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What changed in Encompass Health Corp's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Encompass Health Corp's 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+443 added−457 removedSource: 10-K (2026-02-26) vs 10-K (2025-02-28)

Top changes in Encompass Health Corp's 2025 10-K

443 paragraphs added · 457 removed · 373 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

101 edited+31 added−32 removed124 unchanged
Biggest changeThe annual process includes an assessment of employee promotability based on a set of leadership core competencies defined as part of the Company’s talent strategy. Employee engagement is a key driver of retention. As discussed above, we conduct an annual employee engagement survey open to all our employees, helping us to gauge employee satisfaction with and commitment to their jobs.
Biggest changeWe conduct an annual employee engagement survey open to all our employees, helping us to gauge employee satisfaction with and commitment to their jobs. In 2025, 85% of our eligible permanent employees participated in the survey, which measures perceptions based on 38 questions from the categories listed below.
Congress, HHS-OIG, and the DOJ have historically focused on fraud and abuse in healthcare. Since the 1980s, a steady stream of changes have stiffened criminal and civil penalties or made it easier for DOJ to impose liability on companies and individuals.
Congress, HHS-OIG, and the DOJ have historically focused on fraud and abuse in healthcare. Since the 1980s, a steady stream of changes have stiffened criminal and civil penalties or made it easier for the DOJ to impose liability on companies and individuals.
As part of the compliance program, we provide annual compliance training to our employees, Board members, medical directors, vendors, and other non-employees that operate within our hospitals, and require all employees to report any violations to their supervisor or another person of authority or through a toll-free telephone hotline.
As part of the compliance program, we provide annual compliance training to our employees, Board members, medical directors, vendors, and other non-employees that operate within our hospitals. We require all employees to report any violations to their supervisor or another person of authority or through a toll-free telephone hotline.
In addition, inpatient rehabilitation hospitals must be certified by CMS to participate in the Medicare program and generally must be certified by Medicaid state agencies to participate in Medicaid programs. Certification and participation in these programs involve numerous regulatory obligations. For example, hospitals must treat at least 20 patients without reimbursement prior to certification and eligibility for Medicare reimbursement.
In addition, inpatient rehabilitation hospitals must be certified by CMS to participate in the Medicare program and generally must be certified by state Medicaid agencies to participate in Medicaid programs. Certification and participation in these programs involve numerous regulatory obligations. For example, hospitals must treat at least 20 patients without reimbursement prior to certification and eligibility for Medicare reimbursement.
As a healthcare provider, we are subject to periodic audits, examinations and investigations conducted by, or at the direction of, government investigative and oversight agencies. Failure to comply with applicable federal and state healthcare regulations can result in a provider’s exclusion from participation in government reimbursement programs and in substantial civil and criminal penalties.
As a healthcare provider, we are subject to periodic audits, examinations and investigations conducted by, or at the direction of, government investigative and oversight agencies. Failure to comply with applicable federal and state healthcare regulations can result in a provider’s exclusion from participation in government reimbursement programs as well as subject a provider to substantial civil and criminal penalties.
In accordance with Medicare laws and statutes, CMS makes annual adjustments to Medicare 9 payment rates for prospective payment systems, including the IRF-PPS, by what is commonly known as a “market basket update.” CMS may take other regulatory action affecting rates as well.
In accordance with Medicare laws and statutes, CMS makes annual adjustments to Medicare payment rates for prospective payment systems, including the IRF-PPS, by what is commonly known as a “market basket update.” CMS may take other regulatory action affecting rates as well.
We also believe our 2 competitive strengths discussed below give us the ability to adapt and succeed in a healthcare industry facing regulatory uncertainty around attempts to improve outcomes and reduce costs. • People . We believe our employees share a steadfast commitment to providing outstanding care to our patients.
We also believe our competitive strengths discussed below give us the ability to adapt and succeed in a healthcare industry facing regulatory uncertainty around attempts to improve outcomes and reduce costs. • People . We believe our employees share a steadfast commitment to providing outstanding care to our patients.
We negotiate the payment rates with non-governmental group purchasers of healthcare services that are included in “Managed care” in the table below, including private insurance companies, employers, health maintenance organizations (“HMOs”), preferred provider 8 organizations (“PPOs”), and other managed care plans.
We negotiate the payment rates with non-governmental group purchasers of healthcare services that are included in “Managed care” in the table below, including private insurance companies, employers, health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), and other managed care plans.
In our compensation and benefit programs: • we provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location. • we engage nationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our compensation and benefit programs, to provide benchmarking against our peers within the industry and by specific market, and to recommend design elements for those programs. • we base annual increases and incentive compensation on merit, which is communicated to employees through our talent management process as part of our annual review procedures. • all full-time and most part-time employees are eligible for health insurance (including mental health coverage), paid and unpaid leaves, a retirement plan, a wellness program, telemedicine, tuition reimbursement, an employee assistance program, and life and disability/accident coverage. • we provide an employer match on retirement plan contributions. • we also offer a wide variety of voluntary benefits that allow employees to select the options that meet their needs, including pre-paid legal services, dental insurance, vision insurance, hospital indemnity insurance, accident insurance, critical illness insurance, supplemental life insurance, disability insurance, health savings accounts, flexible spending accounts, auto/home insurance, and identity theft insurance. • we have various year-long, quarterly, and short-term incentive plans for field leadership, most marketing/sales employees, and executives. • we make annual grants of restricted stock to employees at various levels, including non-executive management, to foster a strong sense of ownership and align the interests of management with those of our stockholders. 5 Diversity, Equity, and Inclusion .
In our compensation and benefit programs: • we provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location; • we engage nationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our compensation and benefit programs, to provide benchmarking against our peers within the industry and by specific market, and to recommend design elements for those programs; • we base annual increases and incentive compensation on merit, which is communicated to employees through our talent management process as part of our annual review procedures; • all full-time and most part-time employees are eligible for health insurance (including mental health coverage), paid and unpaid leaves, a retirement plan, a wellness program, telemedicine, tuition reimbursement, an employee assistance program, and life and disability/accident coverage; • we provide an employer match on retirement plan contributions; • we also offer a wide variety of voluntary benefits that allow employees to select the options that meet their needs, including pre-paid legal services, dental insurance, vision insurance, hospital indemnity insurance, accident insurance, critical illness insurance, supplemental life insurance, disability insurance, health savings accounts, flexible spending accounts, auto/home insurance, and identity theft insurance; • we have various year-long, quarterly, and short-term incentive plans for field leadership, most marketing/sales employees, and executives; and • we make annual grants of restricted stock to employees at various levels, including non-executive management, to foster a strong sense of ownership and align the interests of management with those of our stockholders.
For further discussion of our human capital management and our award-winning culture, see the section titled “Human Capital Management” below. • Change Agility . We have a demonstrated ability to adapt in the face of numerous and significant regulatory, legislative, and operating environment changes.
For further discussion of our human capital management and our award-winning culture, see the section titled “Human Capital Management” below. 2 • Change Agility . We have a demonstrated ability to adapt in the face of numerous and significant regulatory, legislative, and operating environment changes.
The primary competitive factors in any given market include the quality of care and service provided, the treatment outcomes achieved, the relationship and reputation with managed care and other private payors and the acute-care hospitals, physicians, or other referral sources in the market, and the regulatory barriers to entry in certificate of need states.
The competitive factors in any given market include the quality of care and service provided, the treatment outcomes achieved, the relationship and reputation with managed care and other private payors and the acute-care hospitals, physicians, or other referral sources in the market, and the regulatory barriers to entry in certificate of need states.
Once certified by Medicare, hospitals undergo periodic on-site surveys and revalidations in order to maintain their certification. All of our inpatient hospitals participate in the Medicare program. Failure to comply with applicable certification requirements may make our hospitals ineligible for Medicare or Medicaid reimbursement.
Once certified by Medicare, hospitals undergo 13 periodic on-site surveys and revalidations in order to maintain their certification. All of our inpatient hospitals participate in the Medicare program. Failure to comply with applicable certification requirements may make our hospitals ineligible for Medicare or Medicaid reimbursement.
If a healthcare provider arranges or contracts with an individual or entity who is excluded by HHS-OIG from 13 participation in a federal healthcare program, the provider may be subject to civil monetary penalties if the excluded person renders services reimbursed, directly or indirectly, by a program.
If a healthcare provider arranges or contracts with an individual or entity who is excluded by HHS-OIG from participation in a federal healthcare program, the provider may be subject to civil monetary penalties if the excluded person renders services reimbursed, directly or indirectly, by a program.
This is known as a “reverse false claim.” The government deems identification of the overpayment to occur when a person has, or should have through reasonable diligence, determined that an overpayment was received and quantified the overpayment.
This is known as a “reverse false claim.” The 14 government deems identification of the overpayment to occur when a person has, or should have through reasonable diligence, determined that an overpayment was received and quantified the overpayment.
The regulations provide patients with significant rights related to understanding and controlling how their health information is used or disclosed and require healthcare providers to implement administrative, physical, and technical practices to protect the security of individually identifiable health information.
The regulations provide patients with significant rights related to 16 understanding and controlling how their health information is used or disclosed and require healthcare providers to implement administrative, physical, and technical practices to protect the security of individually identifiable health information.
For additional discussion of risks associated with Medicaid, see Item 1A, Risk Factors , “Reimbursement Risks.” Cost Reports Because of our participation in Medicare and Medicaid, we are required to meet certain financial reporting requirements.
For additional discussion of risks associated with Medicaid, see Item 1A, Risk Factors , “Reimbursement Risks.” 12 Cost Reports Because of our participation in Medicare and Medicaid, we are required to meet certain financial reporting requirements.
We record state directed and supplemental payments in the outpatient and other component of Net operating revenues and provider tax expenses in Other operating expenses . State Medicaid programs are subject to various federal regulations governing any provider tax and related directed and supplemental payment programs.
We record state directed and supplemental payments in the other component of Net operating revenues and provider tax expenses in Other operating expenses . State Medicaid programs are subject to various federal regulations governing any provider tax and related directed and supplemental payment programs.
For additional discussion of our strategic priorities as well as progress toward our priorities in 2024, including operating results, growth, and shareholder distributions, and our business outlook, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , “Executive Overview,” “Results of Operations,” and “Liquidity and Capital Resources.” Competitive Strengths We believe we differentiate ourselves from our competitors based on, among other things, the quality of our clinical outcomes, our cost-effectiveness, our financial strength, and our extensive application of technology.
For additional discussion of our strategic priorities as well as progress toward our priorities in 2025, including operating results, growth, and shareholder distributions, and our business outlook, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , “Executive Overview,” “Results of Operations,” and “Liquidity and Capital Resources.” Competitive Strengths We believe we differentiate ourselves from our competitors based on, among other things, the quality of our clinical outcomes, our cost-effectiveness, our financial strength, and our extensive application of technology.
In addition, the federal government has increasingly asserted that violations of laws not directly related to 14 Medicare billing, such as anti-kickback and anti-discrimination laws, may give rise to FCA claims.
In addition, the federal government has increasingly asserted that violations of laws not directly related to Medicare billing, such as anti-kickback and anti-discrimination laws, may give rise to FCA claims.
These rules generally define “breach” to mean the acquisition, access, use or disclosure of protected health information in a manner not permitted by the HIPAA privacy standards, which 16 compromises the security or privacy of protected health information.
These rules generally define “breach” to mean the acquisition, access, use or disclosure of protected health information in a manner not permitted by the HIPAA privacy standards, which compromises the security or privacy of protected health information.
We are unable to estimate the financial impact that structural modifications and other program changes, if any, may have on Medicaid provider tax expenses or directed and supplemental payments.
We are unable to estimate the financial impact that structural modifications and other program changes, if any, may have on our Medicaid provider tax expenses or directed and supplemental payments.
For more in-depth discussion of the primary challenges and risks related to our business, particularly the changes in Medicare reimbursement, increased compliance and enforcement burdens, and changes to our operating environment resulting from healthcare reform, see “Sources of Revenues—Medicare Reimbursement” and “Regulation” below in this section as well as Item 1A, Risk Factors, and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , “Executive Overview—Key Challenges.” Sources of Revenues We receive payment for patient care services from the federal government (primarily under the Medicare program), managed care plans and private insurers, and, to a considerably lesser degree, state governments (under their respective Medicaid or similar programs) and directly from patients.
For more in-depth discussion of the primary challenges and risks related to our business, particularly the changes in Medicare reimbursement, increased compliance and enforcement burdens, and other changes to our operating environment resulting from healthcare regulatory changes, see “Sources of Revenues—Medicare Reimbursement” and “Regulation” below in this section as well as Item 1A, Risk Factors, and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , “Executive Overview—Key Challenges.” Sources of Revenues We receive payment for patient care services from the federal government (primarily under the Medicare program), managed care plans and private insurers, and, to a considerably lesser degree, state governments (under their respective Medicaid or similar programs) and directly from patients.
Medicare, through its Medicare Advantage program, offers Medicare-eligible individuals an opportunity to participate in managed care plans. Revenues from Medicare and Medicare Advantage represent approximately 82% of total revenues.
Medicare, through its Medicare Advantage program, offers Medicare-eligible individuals an opportunity to 8 participate in managed care plans. Revenues from Medicare and Medicare Advantage represent approximately 82% of total revenues.
We track and measure therapist and nurse turnover for our full-time employees on a quarterly and annual basis for significant trends and outliers, but we do not believe comparisons of our data to external turnover benchmarks are a valid representation, as they do not account for the variations in survey data across markets, hospital sizes, practice settings, and practice specialties.
Retention We track and measure therapist and nurse turnover for our full-time employees on a quarterly and annual basis to identify significant trends and outliers, but we do not believe comparisons of our data to external turnover benchmarks are a valid representation, as they do not account for the variations in survey data across markets, hospital sizes, practice settings, and practice specialties.
Even the assertion of a violation could have an adverse effect upon our stock price or reputation. For additional discussion, see Item 1A, Risk Factors , “Reimbursement Risks” and “Other Regulatory Risks” and Note 17, Contingencies and Other Commitments , to the accompanying consolidated financial statements. Relationships with Physicians and Other Providers Anti-Kickback Law .
Even the assertion of a violation could have an adverse effect upon our stock price or reputation. For additional discussion, see Item 1A, Risk Factors , “Reimbursement Risks” and “Other Regulatory Risks” and Note 16, Contingencies and Other Commitments , to the accompanying consolidated financial statements. Relationships with Physicians and Other Providers Anti-Kickback Law .
Neither Congress nor CMS is obligated to adopt MedPAC recommendations, and, based on outcomes in previous years, there can be no assurance either will adopt MedPAC’s recommendations in a given year. However, MedPAC’s recommendations have, and could in the future, become the basis for subsequent legislative or, as discussed below, regulatory action.
Neither Congress nor CMS is obligated to adopt MedPAC recommendations, and, based on outcomes in previous years, there can be no assurance either will adopt MedPAC’s recommendations in a given year. However, MedPAC’s recommendations have, and could in the future, become the basis for subsequent legislative or, as discussed below, regulatory action affecting us.
As participants in the Medicare program, our hospitals must be licensed and certified and otherwise comply with various requirements that are discussed below in the “Sources of Revenues—Medicare Reimbursement” section. Substantially all (91%) of the patients we serve are admitted from acute-care hospitals following physician referrals for specific acute inpatient rehabilitative care.
As participants in the Medicare program, our hospitals must be licensed and certified and otherwise comply with various requirements that are discussed below in the “Sources of Revenues—Medicare Reimbursement” section. Substantially all (92%) of the patients we serve are admitted from acute-care hospitals following physician referrals for specific acute inpatient rehabilitative care.
The statute also provides a penalty of up to approximately $206,000 for a circumvention scheme. Federal civil penalties will be adjusted to account for inflation each year. There are statutory exceptions to the Stark law for many of the customary financial arrangements between physicians and providers, including personal services contracts and leases.
The statute also provides a penalty of up to approximately $211,000 for a circumvention scheme. Federal civil penalties will be adjusted to account for inflation each year. There are statutory exceptions to the Stark law for many of the customary financial arrangements between physicians and providers, including personal services contracts and leases.
Managed care contracts typically have terms between one and three years, although we have a number of managed care contracts that automatically renew each year 11 (with pre-defined rate increases) unless a party elects to terminate the contract. In 2024, typical rate increases for our contracts ranged from 2-4%.
Managed care contracts typically have terms between one and three years, although we have a number of managed care contracts that automatically renew each year (with pre-defined rate increases) unless a party elects to terminate the contract. In 2025, typical rate increases for our contracts 11 ranged from 2-4%.
We expect the percentage of our total revenues attributable to Medicare Advantage plans to continue to grow as well. Typically, Medicare Advantage and other managed care plans reimburse us less than traditional Medicare for the same type of care and patient, but that differential has been shrinking in recent years.
We expect the percentage of our total revenues attributable to Medicare Advantage plans to continue to grow over time as well. Typically, Medicare Advantage and other managed care plans reimburse us less than traditional Medicare for the same type of care and patient, but that differential has been shrinking in recent years.
In 2024 , approximately 54% of M edicare beneficiaries enrolled in Medicare Advantage plans. This percentage has steadily increased over time since 2003. The Congressional Budget Office projects that the share of all Medicare beneficiaries enrolled in Medicare Advantage plans will rise to about 64% by 2034 .
In 2025 , approximately 54% of M edicare beneficiaries enrolled in Medicare Advantage plans. This percentage has steadily increased over time since 2003. The Congressional Budget Office projects that the share of all Medicare beneficiaries enrolled in Medicare Advantage plans will rise to about 64% by 2034 .
The United States Department of Health and Human Services Office of Civil Rights (“HHS-OCR”) implemented a permanent HIPAA audit program for healthcare providers nationwide in 2016. As of December 31, 2024, we have not been selected for audit.
The United States Department of Health and Human Services Office of Civil Rights (“HHS-OCR”) implemented a permanent HIPAA audit program for healthcare providers nationwide in 2016. As of December 31, 2025, we have not been selected for audit.
The penalties for noncompliance may be up to approximately $71,000 per violation for most violations. In the event of violations due to willful neglect that are not corrected within 30 days, penalties start at approximately $71,000 per violation and are not subject to a per violation statutory maximum.
The penalties for noncompliance may be up to approximately $73,000 per violation for most violations. In the event of violations due to willful neglect that are not corrected within 30 days, penalties start at approximately $73,000 per violation and are not subject to a per violation statutory maximum.
We believe the percentage of patients who are discharged from acute-care hospitals with one or more of 13 specified medical conditions that The Centers for Medicare & Medicaid Services (“CMS”) ties to IRF eligibility and subsequently admitted to an IRF is approximately 15% based on Medicare fee-for-service data, which is the only publicly available data on the subject.
Within our markets, we believe the percentage of patients who are discharged from acute-care hospitals with one or more of 13 specified medical conditions that The Centers for Medicare & Medicaid Services (“CMS”) ties to IRF eligibility and subsequently admitted to an IRF is approximately 15% based on Medicare fee-for-service data, which is the only publicly available data on the subject.
Currently, we operate 144 hospitals that hold one or more Joint Commission Disease-Specific Care Certifications, such as stroke rehabilitation, hip fracture rehabilitation, brain injury rehabilitation, amputee rehabilitation, Parkinson’s Disease rehabilitation, and spinal cord injury rehabilitation certification. • Cost Effectiveness .
Currently, we operate 149 hospitals that hold one or more Joint Commission Disease-Specific Care Certifications, such as stroke rehabilitation, hip fracture rehabilitation, brain injury rehabilitation, amputee rehabilitation, Parkinson’s Disease rehabilitation, and spinal cord injury rehabilitation certification. • Cost Effectiveness .
The sources and relative mix of our revenues for the last three years are: For the Year Ended December 31, 2024 2023 2022 Medicare 65.1 % 65.0 % 65.3 % Medicare Advantage 16.8 % 16.2 % 15.1 % Managed care 10.8 % 11.1 % 11.6 % Medicaid 3.3 % 4.0 % 4.2 % Other third-party payors 0.8 % 0.9 % 0.9 % Workers' compensation 0.5 % 0.5 % 0.6 % Patients 0.3 % 0.3 % 0.4 % Other income 2.4 % 2.0 % 1.9 % Total 100.0 % 100.0 % 100.0 % Medicare Reimbursement Medicare is a federal program that provides hospital and medical insurance benefits to persons aged 65 and over, qualified disabled persons, and persons with end-stage renal disease.
The sources and relative mix of our revenues for the last three years are: For the Year Ended December 31, 2025 2024 2023 Medicare 65.4 % 65.1 % 65.0 % Medicare Advantage 16.4 % 16.8 % 16.2 % Managed care 10.7 % 10.8 % 11.1 % Medicaid 3.1 % 3.3 % 4.0 % Other third-party payors 0.7 % 0.8 % 0.9 % Workers' compensation 0.5 % 0.5 % 0.5 % Patients 0.3 % 0.3 % 0.3 % Other income 2.9 % 2.4 % 2.0 % Total 100.0 % 100.0 % 100.0 % Medicare Reimbursement Medicare is a federal program that provides hospital and medical insurance benefits to persons aged 65 and over, qualified disabled persons, and persons with end-stage renal disease.
An acute-care hospital operating its own unit, particularly one owned or operated by a large public company or not-for-profit that has a dominant position in the local market, can be a formidable competitor because 91% of our patients come from acute-care hospitals.
An acute-care hospital operating its own unit, particularly one owned or operated by a large public company or not-for-profit that has a dominant position in the local market, can be a formidable competitor because 92% of our patients come from acute-care 3 hospitals.
As of December 31, 2024, we have a strong, well-capitalized balance sheet, including ownership of approximately 78% of our hospital real estate, no significant debt maturities until 2028, and ample availability under our revolving credit facility, which along with the cash flows generated from operations should, we believe, provide sufficient support for our business strategy. • Advanced Technology and Innovation .
As of December 31, 2025, we have a strong, well-capitalized balance sheet, including ownership of approximately 79% of our hospital real estate, no significant debt maturities until 2028, and ample availability under our revolving credit facility, which along with the cash flows generated from operations should, we believe, provide sufficient support for our business strategy. • Advanced Technology and Innovation .
Violators of the Stark law and regulations may be subject to recoupments, civil monetary sanctions (up to approximately 15 $31,000 for each violation and assessments up to three times the amount claimed for each prohibited service) and exclusion from any federal, state, or other governmental healthcare programs.
Violators of the Stark law and regulations may be subject to recoupments, civil monetary sanctions (up to approximately $32,000 for each violation and assessments up to three times the amount claimed for each prohibited service) and exclusion from any federal, state, or other governmental healthcare programs.
Our free cash flow is the primary source of funding for the considerable investment in our de novo and bed addition growth plans. As an additional source of liquidity, we can access our $1 billion revolving credit facility of which $944 million was available for borrowing as of December 31, 2024.
Our free cash flow is the primary source of funding for the considerable investment in our de novo and bed addition growth plans. As an additional source of liquidity, we can access our $1 billion revolving credit facility of which $824 million was available for borrowing as of December 31, 2025.
As of December 31, 2024, approximately 37% of our licensed beds are in states or U.S. territories that have CON laws. CON laws require a reviewing authority or agency to determine the public need for additional or expanded healthcare facilities and services.
As of December 31, 2025, approximately 36% of our licensed beds are in states or U.S. territories that have CON laws. CON laws require a reviewing authority or agency to determine the public need for additional or expanded healthcare facilities and services.
Some states impose provider taxes in the form of licensing fees, assessments, or other mandatory payments related to the provision of healthcare services in those states, which are used to fund a portion of the non-federal share of these directed and supplemental payments to providers.
Some states impose provider taxes in the form of licensing fees, assessments, or other mandatory payments related to the provision of healthcare services in those states, which are used to fund a portion of the non-federal share of payments to providers.
There are several privately held companies offering post-acute rehabilitation services that compete with us primarily in select geographic markets. In addition, there is a public company that is primarily focused on other post-acute care services but also operates 35 inpatient rehabilitation hospitals. Other providers of post-acute care services compete for some rehabilitation patients.
There are several privately held companies offering post-acute rehabilitation services that compete with us in select geographic markets. In addition, there is a public company that is primarily focused on other post-acute care services but also operates 38 inpatient rehabilitation hospitals across the country. Other providers of post-acute care services compete for some rehabilitation patients.
The federal government has become increasingly aggressive in asserting that incidents of erroneous billing or record keeping represent FCA violations and in challenging the medical judgment of independent physicians as the basis for FCA allegations.
The federal government and individual relators have become increasingly aggressive in asserting that incidents of erroneous billing or record keeping represent FCA violations and in challenging the medical judgment of independent physicians as the basis for FCA allegations.
Based on our analysis which utilizes, among other things, the acuity of our patients annualized over the twelve-month period ended June 30, 2024, our experience with outlier payments over that same time frame, and other factors, we believe the 2025 IRF Rule will result in a net increase to our Medicare payment rates of approximately 3.3% effective October 1, 2024.
Based on our analysis which utilizes the acuity of our patients annualized over the twelve-month period ended June 30, 2025, our experience with outlier payments over that same time frame, and other factors, we believe the 2026 IRF Rule will result in a net increase to our Medicare payment rates of approximately 2.9% effective October 1, 2025.
With IRF-PPS, our inpatient rehabilitation hospitals retain the difference, if any, between the fixed payment from Medicare and their operating costs. Accordingly, our hospitals benefit from being cost-effective providers. On July 27, 2023, CMS released its notice of final rulemaking for fiscal year 2024 IRF-PPS (the “2024 IRF Rule”).
With IRF-PPS, our inpatient rehabilitation hospitals retain the difference, if any, between the fixed payment from Medicare and their operating costs. Accordingly, our hospitals benefit from being cost-effective providers. On July 31, 2024, CMS released its notice of final rulemaking for fiscal year 2025 IRF-PPS (the “2025 IRF Rule”).
Unlike our inpatient services, our outpatient services are primarily reimbursed under the Medicare Part B physician fee schedule. On November 1, 2024, CMS released its final notice of rulemaking for the payment policies under the physician fee schedule and other revisions to Part B policies for calendar year 2025.
Unlike our inpatient services, our outpatient services are primarily reimbursed under the Medicare Part B physician fee schedule. On October 31, 2025, CMS released its final notice of rulemaking for the payment policies under the physician fee schedule and other revisions to Part B policies for calendar year 2025.
The future of many aspects of healthcare regulation remains uncertain. Any regulatory or legislative changes impacting the healthcare industry ultimately may affect, among other things, reimbursement of healthcare providers, consumers’ access to coverage of health services, including among non-Medicare aged population segments within commercial insurance markets and Medicaid enrollees, and competition among providers.
Any regulatory or legislative changes impacting the healthcare industry ultimately may affect, among other things, reimbursement of healthcare providers, consumers’ access to coverage of health services, including among non-Medicare aged population segments within commercial insurance markets and Medicaid enrollees, and competition among providers.
We reimbursed over $1.1 million in tuition and paid over $4.0 million toward employees’ student loan debt in 2024. • Academic Endowments. We endowed five scholarships for deserving students pursuing degrees in nursing and allied health fields. • Therapy Grants. We fund research projects to investigate the impact and effectiveness of therapy in the inpatient rehabilitation setting.
We reimbursed over $4.6 million in tuition and paid over $1.1 million toward employees’ student loan debt in 2025. • Academic Endowments. We fund several scholarships for deserving students pursuing degrees in nursing and allied health fields. • Therapy Grants. We fund research projects to investigate the impact and effectiveness of therapy in the inpatient rehabilitation setting.
The program is open to qualified candidates, including employees. • Other Employee Development Programs: ▪ career ladders that offer paths to develop, demonstrate, and be rewarded for expanded responsibility in nursing, therapy, case management, and information technology support; ▪ national certification program that provides preparation courses, test reimbursement, and additional compensation for nurses who obtain the certified rehabilitation registered nurse certification through the American Nurses Credentialing Center; ▪ nurse leadership academy workshops offered for mid-level nursing leadership positions to grow and empower the next generation of nursing leaders; ▪ online development library that provides access to a wide range of readily available internal and external content on many topics important for success in current or desired jobs; ▪ developing future leaders program that develops nurses and therapists for supervisory positions and develops nurse and therapy supervisors for higher level positions; 7 ▪ leadership precepting that provides new leaders 6-12 months of structured mentoring from experienced, high-performing peers; ▪ leadership coaching that provides six months of executive coaching to high performing leaders; and ▪ DFCEO program that provides 18-24 months of intensive on-the-job experience to develop participants for future hospital chief executive officer openings.
The program is open to qualified candidates, including employees. 5 • Other Employee Development Programs: – career ladders, discussed further below, that offer paths to develop, demonstrate, and be rewarded for expanded responsibility in nursing, therapy, case management, and information technology support; – national certification program that provides preparation courses, test reimbursement, and additional compensation for nurses who obtain the certified rehabilitation registered nurse certification through the American Nurses Credentialing Center; – nurse leadership academy workshops offered for mid-level nursing leadership positions to grow and empower the next generation of nursing leaders; – online development library that provides access to a wide range of readily available internal and external content on many topics important for success in current or desired jobs; – developing future leaders program that develops nurses and therapists for supervisory positions and develops nurse and therapy supervisors for higher level positions; – leadership precepting that provides new leaders 6-12 months of structured mentoring from experienced, high-performing peers; – leadership coaching that provides six months of executive coaching to high performing leaders; and – developing future CEO program that provides 18-24 months of intensive on-the-job experience to develop participants for future hospital chief executive officer openings; and – executive mentorship program that offers structured executive mentorship opportunities to support leadership development, knowledge sharing, and employee engagement and to strengthen leadership capability, reinforce organizational values, and support retention through professional growth and development.
As of December 31, 2024, 143 of our 166 hospitals held stroke-specific certifications that required us to demonstrate effective use of evidence-based clinical practice guidelines to manage and optimize stroke care and an organized approach to performance measurement and evaluation of clinical outcomes.
As of December 31, 2025, 148 of our 173 hospitals held stroke-specific certifications that required us to demonstrate effective use of evidence-based clinical practice guidelines to manage and optimize stroke care and an organized approach to performance measurement and evaluation of clinical outcomes.
For the year ended December 31, 2024, Medicaid payments for specific discharges represented only 3.3% of our cons olidated Net operating revenues , and Medicaid discharges represented 5.6% of our total inpatient discharges.
For the year ended December 31, 2025 , Medicaid payments for specific discharges represented only 3.1% of our cons olidated Net operating revenues , and Medicaid discharges represented 5.4% of our total inpatient discharges.
We will continue to develop and implement post-acute solutions that allow us to apply our clinical expertise, large post-acute datasets, electronic medical record technologies, and strategic partnerships to drive improved patient outcomes and lower the cost of care across the entire post-acute episode. We will seek to expand efforts and initiatives to recruit and retain a qualified clinical workforce.
We will continue to develop and implement post-acute solutions that allow us to apply our clinical expertise, large post-acute datasets, electronic medical record technologies, and strategic partnerships to drive improved patient outcomes and lower the cost of care across the entire post-acute episode.
Any additional downward adjustment to rates or limitations on reimbursement for the types of facilities we operate and services we provide could have a material adverse effect on our business, financial position, results of operations, and cash flows.
Congress, MedPAC, and CMS will continue to address reimbursement rates for a variety of healthcare settings. Any additional downward adjustment to rates or limitations on reimbursement for the types of facilities we operate and services we provide could have a material adverse effect on our business, financial position, results of operations, and cash flows.
In 2024, we were on average 13.1% above the healthcare benchmark in each of these 10 categories: • ethics and compliance • teamwork • culture of safety • engagement • diversity, equity, and inclusion • culture of trust • work environment • individual value • leadership • communication Furthermore, some hospitals participate in a 5-item pulse engagement survey mid-year to gain feedback on their engagement action plans.
In 2025, we exceeded the healthcare benchmark in all of the 10 categories (by an average 12.1%): • ethics and compliance • teamwork • culture of safety • engagement • inclusion and diversity • culture of trust • work environment • individual value • leadership • communication Furthermore, some hospitals participate in a 5-item pulse engagement survey mid-year to gain feedback on their engagement action plans.
We believe these factors align with our strengths in, and focus on, inpatient rehabilitation services. Despite the growing demand for inpatient rehabilitation services, the number of inpatient rehabilitation facilities (“IRFs”) has remained relatively stable — increasing just 2.3% from 1,179 in 2010 to 1,206 in 2023.
We believe these factors align with our strengths in, and focus on, inpatient rehabilitation services. Despite the growing demand for inpatient rehabilitation services, the number of inpatient rehabilitation facilities (“IRFs”) has remained relatively stable — decreasing slightly from 1,179 in 2010 to 1,170 in 2024.
As of or for the Year Ended December 31, 2024 2023 2022 Consolidated data: (Actual Amounts) Inpatient rehabilitation: Number of hospitals 166 161 153 Discharges 248,498 229,480 211,116 Number of licensed beds 11,094 10,778 10,356 Net operating revenues: (In Millions) Inpatient $ 5,230.5 $ 4,693.8 $ 4,251.6 Outpatient and other 142.7 107.4 97.0 Total $ 5,373.2 $ 4,801.2 $ 4,348.6 Our inpatient rehabilitation hospitals offer specialized rehabilitative care across an array of diagnoses and deliver comprehensive, high-quality, cost-effective patient care services.
As of or for the Year Ended December 31, 2025 2024 2023 Consolidated data: (Actual Amounts) Inpatient rehabilitation: Number of hospitals 173 166 161 Discharges 263,299 248,498 229,480 Number of licensed beds 11,465 11,094 10,778 Net operating revenues: (In Millions) Inpatient $ 5,756.3 $ 5,230.5 $ 4,693.8 Other 178.9 142.7 107.4 Total $ 5,935.2 $ 5,373.2 $ 4,801.2 Our inpatient rehabilitation hospitals offer specialized rehabilitative care across an array of diagnoses and deliver comprehensive, high-quality, cost-effective patient care services.
More specifically, the average age of our Medicare patients is approximately 78, and the population group ranging in ages from 75 to 79 is expected to grow at approximately 5% per year through 2026. We believe the demand for the services we provide will continue to increase as the U.S. population ages.
More specifically, the average age of our Medicare patients is approximately 77, and the population group of age 75 and over is expected to grow at approximately 4% per year through 2030. We believe the demand for the services we provide will continue to increase as the U.S. population ages.
In addition to standard federal criminal and civil sanctions, including imprisonment and penalties of up to $100,000 for each violation plus tripled damages for improper claims, violators of the Anti-Kickback Law may be subject to exclusion from the Medicare and/or Medicaid programs. Federal civil penalties will be adjusted to account for inflation each year.
In addition to standard federal criminal and civil sanctions, including imprisonment and penalties of up to a $100,000 criminal fine and an approximately $128,000 civil penalty for each violation plus tripled damages for associated improper claims under the FCA, violators of the Anti-Kickback Law may be subject to exclusion from the Medicare and/or Medicaid programs.
Our hospitals provide a comprehensive interdisciplinary clinical approach to treatment that leverages innovative technologies and advanced therapies and leads to superior outcomes. 1 Strategy and Strategic Priorities Our overall strategy is to expand our network of inpatient rehabilitation hospitals, add capacity to existing hospitals, further strengthen our relationships with healthcare systems, provider networks, and payors in order to connect patient care across the healthcare continuum, and to deliver superior patient outcomes in a cost-effective manner.
Strategy and Strategic Priorities Our strategy is to expand our network of inpatient rehabilitation hospitals, add capacity to existing hospitals, further strengthen our relationships with healthcare systems, provider networks, and payors in order to connect patient care across the healthcare continuum, and to deliver superior patient outcomes in a cost-effective manner.
Although there is a safe harbor for personal services and management contracts, this safe harbor requires, among other things, the aggregate compensation paid to the manager over the term of the agreement be set in advance. Because our management fee may be based on a percentage of revenues, the fee arrangement may not meet this requirement.
Most of these agreements incorporate a percentage-based management fee. Although there is a safe harbor for personal services and management contracts, this safe harbor requires, among other things, the aggregate compensation paid to the manager over the term of the agreement be set in advance.
Section GG affects patients’ classification into case-mix groupings, relative weights, and length-of-stay values under the IRF-PPS, which in turn affect our reimbursement amounts. In some instances, CMS’s modifications can have a substantial impact on healthcare providers.
Section GG affects patients’ classification into 9 case-mix groupings, relative weights, and length-of-stay values under the IRF-PPS, which in turn affect our reimbursement amounts. In some instances, CMS’s modifications can have a substantial impact on healthcare providers. We cannot predict the adjustments to Medicare payment systems Congress or CMS may make in the future.
Our post-acute innovation strategy is based on using our clinical expertise, our large post-acute datasets, and our proven capabilities in enterprise-level electronic medical record technologies, data analytics, data integration, and predictive analytics to drive value-based 3 performance for our patients, our partners, and our payors.
We are focused on developing technology-enabled strategies to further improve our effectiveness at providing post-acute healthcare. Our post-acute innovation strategy is based on using our clinical expertise, our large post-acute datasets, and our proven capabilities in enterprise-level electronic medical record technologies, data analytics, data integration, and predictive analytics to drive value-based performance for our patients, our partners, and our payors.
Type Employees Full-time Employees 23,564 Part-time Employees 3,253 Pool/Per-diem Employees 13,258 In some markets, the shortage of clinical personnel is a significant operating issue facing healthcare providers.
Type Employees Full-time Employees 24,611 Part-time Employees 3,322 Pool/Per-diem Employees 14,367 In some markets, the shortage of clinical personnel is a significant operating issue facing healthcare providers.
A rehabilitation physician must then conduct face-to-face visits with the patients at least three days per week throughout the IRF stay. Also, patients admitted to IRFs must be able to tolerate a minimum of three hours of therapy per day for five days per week, and IRFs must have a registered nurse available 24 hours, each day of the week.
Also, patients admitted to IRFs must be able to tolerate a minimum of three hours of therapy per day for five days per week, and IRFs must have a registered nurse available 24 hours, each day of the week.
In May 2024, CMS issued a final rule related to Medicaid managed care programs that addresses state directed payment programs and imposes new requirements for these programs. The various elements of the rule take effect between its issuance and early 2028. It is possible that this or other rulemaking could result in a restructuring of existing programs.
In May 2024, CMS issued a final rule related to Medicaid managed care programs that addressed state directed payment programs and imposed new requirements for these programs. The various elements of the rule take effect between its issuance and early 2028.
We believe our consistent and disciplined operating model allows us to be nimble and responsive to change, such as the significant operating and regulatory changes and challenges associated with the pandemic and the related public health emergency. • Strategic Relationships . We have a long and successful history of building strategic relationships with major healthcare systems.
We believe our consistent and disciplined operating model allows us to be nimble and responsive to change as we have shown following a number of significant changes to our Medicare payment system. • Strategic Relationships . We have a long and successful history of building strategic relationships with major healthcare systems.
We undertake significant effort and expense to provide the medical, nursing, therapy, and ancillary services required to comply with local, state, and federal regulations, as well as, for most hospitals, accreditation standards of The Joint Commission and, for some hospitals, the Commission on Accreditation of Rehabilitation Facilities.
We undertake significant effort and expense to provide the medical, nursing, therapy, and ancillary services required to comply with local, state, and federal regulations as well as applicable accreditation standards, which for most of our hospitals are those of The Joint Commission. Accredited hospitals are subject to periodic resurvey to ensure the standards are being met.
Accordingly, part-time and per diem employees represent a large percentage of our employee population. Except for 50 employees at one hospital (approximately 15% of that hospital’s workforce), none of our employees are represented by a labor union as of December 31, 2024. The chart below includes a breakdown of our employees.
Except for 50 employees at one hospital (approximately 14% of that hospital’s workforce), none of our employees are represented by a labor union as of December 31, 2025. The chart below includes a breakdown of our employees.
We cannot predict what retroactive adjustments, if any, will be made, but we do not anticipate these adjustments will have a material impact on us. 12 Regulation The healthcare industry is subject to significant federal, state, and local regulation that affects our business activities by controlling the reimbursement we receive for services provided, requiring licensure or certification of our operations, regulating our relationships with physicians and other referral sources, regulating the use of our properties, and controlling our growth.
Regulation The healthcare industry is subject to significant federal, state, and local regulation that affects our business activities by controlling the reimbursement we receive for services provided, requiring licensure or certification of our operations, regulating our relationships with physicians and other referral sources, regulating the use of our properties, and controlling our growth.
However, we believe our management arrangements satisfy the other requirements of the safe harbor for personal services and management contracts and comply with the Anti-Kickback Law. Physician Self-Referral Law .
Because our management fee may be based on a percentage of revenues, the fee arrangement may not meet this requirement. However, we believe our management arrangements satisfy the other requirements of the safe harbor for personal services and management contracts and comply with the Anti-Kickback Law. Physician Self-Referral Law .
While we treat patients of all ages, most of our patients are 65 and older, and the number of Medicare enrollees is expected to grow approximately 3% per year for the foreseeable future, reaching approximately 73 million people over the age of 65 by 2030.
While we treat patients of all ages, most of our patients are 65 and older, and the number of Medicare enrollees is expected to continue to grow for the foreseeable future.
HHS-OIG and other regulators have also increasingly interpreted laws and regulations in a manner as to increase exposure of healthcare providers to allegations of noncompliance. Any actual or perceived violation of privacy-related laws and regulations, including HIPAA and the HITECH Act, could have a material adverse effect on our business, financial position, results of operations, and cash flows.
Any actual or perceived violation of privacy-related laws and regulations, including HIPAA and the HITECH Act, could have a material adverse effect on our business, financial position, results of operations, and cash flows.
In addition to the risk and burden of new, additional, or more stringent regulatory standards, these state and local regulations often conflict with federal regulation, and with each other.
Beyond healthcare specific regulations, we face increasing state and local regulation in areas, such as labor and employment, energy efficiency, and data privacy. In addition to the risk and burden of new, additional, or more stringent regulatory standards, these state and local regulations often conflict with federal regulation, and with each other.
Item 1. Business Overview of the Company General We are a national leader in post-acute healthcare services and the nation’s largest owner and operator of inpatient rehabilitation hospitals in terms of patients treated, revenues, and number of hospitals. We provide specialized rehabilitative treatment on an inpatient basis.
Item 1. Business Overview of the Company General We are the nation’s largest owner and operator of inpatient rehabilitation hospitals in terms of patients treated, revenues, and number of hospitals.
We believe this strategy, along with our demonstrated ability to adapt to changes in healthcare, positions us for success in the evolving healthcare delivery system. In pursuit of our strategy, we established the following priorities for 2025. • Growth .
We believe this strategy, along with 1 our demonstrated ability to adapt to changes in healthcare, positions us for success in the evolving healthcare delivery system. In pursuit of our strategy, we established the following priorities. • Growth . We actively pursue capacity expansions through the development of new inpatient rehabilitation hospitals and additions to existing hospitals each year.
Our priorities include operational initiatives that build on momentum from recent years and further our goal of superior patient outcomes. We have pursued and will continue to pursue initiatives to lower our rate of transfers to acute-care hospitals, improve our rate of discharges to community, and improve the patient experience.
We have pursued and will continue to pursue initiatives to lower our rate of transfers to acute-care hospitals, improve our rate of discharges to community, and improve the patient experience.
We have a proven track record of generating strong cash flows from operations that have allowed us to successfully pursue our growth strategy, manage our financial leverage, and make complementary shareholder distributions. We did not accept any pandemic relief funds under the Coronavirus Aid, Relief, and Economic Security Act of 2020 or any other program or legislation.
We have a proven track record of generating strong cash flows from operations that have allowed us to successfully pursue our growth strategy, manage our financial leverage, and make complementary shareholder distributions.
We operate hospitals in 38 states and Puerto Rico, with concentrations in Florida and Texas. As of December 31, 2024, we operated 166 inpatient rehabilitation hospitals. We are committed to delivering high-quality, cost-effective patient care. For 2025, we were named to Fortune’s list of the World’s Most Admired Companies and Forbes’ list of Most Trusted Companies in America.
As of December 31, 2025, we operated 173 inpatient rehabilitation hospitals. We are committed to delivering high-quality, cost-effective patient care. For 2025, we were named America’s Most Awarded Leader in Inpatient Rehabilitation by Newsweek and Statista and ranked among Fortune’s World’s Most Admired Companies™ and Forbes’ Most Trusted Companies in America.
Healthcare will be the subject of significant regulatory and legislative changes regardless of the party in control of the executive and legislative branches of state and federal governments. From time to time, Medicare regulations, including reimbursement methodologies and rates, can be further modified by CMS. Subject to its statutory authority, CMS may make some prospective payment system changes.
Healthcare will be the subject of significant regulatory and legislative changes regardless of the party in control of the executive and legislative branches of state and federal governments. CMS regularly modifies Medicare regulations, including reimbursement methodologies and rates.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe cannot predict the nature or timing of any changes to the laws, regulations, or the operations of governmental agencies that either currently affect, or may in the future affect, our government reimbursement or business. 19 There can be no assurance future governmental action will not result in substantial changes to, or material reductions in, our reimbursements, including through Medicaid and related state directed and supplemental payment programs.
Biggest changeThere can be no assurance future governmental action will not result in substantial changes to, or material reductions in, our reimbursements, including through Medicaid and related state directed and supplemental payment programs. We receive state directed and supplemental payments in connection with several state Medicaid programs. In 2025, those payments totaled approximately $148 million.
Under CMS’s Targeted Probe and Educate (“TPE”) program, MACs use data analysis to identify healthcare providers with unusual billing practices, high claim error rates, and items and services that have high national error rates. Once a MAC selects a provider for claims review, the initial volume of claims review is limited to 20 to 40 claims.
Under CMS’s Targeted Probe and Educate (“TPE”) program, MACs use data analysis to identify healthcare providers with unusual billing practices, high claim error rates, and items and services that have high national error rates. Once a MAC 20 selects a provider for claims review, the initial volume of claims review is limited to 20 to 40 claims.
If an IRF does not demonstrate compliance with the 60% Rule by either the presumptive method or through a review of medical records, then its classification as an IRF may be terminated by CMS causing the facility to be paid under the acute-care payment system which would result in reduced reimbursement per discharge.
If a facility does not demonstrate compliance with the 60% Rule by either the presumptive method or through a review of medical records, then its classification as an IRF may be terminated by CMS causing the facility to be paid under the acute-care payment system which would result in reduced reimbursement per discharge.
The impact on our operations and financial performance depends on numerous factors, including the rate of spread, duration 39 and geographic coverage of an outbreak; the rate and extent to which the disease mutates and the severity of the symptoms of the disease; the status of testing capabilities; the rates of vaccination and therapeutic remedies for the disease and any variant strains; the legal, regulatory and administrative developments related to the pandemic at federal, state, and local levels, such as vaccine mandates, anti-mandate laws and orders, shelter-in-place orders, facility closures and quarantines; and the infectious disease prevention and control efforts of the Company, governments and third parties.
The impact on our operations and financial performance depends on numerous factors, including the rate of spread, duration and geographic coverage of an outbreak; the rate and extent to which the disease mutates and the severity of the symptoms of the disease; the status of testing capabilities; the rates of vaccination and therapeutic remedies for the disease and any variant strains; the legal, regulatory and administrative developments related to the pandemic at federal, state, and local levels, such as vaccine mandates, anti-mandate laws and orders, shelter-in-place orders, facility closures and quarantines; and the infectious disease prevention and control efforts of the Company, governments and third parties.
There can be no assurance that our efforts to improve the care we deliver and to comply with the law through increasing use of electronic data and system interoperability will not receive negative publicity that may materially and adversely affect our ability to get patient referrals or enter into joint ventures with other providers or may lead to greater regulatory scrutiny.
There can be no assurance that our efforts to improve the 29 care we deliver and to comply with the law through increasing use of electronic data and system interoperability will not receive negative publicity that may materially and adversely affect our ability to get patient referrals or enter into joint ventures with other providers or may lead to greater regulatory scrutiny.
It is possible that Medicare, Medicaid, documentation support, system problems or other provider issues or industry trends, particularly with respect to newly acquired entities for which we have limited operational experience, may extend our collection period, which may materially adversely affect our working capital, and our working capital management procedures may not successfully mitigate this risk.
It is possible that Medicare, Medicaid, documentation support, system problems or 22 other provider issues or industry trends, particularly with respect to newly acquired entities for which we have limited operational experience, may extend our collection period, which may materially adversely affect our working capital, and our working capital management procedures may not successfully mitigate this risk.
Future business needs combined with market conditions at the time may cause us to seek alternative sources of potentially less attractive financing and may require us to adjust our business plan accordingly. Tight credit markets, such as might result from further turmoil in the sovereign debt markets, would likely make additional financing more expensive and difficult to obtain.
Future business needs combined with market conditions at the time may cause us to seek alternative sources of potentially less attractive financing and may require us to adjust our business plan accordingly. Tight credit markets, such as might result from turmoil in the sovereign debt markets, would likely make additional financing more expensive and difficult to obtain.
Substantial damages, fines, or other remedies assessed against us or agreed to in settlements could have a material adverse effect on our business, financial position, results of operations, and cash flows, including indirectly as a result of the 38 covenant defaults under our credit agreement or debt instruments or other claims such as those in securities actions.
Substantial damages, fines, or other remedies assessed against us or agreed to in settlements could have a material adverse effect on our business, financial position, results of operations, and cash flows, including indirectly as a result of the covenant defaults under our credit agreement or debt instruments or other claims such as those in securities actions.
For additional discussion of how we are reimbursed by Medicare, see Item 1, Business , “Regulatory and Reimbursement Challenges” and “Sources of Revenues—Medicare Reimbursement.” In addition, there are increasing pressures from managed care, including Medicare Advantage, and other third-party payors to control healthcare costs and to reduce or limit increases in reimbursement rates for medical services.
For additional discussion of how we are reimbursed by Medicare and Medicaid, see Item 1, Business , “Regulatory and Reimbursement Challenges” and “Sources of Revenues.” In addition, there are increasing pressures from managed care, including Medicare Advantage, and other third-party payors to control healthcare costs and to reduce or limit increases in reimbursement rates for medical services.
Although the IMPACT Act did not specifically call for the implementation of a new post-acute payment system, this act laid the foundation for possible future post-acute payment policies in which Medicare payments are driven primarily by patients’ medical conditions and other clinical factors rather than the setting where the care is provided.
Although the IMPACT Act did not specifically call for the implementation of a new post-acute payment system, this act laid the foundation for possible future post-acute payment policies in which Medicare payments are driven primarily by patients’ medical conditions and other clinical factors rather than the costs of the setting where the care is provided.
The federal government’s reliance on sub-regulatory guidance, such as handbooks, FAQs, internal memoranda, and press releases, presents a unique challenge to compliance efforts. Such sub-regulatory guidance purports to explain validly promulgated regulations but often expands or supplements existing regulations without constitutionally and statutorily required notice and comment and other procedural protections.
The federal government’s reliance on sub-regulatory 28 guidance, such as handbooks, FAQs, internal memoranda, and press releases, presents a unique challenge to compliance efforts. Such sub-regulatory guidance purports to explain validly promulgated regulations but often expands or supplements existing regulations without constitutionally and statutorily required notice and comment and other procedural protections.
Any failure to comply with these employment-related legal requirements can result in significant penalties or litigation exposure and could have a material adverse effect on our business, financial position, results of operations, and cash flows. 32 The pricing transparency and similar consumer protection rules could adversely affect our business and results of operations.
Any failure to comply with these employment-related legal requirements can result in significant penalties or litigation exposure and could have a material adverse effect on our business, financial position, results of operations, and cash flows. The pricing transparency and similar consumer protection rules could adversely affect our business and results of operations.
These factors and others may delay, or increase the cost to us associated with, any acquisition or de novo development or prevent us from completing one or more acquisitions or de novo developments. 36 Acute-care hospitals that participate in joint ventures with us may experience operational or financial challenges that, in turn, affect our joint venture inpatient rehabilitation hospitals.
These factors and others may delay, or increase the cost to us associated with, any acquisition or de novo development or prevent us from completing one or more acquisitions or de novo developments. Acute-care hospitals that participate in joint ventures with us may experience operational or financial challenges that, in turn, affect our joint venture inpatient rehabilitation hospitals.
Additionally, concerns held by federal policymakers about the federal deficit, national debt levels, or healthcare spending specifically, including solvency of the Medicare trust fund, could result in enactment of further federal spending reductions, including by means of significant staffing reductions at HHS, further entitlement reform legislation affecting the 18 Medicare and Medicaid programs, and further reductions to provider payments.
Concerns held by federal policymakers about the federal deficit, national debt levels, or healthcare spending specifically, including solvency of the Medicare trust fund, could result in enactment of further federal spending reductions, including by means of significant staffing reductions at HHS, further entitlement reform legislation affecting the Medicare and 18 Medicaid programs, and further reductions to provider payments.
Under this new rule, CMS may revoke a provider’s Medicare enrollment, including all of the provider’s locations, if the provider bills for services performed at, or items furnished from, one location that it knew or should have known did not comply with Medicare enrollment requirements, including making the disclosures discussed above.
Under this rule, CMS may revoke a provider’s Medicare enrollment, including all of the provider’s locations, if the provider bills for services performed at, or items furnished from, one location that it knew or should have known did not comply with Medicare enrollment requirements, including making the disclosures discussed above.
We currently have a minimal number of union employees, so an increase in labor union activity could have a significant impact on our staffing costs. Our failure to recruit and retain qualified clinical personnel, or to control our staffing costs, could have a material adverse effect on our business, financial position, results of operations, and cash flows.
We currently have a minimal number of union employees, so an increase in labor union activity could 37 have a significant impact on our staffing costs. Our failure to recruit and retain qualified clinical personnel, or to control our staffing costs, could have a material adverse effect on our business, financial position, results of operations, and cash flows.
Additionally, in states with CON laws, it is not unusual for third-party providers to challenge the initial awards of CONs, the increase in the number of approved beds in an existing CON, or the expansion of the area served, and the adjudication of those challenges and related appeals may take many years.
Additionally, in states with CON laws, 35 it is not unusual for third-party providers to challenge the initial awards of CONs, the increase in the number of approved beds in an existing CON, or the expansion of the area served, and the adjudication of those challenges and related appeals may take many years.
The majority of our patients are elderly individuals with complex medical challenges, many of whom may be more vulnerable than the general public during a contagious disease outbreak or other public health catastrophe. Our employees are also at greater risk of contracting contagious diseases due to their increased exposure to vulnerable patients.
The majority of our patients are elderly individuals with complex medical challenges, many of whom may be more vulnerable than the general public during a contagious disease outbreak or other public health catastrophe. Our employees also may be at greater risk of contracting contagious diseases due to their exposure to vulnerable patients.
Under the IRF RCD, participating IRFs have an initial choice between pre-claim or post-payment review of 100% of Medicare claims submitted to demonstrate compliance with applicable coverage and clinical documentation requirements. We elected the pre-claim review option for our IRFs in Alabama for the first cycle.
Under the RCD, participating IRFs have an initial choice between pre-claim or post-payment review of 100% of Medicare claims submitted to demonstrate compliance with applicable coverage and clinical documentation requirements. We elected the pre-claim review option for our IRFs in Alabama for the first cycle.
In the final IRF-PPS rule for 2023, CMS acknowledged industry comments on the policy and noted those comments would be taken under advisement for future rulemaking, but neither the proposed nor the final rulemaking for fiscal years 2024 or 2025 made reference to a change in the IRF transfer payment policy.
In the final IRF-PPS rule for 2023, CMS acknowledged industry comments on the policy and noted those comments would be taken under advisement for future rulemaking, but neither the proposed nor the final rulemaking for fiscal years 2024, 2025, or 2026 made reference to a change in the IRF transfer payment policy.
In September 2018, the HHS-OIG released a report purporting to identify a high error rate (approximately 80% of claims) among inpatient rehabilitation hospital admissions in a small sample of 220 claims. Based on its findings, the HHS-OIG extrapolated the error rate to the universe of inpatient 27 rehabilitation claims and, among other things, recommended reevaluation of the IRF-PPS.
In September 2018, the HHS-OIG released a report purporting to identify a high error rate (approximately 80% of claims) among inpatient rehabilitation hospital admissions in a small sample of 220 claims. Based on its findings, the HHS-OIG extrapolated the error rate to the universe of inpatient rehabilitation claims and, among other things, recommended reevaluation of the IRF-PPS.
We monitor legal developments in data privacy and security regulations at the local, state and federal level, however, the regulatory framework for data privacy and security worldwide is continuously evolving and developing and, as a result, interpretation and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future.
We monitor legal developments in data privacy and security regulations at the local, state and federal level, however, the regulatory framework for data privacy and 30 security worldwide is continuously evolving and developing and, as a result, interpretation and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future.
There can be no assurance that we will identify or adequately mitigate all threats to our systems, particularly in light of the number of well-funded and organized threat actors working to attack healthcare providers and the possibility of zero-day vulnerabilities and exploits yet to be identified.
There can be no assurance that we will identify or adequately mitigate all threats to 33 our systems, particularly in light of the number of well-funded and organized threat actors working to attack healthcare providers and the possibility of zero-day vulnerabilities and exploits yet to be identified.
If an uninsured or self-pay patient receives a bill that is substantially greater than the expected charges in the estimate or the provider furnishes an item or service that was not included in the estimate, the patient may initiate a patient-provider dispute resolution process established by regulation.
If an uninsured or self-pay patient receives a bill that is substantially greater than the expected charges in the estimate or the provider furnishes an item or service that was not included 32 in the estimate, the patient may initiate a patient-provider dispute resolution process established by regulation.
Substantial additional expenditures may be required to respond to and remediate any problems caused by breaches, including the unauthorized access to or theft of patient data and protected health information stored in our information systems and the introduction of computer malware or 33 ransomware to our systems.
Substantial additional expenditures may be required to respond to and remediate any problems caused by breaches, including the unauthorized access to or theft of patient data and protected health information stored in our information systems and the introduction of computer malware or ransomware to our systems.
The United States Department of Health and Human Services Office of Civil Rights (“HHS-OCR”) patient right of access initiative, which has similar objectives to the new ONC initiative, such as promoting and enforcing patient access to health information, has led to dozens of settlements of enforcement actions.
The United States Department of Health and Human Services Office of Civil Rights (“HHS-OCR”) patient right of access initiative, which has similar objectives to the ONC initiative, such as promoting and enforcing patient access to health information, has led to dozens of settlements of enforcement actions.
Given the rapid development of cybersecurity and data privacy laws, we expect to encounter inconsistent interpretation and enforcement of these laws and regulations, as well as frequent changes to these laws and regulations which may expose us to significant penalties or liability for noncompliance, the possibility of fines, lawsuits (including class action privacy litigation), regulatory investigations, criminal or civil sanctions, audits, adverse media coverage, public censure, other claims, significant costs for remediation and damage to our reputation, or otherwise have a material adverse effect on our business and operations.
Given the rapid development of cybersecurity, data privacy, and artificial intelligence laws, we expect to encounter inconsistent interpretation and enforcement of these laws and regulations, as well as frequent changes to these laws and regulations which may expose us to significant penalties or liability for noncompliance, the possibility of fines, lawsuits (including class action privacy litigation), regulatory investigations, criminal or civil sanctions, audits, adverse media coverage, public censure, other claims, significant costs for remediation and damage to our reputation, or otherwise have a material adverse effect on our business and operations.
For example, in 2023, South Carolina enacted legislation to repeal CON regulations for several provider types, including IRFs. Conversely, competition and statutory procedural requirements in some CON states may inhibit our ability to 35 expand our operations in those states.
For example, in 2023, South Carolina enacted legislation to repeal CON regulations for several provider types, including IRFs. Conversely, competition and statutory procedural requirements in some CON states may inhibit our ability to expand our operations in those states.
However, CMS holds the acute-care hospital where a joint replacement takes place accountable for the quality and costs of care for the 24 entire episode of care — from the time of the original admission through 90 days after discharge.
However, CMS holds the acute-care hospital where a joint replacement takes place accountable for the quality and costs of care for the entire episode of care — from the time of the original admission through 90 days after discharge.
Human error and oversight in record keeping and documentation, particularly where those activities are the responsibility of non-employees, are always a risk in business, and 28 healthcare providers and independent physicians are not immune to this risk.
Human error and oversight in record keeping and documentation, particularly where those activities are the responsibility of non-employees, are always a risk in business, and healthcare providers and independent physicians are not immune to this risk.
CMS will hold the acute-care hospital where these procedures take place accountable for the quality and costs of care for the entire episode of care — from the time of the original admission through 30 days after discharge.
CMS will hold the acute-care hospital where these procedures take place accountable for the quality and costs of care for the entire episode of care — from the time of the original admission through 30 days after an acute-care discharge.
Depending on the quality and cost performance during the entire episode, the acute-care hospital may receive an additional payment or be required to repay Medicare a portion of the episode costs.
Depending on the quality and 24 cost performance during the entire episode, the acute-care hospital may receive an additional payment or be required to repay Medicare a portion of the episode costs.
The nature and substance of state and federal healthcare laws are subject to change, by means of both broad-based healthcare reform legislation, like the ACA, and targeted legislative and regulatory action.
The nature and substance of state and federal healthcare laws are subject to change frequently, by means of both broad-based healthcare reform legislation, like the ACA, and targeted legislative and regulatory action.
A security breach or other system failure involving Oracle Cerner, Change Healthcare, or another third-party with whom we share data or system connectivity could compromise our patient data or proprietary information or disrupt our ability to operate, including submitting claims for payment, any of which could have a material adverse effect on our business, financial position, results of operations and cash flows.
A security breach or other system failure involving Oracle Health, Change Healthcare, or another third-party with whom we share data or system connectivity could compromise our patient data or proprietary information or disrupt our ability to operate, including submitting claims for payment, any of which could have a material adverse effect on our business, financial position, results of operations and cash flows.
In connection with CMS’s final rulemaking for the IRF-PPS in each year since 2008, MedPAC has recommended either no updates to payments or reductions to payments. For example, at its January 2025 meeting, MedPAC approved recommending to Congress, among other things, legislative changes to reduce by 7% the base payment rate under IRF-PPS.
In connection with CMS’s final rulemaking for the IRF-PPS in each year since 2008, MedPAC has recommended either no updates to payments or reductions to payments. For example, at its January 2026 meeting, MedPAC approved recommending to Congress, among other things, legislative changes to reduce by 7% the base payment rate under IRF-PPS.
Working capital management, including prompt and diligent billing and collection, is an important factor in our financial position and results of 22 operations and in maintaining liquidity.
Working capital management, including prompt and diligent billing and collection, is an important factor in our financial position and results of operations and in maintaining liquidity.
Additionally, judges and juries in California have demonstrated a willingness to grant large verdicts to plaintiffs in connection with employment and labor related cases.
Additionally, judges and juries in California have demonstrated a willingness to grant large verdicts to plaintiffs in connection with employment and labor related 38 cases.
For additional discussion of our material debt covenants, see the “Liquidity and Capital Resources” section of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , and Note 9, Long-term Debt , to the accompanying consolidated financial statements. In addition, our credit agreement requires us to maintain specified financial ratios and satisfy certain financial condition tests.
For additional discussion of our material debt covenants, see the “Liquidity and Capital Resources” section of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , and Note 8, Long-term Debt , to the accompanying consolidated financial statements. In addition, our credit agreement requires us to maintain specified financial ratios and satisfy certain financial condition tests.
It is unclear whether CMS intends to conduct RAC prepayment reviews in the future and if so, what providers and claims would be the focus of those reviews. CMS has also established other types of contractors, including the Uniform Program Integrity Contractors (“UPICs”) and the Supplemental Medical Review Contractor (“SMRC”).
It is unclear whether CMS intends to conduct RAC prepayment reviews in the future and if so, what providers and claims would be the focus of those reviews. CMS has also established other types of contractors, including the Uniform Program Integrity Contractor (“UPIC”) and the Supplemental Medical Review Contractor (“SMRC”).
In an attempt to reduce costs or increase reimbursements, referral sources may seek to discourage referrals to post-acute care all together.
In an attempt to reduce costs or increase reimbursements, referral sources may seek to discourage referrals to IRFs or post-acute care all together.
We self-insure a substantial portion of our professional, general, and workers’ compensation liability risks, which may not include risks related to regulatory fines and penalties, through our captive insurance subsidiary, as discussed further in Note 10, Self-Insured Risks , to the accompanying consolidated financial statements.
We self-insure a substantial portion of our professional, general, and workers’ compensation liability risks, which may not include risks related to regulatory fines and penalties, through our captive insurance subsidiary, as discussed further in Note 9, Self-Insured Risks , to the accompanying consolidated financial statements.
See Note 9, Long-term Debt , to the accompanying consolidated financial statements, the “Liquidity and Capital Resources” section of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , and Item 2, Properties . Uncertainty in the credit markets could adversely affect our financial condition or our growth opportunities.
See Note 8, Long-term Debt , to the accompanying consolidated financial statements, the “Liquidity and Capital Resources” section of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , and Item 2, Properties . Uncertainty in the credit markets could adversely affect our financial condition or our growth opportunities.
Acquisitions, investments, and joint ventures involve numerous risks, including: • limitations, including state CONs as well as anti-trust, Medicare, and other regulatory approval requirements, on our ability to complete such acquisitions, particularly those involving not-for-profit providers, on terms, timetables, and valuations reasonable to us; • limitations in obtaining financing for acquisitions at a cost reasonable to us; • difficulties integrating acquired operations, personnel, and information systems, and in realizing projected revenues, efficiencies and cost savings, or returns on invested capital; • entry into markets, businesses or services in which we may have little or no experience; • diversion of business resources or management’s attention from ongoing business operations; and • exposure to undisclosed or unforeseen liabilities of acquired operations, including liabilities for failure to comply with healthcare laws and anti-trust considerations as well as risks and liabilities related to previously compromised information systems.
Acquisitions, investments, and joint ventures involve numerous risks, including: • limitations, including state CONs as well as anti-trust, Medicare, and other regulatory approval requirements, on our ability to complete such acquisitions, particularly those involving not-for-profit providers, on terms, timetables, and valuations reasonable to us; • difficulties integrating acquired operations, personnel, and information systems, and in realizing projected revenues, efficiencies and cost savings, or returns on invested capital; • entry into markets, businesses or services in which we may have little or no experience; 36 • diversion of business resources or management’s attention from ongoing business operations; and • exposure to undisclosed or unforeseen liabilities of acquired operations, including liabilities for failure to comply with healthcare laws and anti-trust considerations as well as risks and liabilities related to previously compromised information systems.
In the case of a material breach or cyber attack, the associated expenses and losses may exceed our current insurance coverage for such events. Some adverse consequences are not insurable, such as reputational harm and third-party business interruption.
In the case of a material breach or cyber attack, the associated expenses and losses may exceed our current insurance coverage for such events. Some adverse consequences may not be insurable, such as reputational harm and third-party business interruption.
If a certain percentage of the claims reviewed are found to be valid, the IRF may then opt out of the 100% review. The opt-out validation percentages for the second and third cycles were 85% or greater and 90% or greater, respectively.
If a certain percentage of the claims reviewed are found to be valid, the IRF may then opt out of the 100% review. The opt-out validation percentages for the first, second, and third cycles were 80% or greater, 85% or greater and 90% or greater, respectively.
For example, if another pandemic were to occur, we could suffer significant losses to our consumer population or a reduction in the availability of our employees and, at a high cost, be required to replace affected workers.
For example, if another pandemic were to occur, we could suffer significant losses to our patient population or a reduction in the availability of our employees and, at a high cost, be required to replace affected workers.
On August 1, 2024, CMS published its final rule establishing the Transforming Episode Accountability Model (“TEAM”). This five-year mandatory model begins January 1, 2026 and ends on December 31, 2030. The model seeks to test whether 30-day episode-based payments for five common procedures will reduce Medicare expenditures without lowering quality of care.
On August 1, 2024, CMS published its final rule establishing the Transforming Episode Accountability Model (“TEAM”). This five-year mandatory model began January 1, 2026 and ends on December 31, 2030. The model seeks to test whether 30-day episode-based payments for five common surgical procedures will reduce Medicare expenditures without lowering quality of care.
For example, acute-care hospitals, including those owned and operated by large public companies, may choose to expand or begin offering post-acute rehabilitation services. Given that approximately 91% of our hospitals’ admissions come from acute-care hospitals, that increase in competition could materially and adversely affect our admission referrals in the related markets.
For example, acute-care hospitals, including those owned and operated by large public companies, may choose to expand or begin offering post-acute rehabilitation services. Given that approximately 92% of our hospitals’ admissions come from acute-care hospitals, that increase in competition could materially and adversely affect our admission 34 referrals in the related markets.
We currently have 65 inpatient rehabilitation hospitals that are owned and operated as joint ventures with acute-care hospitals. In substantially all of these joint ventures, our co-owners are nonprofit hospitals or health systems.
We currently have 67 inpatient rehabilitation hospitals that are owned and operated as joint ventures with acute-care hospitals. In substantially all of these joint ventures, our co-owners are nonprofit hospitals or health systems.
ACE-IT, our enterprise-level clinical information system, is subject to a licensing, implementation, technology hosting, and support agreement with Oracle Cerner Corporation. In addition, we have a number of partners and non-software vendors with whom we share data in order to provide patient care and otherwise operate our business.
ACE-IT, our enterprise-level clinical information system, is subject to a licensing, implementation, technology hosting, and support agreement with Oracle Health. In addition, we have a number of partners and non-software vendors with whom we share data in order to provide patient care and otherwise operate our business.
Although we remained in compliance with the financial ratios and financial condition tests as of December 31, 2024, we cannot provide assurance we will continue to do so. Events beyond our control, including changes in general economic and business conditions, may affect our ability to meet those financial ratios and financial condition tests.
Although we remained in compliance with the financial ratios and financial condition tests as of December 31, 40 2025, we cannot provide assurance we will continue to do so. Events beyond our control, including changes in general economic and business conditions, may affect our ability to meet those financial ratios and financial condition tests.
See the “Liquidity and Capital Resources” section of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , and Note 9, Long-term Debt , to the accompanying consolidated financial statements.
See the “Liquidity and Capital Resources” section of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , and Note 8, Long-term Debt , to the accompanying consolidated financial statements.
We cannot predict what healthcare initiatives, if any, will be enacted, implemented or amended, or the effect any future legislation or regulation will have on us. On December 14, 2020, CMS announced the proposal of a five-year review choice demonstration for inpatient rehabilitation services (the “IRF RCD”). In August 2023, IRFs located in Alabama began participation in IRF RCD.
We cannot predict what healthcare initiatives, if any, will be enacted, implemented or amended, or the effect any future legislation or regulation will have on us. On December 14, 2020, CMS announced the proposal of a five-year review choice demonstration for inpatient rehabilitation services (the “RCD”). In August 2023, IRFs located in Alabama began participation in RCD.
We cannot predict what legislative or regulatory reforms or changes, if any, will ultimately be enacted, or the timing or effect any of those changes or reforms will have on us.
We cannot predict what legislative or regulatory reforms or changes, if any, will ultimately be proposed, enacted, or implemented, or the timing or effect any of those changes or reforms will have on us.
A severe downturn in earnings, failure to realize anticipated earnings from acquisitions, or, if we have outstanding borrowings under our credit facility at the time, a rapid increase in interest rates could impair our ability to comply with those financial ratios and financial condition tests and we may need to obtain waivers from the required proportion of the lenders to avoid being in default.
A severe downturn in earnings or, if we have outstanding borrowings under our credit facility at the time, a rapid increase in interest rates could impair our ability to comply with those financial ratios and financial condition tests and we may need to obtain waivers from the required proportion of the lenders to avoid being in default.
CMS has made changes to existing current post-acute payment systems to improve comparability of patient assessment and clinical characteristic data across settings, which could make it easier to develop a unified payment system for post-acute providers in the future.
CMS has made changes to existing current post-acute payment systems to improve comparability of patient assessment and clinical characteristic data across settings, which could make it easier to develop payment system reforms for post-acute providers in the future.
As a result, CMS believes acute-care hospitals are incented to work with physicians and post-acute care providers to ensure beneficiaries receive the coordinated care they need in an efficient manner. Acute-care hospitals participating in the CJR model may enter into risk-sharing financial arrangements with post-acute providers, including IRFs. CJR has not had a material impact on our hospitals.
As a result, CMS believes acute-care hospitals are incented to work with physicians and post-acute care providers to ensure beneficiaries receive the coordinated care they need in an efficient manner. Acute-care hospitals participating in the CJR model may enter into risk-sharing financial arrangements with post-acute providers, including IRFs. CJR did not have a material impact on our hospitals.
Our more significant lawsuits and investigations, if any, are discussed in Note 17, Contingencies and Other Commitments , to the accompanying consolidated financial statements.
Our more significant lawsuits and investigations, if any, are discussed in Note 16, Contingencies and Other Commitments , to the accompanying consolidated financial statements.
In a recent federal court case, the Fifth Circuit Court of Appeals ruled in favor of CMS and affirmed the application of extrapolation errors identified in a sample of claims to support larger claims for overpayment. As discussed under “Reimbursement Risks” above, we are currently challenging, among other things, the use of extrapolation in a 2017 UPIC audit.
The Fifth Circuit Court of Appeals has ruled in favor of CMS and affirmed the application of extrapolation errors identified in a sample of claims to support larger claims for overpayment. As discussed under “Reimbursement Risks” above, we are currently challenging, among other things, the use of extrapolation in a 2017 UPIC audit.
For example, on August 2, 2011, President Obama signed into law the Budget Control Act of 2011, which provided for an automatic 2% reduction of Medicare program payments. This automatic reduction, known as “sequestration,” began affecting payments received after April 1, 2013.
For example, on August 2, 2011, President Obama signed into law the Budget Control Act of 2011, which provided for an automatic 2% reduction of Medicare program payments to reduce deficit spending. This automatic reduction, known as “sequestration,” began affecting payments received after April 1, 2013.
On September 15, 2022, the HHS-OIG updated its work plan to conduct a nationwide audit of IRF claims in order to determine the extent to which CMS could clarify the Medicare IRF claim payment criteria. We expect the HHS-OIG to issue a report on this in fiscal year 2025.
On September 15, 2022, the HHS-OIG updated its work plan to conduct a nationwide audit of IRF claims in order to determine the extent to which CMS could clarify the Medicare IRF claim payment criteria. We expect the HHS-OIG to issue a report on this in 2026.
Any allegations of a failure to adequately address data privacy or security-related concerns, even if unfounded, or to comply with applicable laws, regulations, standards and other obligations relating to data privacy and security, could result in additional cost and liability to us, damage our relationships with patients and business partners and have a material adverse effect on our business.
Any allegations of a failure to adequately address data 31 privacy or security-related concerns, even if unfounded, or to comply with applicable laws, regulations, standards and other obligations relating to data privacy and security and the use of artificial intelligence, could result in additional cost and liability to us, damage our relationships with patients and business partners and have a material adverse effect on our business.
In addition to incremental costs and potential disruptions to our energy supply and broader supply chain, subsidies from the federal government to the renewable energy industry and other climate-related costs incurred by the federal government may increase the national deficit and debt, which would increase the reimbursement risks we face. See “Reimbursement Risks” above.
In addition to incremental costs and potential disruptions to our energy supply and broader supply chain, subsidies from the federal government to the renewable energy industry and other climate-related costs incurred by the federal government may increase the national deficit and debt, which would increase the reimbursement risks we face.
CMS’ voluntary Bundled Payments for Care Improvement Advanced (“BPCI Advanced”) initiative began October 1, 2018, runs through December 31, 2025, and covers 29 types of inpatient, three types of outpatient clinical episodes, and two multi-setting clinical episodes, including stroke and hip fracture.
CMS’ voluntary Bundled Payments for Care Improvement Advanced (“BPCI Advanced”) initiative began October 1, 2018, ran through December 31, 2025, and covered 29 types of inpatient, three types of outpatient clinical episodes, and two multi-setting clinical episodes, including stroke and hip fracture.
In October 2014, President Obama signed into law the Improving Medicare Post-Acute Care Transformation Act of 2014 (the “IMPACT Act”). The IMPACT Act directs HHS, in consultation with healthcare stakeholders, to implement standardized data collection processes for post-acute quality and outcome measures.
In October 2014, President Obama signed into law the Improving Medicare Post-Acute Care Transformation Act of 2014 (the “IMPACT Act”). The IMPACT Act directs HHS, in consultation with healthcare stakeholders, to collect standardized data for post-acute quality and outcome measures.
There are numerous organizations that provide information to investors on corporate governance and related matters, which have developed rating methodologies for evaluating companies on environmental matters, such as greenhouse gas emissions. Such ratings are used by some investors to inform their investment and voting decisions.
See “Reimbursement Risks” above. 39 There are numerous organizations that provide information to investors on corporate governance and related matters, which have developed rating methodologies for evaluating companies on environmental matters, such as greenhouse gas emissions. Such ratings are used by some investors to inform their investment and voting decisions.
We may experience additional decreases in Net operating revenues and decreases in cash flow as a result of greater frequency of unfavorable resolution of denials or increasing unresolved denials and the associated increasing accounts receivable, which may in turn force us to change the patients we admit and conditions we treat.
We have in the past, and may again in the future, experience decreases in Net operating revenues and decreases in cash flow as a result of greater frequency of unfavorable resolution of denials or increasing unresolved denials and the associated increasing accounts receivable, which may in turn force us to change the patients we admit and conditions we treat.
In opting out, the IRF may elect spot prepayment reviews of samples consisting of 5% of total claims or selective post-payment review of a statistically valid random sample. Our claim validation rate for the first cycle ending in February 2024 exceeded the required 80% at our IRFs in Alabama.
In opting out, the IRF may elect spot prepayment reviews of samples consisting of 5% of total claims or selective post-payment review of a statistically valid random sample. Our claim validation rate for the first cycle ending in February 2024 exceeded the 80% threshold at all participating hospitals.
Each year, the Medicare Payment Advisory Commission (“MedPAC”), an independent agency, advises Congress on issues affecting Medicare and makes payment policy recommendations to Congress for a variety of Medicare payment systems including, among others, the inpatient rehabilitation facility prospective payment system (the “IRF-PPS”). MedPAC also provides comments to CMS on proposed rules, including the prospective payment system rules.
Each year, the Medicare Payment Advisory Commission (“MedPAC”), an independent agency, advises Congress on issues affecting Medicare and makes payment policy recommendations to Congress for a variety of Medicare payment systems including, among others, the IRF-PPS. MedPAC also provides comments to CMS on proposed rules, including the prospective payment system rules.
To date, only two of our hospitals have experienced payment reductions, both for fiscal year 2025. However, we have contested those two determinations. The IMPACT Act mandated that CMS adopt several new quality reporting measures for the various post-acute provider types.
To date, only two of our hospitals have experienced payment reductions, both for fiscal year 2025. We contested those two determinations and have not yet received final decisions. The IMPACT Act mandated that CMS adopt several new quality reporting measures for the various post-acute provider types.
The companion rules 29 will transform the way in which healthcare providers, health information technology developers, health information exchanges/health information networks (“HIEs/HINs”), and health plans share patient information.
The companion rules regulate the way in which healthcare providers, health information technology developers, health information exchanges/health information networks (“HIEs/HINs”), and health plans share patient information.
The transition to lower greenhouse gas emissions technology; the effects of energy pricing and reliability and changes in public sentiment, regulations, governmental subsidies and deficits, taxes, public mandates or requirements; the increase in climate-related lawsuits and insurance premiums; and the implementation of more robust disaster recovery and business continuity plans are likely to increase the costs to maintain our operations and to divert management attention from our core business, either of which may have an adverse effect on our business, financial position and results of operations. 40 Financial Risks We may incur additional indebtedness in the future, and that debt or the associated increased leverage may have negative consequences for our business.
The transition to lower greenhouse gas emissions technology; the effects of energy pricing and reliability and changes in public sentiment, regulations, governmental subsidies and deficits, taxes, public mandates or requirements; the increase in climate-related lawsuits and insurance premiums; and the implementation of more robust disaster recovery and business continuity plans are likely to increase the costs to maintain our operations and to divert management attention from our core business, either of which may have an adverse effect on our business, financial position and results of operations.
Accordingly, reimbursement may be increased or decreased, compared to what would otherwise be due, based on whether the total Medicare expenditures and patient outcomes meet, exceed or fall short of the targets. Similarly, CMS has established, per the ACA, several separate ACO programs.
Accordingly, reimbursement may be increased or decreased, compared to what would otherwise be due, based on whether the total Medicare expenditures and patient outcomes meet, exceed or fall short of the targets. BPCI Advanced did not have a material impact on our hospitals. Similarly, CMS has established, per the ACA, several separate ACO programs.
On March 1, 2024, CMS announced the expansion of IRF RCD, effective June 17, 2024, to include IRFs located in Pennsylvania and billing to a certain MAC. We do not bill to that MAC, so we are not subject to the program in Pennsylvania at this time.
On June 17, 2024, CMS expanded RCD to include IRFs located in Pennsylvania and billing to a certain MAC. We do not bill to that MAC, so we are not subject to the program in Pennsylvania at this time.
If we should fail to attain our goals regarding acute-care hospital readmission rates and other quality metrics, we expect our ability to generate referrals would be adversely impacted, which could have a material adverse effect upon our business and consolidated financial condition, results of operations, and cash flows.
If we should fail to attain our goals regarding acute-care hospital readmission rates and other quality metrics or we experience negative publicity alleging deficient patient care, our ability to generate referrals may be adversely impacted, which may have a material adverse effect upon our business and consolidated financial condition, results of operations, and cash flows.
RAC audits of IRFs have focused on reviews of patient coding, medical necessity, and billing accuracy. CMS has, however, authorized RACs to conduct complex reviews of the medical records associated with IRF reimbursement claims. CMS has previously operated a demonstration project that expanded the RAC program to include prepayment review of Medicare fee-for-service claims from primarily acute-care hospitals.
CMS has, however, authorized RACs to conduct complex reviews of the medical records associated with IRF reimbursement claims. CMS has previously operated a demonstration project that expanded the RAC program to include prepayment review of Medicare fee-for-service claims from primarily acute-care hospitals.
We may be unable to operate newly constructed hospitals as profitably as expected, and those hospitals may involve significant additional cash expenditures and operating expenses that could, in the aggregate, have an adverse effect on our business, financial position, results of operations, and cash flows. 37 We may not be able to successfully integrate acquisitions or realize the anticipated benefits of any acquisitions.
We may be unable to operate newly constructed hospitals as profitably as expected, and those hospitals may involve significant additional cash expenditures and operating expenses that could, in the aggregate, have an adverse effect on our business, financial position, results of operations, and cash flows.
We may undertake strategic acquisitions from time to time. Prior to consummation of any acquisition, the acquired business will have operated independently of us, with its own procedures, corporate culture, locations, employees and systems.
We may not be able to successfully integrate acquisitions or realize the anticipated benefits of any acquisitions. We may undertake strategic acquisitions from time to time. Prior to consummation of any acquisition, the acquired business will have operated independently of us, with its own procedures, corporate culture, locations, employees and systems.
If CMS terminates one hospital, it may increase its scrutiny of others under common control. From time to time, we have individual hospitals that receive notices of deficiency. To date, we have addressed those as they have arisen, and we have not experienced a termination.
If CMS terminates one hospital, it may increase its scrutiny of others under common control. From time to time, we have individual hospitals that receive notices of deficiency, some of which are triggered by adverse care incidents or patient complaints. To date, we have addressed those as they have arisen, and we have not experienced a termination.
See Note 9, Long-term Debt , to the accompanying consolidated financial statements. Subject to specified limitations, our credit agreement and the indentures governing our debt securities permit us and our subsidiaries to incur material additional debt. If new debt is added to our current debt levels, the risks described here could intensify.
Subject to specified limitations, our credit agreement and the indentures governing our debt securities permit us and our subsidiaries to incur material additional debt. If new debt is added to our current debt levels, the risks described here could intensify.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

13 edited+1 added−1 removed29 unchanged
Biggest changeGiven the extensive practical experience of implementing our IRP and business continuity plan during the Change Healthcare incident, discussed further below, we did not conduct a separate mock tabletop exercise in 2024. Our legal and technical advisors direct the exercise and provide feedback on our performance, which is shared with management and our board of directors.
Biggest changeIn our annual tabletop exercise, our legal and technical advisors direct the exercise and provide feedback on our performance, which is shared with management and our board of directors. We provide our employees annual training and regular reminders on measures they can take to prevent breaches and other cyber threats, including phishing schemes.
This committee consists of our CSO, CIO, deputy CIO, chief privacy officer, and director of information security and compliance as well as in house attorneys responsible for cybersecurity and securities matters. It currently meets monthly and as warranted by privacy and security events.
This committee consists of our CSO, CIO, deputy CIO, chief privacy officer, and director of information security and compliance as well as in house attorneys responsible for cybersecurity and securities matters. It meets monthly and as warranted by privacy and security events.
The reports to the committee and the full board include details and metrics on, among other things, our routine vulnerability assessments, internal and external threat intelligence, quarterly NIST framework assessments, quarterly Company-wide phishing exercises and training, device encryption, routine resilience efforts including quarterly disaster recovery exercises, third-party vendor risk management, annual tabletop incident response exercise, annual business continuity exercise, cyber penetration tests, and 23 NIST cyber hygiene controls.
The reports to the committee and the full board include details and metrics on, among other things, our routine vulnerability assessments, internal and external threat intelligence, quarterly NIST framework assessments, quarterly Company-wide phishing exercises and training, device encryption, routine resilience efforts including quarterly disaster recovery exercises, third-party vendor risk management, annual tabletop incident response exercise, annual business continuity exercise, cyber penetration tests, and 106 NIST cyber hygiene controls.
Our CSO reports directly to our chief information officer (“CIO”). Our CIO, who assumed his current role in 2011, has 35 total years of cybersecurity and IT experience. Prior to assuming the role of CIO, he served in senior IT and security roles for us beginning in 2001.
Our CSO reports directly to our chief information officer (“CIO”). Our CIO, who assumed his current role in 2011, has 36 total years of cybersecurity and IT experience. Prior to assuming the role of CIO, he served in senior IT and security roles for us beginning in 2001.
We periodically test the adequacy of our security, business continuity, and disaster recovery measures, including an annual tabletop exercise involving representatives from all key functional departments with the Company, our outside cybersecurity legal counsel, and our primary forensic services firm.
We periodically test the adequacy of our security, business continuity, and disaster recovery measures, including an annual tabletop exercise involving representatives from all key functional departments within the Company, our outside cybersecurity legal counsel, and our primary forensic services firm.
Our CSO, who assumed his current role in 2022, has over 11 years of cybersecurity experience with us and over 28 total years of cybersecurity and IT experience across various industries, including telecom, engineering, and finance. He also holds several cybersecurity certifications: GIAC Certified Incident Handler, GIAC Certified Penetration Tester, and Certified Healthcare Information Security Leader.
Our CSO, who assumed his current role in 2022, has over 12 years of cybersecurity experience with us and over 29 total years of cybersecurity and IT experience across various industries, including telecom, engineering, and finance. He also holds several cybersecurity certifications: GIAC Certified Incident Handler, GIAC Certified Penetration Tester, GIAC Certified Project Manager, and Certified Healthcare Information Security Leader.
Working with our third-party security vendors as needed, the triage team investigates the incident, manages the response, and reports threats and incidents deemed significant to securities counsel. Securities counsel then works with the executive team to assess materiality for the Company. A member of the executive team would inform our board of directors as warranted.
Working with our third-party security vendors and under the direction of outside legal counsel as needed, the triage team investigates the incident, manages the response, and reports threats and incidents deemed significant to securities counsel. Securities counsel then works with the executive team to assess materiality for the Company.
Effects of Cybersecurity Risks on the Company To date, we are not aware of having experienced a material compromise of our systems or networks from a cybersecurity incident. However, we routinely identify attempts to gain unauthorized access to our systems.
Effects of Cybersecurity Risks on the Company To date, we are not aware of having experienced a material compromise of our systems or networks from a cybersecurity incident. However, we routinely identify attempts to gain unauthorized access to our systems. Additionally, some of our vendors and business partners have experienced compromises of their information systems, including systems that we use.
Our systems that process electronic protected health information are risk assessed on a quarterly basis against NIST security controls. Additionally, we maintain insurance coverage for cybersecurity incidents. Third-party Engagement in Connection with our Cybersecurity Program We maintain ongoing engagements with our cybersecurity legal counsel and forensic services firms, each of which has visibility into current events through its client base.
Additionally, we maintain insurance coverage for cybersecurity incidents. Third-party Engagement in Connection with our Cybersecurity Program We maintain ongoing engagements with our cybersecurity legal counsel and forensic services firms, each of which has visibility into current events through its client base.
In general terms, under our cybersecurity program, we undertake measures to protect the safety and security of our information systems and the data maintained within those systems. We have implemented administrative, technical and physical controls on our systems and devices in an attempt to prevent unauthorized access and to promote business resilience in the event of that access.
We have implemented administrative, technical and physical controls on our systems and devices in an attempt to prevent unauthorized access and to promote business resilience in the event of that access.
Additionally, some of our vendors and business partners have experienced compromises of their information systems, including systems that we 44 use. On February 21, 2024, Change Healthcare, a subsidiary of UnitedHealth Group that acted as an intermediary for processing of our payment claims for all payors, notified us of a cybersecurity incident affecting some of its systems.
On February 21, 2024, Change Healthcare, a subsidiary of UnitedHealth Group that acted as an intermediary for processing 43 of our payment claims for all payors, notified us of a cybersecurity incident affecting some of its systems. In response to the incident, both we and Change Healthcare severed those business service connections between our systems and Change Healthcare’s.
However, the incident did affect our ability to submit any claims for payment for a period of time until we implemented alternative modes for submissions.
We promptly conducted forensics on our systems based on the shared information regarding this Change Healthcare incident and did not identify any compromise or unauthorized access of our systems or networks. However, the incident did affect our ability to submit any claims for payment for a period of time until we implemented alternative modes for submissions.
We provide our employees annual training and regular reminders on measures they can take to prevent breaches and other cyber threats, including phishing schemes. We participate in the vulnerability scanning service offered by the Cybersecurity and Infrastructure Security Agency 43 on our internet facing systems and engage external security consultants to perform an annual penetration test of our network.
We participate in the vulnerability scanning service offered by the Cybersecurity and Infrastructure Security Agency on our internet facing systems and engage external security consultants to perform an annual penetration test of our network. Our systems that process electronic protected health 42 information are risk assessed on a quarterly basis against NIST security controls.
Removed
In response to the incident, both we and Change Healthcare severed those business service connections between our systems and Change Healthcare’s. We promptly conducted forensics on our systems based on the shared information regarding this Change Healthcare incident and did not identify any compromise or unauthorized access of our systems or networks.
Added
A member of the executive team would inform our board of directors as warranted. In general terms, under our cybersecurity program, we undertake measures to protect the safety and security of our information systems and the data maintained within those systems.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe do not believe any one of our individual properties is material to our consolidated operations. 45 The following table sets forth information regarding our hospital locations as of December 31, 2024: Number of Hospitals State Licensed Beds Building and Land Owned Building Owned and Land Leased Building and Land Leased Total Alabama* 457 3 3 1 7 Arizona 406 1 2 3 6 Arkansas 381 3 1 1 5 California 251 4 — — 4 Colorado 124 1 — 1 2 Delaware* 50 — 1 — 1 Florida 1,438 20 1 — 21 Georgia* 370 5 (1) 1 1 7 Idaho 40 — 1 — 1 Illinois* 205 2 2 — 4 Indiana 98 1 — — 1 Iowa* 40 1 — — 1 Kansas 177 1 — 1 2 Kentucky* 383 3 1 — 4 Louisiana 87 2 — — 2 Maine* 100 — — 1 1 Maryland* 144 2 — — 2 Massachusetts* 529 2 — 2 4 Mississippi* 55 — — 1 1 Missouri* 236 — 2 — 2 Nevada 219 2 — 1 3 New Hampshire 50 — 1 — 1 New Jersey* 199 1 1 1 3 New Mexico 87 1 — — 1 North Carolina* 68 1 — — 1 North Dakota 40 — — 1 1 Ohio 260 2 1 1 4 Oklahoma 100 1 1 — 2 Pennsylvania 673 5 — 4 9 Puerto Rico* 75 — — 2 2 Rhode Island* 50 1 — — 1 South Carolina 505 4 4 1 9 South Dakota 40 1 — — 1 Tennessee* 566 7 3 — 10 Texas 1,882 15 3 10 28 Utah 84 1 — — 1 Virginia* 297 2 1 3 6 West Virginia* 272 2 2 — 4 Wisconsin 56 1 — — 1 11,094 98 32 36 166 * Hospital certificate of need state or U.S. territory. 46 (1) The inpatient rehabilitation hospital in Augusta, Georgia is party to an industrial development bond financing that reduces the ad valorem taxes payable by the hospital.
Biggest changeWe do not believe any one of our individual properties is material to our consolidated operations. 44 The following table sets forth information regarding our hospital locations as of December 31, 2025: Number of Hospitals State Licensed Beds Building and Land Owned Building Owned and Land Leased Building and Land Leased Total Alabama* 467 3 3 1 7 Arizona 406 1 2 3 6 Arkansas 381 3 1 1 5 California 251 4 — — 4 Colorado 124 1 — 1 2 Connecticut* 40 1 — — 1 Delaware* 50 — 1 — 1 Florida 1,718 22 3 — 25 Georgia* 410 6 (1) 1 1 8 Idaho 40 — 1 — 1 Illinois* 205 2 2 — 4 Indiana 98 1 — — 1 Iowa* 40 1 — — 1 Kansas 177 1 — 1 2 Kentucky* 309 3 1 — 4 Louisiana 87 2 — — 2 Maine* 100 — — 1 1 Maryland* 144 2 — — 2 Massachusetts* 546 2 — 2 4 Mississippi* 55 — — 1 1 Missouri* 236 — 2 — 2 Nevada 219 2 — 1 3 New Hampshire 50 — 1 — 1 New Jersey* 199 1 1 1 3 New Mexico 87 1 — — 1 North Carolina* 68 1 — — 1 North Dakota 40 — — 1 1 Ohio 200 2 1 1 4 Oklahoma 100 1 1 — 2 Pennsylvania 661 5 — 4 9 Puerto Rico* 77 — — 2 2 Rhode Island* 50 1 — — 1 South Carolina 505 4 4 1 9 South Dakota 40 1 — — 1 Tennessee* 574 7 3 — 10 Texas 1,992 16 3 10 29 Utah 84 1 — — 1 Virginia* 307 2 1 3 6 West Virginia* 272 2 2 — 4 Wisconsin 56 1 — — 1 11,465 103 34 36 173 45 * Hospital certificate of need state or U.S. territory.
Information regarding the utilization of our licensed beds and other operating statistics can be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our principal executive office, hospitals, and other properties are suitable for their respective uses and are, in all material respects, adequate for our present needs. Information regarding the utilization of our licensed beds and other operating statistics can be found in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.
In connection with this bond structure, title to the related property is held by the local development authority. We lease the related hospital property and hold the bonds issued by that authority, the payment on which equals the amount payable under the lease.
We lease the related hospital property and hold the bonds issued by that authority, the payment on which equals the amount payable under the lease. We may terminate the bond financing and the associated lease at any time at our option without penalty, and fee title to the hospital property will return to us.
Removed
We may terminate the bond financing and the associated lease at any time at our option without penalty, and fee title to the hospital property will return to us. Our principal executive office, hospitals, and other properties are suitable for their respective uses and are, in all material respects, adequate for our present needs.
Added
(1) The inpatient rehabilitation hospital in Augusta, Georgia is party to an industrial development bond financing that reduces the ad valorem taxes payable by the hospital. In connection with this bond structure, title to the related property is held by the local development authority.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeTherefore, from time to time, we may be party to one or more undisclosed qui tam cases brought pursuant to the FCA. Information relating to certain legal proceedings in which we are involved is included in Note 17, Contingencies and Other Commitments , to the accompanying consolidated financial statements. Item 4. Mine Safety Disclosures Not applicable. 47 PART II
Biggest changeTherefore, from time to time, we may be party to one or more undisclosed qui tam cases brought pursuant to the FCA. Information relating to certain legal proceedings in which we are involved is included in Note 16, Contingencies and Other Commitments , to the accompanying consolidated financial statements. Item 4. Mine Safety Disclosures Not applicable. 46 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePurchases of Equity Securities The following table summarizes our repurchases of equity securities during the three months ended December 31, 2024: Period Total Number of Shares (or Units) Purchased (1) Average Price Paid per Share (or Unit) ($) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs (2) October 1 through October 31, 2024 645 $ 97.57 — $ 497,696,249 November 1 through November 30, 2024 309 102.69 — 497,696,249 December 1 through December 31, 2024 91,090 93.73 91,090 $ 489,158,029 Total 92,044 $ 93.79 91,090 (1) Except as noted in the following sentence, the number of shares reported in this column includes the shares purchased under the plan or program as reported in the third column of this table and shares tendered by an employee as payment of the tax liabilities incident to the vesting of previously awarded shares of restricted stock.
Biggest changePurchases of Equity Securities The following table summarizes our repurchases of equity securities during the three months ended December 31, 2025: Period Total Number of Shares (or Units) Purchased (1) Average Price Paid per Share (or Unit) ($) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Plans or Programs (2) October 1 through October 31, 2025 88,845 $ 124.21 88,334 $ 397,485,347 November 1 through November 30, 2025 221,776 114.19 221,467 372,196,703 December 1 through December 31, 2025 386,966 108.64 386,610 330,195,391 Total 697,587 $ 112.38 696,411 (1) Except as noted in the following sentence, the number of shares reported in this column includes the shares purchased under the plan or program as reported in the third column of this table and shares tendered by an employee as payment of the tax liabilities incident to the vesting of previously awarded shares of restricted stock.
The information contained in the performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC nor shall such information be deemed incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate it by reference into such filing. 49 The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.
The information contained in the performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC nor shall such information be deemed incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate it by reference into such filing. 48 The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.
Our compensation committee has in prior years used the SPSIHP as a benchmark for a portion of the awards under our long-term incentive program. The graph assumes $100 invested on December 31, 2019 in our common stock and each of the indices. The returns below assume reinvestment of dividends paid on the related common stock.
Our compensation committee has in prior years used the SPSIHP as a benchmark for a portion of the awards under our long-term incentive program. The graph assumes $100 invested on December 31, 2020 in our common stock and each of the indices. The returns below assume reinvestment of dividends paid on the related common stock.
Awards of restricted stock units were fully vested when awarded and will be settled in 48 shares of common stock on the earlier of the six-month anniversary of the date on which the director ceases to serve on the board of directors or certain change in control events. The restricted stock units generally cannot be transferred.
Awards of restricted stock units were fully vested when awarded and will be settled in 47 shares of common stock on the earlier of the six-month anniversary of the date on which the director ceases to serve on the board of directors or certain change in control events. The restricted stock units generally cannot be transferred.
(2) This amount assumes maximum performance by performance-based awards for which the performance has not yet been determined. (3) This amount represents the number of shares available for future equity grants under the 2016 Omnibus Performance Incentive Plan approved by our stockholders in May 2016.
(2) This amount assumes maximum performance by performance-based awards for which the performance has not yet been determined. (3) This amount represents the number of shares available for future equity grants under the 2025 Omnibus Performance Incentive Plan approved by our stockholders in May 2025.
Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth, as of December 31, 2024, information concerning compensation plans under which our securities are authorized for issuance. The table does not reflect grants, awards, exercises, terminations, or expirations since that date.
Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth, as of December 31, 2025, information concerning compensation plans under which our securities are authorized for issuance. The table does not reflect grants, awards, exercises, terminations, or expirations since that date.
In October 2024, 645 shares were purchased pursuant to our Directors’ Deferred Stock Investment Plan. This plan is a nonqualified deferral plan allowing non-employee directors to make advance elections to defer a fixed percentage of their director fees. The plan administrator acquires the shares in the open market which are then held in a rabbi trust.
In October 2025, 511 shares were purchased pursuant to our Directors’ Deferred Stock Investment Plan. This plan is a nonqualified deferral plan allowing non-employee directors to make advance elections to defer a fixed percentage of their director fees. The plan administrator acquires the shares in the open market which are then held in a rabbi trust.
Dividends On October 17, 2024, our board of directors declared a cash dividend of $0.17 per share, payable on January 15, 2025 to stockholders of record on January 2, 2025. We expect quarterly dividends to continue to be paid in January, April, July, and October.
Dividends On October 23, 2025, our board of directors declared a cash dividend of $0.19 per share, payable on January 15, 2026 to stockholders of record on January 2, 2026. We expect quarterly dividends to continue to be paid in January, April, July, and October.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Shares of our common stock trade on the New York Stock Exchange under the ticker symbol “EHC.” Holders As of February 13, 2025, there were 100,709,106 shares of Encompass Health common stock issued and outstanding, net of treasury shares, held by approximately 6,266 holders of record (participant positions at The Depository Trust Corporation plus record holders).
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Shares of our common stock trade on the New York Stock Exchange under the ticker symbol “EHC.” Holders As of February 12, 2026, there were 99,416,162 shares of Encompass Health common stock issued and outstanding, net of treasury shares, held by approximately 6,087 holders of record (participant positions at The Depository Trust Corporation plus record holders).
Number of securities to be issued upon exercise of outstanding options Weighted-average exercise price of outstanding options (1) Number of securities available for future issuance Plans approved by stockholders 3,282,172 (2) $ 53.05 5,537,035 (3) Plans not approved by stockholders 77,090 (4) — Total 3,359,262 $ 53.05 5,537,035 (1) This calculation does not take into account awards of restricted stock, restricted stock units, or performance share units.
Number of securities to be issued upon exercise of outstanding options Weighted-average exercise price of outstanding options (1) Number of securities available for future issuance Plans approved by stockholders 2,957,672 (2) $ 60.27 11,931,259 (3) Plans not approved by stockholders 15,418 (4) — Total 2,973,090 $ 60.27 11,931,259 (1) This calculation does not take into account awards of restricted stock, restricted stock units, or performance share units.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN Among Encompass Health Corporation, the S&P 500 Index, and the S&P Health Care Services Select Industry Index For the Year Ended December 31, Base Period Cumulative Total Return Company/Index Name 2019 2020 2021 2022 2023 2024 Encompass Health Corporation 100.00 121.42 97.26 113.86 128.23 178.46 S&P 500 100.00 118.40 152.39 124.79 157.59 197.02 SPSIHP 100.00 133.81 147.19 118.22 124.34 126.92 Item 6. [Reserved] 50
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN Among Encompass Health Corporation, the S&P 500 Index, and the S&P Health Care Services Select Industry Index For the Year Ended December 31, Base Period Cumulative Total Return Company/Index Name 2020 2021 2022 2023 2024 2025 Encompass Health Corporation 100.00 80.10 93.78 105.61 146.98 170.02 S&P 500 100.00 128.71 105.40 133.10 166.40 196.16 SPSIHP 100.00 110.00 88.35 92.92 94.85 113.00 Item 6. [Reserved] 49

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOur Results Our consolidated results of operations were as follows: For the Year Ended December 31, Percentage Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 (In Millions) Net operating revenues $ 5,373.2 $ 4,801.2 $ 4,348.6 11.9 % 10.4 % Operating expenses: Salaries and benefits 2,901.0 2,600.1 2,393.3 11.6 % 8.6 % Other operating expenses 802.6 719.1 670.4 11.6 % 7.3 % Occupancy costs 57.3 56.3 54.7 1.8 % 2.9 % Supplies 239.0 218.3 202.1 9.5 % 8.0 % General and administrative expenses 209.2 201.7 154.3 3.7 % 30.7 % Depreciation and amortization 299.6 273.9 243.6 9.4 % 12.4 % Total operating expenses 4,508.7 4,069.4 3,718.4 10.8 % 9.4 % Loss on early extinguishment of debt 0.6 — 1.4 N/A (100.0) % Interest expense and amortization of debt discounts and fees 137.4 143.5 175.7 (4.3) % (18.3) % Other (income) expense (20.1) (15.7) 5.2 28.0 % (401.9) % Equity in net income of nonconsolidated affiliates (3.0) (3.2) (2.9) (6.3) % 10.3 % Income from continuing operations before income tax expense 749.6 607.2 450.8 23.5 % 34.7 % Provision for income tax expense 150.2 132.2 100.1 13.6 % 32.1 % Income from continuing operations 599.4 475.0 350.7 26.2 % 35.4 % (Loss) income from discontinued operations, net of tax (2.8) (12.0) 15.2 (76.7) % (178.9) % Net income 596.6 463.0 365.9 28.9 % 26.5 % Less: Net income attributable to noncontrolling interests included in continuing operations (140.9) (111.0) (93.6) 26.9 % 18.6 % Less: Net income attributable to noncontrolling interests included in discontinued operations — — (1.3) — % (100.0) % Less: Net and comprehensive income attributable to noncontrolling interests (140.9) (111.0) (94.9) 26.9 % 17.0 % Net income attributable to Encompass Health $ 455.7 $ 352.0 $ 271.0 29.5 % 29.9 % 56 Operating Expenses as a % of Net Operating Revenues For the Year Ended December 31, 2024 2023 2022 Operating expenses: Salaries and benefits 54.0 % 54.2 % 55.0 % Other operating expenses 14.9 % 15.0 % 15.4 % Occupancy costs 1.1 % 1.2 % 1.3 % Supplies 4.4 % 4.5 % 4.6 % General and administrative expenses 3.9 % 4.2 % 3.5 % Depreciation and amortization 5.6 % 5.7 % 5.6 % Total operating expenses 83.9 % 84.8 % 85.5 % Additional information regarding our operating results is as follows: For the Year Ended December 31, Percentage Change 2024 2023 2022 2024 vs. 2023 2023 vs. 2022 (In Millions, Except Percentage Change) Net operating revenues: Inpatient $ 5,230.5 $ 4,693.8 $ 4,251.6 11.4 % 10.4 % Outpatient and other 142.7 107.4 97.0 32.9 % 10.7 % Net operating revenues $ 5,373.2 $ 4,801.2 $ 4,348.6 11.9 % 10.4 % (Actual Amounts) Discharges 248,498 229,480 211,116 8.3 % 8.7 % Net patient revenue per discharge $ 21,048 $ 20,454 $ 20,139 2.9 % 1.6 % Outpatient visits 114,034 120,835 138,644 (5.6) % (12.8) % Average length of stay (days) 12.2 12.4 12.7 (1.6) % (2.4) % Occupancy % 74.6% 72.1% 70.9% 3.5 % 1.7 % # of licensed beds 11,094 10,778 10,356 2.9 % 4.1 % Occupied beds 8,276 7,771 7,342 6.5 % 5.8 % Full-time equivalents (FTEs) - internal 27,658 25,850 24,080 7.0 % 7.4 % Contract labor FTEs 427 425 547 0.5 % (22.3) % Total FTEs* 28,085 26,275 24,627 6.9 % 6.7 % Employees per occupied bed 3.39 3.38 3.35 0.3 % 0.9 % * FTEs included in the above table represent our employees who participate in or support the operations of our hospitals and include FTEs related to contract labor.
Biggest changeSee Item 1, Business , “Medicaid Reimbursement,” for additional information on state directed and supplemental payments. 54 Our Results Our consolidated results of operations were as follows: For the Year Ended December 31, Percentage Change 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 (In Millions, Except Percentage Change) Net operating revenues $ 5,935.2 $ 5,373.2 $ 4,801.2 10.5 % 11.9 % Operating expenses: Salaries and benefits 3,115.9 2,901.0 2,600.1 7.4 % 11.6 % Other operating expenses 888.7 802.6 719.1 10.7 % 11.6 % Occupancy costs 59.0 57.3 56.3 3.0 % 1.8 % Supplies 254.4 239.0 218.3 6.4 % 9.5 % General and administrative expenses 236.2 209.2 201.7 12.9 % 3.7 % Depreciation and amortization 327.9 299.6 273.9 9.4 % 9.4 % Total operating expenses 4,882.1 4,508.7 4,069.4 8.3 % 10.8 % Loss on early extinguishment of debt — 0.6 — (100.0) % N/A Interest expense and amortization of debt discounts and fees 123.2 137.4 143.5 (10.3) % (4.3) % Other income (18.8) (20.1) (15.7) (6.5) % 28.0 % Equity in net income of nonconsolidated affiliates (4.3) (3.0) (3.2) 43.3 % (6.3) % Income from continuing operations before income tax expense 953.0 749.6 607.2 27.1 % 23.5 % Provision for income tax expense 192.9 150.2 132.2 28.4 % 13.6 % Income from continuing operations 760.1 599.4 475.0 26.8 % 26.2 % Loss from discontinued operations, net of tax (1.0) (2.8) (12.0) (64.3) % (76.7) % Net income 759.1 596.6 463.0 27.2 % 28.9 % Less: Net income attributable to noncontrolling interests (192.9) (140.9) (111.0) 36.9 % 26.9 % Net income attributable to Encompass Health $ 566.2 $ 455.7 $ 352.0 24.2 % 29.5 % Operating Expenses as a % of Net Operating Revenues For the Year Ended December 31, 2025 2024 2023 Operating expenses: Salaries and benefits 52.5 % 54.0 % 54.2 % Other operating expenses 15.0 % 14.9 % 15.0 % Occupancy costs 1.0 % 1.1 % 1.2 % Supplies 4.3 % 4.4 % 4.5 % General and administrative expenses 4.0 % 3.9 % 4.2 % Depreciation and amortization 5.5 % 5.6 % 5.7 % Total operating expenses 82.3 % 83.9 % 84.8 % 55 Additional information regarding our operating results is as follows: For the Year Ended December 31, Percentage Change 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 (In Millions, Except Percentage Change) Net operating revenues: Inpatient $ 5,756.3 $ 5,230.5 $ 4,693.8 10.1 % 11.4 % Other 178.9 142.7 107.4 25.4 % 32.9 % Net operating revenues $ 5,935.2 $ 5,373.2 $ 4,801.2 10.5 % 11.9 % (Actual Amounts) Discharges 263,299 248,498 229,480 6.0 % 8.3 % Net patient revenue per discharge 21,862 21,048 20,454 3.9 % 2.9 % Outpatient visits 86,238 114,034 120,835 (24.4) % (5.6) % Average length of stay (days) 12.1 12.2 12.4 (0.8) % (1.6) % Occupancy % 75.9% 74.6% 72.1% 1.7 % 3.5 % # of licensed beds 11,465 11,094 10,778 3.3 % 2.9 % Occupied beds 8,702 8,276 7,771 5.1 % 6.5 % Full-time equivalents (FTEs) - internal 28,948 27,658 25,850 4.7 % 7.0 % Contract labor FTEs 355 427 425 (16.9) % 0.5 % Total FTEs* 29,303 28,085 26,275 4.3 % 6.9 % Employees per occupied bed 3.37 3.39 3.38 (0.6) % 0.3 % * FTEs included in the above table represent our employees who participate in or support the operations of our hospitals and include FTEs related to contract labor.
In calculating the leverage ratio under our credit agreement, we are permitted to use pro forma Adjusted EBITDA, the calculation 60 of which includes historical income statement items and pro forma adjustments, subject to certain limitations, resulting from (1) dispositions and repayments or incurrence of debt and (2) investments, acquisitions, mergers, amalgamations, consolidations and other operational changes to the extent such items or effects are not yet reflected in our trailing four-quarter financial statements.
In calculating the leverage ratio under our credit agreement, we are permitted to use pro forma Adjusted EBITDA, the calculation of which includes historical income statement items and pro forma adjustments, subject to certain limitations, resulting from (1) dispositions and repayments or incurrence of debt and (2) investments, acquisitions, mergers, amalgamations, consolidations and other operational changes to the extent such items or effects are not yet reflected in our trailing four-quarter financial statements.
The terms of our credit agreement allow us to declare and pay cash dividends on our common stock so long as: (1) we are not in default under our credit agreement, and (2) either (a) our senior secured leverage ratio (as defined in our credit agreement) remains less than or equal to 2x and our leverage ratio (as defined in our credit agreement) remains less than or 62 equal to 4.50x or (b) our leverage ratio remains in compliance with the leverage ratio covenant and there is capacity under the Available Amount as defined in the credit agreement.
The terms of our credit agreement allow us to declare and pay cash dividends on our common stock so long as: (1) we are not in default under our credit agreement, and (2) either (a) our senior secured leverage ratio (as defined in our credit agreement) remains less than or equal to 2x and our leverage ratio (as defined in our credit agreement) remains less than or equal to 4.50x or (b) our leverage ratio remains in compliance with the leverage ratio covenant and there is capacity under the Available Amount as defined in the credit agreement.
We also will continue to consider additional shareholder value-enhancing strategies such as repurchases of our common stock and distribution of common stock dividends, including the potential growth of the quarterly cash dividend on our common stock, recognizing that these actions may increase our leverage ratio. See also the “Authorizations for Returning Capital to Stakeholders” section of this Item.
We also will continue to consider additional shareholder value-enhancing strategies such as repurchases of our common stock and distribution of common stock dividends, including the potential growth of the quarterly cash dividend on our common stock, 59 recognizing that these actions may increase our leverage ratio. See also the “Authorizations for Returning Capital to Stakeholders” section of this Item.
We attempt to maintain a comprehensive compensation and benefits package that allows us to remain competitive in this challenging staffing environment while remaining consistent with our goal of providing high-quality, cost-effective care. Additionally, our operations have been affected and may in the future be affected by staffing shortages.
We attempt to maintain a comprehensive compensation and benefits package that allows us to be competitive in this challenging staffing environment while remaining consistent with our goal of providing high-quality, cost-effective care. Additionally, our operations have been affected and may in the future be affected by staffing shortages.
However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our significant accounting policies are discussed in Note 1, Summary of Significant Accounting Policies , to the accompanying consolidated financial statements.
However, because future 64 events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Our significant accounting policies are discussed in Note 1, Summary of Significant Accounting Policies , to the accompanying consolidated financial statements.
We have invested in our core business and created an infrastructure that enables us to provide high-quality care on a cost-effective basis. We have been disciplined in creating a 52 capital structure that is flexible with no significant debt maturities until 2028.
We have invested in our core business and created an infrastructure that enables us to provide high-quality care on a cost-effective basis. We have been disciplined in creating a capital structure that is flexible with no significant debt maturities until 2028.
Management continually reviews the revenue transaction price estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms that result from contract renegotiations and renewals. In addition, laws and regulations governing the Medicare and Medicaid programs are complex and subject to 66 interpretation.
Management continually reviews the revenue transaction price estimation process to consider and incorporate updates to laws and regulations and the frequent changes in managed care contractual terms that result from contract renegotiations and renewals. In addition, laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation.
Our self-insurance reserves are not discounted. Given the number of factors used to establish our self-insurance reserves, we believe there is limited benefit to isolating any individual assumption or parameter from the detailed computational process and calculating the impact of changing that single item.
Our self-insurance reserves are not discounted. 66 Given the number of factors used to establish our self-insurance reserves, we believe there is limited benefit to isolating any individual assumption or parameter from the detailed computational process and calculating the impact of changing that single item.
If the Office of Management and Budget (the “OMB”) finds there is a deficit in the federal budget, Statutory PAYGO requires OMB to order sequestration of Medicare, which could result in Medicare program payments reductions of up to four percent.
If the Office of Management and Budget (the “OMB”) finds 52 there is a deficit in the federal budget, Statutory PAYGO requires OMB to order sequestration of Medicare, which could result in Medicare program payments reductions of up to four percent.
See Item 1, Business , “Medicaid Reimbursement,” for additional information. Salaries and Benefits Salaries and benefits are the most significant cost to us and represent an investment in our most important asset: our employees.
See Item 1, Business , “Medicaid Reimbursement,” for additional information. 56 Salaries and Benefits Salaries and benefits are the most significant cost to us and represent an investment in our most important asset: our employees.
For additional discussion of changes to Medicare reimbursement, including the 2025 IRF Rule and Statutory PAYGO, and other proposed and adopted legislative and regulatory actions, including alternative payment models and the IRF RCD, that may be material to our business, see Item 1, Business , and Item 1A, Risk Factors , “Reimbursement Risks” and “Other Regulatory Risks.” Concerns held by federal policymakers about the federal deficit, national debt levels, and the solvency of the Medicare trust fund, as well as other healthcare policy priorities, could result in enactment of further federal spending reductions, including by means of significant staffing reductions at U.S.
For additional discussion of changes to Medicare reimbursement, including the 2026 IRF Rule and Statutory PAYGO, and other proposed and adopted legislative and regulatory actions, including alternative payment models, RCD, and the OBBBA, that may be material to our business, see Item 1, Business , and Item 1A, Risk Factors , “Reimbursement Risks” and “Other Regulatory Risks.” Concerns held by federal policymakers about the federal deficit, national debt levels, and the solvency of the Medicare trust fund, as well as other healthcare policy priorities, could result in enactment of further federal spending reductions, including by means of significant staffing reductions at U.S.
Based on Adjusted EBITDA for 2024 and the interest rate in effect under our credit agreement during the three-month period ended December 31, 2024, if we had drawn on the first day and maintained the maximum amount of outstanding draws under our revolving credit facility for the entire year, we would still be in compliance with the maximum leverage ratio and minimum interest coverage ratio requirements.
Based on Adjusted EBITDA for 2025 and the interest rate in effect under our credit agreement during the three-month period ended December 31, 2025, if we had drawn on the first day and maintained the maximum amount of outstanding draws under our revolving credit facility for the entire year, we would still be in compliance with the maximum leverage ratio and minimum interest coverage ratio requirements.
Also, see the “Contractual Obligations” section below for information related to our contractual obligations as of December 31, 2024. We anticipate we will continue to generate strong cash flows from operations that, together with availability under our revolving credit facility, will allow us to invest in growth opportunities and continue to improve our existing business.
Also, see the “Contractual Obligations” section below for information related to our contractual obligations as of December 31, 2025. We anticipate we will continue to generate strong cash flows from operations that, together with availability under our revolving credit facility, will allow us to invest in growth opportunities and continue to improve our existing business.
In addition, management’s discussion and analysis of our results of operations and cash flows for the year ended December 31, 2023 compared to the year ended December 31, 2022 may be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on February 28, 2024.
In addition, management’s discussion and analysis of our results of operations and cash flows for the year ended December 31, 2024 compared to the year ended December 31, 2023 may be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission on February 28, 2025.
See Note 10, Self-Insured Risks , to the accompanying consolidated financial statements for additional information. We believe our self-insurance reserves are adequate to cover projected costs. Due to the considerable variability that is inherent in such estimates, there can be no assurance the ultimate liability will not exceed management’s estimates.
See Note 9, Self-Insured Risks , to the accompanying consolidated financial statements for additional information. We believe our self-insurance reserves are adequate to cover projected costs. Due to the considerable variability that is inherent in such estimates, there can be no assurance the ultimate liability will not exceed management’s estimates.
Supplemental Guarantor Financial Information Our indebtedness under our credit agreement and the 5.75% Senior Notes due 2025, 4.50% Senior Notes due 2028, 4.75% Senior Notes due 2030, and 4.625% Senior Notes due 2031, (collectively, the “Senior Notes”) are guaranteed by certain consolidated subsidiaries. These guarantees are full and unconditional and joint and several, subject to certain customary conditions for release.
Supplemental Guarantor Financial Information Our indebtedness under our credit agreement and the 4.50% Senior Notes due 2028, 4.75% Senior Notes due 2030, and 4.625% Senior Notes due 2031, (collectively, the “Senior Notes”) are guaranteed by certain consolidated subsidiaries. These guarantees are full and unconditional and joint and several, subject to certain customary conditions for release.
We believe this financial measure on a consolidated basis is important in analyzing our liquidity because it is the key component of certain material covenants contained within our credit agreement, which is discussed in more detail in Note 9, Long-term Debt , to the accompanying consolidated financial statements. These covenants are material terms of the credit agreement.
We believe this financial measure on a consolidated basis is important in analyzing our liquidity because it is the key component of certain material covenants contained within our credit agreement, which is discussed in more detail in Note 8, Long-term Debt , to the accompanying consolidated financial statements. These covenants are material terms of the credit agreement.
Although we obtain third-party insurance coverage to limit our exposure to these claims, a substantial portion of our professional liability, general liability, and workers’ compensation risks are insured through a wholly owned insurance subsidiary. See Note 10, Self-Insured Risks , to the accompanying consolidated financial statements for a more complete discussion of our self-insured risks.
Although we obtain third-party insurance coverage to limit our exposure to these claims, a substantial portion of our professional liability, general liability, and workers’ compensation risks are insured through a wholly owned insurance subsidiary. See Note 9, Self-Insured Risks , to the accompanying consolidated financial statements for a more complete discussion of our self-insured risks.
See Note 1, Summary of Significant Accounting Policies , “Income Taxes,” and Note 15, Income Taxes , to the accompanying consolidated financial statements for a more complete discussion of income taxes and our policies related to income taxes. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous.
See Note 1, Summary of Significant Accounting Policies , “Income Taxes,” and Note 14, Income Taxes , to the accompanying consolidated financial statements for a more complete discussion of income taxes and our policies related to income taxes. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous.
Reimbursement claims made by healthcare providers, including inpatient rehabilitation hospitals, are subject to audit from time to time by governmental payors, such as the Centers for Medicare & Medicaid Services (“CMS”) and state Medicaid programs, their agents, such as the Medicare Administrative Contractors (“MACs”) that act as fiscal intermediaries for all Medicare billings, other auditors contracted by CMS, and private insurance carriers, as well as the United States Department of Health and Human Services Office of Inspector General.
Reimbursement claims made by healthcare providers, including inpatient rehabilitation facilities (“IRFs”), are subject to audit from time to time by governmental payors, such as the Centers for Medicare & Medicaid Services (“CMS”) and state Medicaid programs, their agents, such as the Medicare Administrative Contractors (“MACs”) that act as fiscal intermediaries for all Medicare billings, other auditors contracted by CMS, and private insurance carriers, as well as the United States Department of Health and Human Services Office of Inspector General.
(d) We lease approximately 9% of our hospitals as well as other property under operating leases in the normal course of business. Amounts include interest portion of future minimum operating lease payments. For more information, see Note 7, Leases, to the accompanying consolidated financial statements.
(d) We lease approximately 9% of our hospitals as well as other property under operating leases in the normal course of business. Amounts include interest portion of future minimum operating lease payments. For more information, see Note 6, Leases, to the accompanying consolidated financial statements.
Substantially all of our business consists of inpatient rehabilitation services. From a payor perspective, our reimbursement and regulatory risk is concentrated in the Medicare inpatient rehabilitation rules and regulations. We derive approximately 65% of our Net operating revenues from fee-for-service Medicare.
Substantially all of our business consists of inpatient rehabilitation services. From a payor perspective, our reimbursement and regulatory risk is concentrated in the Medicare inpatient rehabilitation rules and regulations. We derive approximately 65% of our Net operating revenues from fee-for-service Medicare and approximately 16% from Medicare Advantage.
See Note 9, Long-term Debt , to the accompanying consolidated financial statements. On October 28, 2013, we announced our board of directors authorized the repurchase of up to $200 million of our common stock, which has been amended from time to time.
See Note 8, Long-term Debt , to the accompanying consolidated financial statements. On October 28, 2013, we announced our board of directors authorized the repurchase of up to $200 million of our common stock, which has been amended from time to time.
Approximately $215 million to $225 million of this budgeted amount is considered nondiscretionary expenditures, which we may refer to in other filings as “maintenance” expenditures. Actual amounts spent will be dependent upon the timing of development projects.
Approximately $225 million to $240 million of this budgeted amount is considered nondiscretionary expenditures, which we may refer to in other filings as “maintenance” expenditures. Actual amounts spent will be dependent upon the timing of development projects.
These comparisons include the financial results of market consolidation transactions and capacity expansions (including the addition of satellite and remote hospitals) in existing markets, as it is difficult to determine, with precision, the incremental impact of these transactions on our results of operations. 57 2024 Compared to 2023 Net Operating Revenues Our consolidated Net operating revenues increased during 2024 compared to 2023 primarily due to increased volumes and favorable pricing.
These comparisons include the financial results of market consolidation transactions and capacity expansions (including the addition of satellite and remote hospitals) in existing markets, as it is difficult to determine, with precision, the incremental impact of these transactions on our results of operations. 2025 Compared to 2024 Net Operating Revenues Our consolidated Net operating revenues increased during 2025 compared to 2024 primarily due to increased volumes and favorable pricing.
Salaries and benefits increased in 2024 compared to 2023 primarily due to salary and benefit cost increases for our employees and increased patient volumes, including an increase in the number of FTEs as a result of our development activities.
Salaries and benefits increased in 2025 compared to 2024 primarily due to salary and benefit cost increases for our employees and increased patient volumes, including an increase in the number of FTEs as a result of our development activities.
As of December 31, 2024, the maximum leverage ratio requirement per our credit agreement was 4.50x and the minimum interest coverage ratio requirement was 3.0x, and we were in compliance with these covenants.
As of December 31, 2025, the maximum leverage ratio requirement per our credit agreement was 4.50x and the minimum interest coverage ratio requirement was 3.0x, and we were in compliance with these covenants.
Consequently, Adjusted EBITDA is critical to our assessment of our liquidity. 64 In general terms, the credit agreement definition of Adjusted EBITDA, therein referred to as “Adjusted Consolidated EBITDA,” allows us to add back to consolidated Net income interest expense, income taxes, and depreciation and amortization and then add back to consolidated Net income (1) all unusual or nonrecurring items reducing consolidated Net income (of which only up to $10 million in a year may be cash expenditures), (2) any losses from discontinued operations, (3) non-ordinary course fees, costs and expenses incurred with respect to any litigation or settlement, (4) share-based compensation expense, (5) costs and expenses associated with changes in the fair value of marketable securities, (6) costs and expenses associated with the issuance or prepayment of debt, and acquisitions, and (7) any restructuring charges and certain pro forma cost savings and synergies related to transactions and initiatives, which in the aggregate are not in excess of 25% of Adjusted Consolidated EBITDA.
In general terms, the credit agreement definition of Adjusted EBITDA, therein referred to as “Adjusted Consolidated EBITDA,” allows us to add back to consolidated Net income interest expense, income taxes, and depreciation and amortization and then add back to consolidated Net income (1) all unusual or nonrecurring items reducing consolidated Net income (of which only up to $10 million in a year may be cash expenditures), (2) any losses from discontinued operations, (3) non-ordinary course fees, costs and expenses incurred with respect to any litigation or settlement, (4) share-based compensation expense, (5) costs and expenses associated with changes in the fair value of marketable securities, (6) costs and expenses associated with the issuance or prepayment of debt, and acquisitions, and (7) any restructuring charges and certain pro forma cost savings and synergies related to transactions and initiatives, which in the aggregate are not in excess of 25% of Adjusted Consolidated EBITDA.
The increase in Net cash provided by operating activities of continuing operations during 2024 compared to 2023 primarily resulted f rom an increase in Net income which was driven by growth in Net operating revenues . Investing activities .
The increase in Net cash provided by operating activities of continuing operations during 2025 compared to 2024 primarily resulted f rom an increase in Net income which was driven by growth in Net operating revenues . Investing activities .
The increase in Net cash used in investing activities of continuing operations during 2024 compared to 2023 primarily resulted from increased Purchases of property, equipment, and intangible assets . Financing activities .
The increase in Net cash used in investing activities of continuing operations during 2025 compared to 2024 primarily resulted from increased Purchases of property, equipment, and intangible assets . Financing activities .
See Item 1A, Risk Factors , for additional information. Relationships and Transactions with Related Parties Related party transactions were not material to our operations in 2024, 2023, or 2022, and therefore, are not presented as a separate discussion within this Item.
See Item 1A, Risk Factors , for additional information. 58 Relationships and Transactions with Related Parties Related party transactions were not material to our operations in 2025, 2024, or 2023, and therefore, are not presented as a separate discussion within this Item.
For example, the Patient Protection and Affordable Care Act (the “ACA”) enacted in 2010 provided for specific reductions to healthcare providers’ annual reimbursement rate updates and 53 other payment policy changes. The Budget Control Act of 2011 provides for an automatic 2% reduction, or “sequestration,” of Medicare program payments for all healthcare providers.
For example, the Patient Protection and Affordable Care Act (the “ACA”) enacted in 2010 provided for specific reductions to healthcare providers’ annual reimbursement rate updates and other payment policy changes. The Budget Control Act of 2011 provides for an automatic 2% reduction, or “sequestration,” of Medicare program payments for all healthcare providers to reduce deficit spending.
The increase in Net cash used in financing activities of continuing operations during 2024 compared to 2023 primarily resulted from higher net debt payments and repurchases of common stock partially offset by higher Contributions from noncontrolling interests of consolidated affiliates .
The increase in Net cash used in financing activities of continuing operations during 2025 compared to 2024 primarily resulted from lower Contributions from noncontrolling interests of consolidated affiliates and higher repurchases of common stock partially offset by lower net debt payments.
Our primary collection risks relate to patient responsibility amounts and claims reviews conducted by MACs or other contractors. The table below shows a summary of our net accounts receivable balances as of December 31, 2024 and 2023.
Our primary collection risks relate to patient responsibility amounts and claims reviews conducted by MACs or other contractors. 65 The table below shows a summary of our net accounts receivable balances as of December 31, 2025 and 2024.
On December 14, 2020, CMS announced a five-year review choice demonstration for inpatient rehabilitation services (the “IRF RCD”), under which Medicare reimbursement claims are assessed for compliance with applicable coverage and clinical documentation requirements. In August 2023, IRFs located in Alabama began participation in IRF RCD.
On December 14, 2020, CMS announced a five-year review choice demonstration for inpatient rehabilitation services (the “RCD”), under which Medicare reimbursement claims are assessed for compliance with applicable coverage and clinical documentation requirements. In August 2023, IRFs located in Alabama began participation in RCD.
Amounts exclude amortization of debt discounts, amortization of loan fees, or fees for lines of credit that would be included in interest expense in our consolidated statements of comprehensive income. (c) Amounts include interest portion of future minimum finance lease payments.
Amounts exclude amortization of debt discounts, amortization of loan fees, or fees for lines of credit that would be included in interest expense in our consolidated statements of operations. (c) Amounts include interest portion of future minimum finance lease payments.
Based on our analysis that utilizes the acuity of our patients annualized over a twelve-month period ended June 30, 2024, our experience with outlier payments over this same time frame, and other factors, we believe the 2025 IRF Rule will result in a net increase to our Medicare payment rates of approximately 3.3% effective October 1, 2024.
Based on our analysis that utilizes the acuity of our patients annualized over a twelve-month period ended June 30, 2025, our experience with outlier payments over this same time frame, and other factors, we believe the 2026 IRF Rule will result in a net increase to our Medicare payment rates of approximately 2.9% effective October 1, 2025.
At December 31, 2024, we have projects under construction which have an estimated additional cost to complete over the next two years of approximately $410 million. We expect to fund capital expenditures using cash on hand and borrowings under our revolving credit facility.
At December 31, 2025, we have projects under construction which have an estimated additional cost to complete over the next two years of approximately $441 million. We expect to fund capital expenditures using cash on hand and borrowings under our revolving credit facility.
Results of Operations Payor Mix We derived consolidated Net operating revenues from the following payor sources: For the Year Ended December 31, 2024 2023 2022 Medicare 65.1 % 65.0 % 65.3 % Medicare Advantage 16.8 % 16.2 % 15.1 % Managed care 10.8 % 11.1 % 11.6 % Medicaid 3.3 % 4.0 % 4.2 % Other third-party payors 0.8 % 0.9 % 0.9 % Workers' compensation 0.5 % 0.5 % 0.6 % Patients 0.3 % 0.3 % 0.4 % Other income 2.4 % 2.0 % 1.9 % Total 100.0 % 100.0 % 100.0 % 55 Our payor mix is weighted heavily towards Medicare.
Results of Operations Payor Mix We derived consolidated Net operating revenues from the following payor sources: For the Year Ended December 31, 2025 2024 2023 Medicare 65.4 % 65.1 % 65.0 % Medicare Advantage 16.4 % 16.8 % 16.2 % Managed care 10.7 % 10.8 % 11.1 % Medicaid 3.1 % 3.3 % 4.0 % Other third-party payors 0.7 % 0.8 % 0.9 % Workers' compensation 0.5 % 0.5 % 0.5 % Patients 0.3 % 0.3 % 0.3 % Other income 2.9 % 2.4 % 2.0 % Total 100.0 % 100.0 % 100.0 % Our payor mix is weighted heavily towards Medicare.
See Note 15, Income Taxes , to the accompanying consolidated financial statements and the “Critical Accounting Estimates” section of this Item.
See Note 14, Income Taxes , to the accompanying consolidated financial statements and the “Critical Accounting Estimates” section of this Item.
Most recently, on July 24, 2024, our board approved resetting the aggregate common stock repurchase authorization to $500 million. As of December 31, 2024, approximately $489 million remained under this authorization.
Most recently, on July 24, 2024, our board approved resetting the aggregate common stock repurchase authorization to $500 million. As of December 31, 2025, approximately $332 million remained under this authorization.
These borrowings are further explained in Note 9, Long-term Debt, to the accompanying consolidated financial statements. (b) Interest on our fixed rate debt is presented using the stated interest rate. Interest on our variable rate debt is estimated using the rate in effect as of December 31, 2024.
These borrowings are further explained in Note 8, Long-term Debt, to the accompanying consolidated financial statements. (b) Interest on our fixed rate debt is presented using the stated interest rate. Interest on our variable rate debt is estimated using the rate in effect as of December 31, 2025 .
Aggressive payment review practices by Medicare contractors, aggressive enforcement of regulatory policies by government agencies, and restrictive or burdensome rules, regulations or statutes governing admissions practices may lead us to not accept patients who would be appropriate for and would benefit from the services we provide.
Aggressive payment review practices by Medicare contractors, aggressive enforcement of regulatory policies by government agencies, and restrictive or burdensome rules, regulations or statutes governing reimbursement and admissions practices may deny access to care for, or lead us to not accept patients who would be appropriate for and would benefit from the 53 services we provide.
Interest pertaining to our bonds is included to their respective ultimate maturity dates. Interest related to finance lease obligations is excluded from this line (see Note 7, Leases , and Note 9, Long-term Debt , to the accompanying consolidated financial statements).
Interest pertaining to our bonds is included to their respective ultimate maturity dates. Interest related to finance lease obligations is excluded from this line (see Note 6, Leases , and Note 8, Long-term Debt , to the accompanying consolidated financial statements).
Congress also regularly adopts legislation that directly affects Medicare reimbursement. These reimbursement changes can result in limitations on the increases in and, in some cases, significant roll-backs or reductions in the levels of payments for IRF services.
Congress may also adopt legislation that directly affects Medicare reimbursement. These reimbursement changes can result in limitations on the increases in and, in some cases, significant roll-backs or reductions in the levels of payments for IRF services.
Authorizations for Returning Capital to Stakeholders In October 2023, February 2024, and May 2024, our board of directors declared cash dividends of $0.15 per share that were paid in January 2024, April 2024, and July 2024, respectively.
Authorizations for Returning Capital to Stakeholders In October 2024, February 2025, and May 2025, our board of directors declared cash dividends of $0.17 per share that were paid in January 2025, April 2025, and July 2025, respectively.
In July 2024, our board of directors approved an increase in our quarterly dividend and declared a cash dividend of $0.17 per share paid in October 2024. That same month, our board again declared a cash dividend of $0.17 per common share which was paid in January 2025.
In July 2025, our board of directors approved an increase in our quarterly dividend and declared a cash dividend of $0.19 per share paid in October 2025. That same month, our board again declared a cash dividend of $0.19 per common share which was paid in January 2026.
Sequestration took effect April 1, 2013 and, as a result of subsequent legislation, will continue through mid-fiscal year 2032 unless Congress and the President take further action. Additional Medicare payment reductions are also possible under the Statutory Pay-As-You-Go Act of 2010 (“Statutory PAYGO”).
Sequestration took effect April 1, 2013 and, as a result of subsequent legislation, will continue through the first five months of fiscal year 2033 unless Congress and the President take further action. Additional Medicare payment reductions are also possible under the Statutory Pay-As-You-Go Act of 2010 (“Statutory PAYGO”).
As of December 31, 2024 and 2023, $30.6 million and $21.0 million, respectively, of our patient accounts receivable represented denials that were under review or audit. If actual results are not consistent with our assumptions and judgments, we may be exposed to gains or losses that could be material.
As of December 31, 2025 and 2024, $25.5 million and $30.6 million, respectively, of our patient accounts receivable represented denials that were under review or audit. If actual results are not consistent with our assumptions and judgments, we may be exposed to gains or losses that could be material.
Interest Expense and Amortization of Debt Discounts and Fees The decrease in Interest expense and amortization of debt discounts and fees in 2024 compared to 2023 primarily resulted from the August and November 2024 redemptions of $150 million and $100 million, respectively, in outstanding principal amount of the 5.75% Senior Notes due 2025.
Interest Expense and Amortization of Debt Discounts and Fees The decrease in Interest expense and amortization of debt discounts and fees in 2025 compared to 2024 primarily resulted from the September 2025, November 2024, and August 2024 redemptions of $100 million, $100 million, and $150 million, respectively, in outstanding principal amount of the Company’s 5.75% Senior Notes due 2025 (the “2025 Notes”).
Suppliers pass along rising costs to us in the form of higher prices. For example, we experienced higher prices for our medical supplies (including PPE) and food as a result of the COVID-19 pandemic, and we continue to experience higher costs in the recent inflationary environment.
Suppliers pass along rising costs to us in the form of higher prices. For example, we experienced higher prices for our medical supplies (including PPE) and food as a result of the COVID-19 pandemic.
Cash paid for interest approximated $147 million and $148 million in 2024 and 2023, respectively. For additional information, see Note 9, Long-term Debt , to the accompanying consolidated financial statements. Provision for Income Tax Expense Our Provision for income tax expense increased in 2024 compared to 2023 primarily due to higher Income from continuing operations before income tax expense.
Cash paid for interest approximated $133 million and $147 million in 2025 and 2024, respectively. For additional information, see Note 8, Long-term Debt , to the accompanying consolidated financial statements. 57 Provision for Income Tax Expense Our Provision for income tax expense increased in 2025 compared to 2024 primarily due to higher Income from continuing operations before income tax expense.
As part of its annual rulemaking process for various healthcare provider categories, CMS adopts IRF reimbursement rate changes effective from October through the following September. On July 31, 2024, CMS released its notice of final rulemaking for fiscal year 2025 for IRFs (the “2025 IRF Rule”) under the inpatient rehabilitation facility prospective payment system (the “IRF-PPS”).
As part of its annual rulemaking process for various healthcare provider categories, CMS adopts IRF reimbursement rate changes effective from October through the following September. On August 1, 2025, CMS released its notice of final rulemaking for fiscal year 2026 for IRFs (the “2026 IRF Rule”) under the inpatient rehabilitation facility prospective payment system (the “IRF-PPS”).
Sources and Uses of Cash The following table shows the cash flows provided by or used in operating, investing, and financing activities of continuing operations (in millions): For the Year Ended December 31, 2024 2023 2022 Net cash provided by operating activities $ 1,005.9 $ 866.8 $ 653.5 Net cash used in investing activities (653.3) (602.8) (623.5) Net cash used in financing activities (330.6) (197.2) (660.8) Increase (decrease) in cash, cash equivalents, and restricted cash $ 22.0 $ 66.8 $ (630.8) 2024 Compared to 2023 Operating activities.
Sources and Uses of Cash The following table shows the cash flows provided by or used in operating, investing, and financing activities of continuing operations (in millions): For the Year Ended December 31, 2025 2024 2023 Net cash provided by operating activities $ 1,177.0 $ 1,005.9 $ 866.8 Net cash used in investing activities (764.6) (653.3) (602.8) Net cash used in financing activities (431.2) (330.6) (197.2) (Decrease) increase in cash, cash equivalents, and restricted cash $ (18.8) $ 22.0 $ 66.8 2025 Compared to 2024 Operating activities.
Our Net operating revenues consist primarily of revenues derived from patient care services. Net operating revenues also include other revenues generated from management and administrative fees and other non-patient care services. These other revenues are included in “other income” in the above table.
Our Net operating revenues consist primarily of revenues derived from patient care services. Net operating revenues also include other revenues generated from non-patient care services, such as state directed and supplemental payments and management and administrative fees. These other revenues are included in “other income” in the above table.
In addition, our effective income tax rate is affected by changes in tax law, the tax jurisdictions in which we operate, and the results of income tax audits. During the year ended December 31, 2024, we decreased our valuation allowance by $7.4 million.
In addition, our effective income tax rate is affected by changes in tax law, the tax jurisdictions in which we operate, and the results of income tax audits. During the year ended December 31, 2025, we increased our valuation allowance by $0.4 million.
As of December 31, 2024, we operated 166 inpatient rehabilitation hospitals. For additional information about our business, see Item 1, Business and Item 1A, Risk Factors , of this report. 2024 Overview During 2024, Net operating revenues increased 11.9% over 2023 due primarily to volume growth and increased pricing.
As of December 31, 2025, we operated 173 inpatient rehabilitation hospitals. For additional information about our business, see Item 1, Business, and Item 1A, Risk Factors , of this report. 2025 Overview During 2025, Net operating revenues increased 10.5% over 2024 due primarily to volume growth and increased pricing.
See the “Results of Operations” section of this Item for additional information. We continued our development and expansion efforts in 2024.
See the “Results of Operations” section of this Item for additional volume and pricing information. We continued our development and expansion efforts in 2025.
In addition, if we cannot satisfy these financial covenants, we would be prohibited under our credit agreement from engaging in certain activities, such as incurring additional indebtedness, paying common stock dividends, making certain payments, and acquiring and disposing of assets.
In addition, if we cannot satisfy these financial covenants, we would be prohibited under our credit agreement from engaging in certain activities, such as incurring additional indebtedness, paying common stock dividends, making certain payments, and acquiring and disposing of assets. Consequently, Adjusted EBITDA is critical to our assessment of our liquidity.
The following table shows the sensitivity of our recorded self-insurance reserves to the statistical confidence level (in millions): Net self-insurance reserves as of December 31, 2024: As reported, with 50% statistical confidence level 157.2 With 70% statistical confidence level 168.1 We believe our efforts to improve patient safety and overall quality of care, as well as our efforts to reduce workplace injuries, have helped contain our ultimate claim costs.
The following table shows the sensitivity of our recorded self-insurance reserves to the statistical confidence level (in millions): Net self-insurance reserves as of December 31, 2025: As reported, with 50% statistical confidence level 177.9 With 70% statistical confidence level 190.3 We believe our efforts to improve patient safety and overall quality of care, as well as our efforts to reduce workplace injuries, have helped contain our ultimate claim costs.
We do not face near-term refinancing risk, as the amounts outstanding under our credit agreement do not mature until 2027, and except for approximately $100 million of our 2025 Notes, our bonds all mature in 2028 and beyond. See Note 9, Long-term Debt , to the accompanying consolidated financial statements, for additional information related to our debt.
We do not face near-term refinancing risk, as the amounts outstanding under our credit agreement do not mature until 2027, and our bonds all mature in 2028 and beyond. See Note 8, Long-term Debt , to the accompanying consolidated financial statements, for additional information related to our debt.
As of December 31, 2024 2023 (In Millions) Current: 0 - 30 Days $ 449.3 $ 444.5 31 - 60 Days 46.7 66.5 61 - 90 Days 25.5 23.9 91 - 120 Days 14.8 14.1 120 + Days 56.7 50.8 Patient accounts receivable 593.0 599.8 Other accounts receivable 5.8 11.8 598.8 611.6 Noncurrent patient accounts receivable 30.6 20.9 Accounts receivable $ 629.4 $ 632.5 Changes in general economic conditions (such as increased unemployment rates or periods of recession), business office operations, the proper function and availability of billing systems, payor mix, or trends in federal or state governmental and private employer healthcare coverage could affect our collection of accounts receivable.
As of December 31, 2025 2024 (In Millions) Current: 0 - 30 Days $ 472.9 $ 449.3 31 - 60 Days 47.0 46.7 61 - 90 Days 23.8 25.5 91 - 120 Days 16.4 14.8 120 + Days 53.3 56.7 Patient accounts receivable 613.4 593.0 Other accounts receivable 5.8 5.8 619.2 598.8 Noncurrent patient accounts receivable 25.5 30.6 Accounts receivable $ 644.7 $ 629.4 Changes in general economic conditions (such as increased unemployment rates or periods of recession), business office operations, the proper function and availability of billing systems, payor mix, or trends in federal or state governmental and private employer healthcare coverage could affect our collection of accounts receivable.
Future repurchases under this authorization generally are expected to be funded using a combination of cash on hand and availability under our $1 billion revolving credit facility.
There were no repurchases of our common stock during 2023. Future repurchases under this authorization generally are expected to be funded using a combination of cash on hand and availability under our $1 billion revolving credit facility.
Supplies Supplies expense includes all costs associated with supplies used while providing patient care. Specifically, these costs include personal protective equipment (“PPE”), pharmaceuticals, food, syringes, bandages, and other similar items. 58 S upplies increased during 2024 compared to 2023 primarily due to higher costs for medical supplies, pharmaceuticals, and food.
Supplies Supplies expense includes all costs associated with supplies used while providing patient care. Specifically, these costs include personal protective equipment (“PPE”), pharmaceuticals, food, syringes, bandages, and other similar items. S upplies increased during 2025 compared to 2024 primarily due to higher costs resulting from our development activities.
Growth in net patient revenue per discharge in 2024 compared to 2023 primarily resulted from an increase in reimbursement rates and a decrease in revenue reserves related to bad debt partially offset by a change in patient mix.
Growth in net patient revenue per discharge in 2025 compared to 2024 primarily resulted from an increase in reimbursement rates and a decrease in revenue reserves related to bad debt.
See also Item 1, Business , “Strategy and Strategic Priorities” and “Competitive Strengths.” Key Challenges Healthcare is a highly regulated industry facing many well-publicized regulatory and reimbursement challenges. Medicare reimbursement for inpatient rehabilitation facilities (“IRFs”) has recently undergone significant changes. The future of many aspects of healthcare regulation generally and Medicare reimbursement specifically remains uncertain.
See also Item 1, Business , “Strategy and Strategic Priorities” and “Competitive Strengths.” 51 Key Challenges Healthcare is a highly regulated industry facing many well-publicized regulatory and reimbursement challenges. The future of many aspects of healthcare regulation generally and Medicare reimbursement specifically remains uncertain.
More specifically, the average age of our Medicare patients is approximately 78, and the population group ranging in ages from 75 to 79 is expected to grow at approximately 5% per year through 2026. We believe the demand for the services we provide will continue to increase as the U.S. population ages.
More specifically, the average age of our Medicare patients is approximately 77, and the population group for ages 75 and older is expected to grow at approximately 4% per year through 2030. We believe the demand for the services we provide will continue to increase as the U.S. population ages.
Our Adjusted EBITDA was as follows (in millions): Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA For the Year Ended December 31, 2024 2023 2022 Net cash provided by operating activities $ 1,002.8 $ 850.8 $ 705.8 Interest expense and amortization of debt discounts and fees 137.4 143.5 175.7 Gain (loss) on sale of investments, excluding impairments 2.7 4.6 (15.5) Equity in net income of nonconsolidated affiliates 3.0 3.2 2.9 Net income attributable to noncontrolling interests in continuing operations (140.9) (111.0) (93.6) Amortization of debt-related items (9.7) (9.5) (9.7) Distributions from nonconsolidated affiliates (4.0) (1.6) (4.0) Current portion of income tax expense 139.5 128.3 72.2 Change in assets and liabilities (21.9) (50.3) 30.4 Cash used in (provided by) operating activities of discontinued operations 3.1 16.0 (52.3) Asset impairment impact on noncontrolling interests (7.3) — — State regulatory change impact on noncontrolling interests — (2.2) — Change in fair market value of equity securities (1.0) (0.7) 7.4 Adjusted EBITDA $ 1,103.7 $ 971.1 $ 819.3 65 Reconciliation of Net Income to Adjusted EBITDA For the Year Ended December 31, 2024 2023 2022 Net income $ 596.6 $ 463.0 $ 365.9 Loss (income) from discontinued operations, net of tax, attributable to Encompass Health 2.8 12.0 (15.2) Net income attributable to noncontrolling interests included in continuing operations (140.9) (111.0) (93.6) Provision for income tax expense 150.2 132.2 100.1 Interest expense and amortization of debt discounts and fees 137.4 143.5 175.7 Loss on early extinguishment of debt 0.6 — 1.4 Loss on disposal or impairment of assets 17.4 9.8 4.8 Depreciation and amortization 299.6 273.9 243.6 Stock-based compensation 48.3 50.6 29.2 State regulatory change impact on noncontrolling interests — (2.2) — Change in fair market value of equity securities (1.0) (0.7) 7.4 Asset impairment impact on noncontrolling interests (7.3) — — Adjusted EBITDA $ 1,103.7 $ 971.1 $ 819.3 For additional information see the “Results of Operations” section of this Item.
Revenues and expenses are measured in accordance with the policies and procedures described in Note 1, Summary of Significant Accounting Policies , to the accompanying consolidated financial statements. 63 Our Adjusted EBITDA was as follows (in millions): Reconciliation of Net Cash Provided by Operating Activities to Adjusted EBITDA For the Year Ended December 31, 2025 2024 2023 Net cash provided by operating activities $ 1,175.6 $ 1,002.8 $ 850.8 Interest expense and amortization of debt discounts and fees 123.2 137.4 143.5 Gain on sale of investments, excluding impairments 5.9 2.7 4.6 Equity in net income of nonconsolidated affiliates 4.3 3.0 3.2 Net income attributable to noncontrolling interests in continuing operations (192.9) (140.9) (111.0) Amortization of debt-related items (9.6) (9.7) (9.5) Distributions from nonconsolidated affiliates (4.1) (4.0) (1.6) Current portion of income tax expense 170.6 139.5 128.3 Change in assets and liabilities (4.3) (21.9) (50.3) Cash used in operating activities of discontinued operations 1.4 3.1 16.0 Asset impairment impact on noncontrolling interests — (7.3) — State regulatory change impact on noncontrolling interests — — (2.2) Change in fair market value of marketable securities (2.5) (1.0) (0.7) Other 0.3 — — Adjusted EBITDA $ 1,267.9 $ 1,103.7 $ 971.1 Reconciliation of Net Income to Adjusted EBITDA For the Year Ended December 31, 2025 2024 2023 Net income $ 759.1 $ 596.6 $ 463.0 Loss from discontinued operations, net of tax, attributable to Encompass Health 1.0 2.8 12.0 Net income attributable to noncontrolling interests included in continuing operations (192.9) (140.9) (111.0) Provision for income tax expense 192.9 150.2 132.2 Interest expense and amortization of debt discounts and fees 123.2 137.4 143.5 Loss on early extinguishment of debt — 0.6 — Loss on disposal or impairment of assets 2.7 17.4 9.8 Depreciation and amortization 327.9 299.6 273.9 Stock-based compensation 56.5 48.3 50.6 State regulatory change impact on noncontrolling interests — — (2.2) Change in fair market value of marketable securities (2.5) (1.0) (0.7) Asset impairment impact on noncontrolling interests — (7.3) — Adjusted EBITDA $ 1,267.9 $ 1,103.7 $ 971.1 For additional information see the “Results of Operations” section of this Item.
On March 1, 2024, CMS announced the expansion of IRF RCD, effective June 17, 2024, to include IRFs located in Pennsylvania and billing to a certain MAC. We do not bill to that MAC, so we are not subject to the program in Pennsylvania at this time.
In June 2024, CMS expanded RCD to include IRFs located in Pennsylvania and billing to a certain MAC. We do not bill to that MAC, so we are not subject to the program in Pennsylvania at this time. In December 2025, CMS announced the expansion of RCD to Texas and California, effective March 2, 2026 and May 1, 2026, respectively.
The increase in outpatient and other revenue during 2024 included an increase of $33.8 million in provider tax revenues (partially offset by an increase of $17.6 million in provider tax expenses included in Other operating expenses ). Provider tax revenues represent amounts received under state directed and supplemental payment programs associated with Medicaid.
The increase in other revenue during 2025 included an increase of $39.0 million in Medicaid supplemental payments (partially offset by an increase of $33.4 million in provider tax expenses included in Other operating expenses ). Medicaid supplemental payments represent amounts received under state directed and supplemental payment programs associated with Medicaid.
The other subsidiaries of Encompass Health do not guarantee the Senior Notes (such subsidiaries are referred to as the “non-guarantor subsidiaries”). 63 Summarized financial information is presented below for Encompass Health, the parent company, and the subsidiary guarantors on a combined basis after elimination of intercompany transactions and balances among Encompass Health and the subsidiary guarantors and does not include investments in and equity in the earnings of non-guarantor subsidiaries.
Summarized financial information is presented below for Encompass Health, the parent company, and the subsidiary guarantors on a combined basis after elimination of intercompany transactions and balances among Encompass Health and the subsidiary guarantors and does not include investments in and equity in the earnings of non-guarantor subsidiaries.
During 2024, we repurchased 0.4 million shares of our common stock in the open market for $31.1 million under this repurchase authorization using cash on hand. There were no repurchases of our common stock during 2023 or 2022.
During 2025, we repurchased 1.5 million shares of our common stock in the open market for $158.0 million under this repurchase authorization using cash on hand. During 2024, we repurchased 0.4 million shares of our common stock in the 61 open market for $31.1 million under this repurchase authorization using cash on hand.
The Senior Notes are guaranteed on a senior, unsecured basis by all of our existing and future subsidiaries that guarantee borrowings under our credit agreement and other capital markets debt.
The Senior Notes are guaranteed on a senior, unsecured basis by all of our existing and future subsidiaries that guarantee borrowings under our credit agreement and other capital markets debt. The other subsidiaries of Encompass Health do not guarantee the Senior Notes (such subsidiaries are referred to as the “non-guarantor subsidiaries”).
However, we cannot predict our ability to cover future cost increases including increase in the cost of PPE. It should be noted that we have little or no ability to pass on these increased costs associated with providing services to Medicare and Medicaid patients due to federal and state laws that establish fixed reimbursement rates.
It should be noted that we have little or no ability to pass on these increased costs associated with providing services to Medicare and Medicaid patients due to federal and state laws that establish fixed reimbursement rates.
Discharge growth included a 5.6% increase in same-store discharges.
Discharge growth included a 3.4% increase in same-store discharges.
Discharge growth from new stores during 2024 compared to 2023 resulted from our joint ventures in Knoxville, Tennessee (March 2023), Owasso, Oklahoma (March 2023), Bowie, Maryland (June 2023), Columbus, Georgia (September 2023), Atlanta, Georgia (May 2024), and Louisville, Kentucky (June 2024), as well as our wholly owned hospitals in Clermont, Florida (April 2023), Prosper, Texas (November 2023), Fitchburg, Wisconsin (November 2023), Kissimmee, Florida (May 2024), Johnston, Rhode Island (July 2024), and Fort Mill, South Carolina (September 2024).
Discharge growth from new stores during 2025 compared to 2024 resulted from our joint ventures in Atlanta, Georgia (May 2024), Louisville, Kentucky (June 2024), Athens, Georgia (March 2025), and Fort Myers, Florida (May 2025), as well as our wholly owned hospitals in Kissimmee, Florida (May 2024), Johnston, Rhode Island (July 2024), Fort Mill, South Carolina (September 2024), Houston, Texas (November 2024), and Daytona Beach, Florida (July 2025).
We cannot predict what, if any, changes in Medicare spending or modifications to the healthcare laws and regulations will result from future budget or other legislative or regulatory initiatives.
Department of Health and Human Services, further entitlement reform legislation affecting the Medicare program, and further reductions to provider payments. We cannot predict what, if any, changes in Medicare spending or modifications to the healthcare laws and regulations will result from future budget or other legislative or regulatory initiatives.
In certain jurisdictions, we do not expect to generate sufficient income to use all of the available state net operating losses and foreign tax credits prior to their expiration.
For further discussion of the OBBBA, see Item 1, Business , and Item 1A, Risk Factors , “Reimbursement Risks.” In certain jurisdictions, we do not expect to generate sufficient income to use all of the available state net operating losses and foreign tax credits prior to their expiration.
See the “Executive Overview” section of this Item for additional information on our new joint venture hospitals. 59 Impact of Inflation The impact of inflation on the Company will be primarily in the area of labor costs. The healthcare industry is labor intensive. Wages and other expenses increase during periods of inflation and when labor shortages occur in the marketplace.
Impact of Inflation The impact of inflation on the Company will be primarily in the area of labor costs. The healthcare industry is labor intensive. Wages and other expenses increase during periods of inflation and when labor shortages occur in the marketplace.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeFor additional information, see Note 4, Cash and Marketable Securities, and Note 12, Fair Value Measurements, to the accompanying consolidated financial statements. 69 The fair value of our fixed rate debt is determined using inputs, including quoted prices in nonactive markets, that are observable either directly or indirectly, or Level 2 inputs within the fair value hierarchy, and is summarized as follows (in millions): December 31, 2024 December 31, 2023 Financial Instrument: Book Value Market Value Book Value Market Value 5.75% Senior Notes due 2025 Carrying Value $ 99.8 $ — $ 348.5 $ — Unamortized debt discount and fees 0.2 — 1.5 — Principal amount 100.0 99.7 350.0 349.3 4.50% Senior Notes due 2028 Carrying Value 788.4 — 785.0 — Unamortized debt discount and fees 11.6 — 15.0 — Principal amount 800.0 772.3 800.0 763.6 4.75% Senior Notes due 2030 Carrying Value 784.2 — 781.5 — Unamortized debt discount and fees 15.8 — 18.5 — Principal amount 800.0 759.0 800.0 755.0 4.625% Senior Notes due 2031 Carrying Value 392.5 — 391.5 — Unamortized debt discount and fees 7.5 — 8.5 — Principal amount 400.0 369.9 400.0 369.4 Foreign operations, and the related market risks associated with foreign currencies, are currently, and have been, insignificant to our financial position, results of operations, and cash flows.
Biggest changeThe fair value of our fixed rate debt is determined using inputs, including quoted prices in nonactive markets, that are observable either directly or indirectly, or Level 2 inputs within the fair value hierarchy, and is summarized as follows (in millions): December 31, 2025 December 31, 2024 Financial Instrument: Book Value Market Value Book Value Market Value 5.75% Senior Notes due 2025 Carrying Value $ — $ — $ 99.8 $ — Unamortized debt discount and fees — — 0.2 — Principal amount — — 100.0 99.7 4.50% Senior Notes due 2028 Carrying Value 792.0 — 788.4 — Unamortized debt discount and fees 8.0 — 11.6 — Principal amount 800.0 799.6 800.0 772.3 4.75% Senior Notes due 2030 Carrying Value 787.0 — 784.2 — Unamortized debt discount and fees 13.0 — 15.8 — Principal amount 800.0 796.6 800.0 759.0 4.625% Senior Notes due 2031 Carrying Value 393.6 — 392.5 — Unamortized debt discount and fees 6.4 — 7.5 — Principal amount 400.0 392.7 400.0 369.9 Foreign operations, and the related market risks associated with foreign currencies, are currently, and have been, insignificant to our financial position, results of operations, and cash flows.
See also Note 9, Long-term Debt, and Note 12, Fair Value Measurements, to the accompanying consolidated financial statements. Item 8. Financial Statements and Supplementary Data Our consolidated financial statements and related notes are filed together with this report. See the index to financial statements on page F-1 for a list of financial statements filed with this report. Item 9.
See also Note 8, Long-term Debt, and Note 11, Fair Value Measurements, to the accompanying consolidated financial statements. 68 Item 8. Financial Statements and Supplementary Data Our consolidated financial statements and related notes are filed together with this report. See the index to financial statements on page F-1 for a list of financial statements filed with this report. Item 9.
Assuming outstanding balances were to remain the same, a 1% increase in interest rates would result in an incremental negative cash flow of approximately $0.2 million over the next 12 months, while a 1% decrease in interest rates would result in an incremental positive cash flow of approximately $0.2 million over the next 12 months.
Assuming outstanding balances were to remain the same, a 1% increase in interest rates would result in an incremental negative cash flow of approximately $1.3 million over the next 12 months, while a 1% decrease in interest rates would result in an incremental positive cash flow of approximately $1.3 million over the next 12 months.
As of December 31, 2024, our primary variable rate debt outstanding related to $20.0 million in advances under our revolving credit facility.
As of December 31, 2025, our primary variable rate debt outstanding related to $130.0 million in advances under our revolving credit facility.
HCS, Ltd., our wholly owned insurance captive maintains positions in investment securities for other than trading purposes, which, as of December 31, 2024, had a fair market value of approximately $131 million. Changes in the value of these securities is recorded in the accompanying consolidated statements of comprehensive income.
HCS, Ltd., our wholly owned insurance captive maintains positions in investment securities for other than trading purposes, which, as of December 31, 2025, had a fair market value of approximately $146 million. We record our equity securities at fair value and record the change in fair value in our consolidated statements of operations.
During the year ended December 31, 2024, we recorded an unrealized gain of $1.0 million pertaining to these securities.
During the year ended December 31, 2025, we recorded an unrealized gain of $2.1 million pertaining to these securities. For additional information, see Note 3, Cash and Marketable Securities, and Note 11, Fair Value Measurements, to the accompanying consolidated financial statements.

Other EHC 10-K year-over-year comparisons