Encompass Health Corporation · NYSE:EHC
Encompass Health — HealthSouth — Investor Presentation (January 2017)
118 slides from Encompass Health's investor presentation, Jan 9, 2017
Slide 1: Investor Reference Book
INVESTOR REFERENCE BOOK Last updated January 9, 2017 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
Slide 2: Forward-looking statements and non-GAAP notes
2 The information contained in this Investor Reference Book 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 ex
Slide 3: Table of Contents
3 Table of Contents Guidance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4-9 The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Slide 4: Guidance (as of January 9, 2017)
4 Guidance (as of January 9, 2017)
Slide 5: 2017 Preliminary Guidance
5 HealthSouth has not closed its books as of and for the year ended December 31, 2016. All 2016 amounts are estimates.Refer to pages 115-118 for end notes. Guidance Adjusted EBITDA(1) Adjusted Earnings per Share from Continuing Operations Attributable to HealthSouth(2) Net Operating Revenues Net Ope
Slide 6: Adjusted EBITDA Guidance Bridge
6 Refer to pages xxx-xxx for end notes. Adjusted EBITDA(1) Guidance Bridge Net Operating Revenues $3,xxx million to $3,xxx million Adjusted EBITDA(x) $8xx million to $8xx million Adjusted Earnings per Share from Continuing Operations Attributable to HealthSouth(x) $x.xx to $x.xx 2017 2016 Adjusted E
Slide 7: 2017 Guidance Considerations
7 2017 Guidance Considerations Inpatient Rehabilitation u Estimated 1.9% increase in Medicare pricing for Q1 through Q3; ~1.0% for Q4 (see page 29) u Salary increase of ~3.0% u 2016 included the benefit of a retroactive indirect medical education (“IME”) adjustment of ~$4 million at the former Relia
Slide 8: Adjusted Free Cash Flow and Tax Assumptions
8 Adjusted Free Cash Flow(3) and Tax Assumptions HealthSouth has not closed its books as of and for the year ended December 31, 2016. All 2016 amounts are estimates. Reconciliations to GAAP provided on pages 96-113. Refer to pages 115-118 for end notes. u Tax Considerations: Ÿ Increased 2016 estimat
Slide 9: Free Cash Flow Priorities
9 HealthSouth has not closed its books as of and for the year ended December 31, 2016. All 2016 amounts are estimates.Refer to pages 115-118 for end notes. Free Cash Flow Priorities (In Millions) 2015 2016 2017 Actuals Estimates Assumptions IRF bed expansions $20.8 ~$20 $30 to $40 New IRF’s - De nov
Slide 10: The Company
10 The Company
Slide 11: HealthSouth: A Leading Provider of Post-Acute Care
11 HealthSouth: A Leading Provider of Post-Acute Care 59% of HealthSouth's IRFs are located within a 30-mile radius of an Encompass location. Inpatient Rehabilitation Portfolio - As of December 31, 2016 123 Inpatient Rehabilitation Hospitals • 37 operate as joint ventures with acute care hospitals 3
Slide 12: Inpatient Rehabilitation Segment
12 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, st
Slide 13: Home Health and Hospice Segment (Encompass)
13 Major Services • Skilled Nurses: comprehensively assess, teach, train, and manage care related to injury or illness • Home Health Aides: provide personal care and assistance with ADLs • Physical Therapists: address physical function, mobility, strength, balance, and safety • Occupational Therapis
Slide 14: Encompass Partnership
14 States with an Encompass presence Encompass Partnership • 4th largest provider of Medicare-focused (82% Medicare) skilled home health services in the U.S. with 223 locations across 25 states • Approx. 7,700 employees making 3.9 million total patient visits annually • Approx. revenue of $657 milli
Slide 15: IRF-Home Health Clinical Collaboration
15 IRF-Home Health Clinical Collaboration (All Payors) * Generally defined as a HealthSouth IRF located within a 30-mile radius of an Encompass location. All Markets Q4 2015 Q4 2016 19,915 19,674 2,821 4,051 12.4% Collaboration Rate 17.1% Collaboration Rate Overlap Markets* Q4 2015 Q4 2016 10,360 10
Slide 16: Payors and Payment Methodology
16 Managed Care Per Diem/Visit or CMG/Episodes - Negotiated rate - Some are “tiered” for acuity/severity Per Diem/Visit or CMG/Episodes - Negotiated rate - Some are “tiered” for acuity/severity Other Variety of methodologies Prospective Payment System (“PPS”) - IRF: Paid per discharge by Case Mix Gr
Slide 17: IRF Patient Mix and Referral Sources
17 Acute Care Hospitals -- 37% Physician Offices / Community -- 34% IRFs / LTCHs / SNFs -- 29% IRF Patient Mix Referral Sources: Rehabilitation Impairment Category* (Q3 2016): • Physicians and acute care hospital case managers are key decision makers. • All IRF patients must meet reasonable and nece
Slide 18: Quality of Care Metrics
18 2014 2015 2016 10.6% 10.6% 10.4% 10.7% 10.6% 10.7% 2014 2015 2016 14.5% 13.9% 13.1% 11.4% 10.7% 10.1% 2014 2015 2016 74.4% 75.2% 75.7% 77.1% 78.0% 78.7% Home Health QualityIRF Quality Discharge to Community Discharge to Skilled Nursing Discharge to Acute Hospital Percent of cases discharged to th
Slide 19: Research: IRFs Better for Stroke Patients than SNFs
19 Independent Research Concludes IRFs are a Better Rehabilitation Option for Stroke Patients than SNFs “If the hospital suggests sending your loved one to a skilled nursing facility after a stroke, advocate for the patient to go to an inpatient rehabilitation facility instead…”* “Whenever possible,
Slide 20: Quality initiatives: problems and solutions
20 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: Implement a multidisciplinary reconciliation process using HealthSou
Slide 21: Leading Position in Cost Effectiveness - IRFs
21 Leading Position in Cost Effectiveness(10) - IRFs Medicare pays HealthSouth less per discharge, on average, and HealthSouth treats a higher acuity patient. Avg. Beds per IRF Avg. Medicare Discharges per IRF(12) Case Mix Index(13) Avg. Est. Total Cost per Discharge for FY 2017 Avg. Est. Total Paym
Slide 22: Leading Position in Cost Effectiveness - Home Health
22 2015 AverageRevenue Visits Effective Revenue Cost Episodes per Episode per Episode per Visit per Visit Encompass 137,568 $3,072 19 $162 $72 Public Peer Average 259,215 $2,732 17* $161 $84* Encompass Compared to Peer Average 12.4% 11.8% 0.6% (14.3)% Leading Position in Cost Effectiveness - Home He
Slide 23: IRF New-Store/Same-Store Growth
23 IRF New-Store/Same-Store Growth * Includes consolidated HealthSouth inpatient rehabilitation hospitals classified as same store during each period Refer to pages 115-118 for end notes. 25.0 20.0 15.0 10.0 5.0 0.0 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2
Slide 24: Home Health New-Store/Same-Store Growth
24 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Home Health New-Store/Same-Store Growth Admissions Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 New Store 11.9% 13.6% 15.7% 37.4% 43.5% 41.6% 35.4% Same Store* —% —% —% —% 12.6% 11.1% 15.3% E
Slide 25: Strong and Sustainable Business Fundamentals
25 • 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 26: Adjusted EPS Track Record
26 Adjusted EPS(2) Track Record 2011 2012 2013 2014 2015 Trailing 4 Qtrs* $2,027 $2,162 $2,273 $2,406 $3,163 $3,637 ($ millions) 2011 2012 2013 2014 2015 Trailing 4 Qtrs* $466 $506 $552 $578 $683 $786 ’11-’15 CAGR = 10.0 %($ millions) ’11-’15 CAGR = 11.8 % Adjusted EBITDA(1) 2011 2012 2013 2014 2015
Slide 27: Business Outlook 2017 to 2019
27 Business Outlook 2017 to 2019 (as of January 9, 2017)
Slide 28: Business Outlook 2017 to 2019
28 • Same-store IRF growth • New-store IRF growth (de novos and acquisitions) • 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 Out
Slide 29: Volume and Medicare Pricing Assumptions
29 * In Q4 2016, Encompass sold its pediatric home health assets. As a result of this sale, the Company expects its percentage of Medicare in the above chart to increase by approximately 300 basis points with the offset in Medicaid going forward. Refer to pages 115-118 for end notes. • 10% to15% ann
Slide 30: Labor and Other Expense Assumptions
30 Inpatient Rehabilitation Home Health and Hospice Business Outlook 2017 to 2019: Labor and Other Expense Assumptions Salaries & Benefits ~70% Hospital Expenses ~30% Salaries and Benefits 2017 2018 2019 Salary increases 2.75-3.25% 2.75-3.25% 2.75-3.25% Benefit costs increases 5-10% 5-10% 5-10% Hosp
Slide 31: IRF-PPS Fiscal Year 2017 Final Rule
31 CMS: • Adopted four new claims-based quality reporting measures beginning October 1, 2016 to satisfy the reporting requirements of the IMPACT Act: – Discharge to Community; – Medicare Spending Per Beneficiary; – Potentially Preventable 30-Day Post-Discharge Readmission Measure; and – Potentially
Slide 32: HH-PPS Calendar Year 2017 Final Rule
32 Pricing: • Net pricing impact to Encompass expected to be a reduction of approx. 3.6% for CY 2017 (see page 29) • The final rule requires the recalibration of case-mix weights and the conversion of outlier payments to a cost-per-unit methodology to be budget neutral for the industry. However, the
Slide 33: Home Health Pre-Claim Review Demonstration
33 Home Health Pre-Claim Review Demonstration State Start Date EncompassAgencies Illinois August 3, 2016 — Florida* April 1, 2017 17 Texas To be determined 52 Michigan To be determined — Massachusetts To be determined 2 Encompass is well-prepared. * Encompass estimates the incremental cost of implem
Slide 34: IMPACT Act of 2014
34 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 35: Growth
35 Growth
Slide 36: Demographic Tailwind: Expanding Medicare Population
36 Both Segments Benefit from a 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 8
Slide 37: Multi-faceted IRF Growth Strategy
37 1,600 1,400 1,200 1,000 800 600 400 200 0 130 125 120 115 110 105 100 95 90 85 80 75 70 2012 2013 2014 2015 2016 Projected 2017 % Increase in licensed beds 3% 4% 18% 1% 4% Total number of licensed beds 6,656 6,825 7,095 8,404 8,504* 8,853 Total number of IRFs 100 103 107 121 123* 127 Multi-facete
Slide 38: Disciplined Approach to New Store Growth
38 Disciplined Approach to New Store Growth 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 – Ability of Encompass to enter the market
Slide 39: IRF Acute Care Joint Venture Partnerships
39 • • HealthSouth's IRF joint ventures began in 1991 with Vanderbilt University Medical Center. • HealthSouth's joint venture hospital partners own equity that ranges from 2.5% to 50%. • 36 of 37 hospitals are consolidated joint ventures, with one accounted for under the equity method. IRF Acute Ca
Slide 40: New IRFs: Illustrative De Novo Timeline
40 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 41: De Novo Investment Considerations
41 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 42: IRF De Novo Occupancy and EBITDA Trends
42 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 43: New IRFs: Hospital Acquisitions
43 New IRFs: Assumptions for Individual Hospital Acquisitions Unit/Equity Acquisitions Location Beds DateAcquired Worcester, MA(15) 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 44: Home Health and Hospice Growth Strategy
44 • Complementary business to core home health services • Prioritization of Encompass home health markets * No Encompass hospice offering in the majority of Encompass' current home health locations • Ability to leverage existing Encompass infrastructure • Strong demand due to cost effectiveness of
Slide 45: Home Health Growth Pipeline
45 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 46: Hospice Growth Pipeline
46 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 47: 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 inpatient rehabilitation, home health, and hospice. — Track record of consistent market share gains — IRF organic growth supplemented by bed addition
Slide 48: Alternative Payment Models
48 Alternative Payment Models
Slide 49: CMS: Driving Change Toward Integrated Payment Models
49 CMS: Driving Change Toward Integrated Delivery Payment Models, Value-Based Purchasing, and Site Neutrality Future Post-Acute Providers (Timing?) Inpatient Rehabilitation Facilities • Full range: low acuity g high acuity • 24/7 nursing coverage • Eliminates payment silos Home-Based Post-Acute Serv
Slide 50: Positioned for Site Neutrality
50 Always Available Sometimes Available Seldom Available Therapy Gym & Training Systems for All PAC Patients Staff Trained for All Acuity Therapy Gym & Training Systems for All PAC Patients Staff Trained for All Acuity Therapy Gym & Training Systems for All PAC Patients Staff Trained for All Acuity
Slide 51: Accountable Care Organizations
51 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 52: Bundled Payments
52 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 53: Bundling Participation - Inpatient Rehabilitation
53 Model 2 HLS Referral Source Bundle Type % of HLS MedicareDischarges % of Total HLS Discharges 118 acute care hospitals participating in Model 2 / Phase 2 in 82 HLS IRF markets(22) Bundles selected for Model 2 participation are chosen from a list of 48 BPCI-eligible bundles. 2.9% 2.0% Approx. 850
Slide 54: Bundling Participation - Home Health and Hospice
54 Bundling Participation - Home Health and Hospice The CJR model and cardiac bundles represent 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 provid
Slide 55: CJR and Episode Payment Model - SHFFT
55 Alternative Payment Models: Comprehensive Care for Joint Replacement Model and Episode Payment Model – Surgical Hip/Femur Fracture Treatment * These comorbidities are specific to acute care hospitals and are defined differently than IRFs' comorbidities. Source: https://innovation.cms.gov/initiati
Slide 56: How CJR and SHFFT Models Work
56 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 and SHFFT Models - How Do They Work? POST-ACUTE CARE PROVIDERS Acute care hospitals ar
Slide 57: CJR Model: Collaborators and Payment Limits
57 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 Q ua lit y- Ad ju st ed Ta rg et Pr ic e 2016 2017 2018 2019 2020 Year of Implementation 5% 5% 10% 20% 20% (5)% (10)% (20)% (20)% Risk Sharin
Slide 58: Potential Impact to HealthSouth of CJR and SHFFT
58 CJR and SHFFT Models - What's the Potential Impact to HealthSouth? Source: 2015 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 complica
Slide 59: CJR and SHFFT Strategies
59 CJR and SHFFT Models - HealthSouth's Strategies Opportunities Outweigh the Risks Increase the number of CJR and SHFFT 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
Slide 60: Home Health Value-Based Purchasing Model
60 Medicare-certified home health agencies that provide services in the following states will be required to participate in the model: 1. Arizona 4 2. Florida 17 3. Iowa — 4. Maryland 1 5. Massachusetts 2 6. Nebraska — 7. North Carolina 6 8. Tennessee 5 9. Washington — Encompass Agencies 35 In the c
Slide 61: Capital Structure
61 Capital Structure
Slide 62: Debt Maturity Profile
62 Debt Maturity Profile - Face Value * This chart does not include ~$282 million of capital lease obligations or ~$47 million of other notes payable. See the debt schedule on page 65. 2015 2019 2020 2020 2021 2022 2023 2024 2025 2043 $350 Senior Notes 5.75% $1,200 Senior Notes 5.75% $320 Conv. Sr.
Slide 63: Financial Leverage, Liquidity and Credit Ratings
63 S&P Moody's Corporate Rating BB- Ba3 Outlook Stable Stable 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 $3.01 (billions) Leverage Ratio(23) Total Debt 3.8x S
Slide 64: IRF Real Estate Portfolio
64 38 Lease Building and Land A CON (Certificate of Need) is a regulatory requirement in approx. 50% of states and some federal jurisdictions that require state authorization prior to proposed acquisitions, expansions, or construction of new hospitals. 58 Own Building and Land 27 Own Building Only*
Slide 65: Debt Schedule
65 Debt Schedule Reconciliations to GAAP provided on pages 96-113. Change in September 30, December 31, Debt vs. ($millions) 2016 2015 YE 2015 Advances under $600 million revolving credit facility, July 2020 - LIBOR +200bps $ 150.0 $ 130.0 $ 20.0 Term loan facility, July 2020 - LIBOR +200bps 426.8 4
Slide 66: 2.0% Convertible Senior Subordinated Notes Due 2043
66 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 67: Information Technology
67 Information Technology
Slide 68: IRF Clinical Information System
68 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 69: IRF Proprietary Management System: Beacon
69 IRF Proprietary Management System: Beacon
Slide 70: Home Health Information System: Homecare Homebase
70 Home Health Information System: Homecare Homebase 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 provi
Slide 71: Operational Metrics
71 Operational Metrics
Slide 72: Q1-Q3 2016 Expense Metrics
72 Q1-Q3 2016 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 49.1 20.6 1.9 • Salaries and Benefits includes group medical costs and is impacted by staffing levels based on patient volumes. ◦ Salari
Slide 73: Pre-Payment Claims Denials - Inpatient Rehabilitation
73 Pre-Payment Claims Denials - Inpatient Rehabilitation Segment Background Ÿ For several years, under programs designated as “widespread probes,” certain Medicare Administrative Contractors (“MACs”) have conducted pre-payment claim reviews and denied payment for certain diagnosis codes. – Pre-payme
Slide 74: Inpatient Rehabilitation Operational and Labor Metrics
74 Inpatient Rehabilitation Operational and Labor Metrics * The decrease in licensed beds from Q1 2016 to Q2 2016 was due to the sale of the hospital in Beaumont, TX (61 beds). Refer to pages 115-118 for end notes. Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2016 2016 2016 2015 2015 2015 2015 2015 (In Millions)
Slide 75: Home Health and Hospice Operational Metrics
75 Home Health and Hospice Operational Metrics Refer to pages 115-118 for end notes. Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2016 2016 2016 2015 2015 2015 2015 2015 (In Millions) Net home health revenue $ 162.0 $ 157.1 $ 150.9 $ 144.4 $ 118.3 $ 111.5 $ 103.9 $ 478.1 Net hospice and other revenue 13.1 11.0 9.
Slide 76: Payment Sources (Percent of Revenues)
76 Payment Sources (Percent of Revenues) Inpatient Rehabilitation Segment Home Health and Hospice Segment* Consolidated Q3 Q3 Q3 9 Months Full Year 2016 2015 2016 2015 2016 2015 2016 2015 2015 Medicare 73.3% 73.2% 81.8% 84.7% 74.8% 75.1% 75.0% 74.8% 74.9% Medicare Advantage 7.6% 7.7% 8.8% 6.7% 7.9%
Slide 77: Industry Structure
77 Industry Structure
Slide 78: National Healthcare Spending
78 Overall Healthcare Spending Hospital Care Includes Inpatient Rehabilitation, Long-Term Care Hospitals $840.2 $163.3 $88.8 $432.0 Nursing Care Facilities and Continuing Care Retirement Communities Professional Services Other Health, Residential and Personal Care Home Health Care Retail of Medical
Slide 79: Medicare Spending
79 Source: Centers for Medicare & Medicaid Services, Medicare Trustee’s Report July 2016 – page 10 and MedPAC, December 8-9, 2016 Public Meeting slides Medicare 2015 Spending = $647.6 Billion $ 29.8B Skilled Nursing $141.7B Inpatient Hospital $70.3B Physician Payments $46.5B Outpatient Hospital $18.
Slide 80: Continuum of Healthcare Services
80 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 81: Post-Acute Care Services Comparison
81 Post-Acute Care Services Acute Care Hospital Home Health Long-Term Acute Care Hospital Inpatient Rehabilitation Facility Skilled Nursing Facility Discharge Medicare Spending (billions) $5.3 $7.4 $29.8 $18.1* # of Discharges ~131,000 ~381,000 ~2,300,000 ~3,500,000 Length of Stay 26.3 days 12.8 day
Slide 82: Medicare Spending on Post-Acute Services
82 $35 $30 $25 $20 $15 $10 $5 $0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 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 he
Slide 83: Different Levels of Services: Rehab Hospital vs Nursing Home
83 Different Levels of Services Rehab Hospital Nursing Home Average length of stay = 12.8 days Average length of stay = 40 days Discharge to community = 76.1% Discharge to community = 37.6% Requirements: Requirements: Rehab hospitals must also satisfy regulatory/policy requirements for hospitals, in
Slide 84: Supply of IRFs is Relatively Stable
84 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 85: Inpatient Rehabilitation Sector Margins
85 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 86: Inpatient Rehabilitation Standardized Comparison of Costs
86 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 87: 60% Rule: Medicare Regulation for Rehabilitation Hospitals
87 “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 88: IRF Qualifying Conditions
88 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 89: Inpatient Rehabilitation Outlier Payments
89 Inpatient Rehabilitation Outlier Payments(10) # 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 $ — $ 120,926,079 $ 120,926,079 49.9% N/A $ 2,368 $ 2,368 80-90 — 113 113 $ — $ 45,316,0
Slide 90: Segment Operating Results
90 Segment Operating Results
Slide 91: Inpatient Rehabilitation Segment Adjusted EBITDA
91 Inpatient Rehabilitation Segment Adjusted EBITDA Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2016 2016 2016 2015 2015 2015 2015 2015 Net operating revenues: (In Millions) Inpatient $ 724.1 $ 721.2 $ 719.4 $ 696.8 $ 625.1 $ 618.7 $ 606.6 $ 2,547.2 Outpatient and other 27.6 31.4 29.8 29.1 26.5 26.6 23.7 105.9 T
Slide 92: Home Health and Hospice Segment Adjusted EBITDA
92 Home Health and Hospice Segment Adjusted EBITDA Q3 Q2 Q1 Q4 Q3 Q2 Q1 Full Year 2016 2016 2016 2015 2015 2015 2015 2015 Net operating revenues: (In Millions) Home health revenue $ 162.0 $ 157.1 $ 150.9 $ 144.4 $ 118.3 $ 111.5 $ 103.9 $ 478.1 Hospice revenue 13.1 11.0 9.7 9.0 8.7 7.6 6.4 31.7 Total
Slide 93: Segment Operating Results Q3 2016
93 Segment Operating Results Q3 2016 Q3 2015 IRF Home Health and Hospice Reclasses HealthSouthConsolidated IRF Home Health and Hospice Reclasses HealthSouthConsolidated Net operating revenues $ 751.7 $ 175.1 $ — $ 926.8 $ 651.6 $ 127.0 $ — $ 778.6 Less: Provision for doubtful accounts (13.7) (1.1) —
Slide 94: Segment Operating Results Nine Months 2016
94 Segment Operating Results Reconciliations to GAAP provided on pages 96-113. Nine Months Ended September 30, 2016 Nine Months Ended September 30, 2015 IRF Home Health and Hospice Reclasses HealthSouthConsolidated IRF Home Health and Hospice Reclasses HealthSouthConsolidated Net operating revenues
Slide 95: Segment Operating Results Year 2015
95 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 96: Reconciliations to GAAP and Share Information
96 Reconciliations to GAAP and Share Information
Slide 97: Reconciliation of Net Income to Adjusted EBITDA 2016
97 Reconciliation of Net Income to Adjusted EBITDA(1) 2016 Q1 Q2 Q3 9 Months (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Net Income $ 76.7 $ 81.2 $ 78.1 $ 236.0 Loss from disc ops, net of tax, attributable to HealthSouth 0.1 0.1 0.1 0.3 Net in
Slide 98: Reconciliation of Net Income to Adjusted EBITDA 2015
98 Reconciliation of Net Income to Adjusted EBITDA(1) 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 t
Slide 99: Reconciliation of Net Income to Adjusted EBITDA 2014
99 Reconciliation of Net Income to Adjusted EBITDA(1) 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 t
Slide 100: Reconciliation of Net Income to Adjusted EBITDA 2013
100 Reconciliation of Net Income to Adjusted EBITDA(1) 2013 Q1 Q2 Q3 Q4 Full Year (in millions, except per share data) Total Per Share Total Per Share Total Per Share Total Per Share Total Per Share Net Income $ 65.9 $ 179.0 $ 72.3 $ 64.2 $ 381.4 Loss (income) from disc ops, net of tax, attributable
Slide 101: Reconciliation of Net Income to Adjusted EBITDA 2011-2012
101 Reconciliation of Net Income to Adjusted EBITDA(1) 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) (50.9
Slide 102: Reconciliation of Segment Adjusted EBITDA to Pre-Tax Income
102 Reconciliation of Segment Adjusted EBITDA to Income from Continuing Operations Before Income Tax Expense Three Months Ended Nine Months Ended Year Ended September 30, September 30, December 31, 2016 2015 2016 2015 2015 (In Millions) Total segment Adjusted EBITDA $ 224.4 $ 186.9 $ 674.0 $ 557.7 $
Slide 103: Reconciliation of Segment Adjusted EBITDA, Quarterly
103 Reconciliation of Segment Adjusted EBITDA to Income from Continuing Operations Before Income Tax Expense Q3 2016 Q2 2016 Q1 2016 Q4 2015 Q3 2015 Q2 2015 Q1 2015 Full Year 2015 In Millions Total segment Adjusted EBITDA $ 224.4 $ 230.1 $ 219.5 $ 216.4 $ 186.9 $ 189.5 $ 181.3 $ 774.1 General and ad
Slide 104: Adjusted EPS - YTD 2016
104 Adjusted EPS(2) - YTD 2016 For the Nine Months Ended September 30, 2016 Adjustments As Reported Professional Fees - Accounting, Tax, and Legal Mark-to- Market Adjustment for Stock Appreciation Rights Loss on Early Extinguishment of Debt Sale of Hospital As Adjusted (In Millions, Except Per Share
Slide 105: Adjusted EPS - Q4 2015
105 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 106: Adjusted EPS - 2015
106 Adjusted EPS(2) - 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 107: Adjusted EPS - 2014
107 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 108: Adjusted EPS - 2013
108 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 109: Adjusted EPS - 2012
109 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 110: Adjusted EPS - 2011
110 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 111: Adjusted Free Cash Flow History
111 Adjusted Free Cash Flow History(3) Q3 9 Months Full Year (Millions) 2016 2015 2016 2015 2015 2014 2013 2012 2011 Net cash provided by operating activities $ 177.6 $ 163.3 $ 489.5 $ 368.2 $ 484.8 $ 444.9 $ 470.3 $ 411.5 $ 342.7 Impact of discontinued operations 0.1 0.5 0.6 0.8 0.7 1.2 1.9 (2.0) (
Slide 112: Adjusted Free Cash Flow - 2015
112 Adjusted Free Cash Flow(3) - 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 113: Net Cash from Operating Activities Reconciled to Adjusted EBITDA
113 Net Cash Provided by Operating Activities Reconciled to Adjusted EBITDA Q3 9 Months Full Year (Millions) 2016 2015 2016 2015 2015 2014 2013 2012 2011 Net cash provided by operating activities $177.6 $163.3 $489.5 $368.2 $484.8 $444.9 $470.3 $411.5 $342.7 Provision for doubtful accounts (14.8) (1
Slide 114: Share Information
114 Share Information Refer to pages 115-118 for end notes. Weighted Average for the Period Q3 9 Months Full Year (Millions) 2016 2015 2016 2015 2015 2014 2013 Basic shares outstanding(4) 89.1 90.6 89.3 89.1 89.4 86.8 88.1 Convertible perpetual preferred stock(4) — — — 1.3 1.0 3.2 10.5 Convertible s
Slide 115: End Notes
115 End Notes
Slide 116: End Notes
116 End Notes (1) 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 financial
Slide 117: End Notes (continued)
117 (9) Source: https://data.medicare.gov/data/home-health-compare. Data on this page was published in October 2016 and reflects OASIS and HHCAHPS Survey data collected from April 2015 through March 2016 and claims-based data collected from January 2015 through December 2015. (10) Source: FY 2017 CM
Slide 118: End Notes (continued)
118 (21) Pre-opening expenses include expenses for training new employees on the clinical information system, which vary based on the timing of the first admission. (22) CMS published an updated Bundled Payments for Care Episode analytic file in July 2016. Among other data, this file provided the mo