Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Investor Presentation (March 2016)
122 slides from Encompass Health's investor presentation, Mar 14, 2016
Slide 1: Investor Reference Book
INVESTOR REFERENCE BOOK Last updated March 14, 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 h
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 March 14, 2016)
4 Guidance (as of March 14, 2016)
Slide 5: 2016 Guidance
5 $682.5 million $2.24 Adjusted EBITDA Adjusted Earnings per Share from Continuing Operations Attributable to HealthSouth(1) Guidance $3,162.9 million Net Operating Revenues 2015 2016 Net Operating Revenues $3,550 million to $3,650 million Adjusted EBITDA $765 million to $785 million Adjusted Earnin
Slide 6: 2016 Guidance Considerations
6 Inpatient Rehabilitation u Full-year contribution from 2015 acquisitions and openings, including Reliant Ÿ Transitioning to HLS business model u Continued evolution of payor mix Ÿ Managed care and Medicaid increases expected to moderate in 2016 u Estimated 1.6% increase in Medicare pricing (effect
Slide 7: The Company
7 The Company
Slide 8: HealthSouth: A Leading Provider of Post-Acute Care
8 Inpatient Rehabilitation Portfolio - As of December 31, 2015 121 Inpatient Rehabilitation Hospitals • 33 operate as JVs with Acute Care Hospitals 29 Number of States(plus Puerto Rico) ~ 27,100 Employees HealthSouth: A Leading Provider of Post-Acute Care Encompass Home Health and Hospice Portfolio
Slide 9: Adjusted EPS Track Record
9 Adjusted EPS*(1) Track Record 2011 2012 2013 2014 2015 $2,027 $2,162 $2,273 $2,406 $3,163($ millions) 2011 2012 2013 2014 2015 $466 $506 $552 $578 $683 ’11-’15 CAGR = 10.0 %($ millions) ’11-’15 CAGR = 11.8 % Adjusted EBITDA* 2011 2012 2013 2014 2015 $1.20 $1.61 $1.94 $2.06 $2.24 ’11-’15 CAGR = 16.
Slide 10: Inpatient Rehabilitation Segment
10 Inpatient Rehabilitation Segment 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 independenc
Slide 11: HealthSouth IRF Quality and Referral Sources
11 2014 2015 14.5% 13.9% 11.4% 10.7% HealthSouth IRF Quality Referral Sources: 92% Acute Care Hospitals 7% Physician Offices/Home 1% Skilled Nursing Facilities 1. Neurological 19.9% 2. Stroke 17.0% 3. Other orthopedic conditions 10.0% 4. Debility 9.8% 5. Brain injury 9.2% 6. Fracture of the lower ex
Slide 12: IRF Cost Effectiveness
12 Total Inpatient Rehabilitation Facilities: 1,134 IRF Cost Effectiveness(3) The Avg. Est. TotalPayment per Discharge has not been reduced by 2% for sequestration.(7) 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 25.0 20.0 15.0 10.0 5.0 0.0 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 New-Store/Same-Store IRF Growth Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 201 Q2 201 Q3 201 Q4 201 Q1 2015 Q2 2015 Q
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%. • 32 of 33 hospitals are consolidated joint ventures, with one accounted for under the equity method. IRF Acute Care Joint Venture Partnerships 33* joint ve
Slide 15: IRF Real Estate Portfolio
15 39 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. 55 Own Building and Land* 27 Own Building Only
Slide 16: Home-Based Services
16 Home-Based Services • Skilled Nursing: provide specialized care to each patient based on individualized plans; all services are performed by registered and licensed practical/vocational nurses • Physical Therapy: work with patients and physicians to improve mobility and overall quality of life •
Slide 17: Encompass Quality and Patient Satisfaction Star Ratings
17 3.6 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 January 2016 and reflects OASIS and HHCAHPS Survey data collected from July 2014 through June 2015 and cla
Slide 18: Encompass Home Health Compare Measures
18 16.0% 16.9% 90 bps bette r In 2015, 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 assessmen
Slide 19: Encompass Cost Effectiveness
19 Encompass Cost Effectiveness 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 eff
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: Payor Sources and Payment Methodology
21 Workers' Comp/ Patients/Other - 2.6% Variety of methodologies Medicaid - 2.9% 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 base
Slide 22: Strong and Sustainable Business Fundamentals
22 HLS: Strong and Sustainable Business Fundamentals • Effective labor management • Continued improvements in supply chain • Operating leverage of G&A and occupancy expenses Cost-Effectiveness • Strong balance sheet and liquidity, no significant near-term maturities • Substantial free cash flow gene
Slide 23: Business Outlook 2016 to 2018
23 Business Outlook 2016 to 2018 (as of March 14, 2016)
Slide 24: Key Demographic Tailwind: Expanding Medicare Beneficiary Population
24 Key Demographic Tailwind: Expanding Medicare Beneficiary Population Key Observations: • The growth rate of Medicare beneficiaries increased in 2011 from a 2% CAGR to an approx. 3% CAGR as “baby boomers” started turning 65. • In 15 years (2030), the Medicare population is projected to increase to
Slide 25: Strategy: Post-Acute Provider of Choice
25 Strategy: Position HealthSouth as the post-acute provider of choice through the provision of comprehensive, coordinated facility-based and home-based post- acute services Source: http://www.phca.org/docs/Affordable%20Care%20Act%20Update%20Presentation-FINAL-101613.pdf Degree of Provider Integrati
Slide 26: Business Outlook: 2016 to 2018
26 • 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 27: Volume and Medicare Pricing Assumptions
27 • 10% to15% annual episode growth • Includes $35-$40 million per annum in agency acquisitions Volume Inpatient Rehabilitation Home Health & Hospice Medicare Pricing Approx. 73% of Revenue Approx. 84% of Revenue FY 2016 Q415-Q316 FY 2017 Q416-Q317 Mngt. Estimate FY 2018 Q417-Q318 Mngt. Estimate CY
Slide 28: Labor and Other Expense Assumptions
28 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 29: Free Cash Flow
29 Free Cash Flow
Slide 30: Adjusted Free Cash Flow and Tax Assumptions
30 Adjusted Free Cash Flow*(12) and Tax Assumptions Certain Cash Flow Items (millions) 2016 Assumptions 2015 Actual 2014 Actual • Cash interest expense (net of amortization of debt discounts and fees) $165 to $175 $128.6 $96.5 • Cash payments for taxes, net of refunds $20 to $40 $9.4 $16.4 • Working
Slide 31: Free Cash Flow Priorities
31 Free Cash Flow Priorities (In Millions) 2016 2015 2014 Assumptions Actuals Actuals IRF bed expansions $20 to $30 $20.8 $23.6 New IRF’s - De novos 70 to 90 47.8 53.7 - Acquisitions 0 to 20 786.2 20.2 New home health and hospice acquisitions 30 to 40 200.2 674.6 $120 to $180 $1,055.0 $772.1 2016 20
Slide 32: Adjusted Free Cash Flow History
32 Adjusted Free Cash Flow History(12) Q4 Full Year (Millions) 2015 2014 2015 2014 2013 2012 2011 Net cash provided by operating activities $ 116.6 $ 70.2 $ 484.8 $ 444.9 $ 470.3 $ 411.5 $ 342.7 Impact of discontinued operations (0.1) 0.2 0.7 1.2 1.9 (2.0) (9.1) Net cash provided by operating activi
Slide 33: Net Cash from Operating Activities Reconciled to Adjusted EBITDA
33 Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q4 Full Year (Millions) 2015 2014 2015 2014 2013 2012 2011 Net cash provided by operating activities $116.6 $ 70.2 $484.8 $444.9 $470.3 $411.5 $342.7 Provision for doubtful accounts (14.0) (6.6) (47.2) (31.6) (26.0) (27.0) (2
Slide 34: Growth
34 Growth
Slide 35: Multi-faceted IRF Growth Strategy
35 % Increase in beds 3% 3% 4% 18% Total number of beds 6,461 6,656 6,825 7,095 8,404 Total number of IRFs 99 100 103 107 121 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 Multi-faceted IRF Growth Strategy 2015 total bed count increase of approx. 1
Slide 36: Acquisition of Reliant
36 Acquisition of Acquired October 1, 2015 Ÿ Added 11 IRFs in Texas(8), Massachusetts(2), and Ohio(1) with a total of 902 beds Ÿ Generated approx. $249 million of revenue in 2014 Ÿ Generated approx. $82 million of Adjusted EBITDA in 2014 Ÿ Assumed leases for all 11 hospitals; 7 treated as capital le
Slide 37: IRF Growth Pipeline
37 IRF Growth Pipeline Typical Development Pipeline Factors: • CON process/timeline • Fair market valuation of contributed assets (joint ventures only) • Partnership complexities HLS Value Proposition CAPEX to build free-standing IRF, freeing up space for medical/surgical beds Increased acute care h
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: Investment Considerations
39 Investment Considerations • IRR objective of 13% (after tax) • Inclusive of 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) Johnson City (11/2014) Newnan (12/2014) Middletown (12/2014) 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 O
Slide 41: New IRFs: Individual Hospital Acquisitions
41 New IRFs: Assumptions for Individual Hospital Acquisitions Unit/Equity Acquisitions Location Beds Date Acquired Worcester, MA(8) 110 Q2 2014 San Antonio, TX 34 Q3 2012 Ft. Smith, AR 30 Q3 2010 Little Rock, AR 23 Q1 2010 Altoona, PA 18 Q4 2009 Arlington, TX 30 Q3 2008 IRF Acquisitions Location Dat
Slide 42: Multi-faceted Encompass Growth Strategy
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 • Scale and density in attractive geographies * Encompass currently located in states that represent approx. 56% of t
Slide 43: Acquisition of CareSouth
43 Acquired November 2, 2015 Ÿ Added 44* home health and 3 hospice locations in 7 states across the southeast and mid-atlantic regions — new markets of Alabama, Georgia, North Carolina, South Carolina, and Tennessee — improves market share in key states of Florida and Virginia Ÿ 14 new overlap marke
Slide 44: Home Health Growth Pipeline
44 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 45: Hospice Growth Pipeline
45 Hospice Growth Pipeline Ÿ In 2014, Medicare hospice spending totaled approx. $15 billion. Ÿ More than 1.3 million Medicare beneficiaries received hospice services from over 4,000 providers in 2014. Ÿ Between 2000 and 2013, Medicare spending for hospice increased more than 400%, driven by greater
Slide 46: Clinical Collaboration Model: Premier ACO Partnership
46 • In Q2 2014, Encompass was selected as Premier’s exclusive preferred home health provider. • Premier ACO includes approx. 20,000 covered lives in north Texas and southern Oklahoma. • Limited overlap in referral base results in virtually no cannibalization of existing business. Example of Clinica
Slide 47: Summary: Multiple Avenues for Sustained Growth
47 Summary: Multiple Avenues Available for Sustained Growth in Both Segments • The Company continues to have excellent organic growth opportunities in both inpatient rehabilitation, home health, and hospice. — Track record of consistent market share gains — IRF organic growth supplemented by bed add
Slide 48: Alternative Payment Models
48 Alternative Payment Models
Slide 49: CMS: Driving Change Toward Integrated Delivery Payment Models
49 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 50: Accountable Care Organizations (ACOs)
50 Accountable Care Organizations (ACOs) As of January 2016, there were 477 Medicare ACOs serving approx. 9 million Medicare beneficiaries. Performance results so far have been mixed. Pioneer ACOs (9 ACOs / ~275,000 Medicare beneficiaries) • 32 Pioneer ACOs launched since program’s inception; 9 rema
Slide 51: Bundled Payments
51 Bundled Payments How the Retrospective Models Work Ÿ The BPCI “convener” is responsible for bringing providers together to provide a continuum of services throughout an episode of care. The BPCI "awardee" is the entity that bears the financial risk and receives the shared savings from CMS. Ÿ Each
Slide 52: Bundling Participation - Inpatient Rehabilitation
52 Bundling Participation - Inpatient Rehabilitation 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(17) Bundles selected for Model 2 participation are chosen from a list o
Slide 53: Bundling Participation - Home Health and Hospice
53 Bundling Participation - Home Health and Hospice The CJR Model represents a significant opportunity for Encompass because home health agencies are expected to capture additional share as discharges bypass SNFs altogether or lower the length of stay in a SNF. 52 Encompass providers have selected t
Slide 54: CJR Payment Model
54 CJR Payment Model In the 67 geographic areas included in the CJR rule, LEJR patients account for 1.8% of HealthSouth's total Medicare discharges and 1.3% of HealthSouth's overall discharges. Discharges from HealthSouth's IRFs In the CJR payment model, Medicare will continue to reimburse providers
Slide 55: CJR Payment Model – HLS Opportunities
55 CJR Payment Model – HLS Opportunities Source: DHG Healthcare and Dobson l DaVanzo & Associates research using CMS Public Use Files 11-13 Discharge destination for all Medicare lower extremity joint replacements (% of 2011-2013 nation-wide episodes) IRFs SNFs Home Health Other, includinghome self-
Slide 56: Coordinated Care Models: Positioned to Succeed
56 • HCHB manages entire patient work flow. • Full utilization of capabilities in leading-edge technology are embedded in culture, driving superior clinical, operational and financial outcomes. • Electronic clinical information system in 83 IRFs allows for interfacing with all major acute electronic
Slide 57: Capital Structure
57 Capital Structure
Slide 58: Debt Maturity Profile
58 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 + $34 reserved for LC’s Holders have a put option in 2020 As of December 31, 2015* Debt Maturity Profile - Face Value ($ in millio
Slide 59: Financial Leverage, Liquidity and Credit Ratings
59 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 $1.25 $1.25 $1.52 $2.11 $3.17 (billions) Leverage Ratio(18) Total Debt 4.6x Dec. 31, 2015 Dec. 31, 2014 C
Slide 60: Debt Schedule
60 Debt Schedule(19) Change in Dec. 31, Dec. 31, Debt vs. ($millions) 2015 2014 YE 2014 Advances under $600 million revolving credit facility, July 2020 - LIBOR +200bps(20)(21) $ 130.0 $ 325.0 $ (195.0) Term loan facility, July 2020 - LIBOR +200bps(20)(21) 443.3 447.5 (4.2) Bonds Payable: 8.125% Sen
Slide 61: 2.0% Convertible Senior Subordinated Notes Due 2043
61 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 62: Credit Agreement Key Covenants
62 Credit Agreement Key Covenants(26) 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 63: Share Information
63 Share Information Weighted Average for the Period Q4 Full Year (Millions) 2015 2014 2015 2014 2013 2012 2011 Basic shares outstanding(27)(29)(30) 90.1 86.6 89.4 86.8 88.1 94.6 93.3 Diluted shares outstanding(27)(28)(29)(30) 100.6 100.8 101.0 100.7 102.1 108.1 109.2 End of Period Q4 Full Year (Mil
Slide 64: Information Technology
64 Information Technology
Slide 65: IRF Clinical Information System
65 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 66: CIS Benefits and Value Proposition
66 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 67: CIS Timeline
67 • 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 68: CIS Cost
68 CIS Cost • No incentive payments (i.e. “HITECH”) for inpatient rehabilitation hospitals(31) — Only acute care hospitals are eligible • Installation cost will vary by hospital depending on items such as size and physical plan. — Installation cost in a range of $1 million to $1.5 million per hospit
Slide 69: IRF Proprietary Management System: Beacon
69 IRF Proprietary Management System: Beacon
Slide 70: Encompass Highly Integrated Technology Platform
70 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 71: Operational Metrics
71 Operational Metrics
Slide 72: Salaries and Benefits, Hospital-Related Expenses, Doubtful Accounts
72 Salaries and Benefits Hospital-Related Expenses Provision for Doubtful Accounts 48.4 21.5 1.0 48.6 20.8 1.2 47.9 20.7 1.1 48.3 20.7 1.3 49.4 20.9 1.7 • Salaries and Benefits includes group medical costs and is impacted by staffing levels based on patient volumes. ◦ Salaries and Benefits in 2016 w
Slide 73: IRF Operational and Labor Metrics
73 IRF Operational and Labor Metrics Refer to pages 119-122 for end notes. Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year Full Year 2015 2015 2015 2015 2014 2014 2014 2014 2015 2014 (In Millions) Net patient revenue-inpatient $ 696.8 $ 625.1 $ 618.7 $ 606.6 $ 580.9 $ 563.7 $ 569.7 $ 558.2 $ 2,547.2 $ 2,272.5 Net
Slide 74: Home Health and Hospice Segment
74 Home Health and Hospice Segment Encompass Home Health and Hospice HealthSouth’s 25 Legacy Home HealthAgencies Q4 Q3 Q2 Q1 Full Year Q4 Q3 Q2 Q1 Full Year Q4 Q3 Q2 Q1 Full Year 2015 2015 2015 2015 2015 2014 2014 2014 2014 2014 2014 2014 2014 2014 2014 (In Millions) Net home health revenue $ 144.4
Slide 75: Payment Sources (Percent of Revenues)
75 Payment Sources (Percent of Revenues) Inpatient Rehabilitation Segment Home Health and Hospice Segment Consolidated Q4 Q4 Q4 Full Year 2015 2014 2015 2014 2015 2014 2015 2014 Medicare 73.6% 73.7% 82.6% 96.9% 75.2% 73.9% 74.9% 74.1% Managed care and other discount plans, including Medicare Advanta
Slide 76: History Recast by Segment
76 History Recast by Segment
Slide 77: Inpatient Rehabilitation Segment Adjusted EBITDA History
77 Inpatient Rehabilitation Segment Adjusted EBITDA History Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year Full Year 2015 2015 2015 2015 2014 2014 2014 2014 2015 2014 Net operating revenues: (In Millions) Inpatient $ 696.8 $ 625.1 $ 618.7 $ 606.6 $ 580.9 $ 563.7 $ 569.7 $ 558.2 $ 2,547.2 $ 2,272.5 Outpatient and
Slide 78: Home Health and Hospice Segment Adjusted EBITDA History
78 Home Health and Hospice Segment Adjusted EBITDA History Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year Full Year 2015 2015 2015 2015 2014 2014 2014 2014 2015 2014 Net operating revenues: (In Millions) Home health revenue $ 144.4 $ 118.3 $ 111.5 $ 103.9 $ 7.6 $ 7.0 $ 7.3 $ 6.7 $ 478.1 $ 28.6 Hospice revenue 9.
Slide 79: History Recast by Segment - Q1
79 History Recast by Segment Three Months Ended March 31, 2015 Three Months Ended March 31, 2014 Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Net operati
Slide 80: History Recast by Segment - Q2
80 History Recast by Segment Three Months Ended June 30, 2015 Three Months Ended June 30, 2014 Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Net operating
Slide 81: History Recast by Segment - Q3
81 History Recast by Segment Three Months Ended September 30, 2015 Three Months Ended September 30, 2014 Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Net
Slide 82: History Recast by Segment - Q4
82 History Recast by Segment Three Months Ended December 31, 2015 Three Months Ended December 31, 2014 Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Net o
Slide 83: History Recast by Segment - Full Year
83 Year Ended December 31, 2015 Year Ended December 31, 2014 Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Inpatient Rehabili- tation Home Health and Hospice Reclass- ifications HealthSouth Consolidated Net operating revenues $ 2,653.1 $ 509.8 $ — $
Slide 84: Industry Structure
84 Industry Structure
Slide 85: National Healthcare Spending
85 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 86: Medicare 2014 Spending
86 Medicare 2014 Spending = $613.3 Billion $ 28.8B Skilled Nursing $139.2B Inpatient Hospital $69.2B Physician Payments $44.1B Outpatient Hospital $17.8B Home Health $68.0B Other Services $159.7B Medicare Managed Care $77.7B Outpatient Rx $7.0B (1%) Inpatient Rehabilitation Hospitals (Included in In
Slide 87: Continuum of Healthcare Services
87 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 88: Post-Acute Care Services Comparison
88 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 $28.8 $17.8 # of Discharges 134,000 375,000 2,365,743 3,400,000 Length of Stay 26.5 days 12.9 days < 1
Slide 89: Medicare Spending on Post-Acute Services
89 $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 2015 Medicare Margin Sources: (1) 12.5% 10.5% 10.8% 10.3% 12.5% 12.6% 4.9% 4.6% Skilled nursing facilitie
Slide 90: Different Levels of Services: Rehab Hospital vs Nursing Home
90 Different Levels of Services Rehab Hospital Nursing Home Average length of stay = ~13 days Covered days per admission = 27.6 days Discharge to community = 75.9% Discharge to community = 37.5% Requirements: Requirements: Rehab hospitals must also satisfy regulatory/policy requirements for hospital
Slide 91: Supply of IRFs Remained Stable
91 Supply of IRFs Remained Stable Average Annual Change Share of Medicare DischargesType of IRF 2004 2006 2008 2010 2012 2013 2006-2012 2012-2013 All IRFs 100% 1,221 1,225 1,202 1,179 1,166 1,161 -0.8% -0.4% Urban 92 1,024 1,018 1,001 981 973 977 -0.8 0.4 Rural 8 197 207 201 198 193 184 -1.2 -4.7 Fr
Slide 92: Inpatient Rehabilitation Sector Margins
92 Inpatient Rehabilitation Sector Margins Share of Medicare discharges Margins Type of IRF 2013 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 All IRFs 100% 16.7% 13.4% 12.3% 11.8% 9.3% 8.4% 8.7% 9.9% 11.3% 11.4% Urban 92 17.0 13.6 12.6 12.0 9.5 8.7 9.0 10.3 11.7 11.8 Rural 8 13.2 11.1 10.1 9.5
Slide 93: IRF Standardized Comparison of Costs
93 Inpatient Rehabilitation Standardized Comparison of Costs Type of IRF Mean Adjusted Cost Per Discharge All IRFs $16,517 Hospital based 17,627 Freestanding 12,474 Nonprofit 17,233 For profit 14,632 Government 18,740 Urban 15,969 Rural 19,431 Number of beds 1 to 10 20,173 11 to 21 17,676 22 to 59 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 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 (after less intensive setting) 12. Join
Slide 96: Inpatient Rehabilitation Outlier Payments
96 Inpatient Rehabilitation Outlier Payments(3) # 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 $ — $ 116,635,933 $ 116,635,933 50.1% N/A $ 2,467 $ 2,467 80-90 — 113 113 $ — $ 43,394,85
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 2016 Final Rule
98 IRF-PPS Fiscal Year 2016 Final Rule: Key Provisions Source: http://www.gpo.gov/fdsys/pkg/FR-2015-08-06/pdf/2015-18973.pdf New Quality Reporting Update to Payment Rates HealthSouth Observations Pricing: • Net pricing impact to HealthSouth expected to be approx. +1.6% for FY 2016 before sequestrati
Slide 99: HH-PPS Calendar Year 2016 Final Rule
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 - 2015
101 Reconciliation of Net Income to Adjusted EBITDA(38) Refer to pages 119-122 for end notes. 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) f
Slide 102: Reconciliation of Net Income to Adjusted EBITDA - 2014
102 Reconciliation of Net Income to Adjusted EBITDA(38) 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 103: Reconciliation of Net Income to Adjusted EBITDA - 2013
103 Reconciliation of Net Income to Adjusted EBITDA(38) 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 104: Reconciliation of Net Income to Adjusted EBITDA - 2012
104 Reconciliation of Net Income to Adjusted EBITDA(38) 2012 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 $ 56.8 $ 59.9 $ 59.9 $ 59.3 $ 235.9 Loss (income) from disc ops, net of tax, attributable
Slide 105: Reconciliation of Net Income to Adjusted EBITDA - 2010-2011
105 Reconciliation of Net Income to Adjusted EBITDA(38) 2010 2011 (in millions, except per share data) Total Per Share Total Per Share Net income $ 939.8 $ 254.6 Income from disc ops, net of tax, attributable to HealthSouth (9.2) (49.9) Net income attributable to noncontrolling interests (40.8) (45.
Slide 106: Segment Adjusted EBITDA to Income from Continuing Operations
106 Three Months Ended Year Ended December 31, December 31, 2015 2014 2015 2014 (In Millions) Total segment Adjusted EBITDA $ 216.4 $ 163.3 $ 774.1 $ 669.2 General and administrative expenses (36.0) (36.4) (133.3) (124.8) Depreciation and amortization (41.4) (27.5) (139.7) (107.7) Loss on disposal o
Slide 107: Three Months Ended March 31, 2015
107 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 108: Three Months Ended June 30, 2015
108 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 109: Three Months Ended September 30, 2015
109 For the Three Months Ended September 30, 2015 Adjustments As Reported Government, Class Action, and Related Settlements Professional Fees - Accounting, Tax, and Legal Reliant / CareSouth Transaction Costs Loss on Early Extinguishment of Debt As Adjusted (In Millions, Except Per Share Amounts) Ad
Slide 110: Three Months Ended December 31, 2015
110 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 111: Year Ended December 31, 2015
111 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 As Adjusted (In Millions, Except Per Share Amounts) Adjusted EBITDA*
Slide 112: Year Ended December 31, 2014
112 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 113: Year Ended December 31, 2013
113 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 114: Year Ended December 31, 2012
114 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 115: Year Ended December 31, 2011
115 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 116: Reconciliation of Income from Continuing Operations to Adjusted - 2015
116 2015 Q1 Q2 Q3 Q4 Full Year (In Millions) Income from continuing operations attributable to HealthSouth $ 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 2.2 0.1 0.4 0.3 3.0 Reliant/CareSouth tran
Slide 117: Reconciliation of Income from Continuing Operations to Adjusted - 2011-2014
117 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 118: End Notes
118 End Notes
Slide 119: End Notes
119 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 a better measure of its ongoing pe
Slide 120: End Notes, con't.
120 End Notes, con't. (8) HealthSouth acquired an additional 30% equity interest in Fairlawn Rehabilitation Hospital in Worcester, MA from its joint venture partner. This transaction increased HealthSouth's ownership interest from 50% to 80% and resulted in a change in accounting for the hospital fr
Slide 121: End Notes, con't.
121 End Notes, con't. (24) In August 2015, the Company issued an additional $350 million of its 5.75% senior notes due 2024. In September 2015, the Company issued $350 million of 5.75% notes due 2025. The proceeds from both offerings were used to fund a portion of the Reliant acquisition. (25) In No
Slide 122: End Notes, con't.
122 End Notes, con't. (37) 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. (38) Adjusted EBITDA is a non