share information Encompass Health 91
Slide 92: Reconciliation of net income to Adjusted EBITDA 2020
Reconciliation of net income to Adjusted EBITDA(20) 2020 Q1 Q2 6 Months (in millions, except per share data) Total Per Share Total Per Share Total Per Share Net Income $ 108.7 $ 48.3 $ 157.0 Loss (income) from disc ops, net of tax, attributable to Encompass Health 0.1 (0.1) — Net income attributable
Slide 93: Reconciliation of net income to Adjusted EBITDA 2019
Reconciliation of net income to Adjusted EBITDA(20) 2019 Q1 Q2 Q3 Q4 Full Year Per Per Per Per Per (in millions, except per share data) Total Share Total Share Total Share Total Share Total Share Net Income $ 125.2 $ 110.9 $ 119.5 $ 90.2 $ 445.8 Loss from disc ops, net of tax, attributable to Encomp
Slide 94: Reconciliation of segment Adjusted EBITDA to income before tax
Reconciliation of segment Adjusted EBITDA to income from continuing operations before income tax expense Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2020 2020 2019 2019 2019 2019 2019 (in millions) Total segment Adjusted EBITDA $ 195.3 $ 256.5 $ 274.7 $ 261.4 $ 283.0 $ 276.3 $ 1,095.4 General and administrative exp
Slide 95: Adjusted EPS - Q2 2020
Adjusted EPS(21) - Q2 2020 For the Three Months Ended June 30, 2020 Adjustments Change in Fair As Income Tax Market Value of As Reported Adjustments Equity Securities Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA $ 162.2 $ — $ — $ 162.2 Depreciation and amortization (60.7) — — (60
Slide 96: Adjusted EPS - Q2 2019
Adjusted EPS(21) - Q2 2019 For the Three Months Ended June 30, 2019 Adjustments Mark-to- Market Change in Adjustment Loss on Fair Market for Stock Early Value of As Comp. Exting. Income Tax Transaction Equity As Reported Expense of Debt Adjustments Costs Securities Adjusted (In Millions, Except Per
Slide 97: Adjusted EPS - YTD 2020
Adjusted EPS(21) - YTD 2020 For the Six Months Ended June 30, 2020 Adjustments Change in Gov’t, Class Fair Market Gain on Payroll Action, & Value of Consolidation Taxes on As Related Income Tax Equity of Treasure SARs As Reported Settlements Adjustments Securities Coast Exercise Adjusted (In Million
Slide 98: Adjusted EPS - YTD 2019
Adjusted EPS(21) - YTD 2019 For the Six Months Ended June 30, 2019 Adjustments Mark-to- Market Change in Adjustment Loss on Fair Market Payroll for Stock Early Value of Taxes on As Comp. Exting. of Income Tax Transaction Equity SARs As Reported Expense Debt Adjustments Costs Securities Exercise Adju
Slide 99: Adjusted EPS - 2019
Adjusted EPS(21) - 2019 For the Year Ended December 31, 2019 Adjustments Mark-to- Loss Market on Change in Adjustment Early Fair Market Payroll for Stock Exting. Value of Gain on Taxes As Comp. of Income Tax Transaction Equity Consolidation on SARs As Reported Expense Debt Adjustments Costs Securiti
Slide 100: Adjusted Free Cash Flow History
Adjusted Free Cash Flow History(22) Q2 6 Months Full Year (In Millions) 2020 2019 2020 2019 2019 Net cash provided by operating activities $ 222.3 $ 145.4 $ 251.6 $ 305.3 $ 635.3 Impact of discontinued operations — 1.5 0.1 4.5 4.4 Net cash provided by operating activities of continuing operations 22
Slide 101: Net cash from operating activities reconciled to Adjusted EBITDA
Net cash provided by operating activities reconciled to Adjusted EBITDA Q2 6 Months Full Year (In Millions) 2020 2019 2020 2019 2019 2018 2017 2016 2015 Net cash provided by operating activities $ 222.3 $ 145.4 $ 251.6 $ 305.3 $ 635.3 $ 762.4 $ 658.3 $ 640.2 $ 505.9 Professional fees — accounting, t
Slide 102: Share information
Share information Weighted Average for the Period Q2 6 Months Full Year (Millions) 2020 2019 2020 2019 2019 2018 2017 Basic shares outstanding(25) 98.7 98.0 98.5 98.2 98.0 97.9 93.7 Convertible senior subordinated notes(25) — — — — — — 4.0 Restricted stock awards, dilutive stock options, restricted
Slide 103: End Notes
End Notes Encompass Health 103
Slide 104: End Notes
End Notes (1) Under this program, Joint Commission accredited organizations, like the Company’s IRFs, may seek certification for chronic diseases or conditions such as brain injury or stroke rehabilitation by complying with Joint Commission standards, effectively using evidence-based clinical practi
Slide 105: End Notes, con't.
End Notes, con't. (11) On August 4, 2020, CMS released its Notice of Final Rulemaking for Fiscal Year 2021 for inpatient rehabilitation facilities under the inpatient rehabilitation facility prospective payment system (the “2021 Final IRF Rule”). The 2021 Final IRF Rule will implement a net 2.4% mar
Slide 106: End Notes, con't.
End Notes, con't. (21) The Company is providing adjusted earnings per share from continuing operations attributable to Encompass Health (“adjusted earnings per share”), which is a non-GAAP measure. The Company believes the presentation of adjusted earnings per share provides useful additional inform
Encompass Health — Investor Presentation (August 2020) on 6ix