Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Investor Presentation (May 2016)
124 slides from Encompass Health's investor presentation, May 23, 2016
Slide 1: Investor Reference Book
INVESTOR REFERENCE BOOK Last updated May 23, 2016 HealthSouth is a leading provider of post-acute healthcare services, offering both facility-based and home-based post-acute services in 34 states and Puerto Rico through its network of inpatient rehabilitation hospitals, home health agencies, and hos
Slide 2: Forward-Looking Statements
2 The information contained in this presentation includes certain estimates, projections and other forward- looking information that reflect HealthSouth's current outlook, views and plans with respect to future events, including legislative and regulatory developments, strategy, capital expenditures
Slide 3: Table of Contents
3 Table of Contents Guidance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-6 The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Slide 4: Guidance (as of May 23, 2016)
4 Guidance (as of May 23, 2016)
Slide 5: Revised Guidance - as of May 23, 2016
5 Refer to pages 121-124 for end notes. Adjusted EBITDA Adjusted Earnings per Share from Continuing Operations Attributable to HealthSouth(1) Revised Guidance - as of May 23, 2016 Net Operating Revenues Initial 2016 Full-Year Guidance Revised 2016 Full-Year Guidance Net Operating Revenues $3,580 mil
Slide 6: Guidance Considerations
6 Inpatient Rehabilitation u Full-year contribution from Reliant and other 2015 acquisitions and openings Ÿ Transitioning to HLS business model Ÿ Patient mix u Continued evolution of payor mix Ÿ Managed care and Medicaid increases expected to moderate in 2016 as compared to 2015 u Estimated 1.6% inc
Slide 7: The Company
7 The Company
Slide 8: HealthSouth: A Leading Provider of Post-Acute Care
8 Note: One of the 122 IRFs and two of the 179 adult home health locations are nonconsolidated. These locations are accounted for using the equity method of accounting. HealthSouth: A Leading Provider of Post-Acute Care 58% of HealthSouth's IRFs are located within a 30-mile radius of an Encompass lo
Slide 9: Revenue, Adjusted EBITDA, Adjusted EPS and Free Cash Flow Track Record
9 Adjusted EPS*(1) Track Record 2011 2012 2013 2014 2015 Trailing 4 Qtrs $2,027 $2,162 $2,273 $2,406 $3,163 $3,332 ($ millions) 2011 2012 2013 2014 2015 Trailing 4 Qtrs $466 $506 $552 $578 $683 $719 ’11-’15 CAGR = 10.0 %($ millions) ’11-’15 CAGR = 11.8 % Adjusted EBITDA* 2011 2012 2013 2014 2015 Tra
Slide 10: Inpatient Rehabilitation Segment
10 Inpatient Rehabilitation Segment Major Services • Rehabilitation Physicians: manage and treat medical conditions and oversee rehabilitation program • Rehabilitation Nurses: provide personal care and oversee treatment plan for patients • Physical Therapists: address physical function, mobility, sa
Slide 11: HealthSouth IRF Quality
11 2014 2015 Q1 2016 14.5% 13.9% 14.0% 11.4% 10.7% 11.2% HealthSouth IRF Quality Referral Sources:92% Acute Care Hospitals 7% Physician Offices/Home 1% Skilled Nursing Facilities Rehabilitation Impairment Category* (Q1 2016): • Physicians and acute care hospital case managers are key decision makers
Slide 12: IRF Cost Effectiveness
12 Total Inpatient Rehabilitation Facilities: 1,132 IRF Cost Effectiveness(5) The Avg. Est. TotalPayment per Discharge has not been reduced by 2% for sequestration.(9) Medicare pays HealthSouth less per discharge, on average, and HealthSouth treats a higher acuity patient. Avg. Beds per IRF Avg. Med
Slide 13: New-Store/Same-Store IRF Growth
13 Refer to pages 121-124 for end notes. 25.0 20.0 15.0 10.0 5.0 0.0 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 New-Store/Same-Store IRF Growth Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015
Slide 14: IRF Acute Care Joint Venture Partnerships
14 • • HealthSouth's IRF joint ventures began in 1991. • HealthSouth's joint venture hospital partners own equity that ranges from 2.5% to 50%. • 33 of 34 hospitals are consolidated joint ventures, with one accounted for under the equity method. IRF Acute Care Joint Venture Partnerships 34* joint ve
Slide 15: IRF Real Estate Portfolio
15 38 Lease Building and Land A CON (Certificate of Need) is a regulatory requirement in approx. 50% of states and some federal jurisdictions that require state authorization prior to proposed acquisitions, expansions, or construction of new hospitals. 56 Own Building and Land* 28 Own Building Only*
Slide 16: Home Health and Hospice Segment: Encompass
16 States with an Encompass presence Home Health and Hospice Segment: Encompass • 4th largest provider of Medicare-focused (84% Medicare) skilled home health services in the U.S. with 213 locations across 24 states • Approx. 7,500 employees making 3.8 million total patient visits annually • Approx.
Slide 17: Encompass Quality and Patient Satisfaction Star Ratings
17 3.7 3.2 Patient Satisfaction Star Ratings Encompass National Average Encompass National Average Source: https://data.medicare.gov/data/home-health-compare. Data on this page was published in April 2016 and reflects OASIS and HHCAHPS Survey data collected from October 2014 through September 2015 a
Slide 18: Encompass Home Health Compare Measures
18 15.7% 16.9% 120 bps bette r In Q1 2016, Encompass Met or Exceeded the National Average in 18/22 Home Health Compare Measures. • Influenza immunization received • Pneumococcal polysaccharide vaccine received • Heart failure symptoms addressed • Diabetic foot care and patient education • Pain asses
Slide 19: Encompass Operating Efficiency
19 Encompass Operating Efficiency Average revenue per episode is 12.4% higher than public peers due to Encompass' higher acuity patient mix, which provides higher reimbursement and demands a higher visit utilization. 14.3% lower cost per visit as a result of density in markets and industry-leading e
Slide 20: Encompass Operations
20 Key operational drivers: • Staff productivity and caregiver optimization • Full utilization of the functionality of Homecare Homebase (HCHB) • Employee culture of excellence; received 18 "Best Places to Work" awards in 2015* • Daily monitoring towards goals • Weekly reports on operational and pro
Slide 21: Payors and Payment Methodology
21 Managed Care Other - 3.9% Variety of methodologies Prospective Payment System (“PPS”) - IRF: Paid per discharge based on Case Mix Groups (“CMGs”) - Home Health: Paid per 60-day episodes of care based on Home Health Resource Groups ("HHRGs") - Hospice: Paid per diem based on 4 levels of care Medic
Slide 22: HLS: Strong and Sustainable Business Fundamentals
22 • Largest provider of inpatient rehabilitation services • 4th largest provider of Medicare-certified skilled home health services • Consistent delivery of high-quality, cost-effective care • Enhanced utilization of technology (e.g., clinical, data management, and technology-enabled business proce
Slide 23: Clinical Collaboration Problems and Solutions
23 Solution: Utilize extensive proprietary database of IRF patients to engage in predictive modelling to identify patients at risk for acute care transfer and implement intervention strategies as part of the plan of care. Solution: Upon admission to and discharge from IRF, a multidisciplinary reconc
Slide 24: Business Outlook 2016 to 2018
24 Business Outlook 2016 to 2018 (as of May 23, 2016)
Slide 25: Key Demographic Tailwind: Expanding Medicare Beneficiary Population
25 Key Demographic Tailwind: Expanding Medicare Beneficiary Population Key Observations: • The growth rate of Medicare beneficiaries increased in 2011 to an approx. 3% CAGR as “baby boomers” started turning 65. • In 2030, the Medicare population is projected to increase to 80 million beneficiaries f
Slide 26: Strategy: Post-Acute Provider of Choice
26 Strategy: Position HealthSouth as the post-acute provider of choice through the provision of comprehensive, coordinated facility-based and home-based post- acute services Degree of Provider Integration and Accountability Level of Financial Ris k Both segments highly competitive today Position bot
Slide 27: Business Outlook: 2016 to 2018
27 • Same-store IRF Growth • New-store IRF Growth (de novos, acquisitions/JVs) • Same-store Home Health and Hospice Growth • New-store Home Health and Hospice Growth (acquisitions) Core Growth Strong Balance Sheet Key Operational Initiatives Shareholder Distributions Opportunistic Growth Business Ou
Slide 28: Volume and Medicare Pricing Assumptions
28 * Outpatient and hospice, which services accounted for 4.4% of total operating revenues as of December 31, 2015,are not included in the pricing assumptions. Refer to pages 121-124 for end notes. • 10% to15% annual episode growth • Includes $35-$40 million per annum in agency acquisitions Volume I
Slide 29: Business Outlook: Labor and Other Expense Assumptions
29 Inpatient Rehabilitation Home Health and Hospice Business Outlook: Labor and Other Expense Assumptions Salaries & Benefits ~70% Hospital Expenses ~30% Salaries and Benefits 2016 2017 2018 Merit increases 2.5-3.0% 2.75-3.25% 2.75-3.25% Benefit costs increases 5-10% 5-10% 5-10% Hospital Expenses •
Slide 30: Free Cash Flow
30 Free Cash Flow
Slide 31: Adjusted Free Cash Flow and Tax Assumptions
31 Adjusted Free Cash Flow*(2) and Tax Assumptions * Reconciliation to GAAP provided on page 33. Refer to pages 121-124 for end notes. Certain Cash Flow Items (millions) Q1 2016 Actual 2016 Assumptions 2015 Actual • Cash interest expense (net of amortization of debt discounts and fees) $41.1 $165 to
Slide 32: Free Cash Flow Priorities
32 Note: 2015 amounts for debt borrowings include ~$208 million related to the Reliant hospitals' capital lease obligations.See the debt schedule on page 62. Refer to pages 121-124 for end notes. Free Cash Flow Priorities (In Millions) Q1 2016 2016 2015 Actuals Assumptions Actuals IRF bed expansions
Slide 33: Adjusted Free Cash Flow History
33 Adjusted Free Cash Flow History(2) Q1 Full Year (Millions) 2016 2015 2015 2014 2013 2012 2011 Net cash provided by operating activities $ 159.7 $ 102.0 $ 484.8 $ 444.9 $ 470.3 $ 411.5 $ 342.7 Impact of discontinued operations 0.2 0.1 0.7 1.2 1.9 (2.0) (9.1) Net cash provided by operating activiti
Slide 34: Net Cash from Operating Activities Reconciled to Adjusted EBITDA
34 Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q1 Full Year (Millions) 2016 2015 2015 2014 2013 2012 2011 Net cash provided by operating activities $159.7 $102.0 $484.8 $444.9 $470.3 $411.5 $342.7 Provision for doubtful accounts (16.5) (11.6) (47.2) (31.6) (26.0) (27.0) (
Slide 35: Growth
35 Growth
Slide 36: Multi-faceted IRF Growth Strategy
36 1,600 1,400 1,200 1,000 800 600 400 200 0 130 120 110 100 90 80 70 60 50 2011 2012 2013 2014 2015 Q1 2016 % Increase in licensed beds 3% 3% 4% 18% 1% Total number of licensed beds 6,461 6,656 6,825 7,095 8,404 8,481 Total number of IRFs 99 100 103 107 121 122 Multi-faceted IRF Growth Strategy 201
Slide 37: Disciplined Approach to Joint Ventures / De Novos / Acquisitions
37 Disciplined Approach to Joint Ventures / De Novos / Acquisitions Considerations: – Demographics – Forecasted growth in the number of patients requiring rehab-level of care – Presence of other IRFs; SNFs – Bed need – Geographic proximity to other HLS IRFs and Encompass agencies – Willingness of se
Slide 38: New IRFs: Illustrative De Novo Timeline
38 New IRFs: Illustrative De Novo Timeline Day 1 With CON Permitting & Design Planning & Zoning Groundbreaking Permitting & Design Planning & Zoning Groundbreaking Day 1 Without CON 6 months to 3 years 20 months CON Process Construction Construction Opening Month 20 Opening In California, the design
Slide 39: New IRFs: De Novo Investment Considerations
39 Investment Considerations • IRR objective of 13% (after tax) • Includes CON costs (where applicable) • Includes cost of CIS installation • May be structured through a joint venture • Prototype includes all private rooms • Minimum of 30 patients treated for zero revenue (Medicare certification) •
Slide 40: IRF De Novo Occupancy and EBITDA Trends
40 Cypress (10/2011) Ocala (12/2012) Littleton (05/2013) Stuart (06/2013) Altamonte Springs (10/2014) Newnan (12/2014) Middletown (12/2014) Franklin (12/2015) HLS average 2015 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 6 7 8 9 10 11 12 Months IRF De Novo Occupancy and EBITDA* Trends Occup
Slide 41: New IRFs: Assumptions for Individual Hospital Acquisitions
41 New IRFs: Assumptions for Individual Hospital Acquisitions Unit/Equity Acquisitions Location Beds DateAcquired Worcester, MA(x) 110 Q2 2014 San Antonio, TX 34 Q3 2012 Ft. Smith, AR 30 Q3 2010 Little Rock, AR 23 Q1 2010 Altoona, PA 18 Q4 2009 Arlington, TX 30 Q3 2008 IRF Acquisitions Location Date
Slide 42: Multi-faceted Encompass Growth
42 Organic Growth • Strong demand due to cost effectiveness of home-based care • Strong organic growth from existing agencies • Integration of legacy HealthSouth home health agencies • Located in markets with attractive demographics * Encompass currently located in states that represent approx. 56%
Slide 43: Home Health Growth Pipeline
43 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 # of Ag en ci es 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Home Health Growth Pipeline Ÿ Approx. $18 billion home health market is highly fragmented with over 12,400 home health agencies. Ÿ Approx. 94% of these have annual re
Slide 44: Hospice Growth Pipeline
44 Freestanding Hospital/SNF based Home Health based 4,000 3,000 2,000 1,000 0 2000 2007 2011 2012 2013 2014 1,069 2,103 2,491 2,643 2,844 3,027807 704 608 591 578 559 378 443 486 492 503 506 Hospice Growth Pipeline Ÿ In 2014, Medicare hospice spending totaled approx. $15 billion. Ÿ More than 1.3 mi
Slide 45: Clinical Collaboration
45 Clinical Collaboration All Markets Q1 2015 Q4 2015 Q1 2016 17,924 19,915 20,051 1,812 2,821 3,0279.2%Collaboration Rate 12.4% Collaboration Rate 13.1% Collaboration Rate Overlap Markets* Q1 2015 Q4 2015 Q1 2016 9,238 10,360 10,297 1,715 2,735 3,007 15.7% Collaboration Rate 20.9% Collaboration Rat
Slide 46: Summary: Multiple Avenues Available for Sustained Growth
46 Summary: Multiple Avenues Available for Sustained Growth in Both Segments • The Company continues to have excellent organic growth opportunities in inpatient rehabilitation, home health, and hospice. — Track record of consistent market share gains — IRF organic growth supplemented by bed addition
Slide 47: Alternative Payment Models
47 Alternative Payment Models
Slide 48: CMS: Driving Change Toward Integrated Delivery Payment Models
48 CMS: Driving Change Toward Integrated Delivery Payment Models, Value-Based Purchasing Future Post-Acute Providers (Timing?) Inpatient Rehabilitation Facilities Home Health Skilled Nursing Facilities Hospice • Full range: low acuity g high acuity • 24/7 nursing coverage • Eliminates payment silos
Slide 49: Accountable Care Organizations (ACOs)
49 Accountable Care Organizations (ACOs) As of January 2016, there were 477 Medicare ACOs serving approx. 9 million Medicare beneficiaries. Performance results so far have been mixed. Pioneer ACOs (9 ACOs / ~275,000 Medicare beneficiaries) • 32 Pioneer ACOs launched since program’s inception; 9 rema
Slide 50: Bundled Payments
50 Bundled Payments How the Retrospective Models Work Ÿ The BPCI “convener” is responsible for bringing providers together to provide a continuum of services throughout an episode of care. The BPCI "awardee" is the entity that bears the financial risk and receives the shared savings from CMS. Ÿ Each
Slide 51: Bundling Participation - Inpatient Rehabilitation
51 Model 2 HLS Referral Source Bundle Type % of HLS MedicareDischarges % of Total HLS Discharges 127 acute care hospitals participating in Model 2 / Phase 2 in 82 HLS IRF markets(23) Bundles selected for Model 2 participation are chosen from a list of 48 BPCI-eligible bundles. 3.6% 2.6% Approx. 800
Slide 52: Bundling Participation - Home Health and Hospice
52 Bundling Participation - Home Health and Hospice The CJR Model represents a significant opportunity for Encompass because home health agencies are expected to capture additional share as discharges bypass SNFs altogether or lower the length of stay in a SNF. 52 Encompass providers have selected t
Slide 53: Comprehensive Care for Joint Replacement Model - Background
53 Comprehensive Care for Joint Replacement Model - Background Source: https://innovation.cms.gov/initiatives/cjr The Comprehensive Care for Joint Replacement Model (“CJR”) is a payment model for episodes of care related to knee and hip replacements under Medicare. This five-year model began April 1
Slide 54: CJR Model - How Does It Work?
54 If episode spending < target price, acute care hospital receives additional payment from Medicare*. If episode spending > target price, acute care hospital returns a portion of the Medicare episode payment. CJR Model - How Does It Work? POST-ACUTE CARE PROVIDERS Acute care hospitals are accountab
Slide 55: CJR Model - Collaborators and Payment Limits
55 CJR Model - How Does It Work? - Collaborators Reconciliation Payment Limit Repayment Limit Payment Limits for CJR Acute Care Hospitals 20 10 0 -10 -20 % of Ta rg et Pr ic e D iff er en ce 2016 2017 2018 2019 2020 Year of Implementation 5% 5% 10% 20% 20% (5)% (10)% (20)% (20)% Risk Sharing is Allo
Slide 56: CJR Model - Potential Impact to HealthSouth
56 CJR Model - What's the Potential Impact to HealthSouth? Source: 2014 Medicare claims data * Complicating comorbidities include conditions such as diabetes, morbid obesity, and congestive heart failure. ~30% of HealthSouth's fractures and ~40% of HealthSouth's replacements have complicating comorb
Slide 57: CJR Model - HealthSouth's Strategies
57 CJR Model - HealthSouth's Strategies Opportunities Outweigh the Risks Increase the number of CJR discharges in all markets where HealthSouth has a cost advantage ü Present the empirical data to referral sources ü Further improve advantage by reducing acute care transfers and discharges to SNFs th
Slide 58: Coordinated Care Models: Positioned to Succeed
58 • HCHB manages entire patient work flow (pg 72). • Full utilization of capabilities in leading-edge technology are embedded in culture, driving superior clinical, operational and financial outcomes (pg 72). • Electronic clinical information system in 87 IRFs allows for interfacing with all major
Slide 59: Capital Structure
59 Capital Structure
Slide 60: Debt Maturity Profile
60 2015 2019 2020 2020 2021 2022 2023 2024 2025 2043 $350 Senior Notes 5.75% $1,200 Senior Notes 5.75% $320 Conv. Sr. Sub. Notes 2.0% $300 Senior Notes 5.125% $130 Drawn + $35 reserved for LC’s Holders have a put option in 2020 As of March 31, 2016* Debt Maturity Profile - Face Value ($ in millions)
Slide 61: Financial Leverage, Liquidity and Credit Ratings
61 S&P Moody's Corporate Rating BB- Ba3 Negative Outlook Revolver Rating BB+ Baa3 Senior Notes Rating B+ B1 Financial Leverage and Liquidity (1) Liquidity Credit Ratings 2011 2012 2013 2014 2015 Trailing 4 Qtrs $1.25 $1.25 $1.52 $2.11 $3.17 $3.12 (billions) Leverage Ratio(24) Total Debt 4.3x March 3
Slide 62: Debt Schedule
62 Debt Schedule * Reconciliation to GAAP provided on pages 34 and 101-105. Note: The 7.75% Senior Notes due 2022 are fully callable. The Company redeemed $50 million of the 2022 Notes in March 2016 and redeemed an additional $50 million in May 2016. Change in Mar. 31, Dec. 31, Debt vs. ($millions)
Slide 63: 2.0% Convertible Senior Subordinated Notes Due 2043
63 2.0% Convertible Senior Subordinated Notes Due 2043 Background • In November 2013, the Company issued $320 million of 2.0% Convertible Senior Subordinated Notes due 2043 in exchange for 257,110 shares of its 6.5% Series A Convertible Perpetual Preferred Stock. • The Company viewed the Convertible
Slide 64: Credit Agreement Key Covenants
64 Credit Agreement Key Covenants(25) All transactions are subject to no defaults under covenants and pro forma leverage of less than 4.5x and interest coverage of at least 3.00x. Transaction Limitations Acquisitions No additional limitations Unsecured debt issuance No additional limitations Restric
Slide 65: Share Information
65 Share Information Weighted Average for the Period Q1 Full Year (Millions) 2016 2015 2015 2014 2013 2012 2011 Basic shares outstanding(20)(26)(27) 89.5 87.1 89.4 86.8 88.1 94.6 93.3 Convertible perpetual preferred stock(20)(28) — 3.2 1.0 3.2 10.5 12.0 13.1 Convertible senior subordinated notes(28)
Slide 66: Information Technology
66 Information Technology
Slide 67: IRF Clinical Information System: Improved Patient Safety and Efficiencies
67 IRF Clinical Information System (“CIS”): Improved Patient Safety and Streamlined Operational Efficiencies Pre-Admission Assessment & Approval Discharge Planning and Patient Education •Patient History •Problems and Diagnoses •Orders and Results •Plan of Care •Workflow Alerts and Reminders •Treatme
Slide 68: CIS Benefits and Value Proposition
68 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 69: CIS Timeline
69 • 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 70: CIS Cost
70 CIS Cost • No incentive payments (i.e. “HITECH”) for inpatient rehabilitation hospitals(30) — Only acute care hospitals are eligible • Installation cost will vary by hospital depending on items such as size and physical plant. — Installation cost in a range of $1 million to $1.5 million per hospi
Slide 71: IRF Proprietary Management System: Beacon
71 IRF Proprietary Management System: Beacon
Slide 72: Encompass Uses a Highly Integrated Technology Platform
72 Encompass Uses a Highly Integrated Technology Platform Clinical Ÿ HCHB manages the entire patient workflow and provides field clinicians with access to patient records, diagnostic information, and notes from prior visits via a mobile application. Ÿ Real-time, customized feedback and instructions
Slide 73: Operational Metrics
73 Operational Metrics
Slide 74: IRF Labor and Expense Metric Definitions
74 • Salaries and Benefits includes group medical costs and is impacted by staffing levels based on patient volumes. ◦ Salaries and Benefits in 2016 will be impacted by staffing changes at former Reliant hospitals. • Hospital-related Expenses includes other operating expenses (excluding loss on disp
Slide 75: IRF Operational and Labor Metrics
75 IRF Operational and Labor Metrics Refer to pages 121-124 for end notes. Q1 Q4 Q3 Q2 Q1 Full Year 2016 2015 2015 2015 2015 2015 (In Millions) Net patient revenue-inpatient $ 719.4 $ 696.8 $ 625.1 $ 618.7 $ 606.6 $ 2,547.2 Net patient revenue-outpatient and other revenues 29.8 29.1 26.5 26.6 23.7 1
Slide 76: Home Health and Hospice Operational Metrics
76 Q1 Q4 Q3 Q2 Q1 Full Year 2016 2015 2015 2015 2015 2015 (In Millions) Net home health revenue $ 150.9 $ 144.4 $ 118.3 $ 111.5 $ 103.9 $ 478.1 Net hospice and other revenue 9.7 9.0 8.7 7.6 6.4 31.7 Net operating revenues $ 160.6 $ 153.4 $ 127.0 $ 119.1 $ 110.3 $ 509.8 Home Health: (Actual Amounts)
Slide 77: Payment Sources (Percent of Revenues)
77 Payment Sources (Percent of Revenues) Inpatient Rehabilitation Segment Home Health and Hospice Segment Consolidated Q1 Q1 Q1 Full Year 2016 2015 2016 2015 2016 2015 2015 Medicare 73.8% 73.5% 83.5% 83.8% 75.4% 74.9% 74.9% Medicare Advantage 7.6% 8.3% 8.7% 7.3% 7.8% 8.2% 7.9% Managed care 11.0% 11.
Slide 78: Segment Operating Results
78 Segment Operating Results
Slide 79: Inpatient Rehabilitation Segment Adjusted EBITDA
79 Inpatient Rehabilitation Segment Adjusted EBITDA Q1 Q4 Q3 Q2 Q1 Full Year 2016 2015 2015 2015 2015 2015 Net operating revenues: (In Millions) Inpatient $ 719.4 $ 696.8 $ 625.1 $ 618.7 $ 606.6 $ 2,547.2 Outpatient and other 29.8 29.1 26.5 26.6 23.7 105.9 Total segment revenue 749.2 725.9 651.6 645
Slide 80: Home Health and Hospice Segment Adjusted EBITDA
80 Home Health and Hospice Segment Adjusted EBITDA Q1 Q4 Q3 Q2 Q1 Full Year 2016 2015 2015 2015 2015 2015 Net operating revenues: (In Millions) Home health revenue $ 150.9 $ 144.4 $ 118.3 $ 111.5 $ 103.9 $ 478.1 Hospice revenue 9.7 9.0 8.7 7.6 6.4 31.7 Total segment revenue 160.6 153.4 127.0 119.1 1
Slide 81: Segment Operating Results Q1 2016 and Q1 2015
81 Segment Operating Results Q1 2016 Q1 2015 IRF Home Health and Hospice Reclasses HealthSouthConsolidated IRF Home Health and Hospice Reclasses HealthSouthConsolidated Net operating revenues $ 749.2 $ 160.6 $ — $ 909.8 $ 630.3 $ 110.3 $ — $ 740.6 Less: Provision for doubtful accounts (15.6) (0.9) —
Slide 82: Segment Operating Results Year Ended December 31, 2015
82 Segment Operating Results Year Ended December 31, 2015 IRF Home Health and Hospice Reclasses HealthSouth Consolidated Net operating revenues $ 2,653.1 $ 509.8 $ — $ 3,162.9 Less: Provision for doubtful accounts (44.7) (2.5) — (47.2) 2,608.4 507.3 — 3,115.7 Operating Expenses: Inpatient Rehabilita
Slide 83: Industry Structure
83 Industry Structure
Slide 84: Overall Healthcare Spending
84 Overall Healthcare Spending Hospital Care Includes Inpatient Rehabilitation, Long-Term Care Hospitals $801.6 $150.4 $83.2 $401.0 Nursing Care Facilities and Continuing Care Retirement Communities Professional Services Other Health, Residential and Personal Care Home Health Care Retail of Medical
Slide 85: Medicare 2014 Spending
85 Source: Centers for Medicare & Medicaid Services, Medicare Trustee’s Report July 2015 – page 11 and MedPAC, Medicare Payment Policy, March 2016 - pages 93, 175, 209, 241, 273, and 299 Medicare 2014 Spending = ~$613 Billion $ 28.6B Skilled Nursing $139.2B Inpatient Hospital $69.2B Physician Paymen
Slide 86: Continuum of Healthcare Services
86 Continuum of Healthcare Services Preventive Routine health care that includes screenings, check- ups, and patient counseling to prevent illnesses, disease, or other health problems Acute Medical treatment of diseases for which a patient is treated for a brief but severe episode of illness Ambulat
Slide 87: Post-Acute Care Services
87 Post-Acute Care Services Acute Care Hospital Home Health Long-Term Acute Care Hospital Inpatient Rehabilitation Facility Skilled Nursing Facility Discharge Medicare Spending (billions) $5.4 $7.0 $28.6 $17.7 # of Discharges 134,000 375,000 2,344,173 3,400,000 Length of Stay 26.3 days 12.8 days < 1
Slide 88: Medicare Spending on Post-Acute Services
88 $35 $30 $25 $20 $15 $10 $5 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Medicare Spending on Post-Acute Services Post-Acute Settings 2014 Medicare Margin Projected 2016 Medicare Margin 12.5% 10.7% 10.8% 8.8% 12.5% 13.9% 4.9% 4.6% Skilled nursing facilities Home health
Slide 89: Different Levels of Services: Rehab Hospital vs Nursing Home
89 Different Levels of Services Rehab Hospital Nursing Home Average length of stay = 12.8 days Covered days per admission = 27.6 days Discharge to community = 76.1% Discharge to community = 37.6% Requirements: Requirements: Rehab hospitals must also satisfy regulatory/policy requirements for hospita
Slide 90: Independent Research Concludes IRFs are a Better Rehabilitation Option than SNFs
90 Independent Research Concludes IRFs are a Better Rehabilitation Option than SNFs “The studies that have compared outcomes in hospitalized stroke patients first discharged to an IRF, a SNF, or a nursing home have generally shown that IRF patients have higher rates of return to community living and
Slide 91: Supply of IRFs is Relatively Stable
91 Supply of IRFs is Relatively Stable Average Annual Change Share of Medicare DischargesType of IRF 2004 2006 2008 2010 2012 2013 2014 2006-2013 2013-2014 All IRFs 100% 1,221 1,225 1,202 1,179 1,166 1,161 1,177 -0.9% 1.4% Urban 93 1,024 1,018 1,001 981 973 977 1,013 -0.7 3.7 Rural 7 197 207 201 198
Slide 92: Inpatient Rehabilitation Sector Margins
92 Inpatient Rehabilitation Sector Margins Share of Medicare discharges Margins Type of IRF 2014 2004 2006 2008 2010 2011 2012 2013 2014 All IRFs 100% 16.7% 12.4% 9.3% 8.7% 9.7% 11.2% 11.6% 12.5% Urban 93 17.0 12.6 9.5 9.0 10.2 11.6 12.0 13.0 Rural 7 13.2 10.1 6.9 4.7 4.8 6.5 6.5 6.4 Freestanding 48
Slide 93: Inpatient Rehabilitation Standardized Comparison of Costs
93 Inpatient Rehabilitation Standardized Comparison of Costs Type of IRF Mean Adjusted Cost Per Discharge All IRFs $15,330 Hospital based 16,325 Freestanding 11,883 Nonprofit 16,565 For profit 13,044 Government 16,317 Urban 15,034 Rural 17,036 Number of beds 1 to 10 18,875 11 to 24 15,606 25 to 64 1
Slide 94: "60% Rule": Medicare Regulation for Rehabilitation Hospitals
94 “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 95: IRF Qualifying Conditions
95 1. Stroke 2. Brain injury 3. Amputation 4. Spinal cord 5. Fracture of the femur 6. Neurological disorder 7. Multiple trauma 8. Congenital deformity 9. Burns IRF Qualifying Conditions 1. Stroke 2. Brain injury 3. Amputation 4. Spinal cord 5. Fracture of the femur 6. Neurological disorder 7. Multip
Slide 96: Inpatient Rehabilitation Outlier Payments
96 Inpatient Rehabilitation Outlier Payments(5) # of Hospitals Total Outlier Payments Avg Outlier Payment per Discharge Hospital Deciles HLS Non- HLS Total HLS Non-HLS Total % HLS Non-HLS Total 90-100 — 113 113 $ — $ 116,867,709 $ 116,867,709 48.7% N/A $ 2,375 $ 2,375 80-90 — 113 113 $ — $ 46,596,21
Slide 97: IMPACT Act of 2014
97 IMPACT Act of 2014 - Enacted October 6, 2014 Company observations and considerations with respect to the IMPACT Act: ▪ It was developed on a bi-partisan basis by the House Ways and Means and Senate Finance Committees and incorporated feedback from healthcare providers and provider organizations t
Slide 98: IRF-PPS Fiscal Year 2017 Proposed Rule: Key Provisions
98 IRF-PPS Fiscal Year 2017 Proposed Rule: Key Provisions Source: https://www.gpo.gov/fdsys/pkg/FR-2016-04-25/pdf/2016-09397.pdf New Quality Reporting Update to Payment Rates HealthSouth Observations Pricing: • Net pricing impact to HealthSouth expected to be approx. +1.7% for FY 2017 before sequest
Slide 99: HH-PPS Calendar Year 2016 Final Rule: Key Provisions
99 HH-PPS Calendar Year 2016 Final Rule: Key Provisions Source: https://s3.amazonaws.com/public-inspection.federalregister.gov/2015-27931.pdf New Quality Reporting Update to Payment Rates HealthSouth Observations Pricing: • Net pricing impact to Encompass expected to be a reduction of approx. 1.7% f
Slide 100: Reconciliations to GAAP
100 Reconciliations to GAAP
Slide 101: Reconciliation of Net Income to Adjusted EBITDA - Q1 2016
101 Reconciliation of Net Income to Adjusted EBITDA(37) Refer to pages 121-124 for end notes. 2016 Q1 (in millions, except per share data) Total Per Share Net Income $ 76.7 Loss from disc ops, net of tax, attributable to HealthSouth 0.1 Net income attributable to noncontrolling interests (18.7) Inco
Slide 102: Reconciliation of Net Income to Adjusted EBITDA - 2015
102 Reconciliation of Net Income to Adjusted EBITDA(37) 2015 Q1 Q2 Q3 Q4 Full Year (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net Income $ 59.0 $ 60.2 $ 67.8 $ 65.8 $ 252.8 Loss (income) from disc ops, net of tax, attributable
Slide 103: Reconciliation of Net Income to Adjusted EBITDA - 2014
103 Reconciliation of Net Income to Adjusted EBITDA(37) 2014 Q1 Q2 Q3 Q4 Full Year (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net income $ 61.5 $ 97.9 $ 64.8 $ 57.5 $ 281.7 Loss (income) from disc ops, net of tax, attributable
Slide 104: Reconciliation of Net Income to Adjusted EBITDA - 2013
104 Reconciliation of Net Income to Adjusted EBITDA(37) 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, attributabl
Slide 105: Reconciliation of Net Income to Adjusted EBITDA - 2011 and 2012
105 Reconciliation of Net Income to Adjusted EBITDA(37) 2011 2012 (in millions, except per share data) Total Per Share Total Per Share Net income $ 254.6 $ 235.9 Income from disc ops, net of tax, attributable to HealthSouth (49.9) (4.5) Net income attributable to noncontrolling interests (45.9) (50.
Slide 106: Total Segment Adjusted EBITDA to Income Before Income Tax
106 Three Months Ended Year Ended March 31, December 31, 2016 2015 2015 2014 (In Millions) Total segment Adjusted EBITDA $ 219.5 $ 181.3 $ 774.1 $ 669.2 General and administrative expenses (31.9) (34.6) (133.3) (124.8) Depreciation and amortization (42.4) (31.9) (139.7) (107.7) (Loss) gain on dispos
Slide 107: Adjusted EPS - Three Months Ended March 31, 2016
107 For the Three Months Ended March 31, 2016 Adjustments As Reported Professional Fees - Accounting, Tax, and Legal Mark-to- Market Adjustment for Stock Appreciation Rights Loss on Early Extinguishment of Debt As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA* $ 192.1 $ — $ — $ —
Slide 108: Adjusted EPS - Three Months Ended March 31, 2015
108 For the Three Months Ended March 31, 2015 Adjustments As Reported Government, Class Action, and Related Settlements Professional Fees - Accounting, Tax, and Legal Loss on Early Extinguishment of Debt As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA* $ 156.1 $ — $ — $ — $ 156.1
Slide 109: Adjusted EPS - Three Months Ended June 30, 2015
109 For the Three Months Ended June 30, 2015 Adjustments As Reported Professional Fees - Accounting, Tax, and Legal Reliant / CareSouth Transaction Costs Loss on Early Extinguishment of Debt As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA* $ 169.5 $ — $ — $ — $ 169.5 Depreciation
Slide 110: Adjusted EPS - Three Months Ended September 30, 2015
110 For the Three Months Ended September 30, 2015 Adjustments As Reported Professional Fees - Accounting, Tax, and Legal Reliant / CareSouth Transaction Costs Mark-to-Market Adjustment for Stock Appreciation Rights As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA* $ 165.4 $ — $ —
Slide 111: Adjusted EPS - Three Months Ended December 31, 2015
111 For the Three Months Ended December 31, 2015 Adjustments As Reported Gov’t, Class Action, & Related Settlements Pro. Fees - Acct., Tax, & Legal Income Tax Valuation Allowance & Other Adj. Transaction Costs Loss on Early Exting. of Debt As Adjusted (In Millions, Except Per Share Amounts) Adjusted
Slide 112: Adjusted EPS - 2015
112 Adjusted EPS(1) - 2015 For the Year Ended December 31, 2015 Adjustments As Reported Gov’t, Class Action, & Related Settlements Pro. Fees - Acct., Tax, & Legal Income Tax Valuation Allowance & Other Adj. Transaction Costs Loss on Early Exting. of Debt Mark-to-Market Adjustment for Stock Appreciat
Slide 113: Adjusted EPS - Year Ended December 31, 2014
113 For the Year Ended December 31, 2014 Adjustments As Reported Gov't, Class Action, and Related Settlements Pro. Fees - Acct, Tax, and Legal Transaction Costs Gain on Consolidation of Fairlawn Rehabilitation Hospital Loss on Early Exting. of Debt Income Tax Valuation Adjustment As Adjusted (In Mil
Slide 114: Adjusted EPS - Year Ended December 31, 2013
114 For the Year Ended December 31, 2013 Adjustments As Reported Gov't, Class Action, and Related Settlements Pro. Fees - Acct., Tax, and Legal Loss on Early Exting. of Debt Income Tax Valuation Allowance Adjustment Settlement of Income Tax Claims Repurchase of Preferred Stock As Adjusted (In Millio
Slide 115: Adjusted EPS - Year Ended December 31, 2012
115 For the Year Ended December 31, 2012 Adjustments As Reported Gov't, Class Action, and Related Settlements Pro. Fees - Acct, Tax, and Legal Gain on Consolidation of St. Vincent Rehabilitation Hospital Loss on Early Exting. of Debt Income Tax Valuation Allowance Adjustment Settlement of Income Tax
Slide 116: Adjusted EPS - Year Ended December 31, 2011
116 For the Year Ended December 31, 2011 Adjustments As Reported Gov't, Class Action, and Related Settlements Pro. Fees - Acct., Tax, and Legal Loss on Early Exting. of Debt Income Tax Valuation Allowance Adjustment Settlement of Income Tax Claims As Adjusted (In Millions, Except Per Share Amounts)
Slide 117: Reconciliation of Income from Continuing Operations to Adjusted Income - 2015 and 2016
117 2016 2015 Q1 Q1 Q2 Q3 Q4 Full Year (In Millions) Income from continuing operations attributable to HealthSouth $ 58.1 $ 42.8 $ 44.5 $ 50.4 $ 46.3 $ 184.0 Government, class action, and related settlements — 8.0 — — (0.5) 7.5 Professional fees - accounting, tax, and legal 0.2 2.2 0.1 0.4 0.3 3.0 R
Slide 118: Reconciliation of Income from Continuing Operations to Adjusted Income - 2011-2014
118 Year Ended December 31, 2014 2013 2012 2011 (In Millions) Income from continuing operations attributable to HealthSouth $ 216.5 $ 324.7 $ 180.5 $ 158.8 Government, class action, and related settlements (1.7) (23.5) (3.5) (12.3) Professional fees - accounting, tax, and legal 9.3 9.5 16.1 21.0 Los
Slide 119: Adjusted Free Cash Flow - 2015
119 Adjusted Free Cash Flow(2) - 2015 2015 (Millions) Q1 Q2 Q3 Q4 Full Year Net cash provided by operating activities $ 102.0 $ 102.9 $ 163.3 $ 116.6 $ 484.8 Impact of discontinued operations 0.1 0.2 0.5 (0.1) 0.7 Net cash provided by operating activities of continuing operations 102.1 103.1 163.8 1
Slide 120: End Notes
120 End Notes
Slide 121: End Notes
121 End Notes (1) HealthSouth is providing adjusted earnings per share from continuing operations attributable to HealthSouth (“adjusted earnings per share”), which is a non-GAAP measure. The Company believes the presentation of adjusted earnings per share provides useful additional information to i
Slide 122: End Notes, con't.
122 End Notes, con't. (9) 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 provided under Medicare law and regula
Slide 123: End Notes, con't.
123 End Notes, con't. (25) Senior unsecured note indentures include a restricted payments basket which generally builds yearly by 50% of the net income from continuing operations. The bond indenture restricted payments basket at the end of Q1 2016 was greater than $500 million. (26) The Company purc
Slide 124: End Notes, con't.
124 End Notes, con't. (37) Adjusted EBITDA is a non-GAAP financial measure. The Company’s leverage ratio (total consolidated debt to Adjusted EBITDA for the trailing four quarters) is, likewise, a non-GAAP measure. Management and some members of the investment community utilize Adjusted EBITDA as a