10q10k10q10k.net

What changed in Encompass Health Corp's 10-K — 2023 vs 2024

vs

Paragraph-level year-over-year comparison of Encompass Health Corp's 2023 and 2024 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 2024 report.

+455 added−475 removedSource: 10-K (2025-02-28) vs 10-K (2024-02-28)

Top changes in Encompass Health Corp's 2024 10-K

455 paragraphs added · 475 removed · 376 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

118 edited+17 added−28 removed122 unchanged
Biggest changeWe ask employees to rate five separate statements related to our DE&I program, including “there is an equal opportunity for people to have a successful career at the Company,” “diversity (individual differences, perspectives, and experience) is embraced as a strength by this Company,” “our Company equips me/staff with the resources to deliver culturally competent care to our patients,” and “my immediate manager supports diversity, equity, and inclusion in the workplace.” All five of those statements rated with a level of agreement at or above 80% and above the healthcare benchmark provided by the surveying vendor.
Biggest changeQuestion/statement Encompass Favorable Industry Favorable Diversity is embraced as a strength by the company. 83.1 78.9 My immediate manager supports diversity, equity and inclusion in the workplace. 88.4 65.4 There is an equal opportunity for people to have a successful career at the company. 81.1 61.2 My immediate manager cares about me as a person. 85.3 75.5 Our company equips staff with the resources to deliver culturally competent care to our patients. 85.1 75.7 Employee Development and Engagement .
Employee Development and Engagement . Our employee development and engagement further our ability to attract and retain healthcare professionals in a highly competitive environment where staffing shortages are not uncommon.
Our employee development and engagement further our ability to attract and retain healthcare professionals in a highly competitive environment where staffing shortages are not uncommon.
Current CMS coverage rules require inpatient rehabilitation services to be ordered by a physician and be coordinated by an interdisciplinary team and the admission to the IRF must be reviewed and approved by a specialized rehabilitation physician. The interdisciplinary team must meet weekly to review patient status and make any needed adjustments to the individualized plan of care.
Current CMS coverage rules require inpatient rehabilitation services to be ordered by a physician and coordinated by an interdisciplinary team and the admission to the IRF must be reviewed and approved by a specialized rehabilitation physician. The interdisciplinary team must meet weekly to review patient status and make any needed adjustments to the individualized plan of care.
The Recovery Audit Contractors (“RACs”) conduct payment reviews of claims, which can examine coding, overall billing accuracy, and medical necessity. When conducting an audit, the RACs receive claims data directly from MACs on a monthly or quarterly basis.
Recovery Audit Contractors (“RACs”) conduct payment reviews of claims, which can examine coding, overall billing accuracy, and medical necessity. When conducting an audit, the RACs receive claims data directly from MACs on a monthly or quarterly basis.
State and local healthcare regulation may cover additional matters such as nurse staffing ratios, healthcare worker safety, disclosure of charges for services provided, marijuana legalization, and assisted suicide. We are also subject to the broader federal and state regulations that prohibit fraud and abuse in the delivery of healthcare services.
State and local healthcare regulation may cover additional matters such as nurse staffing ratios, healthcare worker safety, disclosure of charges for services provided, marijuana legalization, and assisted suicide. We are also subject to broader federal and state regulations that prohibit fraud and abuse in the delivery of healthcare services.
For additional discussion of these audits and the risks associated with them, see Item 1A, Risk Factors , “Reimbursement Risks” and “Other Regulatory Risks” and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , “Executive Overview—Key Challenges.” As noted above, our inpatient rehabilitation hospitals receive a fixed payment reimbursement amount per discharge under the IRF-PPS based on the patient’s rehabilitation impairment category and other characteristics and conditions identified by the attending clinicians.
For additional discussion of these audits and the risks associated with them, see Item 1A, Risk Factors , “Reimbursement Risks” and “Other Regulatory Risks” and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , “Executive Overview—Key Challenges.” 10 As noted above, our inpatient rehabilitation hospitals receive a fixed payment reimbursement amount per discharge under the IRF-PPS based on the patient’s rehabilitation impairment category and other characteristics and conditions identified by the attending clinicians.
Those interpretations are not 10 made through a notice and comment review process. We cannot predict how future CMS coverage rule interpretations or any new local coverage determinations will affect us. However, more restrictive coverage interpretations can limit or delay our reimbursement for services provided to potentially large pools of patients with similar medical conditions.
Those interpretations are not made through a notice and comment review process. We cannot predict how future CMS coverage rule interpretations or any new local coverage determinations will affect us. However, more restrictive coverage interpretations can limit or delay our reimbursement for services provided to potentially large pools of patients with similar medical conditions.
Because we have hundreds of thousands of claims a year for which we are reimbursed by Medicare and other federal payors and there is a relatively long statute of limitations, a billing error, cost reporting error or disagreement over physician 14 medical judgment could result in significant damages and civil and criminal penalties under the FCA.
Because we have hundreds of thousands of claims a year for which we are reimbursed by Medicare and other federal payors and there is a relatively long statute of limitations, a billing error, cost reporting error or disagreement over physician medical judgment could result in significant damages and civil and criminal penalties under the FCA.
Each year, the Medicare Payment Advisory Commission (“MedPAC”), an independent agency that advises the United States Congress on issues affecting Medicare, 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 makes 9 recommendations on regulatory actions to CMS.
Each year, the Medicare Payment Advisory Commission (“MedPAC”), an independent agency that advises the United States Congress on issues affecting Medicare, 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 makes recommendations on regulatory actions to CMS.
Qualified personnel must provide the rehabilitation nursing, physical therapy, occupational therapy, speech-language pathology, social services, psychological services, and prosthetic and orthotic services that may be needed. Medicare contractors processing claims for CMS make coverage determinations regarding medical necessity that can represent novel or restrictive interpretations of the CMS coverage rules.
Qualified personnel must provide the rehabilitation nursing, physical therapy, occupational therapy, speech-language pathology, social services, psychological services, and prosthetic and orthotic services that may be needed. Medicare contractors processing claims for CMS make coverage determinations regarding medical necessity that can represent novel, restrictive, or incorrect interpretations of the CMS coverage rules.
Unlike RACs, however, UPICs do not receive a specific financial incentive based on the amount of the payment errors they identify. As a matter of course, we undertake significant efforts through training, education, and documentation to ensure compliance with coding and medical necessity coverage rules.
Unlike RACs, UPICs do not receive a specific financial incentive based on the amount of the payment errors they identify. As a matter of course, we undertake significant efforts through training, education, and documentation to ensure compliance with coding and medical necessity coverage rules.
HIPAA and related regulations contain certain administrative simplification provisions that require the use of uniform electronic data transmission standards for certain healthcare claims and payment transactions submitted or received electronically. HIPAA regulations also regulate the use and disclosure of individually identifiable health-related information, 16 whether communicated electronically, on paper, or orally.
HIPAA and related regulations contain certain administrative simplification provisions that require the use of uniform electronic data transmission standards for certain healthcare claims and payment transactions submitted or received electronically. HIPAA regulations also regulate the use and disclosure of individually identifiable health-related information, whether communicated electronically, on paper, or orally.
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 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 focus on the following strategic human capital imperatives: • Maintaining competitive compensation and benefit programs that reward and recognize employee performance; • Fostering a strong culture that values diversity, equity, and inclusion; and • Emphasizing employee development and engagement to attract talent and reduce turnover. 5 Compensation and Benefits .
We focus on the following strategic human capital imperatives: • Maintaining competitive compensation and benefit programs that reward and recognize employee performance; • Fostering a strong culture that values diversity, equity, and inclusion; and • Emphasizing employee development and engagement to attract talent and reduce turnover. Compensation and Benefits .
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. 13 Failure to comply with applicable certification requirements may make our hospitals ineligible for Medicare or Medicaid reimbursement.
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.
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.
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.
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, 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.
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 .
Federal and, where applicable, state regulations require the submission of annual cost reports covering the revenue, costs, and expenses associated with the services provided by healthcare providers to Medicare beneficiaries and 12 Medicaid recipients.
Federal and, where applicable, state regulations require the submission of annual cost reports covering the revenue, costs, and expenses associated with the services provided by healthcare providers to Medicare beneficiaries and Medicaid recipients.
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.
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.
In the ordinary course, Medicare reimbursement claims made by healthcare providers, including inpatient rehabilitation hospitals, are subject to audit from time to time by governmental payors and their agents, such as the Medicare Administrative Contractors (“MACs”) that act as fiscal intermediaries for all Medicare billings, as well as the United States Department of Health and Human Services Office of Inspector General (the “HHS-OIG”), CMS, and state Medicaid programs.
In the ordinary course, Medicare reimbursement claims made by healthcare providers, including inpatient rehabilitation hospitals, are subject to audit by governmental payors and their agents, such as the Medicare Administrative Contractors (“MACs”) that act as fiscal intermediaries for all Medicare billings, as well as the United States Department of Health and Human Services Office of Inspector General (the “HHS-OIG”), CMS, and state Medicaid programs.
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. 15 Physician Self-Referral Law .
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 .
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 (the “CARES Act”) 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 did not accept any pandemic relief funds under the Coronavirus Aid, Relief, and Economic Security Act of 2020 or any other program or legislation.
Our teams of highly skilled nurses and physical, occupational, and speech therapists utilize proven technology and clinical protocols with the objective of restoring our patients’ 1 physical and cognitive abilities.
Our teams of highly skilled nurses and physical, occupational, and speech therapists utilize proven technology and clinical protocols with the objective of restoring our patients’ physical and cognitive abilities.
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 18, 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 17, Contingencies and Other Commitments , to the accompanying consolidated financial statements. Relationships with Physicians and Other Providers Anti-Kickback Law .
Revenues and receivables from Medicare are significant to our operations. The federal and state governments establish payment rates as described in more detail below.
Revenues and receivables from Medicare are significant to our operations. Federal and state governments establish payment rates as described in more detail below.
Healthcare will almost certainly 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. 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.
The 2024 IRF Rule also includes changes that impact our hospital-by-hospital base rate for Medicare reimbursement. Such changes include, but are not limited to, revisions to the wage index and labor-related share values, updates to outlier payments and updates to the case-mix group relative weights and average lengths of stay values.
The 2025 IRF Rule also includes changes that impact our hospital-by-hospital base rate for Medicare reimbursement. Such changes include, but are not limited to, revisions to the wage index and labor-related share values, updates to outlier payments, and updates to the case-mix group relative weights and average lengths of stay values.
The statute also provides a penalty of up to approximately $200,000 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 $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 2023 IRF Rule also included changes that impacted our hospital-by-hospital base rate for Medicare reimbursement. Such changes included, but were not limited to, revisions to the wage index and labor-related share values, updates to outlier payments and updates to the case-mix group relative weights and average lengths of stay values.
The 2024 IRF Rule also included changes that impacted our hospital-by-hospital base rate for Medicare reimbursement. Such changes included, but were not limited to, revisions to the wage index and labor-related share values, updates to outlier payments and updates to the case-mix group relative weights and average lengths of stay values.
We undertake significant efforts to ensure our clinical and support staff receives the education and training necessary to provide the highest quality care in the most cost-effective manner. We embrace the Encompass Health Way, our core set of values developed through input from a broad cross section of our employees.
We undertake significant efforts to ensure our clinical and support staff receive the education and training necessary to provide the highest quality care in the most cost-effective manner. We embrace the Encompass Health Way, our core set of values developed through input from a broad cross section of our employees.
More specifically, the average age of our Medicare patients is approximately 76, 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 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.
False Claims The federal False Claims Act (the “FCA”) imposes liability for the knowing presentation of a false claim to the United States government and provides for penalties equal to three times the actual amount of any overpayments plus up to approximately $27,000 per claim. Federal civil penalties will be adjusted to account for inflation each year.
False Claims The federal False Claims Act (the “FCA”) imposes liability for the knowing presentation of a false claim to the United States government and provides for penalties equal to three times the actual amount of any overpayments plus up to approximately $28,000 per claim. Federal civil penalties will be adjusted to account for inflation each year.
These requirements relate to, among other things, pre-admission screening, and individual treatment planning that all delineate the role of physicians in ordering and overseeing patient care. For example, physicians must approve patient admissions and in doing so determine that the treatment of the patients in an IRF setting is reasonable and necessary.
These requirements relate to, among other things, pre-admission screening and individual treatment planning, which delineate the role of physicians in ordering and overseeing patient care. For example, physicians must approve patient admissions and, in doing so, determine that the treatment of the patients in an IRF setting is reasonable and necessary.
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 33 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 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.
In accordance with Medicare laws and statutes, CMS makes annual adjustments to Medicare payment rates in 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 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.
Based on our analysis, which utilizes, among other things, the acuity of our patients annualized over the twelve-month prior period ended June 30, 2023, our experience with outlier payments over that same time frame, and other factors, we believe the 2024 IRF Rule will result in a net increase to our Medicare payment rates of approximately 3.3% effective October 1, 2023.
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.
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, 2023, 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, 2024, we have not been selected for audit.
In order to recruit and retain those clinical employees, we maintain a total rewards program that we view as a combination of the tangible components of pay and benefits with the intangible components of a culture that encourages learning, development, and a supportive work environment.
To recruit and retain those clinical employees, we maintain a total rewards program that we view as a combination of the tangible components of pay and benefits with the intangible components of a culture that encourages learning, development, and a supportive work environment.
Additionally, certain states control Medicaid expenditures through restricting or eliminating coverage of some services. On average, our reimbursement per discharge from Medicaid is lower than that from traditional Medicare, Medicare Advantage and other managed care payors .
Additionally, certain states control Medicaid expenditures by restricting or eliminating coverage of some services. On average, our reimbursement per discharge from Medicaid is lower than that from traditional Medicare, Medicare Advantage and other managed care payors.
Currently, we operate 137 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 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 .
The 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 such, we conduct an annual employee engagement survey open to all our employees, helping us to gauge employee satisfaction with and commitment to their jobs.
The 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.
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 2024. • Growth .
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 .
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 2023, 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 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%.
As of December 31, 2023, we have a strong, well-capitalized balance sheet, including ownership of approximately 78% of our hospital real estate, no significant debt maturities in 2024, 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, 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 .
These annual cost reports are subject to routine audits which may result in adjustments to the amounts ultimately determined to be due to us under these reimbursement programs. These audits are used for determining if any under- or over-payments were made to these programs and to set payment levels for future years.
These annual cost reports are subject to routine audits which may result in adjustments to the amounts ultimately determined to be due to us under these reimbursement programs. These audits are used to determine if any under- or over-payments were made by these programs and to set payment levels for future years.
Violators of the Stark law and regulations may be subject to recoupments, civil monetary sanctions (up to approximately $30,000 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 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.
We negotiate the payment rates with non-governmental group purchasers of healthcare services that are included in “Managed care” in the tables below, including private insurance companies, employers, health maintenance organizations (“HMOs”), preferred provider 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 8 organizations (“PPOs”), and other managed care plans.
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 81% of total revenues.
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.
The sources and relative mix of our revenues for the last three years are: For the Year Ended December 31, 2023 2022 2021 Medicare 65.0 % 65.3 % 64.4 % Medicare Advantage 16.2 % 15.1 % 15.2 % Managed care 11.1 % 11.6 % 12.1 % Medicaid 4.0 % 4.2 % 4.1 % Other third-party payors 0.9 % 0.9 % 1.1 % Workers' compensation 0.5 % 0.6 % 0.6 % Patients 0.3 % 0.4 % 0.5 % Other income 2.0 % 1.9 % 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.
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.
Any instance where we are subject to a CON law, we must obtain it before acquiring, opening, reclassifying, or expanding a healthcare facility or starting a new healthcare program. We potentially face opposition any time we initiate a project requiring a new or amended CON or seek to acquire an existing CON.
Where we are subject to a CON law, we must obtain the CON before acquiring, opening, reclassifying, or expanding a healthcare facility or starting a new healthcare program. We potentially face opposition any time we initiate a project requiring a new or amended CON or seek to acquire an existing CON.
In 2023, we sponsored seven students. Our other community initiatives include an annual report that provides information on our DE&I initiatives to people outside the Company. We also have memberships and active involvement in local chapters of the National Association of Health Service Executives, an organization that promotes the advancement and development of minority healthcare leaders.
Our other community initiatives include an annual report that provides information on our DE&I initiatives to people outside the Company. We also have memberships and active involvement in local chapters of the National Association of Health Service Executives, an organization that promotes the advancement and development of minority healthcare leaders.
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, 2022, CMS released its notice of final rulemaking for fiscal year 2023 IRF-PPS (the “2023 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 27, 2023, CMS released its notice of final rulemaking for fiscal year 2024 IRF-PPS (the “2024 IRF Rule”).
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 $968 million was available for borrowing as of December 31, 2023.
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.
We also sponsored the 2023 Magic City Classic, the largest historically black college and university football game in the country, in order to promote the Encompass Health brand and career opportunities to the in-person attendees, estimated at approximately 70,000, as well as visitors to the event’s website. • Supplier Diversity.
We also sponsored the 2024 Magic City Classic, the largest historically black college and university football game in the country, in order to promote the Encompass Health brand and career opportunities to the in-person attendees, estimated at approximately 70,000, as well as visitors to the event’s website.
As of December 31, 2023, 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.
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.
The 2023 IRF Rule implemented a net 3.9% market basket increase (market basket update of 4.2% reduced by a productivity adjustment of 0.3%) effective for discharges between October 1, 2022 and September 30, 2023. The productivity adjustment 11 equals the trailing 10-year average of changes in annual economy-wide private nonfarm business multi-factor productivity.
The 2024 IRF Rule implemented a net 3.4% market basket increase (market basket update of 3.6% reduced by a productivity adjustment of 0.2%) effective for discharges between October 1, 2023 and September 30, 2024. The productivity adjustment equals the trailing 10-year average of changes in annual economy-wide private nonfarm business multi-factor productivity.
Unlike our inpatient services, our outpatient services are primarily reimbursed under the Medicare Part B physician fee schedule. On November 2, 2023, 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 2024.
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.
This supply-demand imbalance is partly responsible for the relatively low conversion rate of inpatient rehabilitation eligible patients.
This supply-demand imbalance is partly responsible for a relatively low conversion rate of inpatient rehabilitation eligible patients.
In addition, the DE&I department works closely with the quality, clinical and case management departments to improve health equity (including through development of our social determinants of health risk assessment for use by patient case managers) and ensure our interprofessional health care teams have the resources they need to provide culturally competent care.
In addition, the human resources staff works closely with the quality, clinical and case management departments to improve health equity (including through development of our social determinants of health risk assessment for use by patient case managers) and ensure our interprofessional health care teams have the resources they need to provide culturally competent care.
We believe the percentage of patients who are discharged from acute-care hospitals with one or more of 13 specified medical conditions that CMS ties to IRF eligibility and subsequently admitted to an IRF is approximately 13% based on Medicare fee-for-service data, which is the only publicly available data on the subject.
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.
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 across the healthcare continuum for our patients, our partners, and our payors.
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.
As of December 31, 2023, 136 of our 161 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, 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.
We are focused on developing technology-enabled strategies to further improve our effectiveness at providing integrated healthcare.
We are focused on developing technology-enabled strategies to further improve our effectiveness at providing post-acute healthcare.
Our other DE&I initiatives include scholastic partnerships with historically black colleges, recruitment tools to help identify and attract diverse talent, a website career tool to help veterans find jobs that closely align with their specific skills, and ongoing policy and procedure reviews to incorporate guidance and practices that align with our DE&I mission.
Our other DE&I initiatives include scholastic partnerships with colleges and universities, including historically black colleges, recruitment tools to help identify and attract diverse talent, a website career tool to help veterans find jobs that closely align with their specific skills, and ongoing policy and procedure reviews to incorporate guidance and practices that align with our mission of inclusion and promote compliance with applicable law.
The table below shows those turnover rates for 2023 and 2022. 2023 2022 Therapist 7.8% 9.1% Nurse 23.1% 28.1% We support the long-term career aspirations of our employees through education and personal development. • Education Opportunities.
The table below shows those turnover rates for 2024 and 2023. 2024 2023 Therapist 7.7% 7.8% Nurse 20.4% 23.1% We support the long-term career aspirations of our employees through education and personal development. • Education Opportunities.
Penalties are also subject to an annual cap for multiple identical violations in a single calendar year. Pursuant to guidance from HHS-OCR, this enforcement cap ranges from a minimum of $25,000 per year to a maximum of $1,500,000 per year depending on an entity’s level of culpability.
Penalties are also subject to an annual cap for multiple identical violations in a single calendar year. Pursuant to guidance from HHS-OCR, this enforcement cap ranges from a minimum of approximately $49,000 per year to a maximum of approximately $2,135,000 per year depending on an entity’s level of culpability.
We reimbursed over $1.1 million in tuition and paid over $2.8 million toward employees’ student loan debt in 2023. • Academic Endowments. We endowed five scholarships for deserving students from underrepresented groups 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 $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.
Accredited hospitals are subject to periodic resurvey to ensure the standards are being met. Beyond healthcare specific regulations, we face increasing state and local regulation in areas, such as labor and employment and data privacy, traditionally subject to only or primarily federal regulation.
Accredited hospitals are subject to periodic resurvey to ensure the standards are being met. Beyond healthcare specific regulations, we face increasing state and local regulation in areas, such as labor and employment, energy efficiency, and data privacy.
During the COVID-19 pandemic (the “pandemic”), our hospitals treated thousands of patients with or recovering from the COVID-19 virus. Our focus on specialized rehabilitative care has meant that in many cases our hospitals have been ideal settings for treating the debilitating effects of the COVID-19 virus, such as significant muscle weakness, cognitive impairments, shortness of breath with activity, and malnutrition.
Our focus on specialized rehabilitative care has meant that in many cases our hospitals have been ideal settings for treating the debilitating effects of the COVID-19 virus, such as significant muscle weakness, cognitive impairments, shortness of breath with activity, and malnutrition.
Despite our efforts to ensure accurate coding and assessment of patients, audits have in the past led and may in the future lead to assertions that we have been underpaid or overpaid by Medicare or that we have submitted improper claims in some instances.
Despite our efforts to ensure accurate coding and assessment of patients, past audits have led, and future audits may lead, to assertions that we have been underpaid or overpaid by Medicare or that we have submitted improper claims in some instances. Ultimately, audits may require us to refund any amounts determined to have been overpaid.
In 2023 , approximately 50% 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 62% by 2033 .
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 .
The Medicare statutes are subject to change from time to time. With respect to Medicare reimbursement, the ACA provided for specific reductions to healthcare providers’ annual market basket updates and other payment policy changes.
The Medicare statutes are subject to change from time to time. With respect to Medicare reimbursement, the Patient Protection and Affordable Care Act (the “ACA”) provided for specific reductions to healthcare providers’ annual market basket updates and other payment policy changes.
The government and relators may also allege violations of the FCA for the knowing and improper failure to report and refund amounts owed to the government in a timely manner following identification of an overpayment.
The FCA allows relators to share in monetary recoveries in order to incentivize complaints. The government and relators may also allege violations of the FCA for the knowing and improper failure to report and refund amounts owed to the government in a timely manner following identification of an overpayment.
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 has remained relatively stable — increasing just 0.17% from 1,179 in 2010 to 1,181 in 2022.
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.
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.
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 2023, 82% of our employees participated in the survey, which measures perceptions based on 38 questions from the categories listed below. The overall Company engagement score was 83% favorable, representing a 2% increase over 2022.
In 2024, 87% of all of our employees participated in the survey, which measures perceptions based on 38 questions from the categories listed below. The overall Company engagement score was 83.7% favorable, representing a small increase over 2023.
Audits also require us to incur additional costs to respond to requests for records and defend the validity of payments and claims, and ultimately require us to refund any amounts determined to have been overpaid. We cannot predict when or how these audit programs will affect us.
Audits also require us to incur additional costs to respond to requests for records and defend the validity of payments and claims. We cannot predict when or how these audit programs will affect us.
In 2023, we again surpassed the healthcare benchmarks in each of the 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 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.
We operate hospitals in 37 states and Puerto Rico, with concentrations in Florida and Texas. As of December 31, 2023, we operate 161 inpatient rehabilitation hospitals. We are committed to delivering high-quality, cost-effective patient care. For 2024, we were again named to Fortune’s list of the World’s Most Admired Companies.
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.
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 and case management; 7 ▪ 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 ▪ 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. • 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.

… 83 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

129 edited+26 added−39 removed291 unchanged
Biggest changeIncreased DOJ enforcement of antitrust laws will likely increase the time, effort and expense associated with acquisitions and may ultimately make it less likely to consummate acquisitions. 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.
Biggest changeThese 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 laws in many cases are more restrictive or impose more obligations than, and may not be preempted by, the HIPAA rules, apply to employees and business contacts as well as patients, and may be subject to new and varying interpretations by courts and government agencies, creating complex compliance issues and potentially exposing us to additional expense, adverse publicity and liability.
These laws in many cases are more restrictive or impose more obligations than, and are not preempted by, the HIPAA rules, apply to employees and business contacts as well as patients, and may be subject to new and varying interpretations by courts and government agencies, creating complex compliance issues and potentially exposing us to additional expense, adverse publicity and liability.
These laws and regulations relate to, among other things: • licensure, certification, enrollments, and accreditation; • policies, either at the national or local level, delineating what conditions must be met to qualify for reimbursement under Medicare (also referred to as coverage requirements); • coding and billing for services; • requirements of the “60% Rule” applicable to inpatient rehabilitation facilities; 27 • relationships with physicians and other referral sources, including physician self-referral and anti-kickback laws; • quality of medical care; • use and maintenance of medical supplies and equipment; • maintenance and security of patient information and medical records; • minimum staffing; • acquisition and dispensing of pharmaceuticals and controlled substances; • pricing transparency and similar consumer protection rules; and • disposal of medical and hazardous waste.
These laws and regulations relate to, among other things: • licensure, certification, enrollments, and accreditation; • policies, either at the national or local level, delineating what conditions must be met to qualify for reimbursement under Medicare (also referred to as coverage requirements); • coding and billing for services; • requirements of the “60% Rule” applicable to inpatient rehabilitation facilities; • relationships with physicians and other referral sources, including physician self-referral and anti-kickback laws; • quality of medical care; • use and maintenance of medical supplies and equipment; • maintenance and security of patient information and medical records; • minimum staffing; • acquisition and dispensing of pharmaceuticals and controlled substances; • pricing transparency and similar consumer protection rules; and • disposal of medical and hazardous waste.
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.
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.
For additional discussion of healthcare reform and other factors affecting reimbursement for our services, see Item 1, Business , “Regulatory and Reimbursement Challenges” and “Sources of Revenues—Medicare Reimbursement.” Compliance with the extensive laws and government regulations applicable to healthcare providers requires substantial time, effort and expense, and if we fail to comply with them, we could suffer penalties or be required to make significant changes to our operations.
For additional discussion of healthcare reform and other factors affecting reimbursement for our services, see Item 1, Business , “Regulatory and Reimbursement Challenges” and “Sources of Revenues—Medicare Reimbursement.” 26 Compliance with the extensive laws and government regulations applicable to healthcare providers requires substantial time, effort and expense, and if we fail to comply with them, we could suffer penalties or be required to make significant changes to our operations.
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 35 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 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.
In that report, MedPAC concluded the design of a PAC-PPS is “relatively straight-forward” but noted “developing companion policies could take many years; implementing them would be complex and possibly controversial.” Additionally, MedPAC previously has suggested that Medicare should ultimately move from fee-for-service reimbursement to more integrated payment models.
In that report, MedPAC concluded the design of a PAC-PPS is “relatively straight-forward” but noted “developing companion policies could take many years; implementing them would be complex and possibly controversial.” Additionally, MedPAC previously suggested that Medicare should ultimately move from fee-for-service reimbursement to more integrated payment models.
For instance, a number of recently enacted laws and regulations impose on companies broad climate-related disclosure requirements, such as California’s suite of statutes adopted in 2023 known as the “climate accountability package,” to track and report matters associated with greenhouse gas emissions, alternative energy usage, energy conservation, 40 and the transition to a lower-carbon economy.
For instance, a number of recently enacted laws and regulations impose on companies broad climate-related disclosure requirements, such as California’s suite of statutes adopted in 2023 known as the “climate accountability package,” to track and report matters associated with greenhouse gas emissions, alternative energy usage, energy conservation, and the transition to a lower-carbon economy.
A delay in collecting our accounts receivable, or the non-collection of accounts receivable, including, without limitation, in connection with our transition and integration of acquired companies and the attendant movement of underlying billing and collection operations from legacy systems to future systems, could have a material negative impact on our results of operations and liquidity, and we could be required to record impairment charges on our financial statements.
A delay in collecting our accounts receivable, or the non-collection of accounts receivable, including, without limitation, in connection with our transition and integration of acquired companies and the attendant movement of underlying billing and collection operations from legacy systems to future systems, could have a material negative impact on our results of operations and liquidity, and we could be required to record further impairment charges on our financial statements.
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.
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.
New legislation proposed or enacted will continue to shape the data privacy environment. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to confidential, sensitive and personal information than federal, international or other state laws, and such laws may conflict with each other, which significantly complicates compliance efforts.
New legislation proposed or enacted will continue to shape the data privacy environment. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to confidential, sensitive and personal information 31 than federal, international or other state laws, and such laws may conflict with each other, which significantly complicates compliance efforts.
From time to time, we have been, and expect to continue to be, subject to regulatory proceedings and private litigation, including putative class action lawsuits, concerning our application of various laws, rules and regulations governing employment practices, including wage and hour claims. Some of these actions involve large demands, as well as substantial defense costs.
From time to time, we have been, and expect to continue to be, subject to regulatory proceedings and private litigation, including putative class and collective action lawsuits, concerning our application of various laws, rules and regulations governing employment practices, including wage and hour claims. Some of these actions involve large demands, as well as substantial defense costs.
The charges for an individual item or service to be published include: • gross charge (charge as reflected on a hospital’s chargemaster, absent any discounts), • payer-specific negotiated charge (charge negotiated with a third party payer for an item or service), • de-identified minimum negotiated charge (lowest charge negotiated with all third-party payers), • de-identified maximum negotiated charge (highest charge negotiated with all third-party payers), and 33 • discounted cash price (charge that applies to an individual who pays cash).
The charges for an individual item or service to be published include: • gross charge (charge as reflected on a hospital’s chargemaster, absent any discounts), • payer-specific negotiated charge (charge negotiated with a third party payer for an item or service), • de-identified minimum negotiated charge (lowest charge negotiated with all third-party payers), • de-identified maximum negotiated charge (highest charge negotiated with all third-party payers), and • discounted cash price (charge that applies to an individual who pays cash).
For example, each year, CMS adopts updates to the payments to, and the payment policies for, Medicare Advantage payors, and those updates may result in a net decrease in payments to those payors. Our relationships with managed care and nongovernmental third-party payors, such as health maintenance organizations and preferred provider organizations, are generally governed by 20 negotiated agreements.
For example, each year CMS adopts updates to the payments to, and the payment policies for, Medicare Advantage payors, and those updates may result in a net decrease in payments to those payors. Our relationships with managed care and nongovernmental third-party payors, such as health maintenance organizations and preferred provider organizations, are generally governed by negotiated agreements.
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.
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.
Our loss of, or failure to maintain, existing relationships, including because of closures of referral sources in concentrated markets, or our failure to develop new relationships could adversely affect our ability to grow our business and operate profitably. 36 We may have difficulty completing joint ventures, investments and transactions that increase our capacity consistent with our growth strategy.
Our loss of, or failure to maintain, existing relationships, including because of closures of referral sources in concentrated markets, or our failure to develop new relationships could adversely affect our ability to grow our business and operate profitably. We may have difficulty completing joint ventures, investments and transactions that increase our capacity consistent with our growth strategy.
The focus on alternative payment models and value-based purchasing of healthcare services has, in turn, led to more extensive quality of care reporting requirements. In many cases, the new reporting requirements are linked to reimbursement incentives. For example, under the ACA, CMS established new quality data reporting, effective October 1, 2012, for all IRFs.
The focus on alternative payment models and value-based purchasing of healthcare services has led to more extensive quality of care reporting requirements. In many cases, the new reporting requirements are linked to reimbursement incentives. For example, under the ACA, CMS established new quality data reporting, effective October 1, 2012, for all IRFs.
Without procedural protections, sub-regulatory guidance poses a risk above and beyond reasonable efforts to follow validly promulgated regulations, particularly when the agency or MAC seeking to enforce such sub-regulatory guidance is not the agency or MAC 29 issuing the guidance and therefore not as familiar with the substance and nature of the underlying regulations or even clinical issues involved.
Without procedural protections, sub-regulatory guidance poses a risk above and beyond reasonable efforts to follow validly promulgated regulations, particularly when the agency or MAC seeking to enforce such sub-regulatory guidance is not the agency or MAC issuing the guidance and therefore not as familiar with the substance and nature of the underlying regulations or even clinical issues involved.
Any of these occurrences or similar occurrences affecting a number of our joint ventures could, in the aggregate, have a material adverse impact on our business and consolidated financial condition, results of operations, and cash flows. 37 We may make investments or complete transactions that could expose us to unforeseen risks and liabilities.
Any of these occurrences or similar occurrences affecting a number of our joint ventures could, in the aggregate, have a material adverse impact on our business and consolidated financial condition, results of operations, and cash flows. We may make investments or complete transactions that could expose us to unforeseen risks and liabilities.
If we are unable to generate sufficient cash flow from operations in the future to service our debt and meet our other needs or have an unanticipated cash payment obligation, we may have to 41 refinance all or a portion of our debt, obtain additional financing or reduce expenditures or sell assets we deem necessary to our business.
If we are unable to generate sufficient cash flow from operations in the future to service our debt and meet our other needs or have an unanticipated cash payment obligation, we may have to refinance all or a portion of our debt, obtain additional financing or reduce expenditures or sell assets we deem necessary to our business.
Our ability to attract patients could be adversely affected if any of our hospitals fail to provide or maintain a reputation for providing high-quality care on a cost-effective basis as compared to other providers. Quality reporting requirements could adversely affect the Medicare reimbursement we receive.
Our ability to attract patients could be adversely affected if any of our hospitals fail to provide or maintain a reputation for providing high-quality care on a cost-effective basis as compared to other providers. 23 Quality reporting requirements could adversely affect the Medicare reimbursement we receive.
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.
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.
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 31 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 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.
Our clinicians must frequently assist patients who have difficulty with mobility. We cannot predict the impact any claims arising out of the care being provided (regardless of their ultimate outcomes) could have on our 39 business or reputation or on our ability to attract and retain patients and employees.
Our clinicians must frequently assist patients who have difficulty with mobility. We cannot predict the impact any claims arising out of the care being provided (regardless of their ultimate outcomes) could have on our business or reputation or on our ability to attract and retain patients and employees.
However, there can be no assurance significant backlogs will not develop in the future in the event the rate of new claims denials exceeds the rate at which those claims are resolved in the appeal process. Providers may appeal adverse ALJ rulings to the Department Appeals Board (the “DAB”).
However, there can be no assurance significant backlogs will not develop in the future in the event the rate of new claims denials exceeds the rate at which those claims are resolved in the appeal process. 21 Providers may appeal adverse ALJ rulings to the Department Appeals Board (the “DAB”).
Any contractual protections we have from our service providers may not be sufficient to adequately protect us from any such liabilities and losses, and we may be unable to enforce any such contractual protections. 32 In addition to government regulation, privacy advocates and industry groups have and may in the future propose self-regulatory standards from time to time.
Any contractual protections we have from our service providers may not be sufficient to adequately protect us from any such liabilities and losses, and we may be unable to enforce any such contractual protections. In addition to government regulation, privacy advocates and industry groups have and may in the future propose self-regulatory standards from time to time.
Additionally, interoperability and the sharing of health information have received increasingly negative publicity. There is at least one well publicized instance where organizations received significant negative publicity for sharing health data 30 despite having appeared to comply in all respects with privacy law.
Additionally, interoperability and the sharing of health information have received increasingly negative publicity. There is at least one well publicized instance where organizations received significant negative publicity for sharing health data despite having appeared to comply in all respects with privacy law.
They exercise independent medical judgment. We and our 28 hospital medical directors, who are independent contractors, provide training on a regular basis to the physicians who treat patients at our hospitals regarding appropriate documentation. However, we ultimately do not and cannot control the physicians’ medical judgment.
They exercise independent medical judgment. We and our hospital medical directors, who are independent contractors, provide training on a regular basis to the physicians who treat patients at our hospitals regarding appropriate documentation. However, we ultimately do not and cannot control the physicians’ medical judgment.
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. This automatic reduction, known as “sequestration,” began affecting payments received after April 1, 2013.
The SMRC conducts nationwide medical reviews of Medicare claims to determine compliance with coverage, coding, payment, and billing requirements. During the first quarter of 2023, the SMRC initiated a review of claims from March 2020 through December 2020 totaling approximately $21 million.
The SMRC conducts nationwide medical reviews of Medicare claims to determine compliance with coverage, coding, payment, and billing requirements. During the first quarter of 2023, the SMRC initiated a review of a subset of claims from March 2020 through December 2020 totaling approximately $21 million.
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.
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.
For example, in December 2021, widespread exploitation of a vulnerable logging software installed within commonly used applications, services, and websites 34 gave threat actors the ability to execute code remotely and potentially take control of affected systems.
For example, in December 2021, widespread exploitation of a vulnerable logging software installed within commonly used applications, services, and websites gave threat actors the ability to execute code remotely and potentially take control of affected systems.
Those initiatives or reductions would be in addition to many ordinary course reimbursement rate changes that CMS adopts each year as part of the market basket update rulemaking process for various provider categories.
Those initiatives, reductions, or actions would be in addition to many ordinary course reimbursement rate changes that CMS adopts each year as part of the market basket update rulemaking process for various provider categories.
While only a small percentage of our business currently is or is anticipated to be subject to the alternative payment models discussed above, we cannot be certain these models will not be expanded or made standard or new models will not be implemented broadly.
While only a small percentage of our business currently is subject to the alternative payment models discussed above, we cannot be certain these models will not be expanded or made standard or new models will not be implemented broadly.
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.
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.
Furthermore, the proliferation of Medicare and Medicaid managed care programs could have a material adverse impact on the 23 results of our operations as a result of more complicated authorization, billing and collection requirements implemented by such programs.
Furthermore, the proliferation of Medicare and Medicaid managed care programs could have a material adverse impact on the results of our operations as a result of more complicated authorization, billing and collection requirements implemented by such programs.
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.
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.
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.
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.
In December 2017, we received notice of a UPIC audit at one of our hospitals. The UPIC sampled 100 21 claims and challenged the propriety of a subset of the sample representing $1.3 million in previously paid claims.
In December 2017, we received notice of a UPIC audit at one of our hospitals. The UPIC sampled 100 claims and challenged the propriety of a subset of the sample representing $1.3 million in previously paid claims.
The increase in reserves was driven principally by an increase in unfavorable adjudication outcomes experienced at the DAB during the second 22 half of 2023 and largely offset the remaining net carrying value of these claims.
The increase in reserves was driven principally by an increase in unfavorable adjudication outcomes experienced at the DAB during the second half of 2023 and largely offset the remaining net carrying value of these claims.
The productivity adjustment equals the trailing 10-year average of changes in annual economy-wide private nonfarm business multi-factor productivity. To date, the productivity adjustments have typically resulted in decreases to the market basket updates ranging from 30 to 100 basis points. Other federal legislation can also have a significant impact on our Medicare reimbursement.
The productivity adjustment equals the trailing 10-year average of changes in annual economy-wide private nonfarm business multi-factor productivity. To date, the productivity adjustments have typically resulted in decreases to the market basket updates ranging from 20 to 100 basis points. Other federal legislation can also have a significant impact on our Medicare reimbursement.
The precise details of these new reporting requirements, including timing and content, were developed and implemented by CMS through the regulatory process over several years, and CMS may continue to make changes to these quality measures and standardized patient assessment data elements in the future. We cannot quantify the potential effects of the IMPACT Act on us.
The precise details of these new reporting requirements, including timing and content, were developed and implemented by CMS through the regulatory process over several years, and CMS may continue to make changes to these quality measures and standardized patient assessment data elements in the future. We cannot quantify the potential future effects, if any, of the IMPACT Act on us.
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.
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.
The companion rules 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 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.
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 10, 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 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.
We are and will remain dependent on the proper function, availability and security of our and third-party information systems, including our electronic clinical information system, referred to as ACE-IT, which plays a substantial role in the operations of the hospitals, and the cloud service providers we directly and indirectly use.
We are and will remain dependent on the proper function, availability and security of our and third-party information systems, including our electronic clinical information system, referred to as ACE-IT, which plays a substantial role in the operations of the hospitals, and on the cloud and other information technology service providers we directly and indirectly use.
In addition, we have approximately $7 million in claims denied by the DAB pending review by United States district courts as of December 31, 2023. Changes implemented by CMS to resolve the prior appeal backlog may have harmed the ability of providers like us to recover on valid Medicare claims.
In addition, we have approximately $7 million in claims denied by the DAB pending review by United States district courts as of December 31, 2024. Changes implemented by CMS to resolve the prior appeal backlog may have harmed the ability of providers like us to recover on valid Medicare claims.
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 11, 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 10, Self-Insured Risks , to the accompanying consolidated financial statements.
Although we remained in compliance with the financial ratios and financial condition tests as of December 31, 2023, 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, 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.
See Note 10, 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 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.
The Medicare appeals adjudication process is administered by the Office of Medicare Hearings and Appeals (“OMHA”). Beginning in March 2020, OMHA increased the frequency of ALJ hearings and the number of claims set at each hearing, which we believe adds to the substantive and procedural deficiencies in the ALJ appeals process.
The Medicare appeals adjudication process is administered by the Office of Medicare Hearings and Appeals (“OMHA”). Beginning in March 2020, OMHA increased the frequency of ALJ hearings and the number of claims set at each hearing, which we believe added to the substantive and procedural deficiencies in the ALJ appeals process.
Depending on the nature of the conduct found in such audits and whether the underlying conduct could be considered systemic, the resolution of these audits could have a material adverse effect in the aggregate on our financial position, results of operation, cash flows, and liquidity.
Depending on the nature of the conduct found in billing audits and whether the underlying conduct could be considered systemic, the resolution of these audits could have a material adverse effect in the aggregate on our financial position, results of operation, cash flows, and liquidity.
CMS has also taken the position that a patient’s medical file must appropriately document the rationale for the use of group therapies, as opposed to one-on-one therapy. Beginning on October 1, 2015, CMS instituted a new data collection requirement pursuant to which IRFs must capture the minutes and mode (individual, group, concurrent, or co-treatment) of therapy by specialty.
CMS has also taken the position that a patient’s medical file must appropriately document the rationale for the use of group therapies, as opposed to one-on-one therapy. Beginning in 2015, CMS instituted a new data collection requirement pursuant to which IRFs must capture the minutes and mode (individual, group, concurrent, or co-treatment) of therapy by specialty.
Under CMS’s Targeted Probe and Educate (“TPE”) program, MACs use data analysis to identify healthcare providers with 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 selects a provider for claims review, the initial volume of claims review is limited to 20 to 40 claims.
The nature and substance of state and federal healthcare laws are subject to change, by means of both broad base 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, by means of both broad-based healthcare reform legislation, like the ACA, and targeted legislative and regulatory action.
See the “Liquidity and Capital Resources” section of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations , and Note 10, 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 9, Long-term Debt , to the accompanying consolidated financial statements.
Other unforeseen events, including acts of violence, war, terrorism and other international, regional or local instability or conflicts (including labor issues), embargoes, short-term and long-term weather-related events, natural disasters such as earthquakes and floods, whether occurring in the United States or abroad, could restrict or disrupt our operations and negatively affect our results of operations and cash flows.
Other unforeseen events, including acts of violence, war, terrorism and other international, regional or local instability or conflicts (including labor issues), embargoes, trade or tariff disputes, short-term and long-term weather-related events, natural disasters such as earthquakes, wildfires, and floods, whether occurring in the United States or abroad, could restrict or disrupt our operations and negatively affect our results of operations and cash flows.
Our more significant lawsuits and investigations, if any, are discussed in Note 18, Contingencies and Other Commitments , to the accompanying consolidated financial statements.
Our more significant lawsuits and investigations, if any, are discussed in Note 17, Contingencies and Other Commitments , to the accompanying consolidated financial statements.
While we do not expect the drive toward integrated payment models, value-based purchasing, and post-acute site neutrality in Medicare reimbursement to subside, there will almost certainly be new or alternative healthcare reforms in the future which may change these initiatives and other healthcare laws and regulations.
While we do not expect the drive toward integrated payment models, value-based purchasing, and unified post-acute payment systems in Medicare reimbursement to subside, there will almost certainly be new or alternative healthcare reforms in the future which may change these initiatives and other healthcare laws and regulations.
Future market shocks, such as the status of deliberations and legislation to increase the debt ceiling in the United States, could result in reductions in the availability of certain types of debt financing, including access to revolving lines of credit.
Future market shocks, such as international trade wars, the status of deliberations and legislation to increase the debt ceiling in the United States, could result in reductions in the availability of certain types of debt financing, including access to revolving lines of credit.
Efforts to reduce payments to healthcare providers undertaken by third-party payors, conveners, and referral sources could adversely affect our revenues and profitability. Health insurers and managed care companies, including Medicare Advantage plans, may utilize certain third parties, known as conveners, to attempt to control costs.
Efforts to reduce payments to healthcare providers undertaken by third-party payors, conveners, and referral sources could adversely affect our revenues and profitability. Health insurers and managed care companies, including Medicare Advantage plans, may utilize certain third parties, known as conveners, and their own internal analytics to attempt to control costs.
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 year 2024 IRF-PPS 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 or 2025 made reference to a change in the IRF transfer payment policy.
We have also experienced a shift in recent years to a slightly larger percentage of Medicaid patients, driven in part by the expansion of coverage consistent with the intent of the ACA and the expansion of coverage resulting from regulatory actions during the COVID-19 public health emergency.
In the past, we have experienced a shift to a slightly larger percentage of Medicaid patients, driven in part by the expansion of coverage consistent with the intent of the ACA and the expansion of coverage resulting from regulatory actions during the COVID-19 public health emergency.
We have a small number of inpatient rehabilitation hospitals that are located within our joint venture partner’s acute-care hospital. In January 2024, we received notice that one of our joint venture partners intends to close its acute-care hospital in which the joint venture inpatient rehabilitation hospital is located.
We have a small number of inpatient rehabilitation hospitals that are located within our joint venture partner’s acute-care hospital. In January 2024, we received notice that one of our joint venture partners intended to close its acute-care hospital in which the joint venture inpatient rehabilitation hospital was located.
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. The HHS-OIG expects to issue a report on this in fiscal year 2024.
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.
For example, CMS recently established new case-mix classification models for 19 both home health and skilled nursing facilities which rely on patient characteristics rather than the amount of therapy received to determine payments. Another example is CMS’s implementation of the new patient assessment measures for IRFs discussed below.
For example, in the last five years, CMS established new case-mix classification models for both home health and skilled nursing facilities, which rely on patient characteristics rather than the amount of therapy received to determine payments. Another example is CMS’s implementation of the new patient assessment measures for IRFs discussed below.
Denials by the DAB may be appealed to United States district courts. As of December 31, 2023, we have approximately $5 million and $31 million in denied claims awaiting review at the ALJ and DAB levels, respectively.
Denials by the DAB may be appealed to United States district courts. As of December 31, 2024, we have approximately $4 million and $30 million in denied claims awaiting review at the ALJ and DAB levels, respectively.
Effective July 1, 2024, CMS finalized a requirement for hospitals to display their standard charge information by conforming to a CMS template layout, data specifications, and data dictionary, and to improve accessibility of the data on their websites.
Effective July 1, 2024, CMS finalized a requirement for hospitals to display their standard charge information by conforming to a CMS template layout, data specifications, and data dictionary, and to improve accessibility of the data on their websites. Hospitals are required to encode standard charge information in the CMS templates.
We cannot predict what alternative or additional deficit reduction initiatives, Medicare payment reductions, or post-acute care reforms, if any, will be adopted or enacted into law, or the timing or effect of any initiatives or reductions.
We cannot predict what alternative or additional deficit reduction initiatives, including significant staffing reductions at HHS, Medicare payment reductions, or post-acute care reforms, if any, will be adopted or enacted into law, or the timing or effect of any initiatives or reductions.
Under the pre-claim review choice, services may begin prior to the submission of the review request and continue while the decision is being made. The pre-claim review request with required documentation must be submitted and reviewed before the final claim is submitted for payment.
Under the pre-claim review choice, services can begin prior to the submission of the review request and continue while the decision is being made. The pre-claim review request with required documentation must be submitted, reviewed, and approved before the final claim is paid.
We have received initial results for the claims under review and, as of December 31, 2023, approximately 87% of these have been approved with approximately $3 million under appeal. Audits may lead to assertions that we have been underpaid or overpaid by Medicare or have submitted improper claims in some instances.
We have received initial results for the claims under review and, as of December 31, 2024, approximately 89% of these have been approved with $0.1 million still under appeal. Audits may lead to assertions that we have been underpaid or overpaid by Medicare or have submitted improper claims in some instances.
We derive a substantial portion of our Net operating revenues from the Medicare program. See Item 1, Business , “Sources of Revenues,” for a table identifying the sources and relative payor mix of our revenues. In addition to many ordinary course reimbursement rate changes that The Centers for Medicare & Medicaid Services (“CMS”) of the U.S.
See Item 1, Business , “Sources of Revenues,” for a table identifying the sources and relative payor mix of our revenues. In addition to many ordinary course reimbursement rate changes that The Centers for Medicare & Medicaid Services (“CMS”) of the U.S.
These types of laws and regulations have proliferated in recent years and are likely to continue to do so in the future. These climate-related laws and regulations have increased our costs associated with compliance and are likely to continue to do so in the future.
These climate-related laws and regulations have increased our costs associated with compliance and are likely to continue to do so in the future.
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.
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.
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, further entitlement reform legislation affecting the Medicare program, and further reductions to provider payments.
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.
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.
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.
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 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.
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, in its March 2023 report to Congress, MedPAC recommended, among other things, legislative changes to reduce by 3% 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 2025 meeting, MedPAC approved recommending to Congress, among other things, legislative changes to reduce by 7% the base payment rate under IRF-PPS.
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.
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.
The lack of availability of clinical personnel is a significant operating issue facing healthcare providers. The operating 38 conditions associated with the COVID-19 pandemic significantly affected the availability and turnover of clinical staff and, in turn, increased staffing costs.
The lack of availability of clinical personnel is a significant ongoing operating issue facing healthcare providers and unexpected labor market disruptions, like the COVID-19 pandemic, can exacerbate the issue. The operating conditions associated with the pandemic significantly affected the availability and turnover of clinical staff and, in turn, increased staffing costs.

… 114 more changes not shown on this page.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

10 edited+2 added−1 removed31 unchanged
Biggest changeWe 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 43 penetration test of our network. Our systems that process electronic protected health information are risk assessed on a quarterly basis against NIST security controls.
Biggest changeWe 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.
Substantial additional expenditures may be required to respond to and remediate any problems caused by cybersecurity incidents, including the unauthorized access to or theft of patient data and protected health information stored in our information systems, the inoperability of our electronic clinical and business systems, and the infiltration or disruption of the information systems of our business partners.
Substantial additional expenditures may be required to respond to and remediate any problems caused by cybersecurity incidents, including the unauthorized access to or theft of patient data and protected health information stored in our information systems, the inoperability of our electronic clinical and business systems, and the infiltration or disruption of the information systems of our business vendors and partners.
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 acts as an intermediary for processing of our payment claims for all payors, notified us of a cybersecurity incident affecting some of its systems.
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.
The Compliance and Quality of Care Committee and the full board review, and the committee approves, the annual cybersecurity plan that sets out the primary initiatives and internal audits of the IT security function for the upcoming year. Historically, one or more board members have observed and participated in our annual tabletop incident response exercise.
The Compliance and Quality of Care Committee and the full board review, and the committee approves, the annual cybersecurity plan that sets out the primary initiatives and internal audits of the IT security function for the upcoming year. Historically, one or more board members have observed and participated in our tabletop incident response exercises.
Our CSO reports directly to our chief information officer (“CIO”). Our CIO, who assumed his current role in 2011, has 34 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 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.
Board Oversight of the Cybersecurity Program and Patient Privacy Matters Our board of directors has actively sought out experience and expertise among its members to further its oversight of cybersecurity risk. We believe that Messrs. Carmichael and Reidy and Ms. Herman have extensive knowledge and experience in cybersecurity oversight. Mr.
Board Oversight of the Cybersecurity Program and Patient Privacy Matters Our board of directors has actively sought out experience and expertise among its members to further its oversight of cybersecurity risk. We believe that Messrs. Carmichael and Reidy and Ms. Herman have extensive knowledge and experience to support cybersecurity oversight. Mr.
Our CSO, who assumed his current role in 2022, has over 10 years of cybersecurity experience with us and over 27 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 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.
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. As of February 28, 2024, we have not identified any compromise or unauthorized access of our systems or networks.
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.
Additionally, we maintain insurance coverage for cybersecurity incidents. Third-party Engagement in Connection with our Cybersecurity Program We maintain engagements with our cybersecurity legal counsel and forensic services firms, each of which has visibility into current events through its client base.
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.
The Change Healthcare incident has not affected our operations, except the submission of payment claims. At this time, we have not determined that this disruption to our submission of claims is likely to materially affect our business strategy, results of operation or financial condition.
We have not identified any compromise or unauthorized access of our systems or networks, and the temporary disruption to our submission of claims did not materially affect our business strategy, results of operation or financial condition.
Removed
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.
Added
Given 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.
Added
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.

Item 2. Properties

Properties — owned and leased real estate

4 edited+0 added−1 removed2 unchanged
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, 2023: 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 396 1 2 3 6 Arkansas 368 3 1 1 5 California 251 4 — — 4 Colorado 124 1 — 1 2 Delaware * 40 — 1 — 1 Florida 1,373 19 1 — 20 Georgia * 330 5 (1) 1 — 6 Idaho 40 — 1 — 1 Illinois * 205 2 2 — 4 Indiana 98 1 — — 1 Iowa * 40 1 — — 1 Kansas 177 1 — 1 2 Kentucky * 343 2 1 — 3 Louisiana 87 2 — — 2 Maine * 100 — — 1 1 Maryland * 134 2 — — 2 Massachusetts * 529 2 — 2 4 Mississippi * 43 — — 1 1 Missouri * 196 — 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 690 5 — 4 9 Puerto Rico * 75 — — 2 2 South Carolina 496 3 4 1 8 South Dakota 40 1 — — 1 Tennessee * 566 7 3 — 10 Texas 1,812 14 3 10 27 Utah 84 1 — — 1 Virginia * 297 2 1 3 6 West Virginia * 272 2 2 — 4 Wisconsin 92 1 — 1 2 10,778 93 32 36 161 * Hospital certificate of need state or U.S. territory.
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.
We may terminate each bond financing and the associated lease at any time at our option without penalty, and fee title to the related 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.
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.
In connection with each of these bond structures, 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.
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.
All of our hospital leases, which represent the substantial majority of our rent expense, have at least five years remaining on their terms after taking into consideration one or more renewal options. Our consolidated entities associated with our leased hospitals are generally responsible for property taxes, property and casualty insurance, and routine maintenance expenses.
All of our hospital leases, which represent the substantial majority of our rent expense, have at least five years remaining on their terms after taking into consideration renewal options, except for a lease that terminates in late 2029. Our consolidated entities associated with our leased hospitals are generally responsible for property taxes, property and casualty insurance, and routine maintenance expenses.
Removed
In 2023, South Carolina enacted legislation to repeal CON laws for several provider types, including inpatient rehabilitation hospitals. 46 (1) The inpatient rehabilitation hospitals in Augusta and Newnan, Georgia are parties to industrial development bond financings that reduce the ad valorem taxes payable by each hospital.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

3 edited+0 added−0 removed4 unchanged
Biggest changeIn the ordinary course of our business, we are subject to regulatory and other governmental audits and investigations and are party to various legal actions, proceedings, and claims, including employment and personal injury claims. These matters could potentially subject us to sanctions, damages, recoupments, fines, and other penalties.
Biggest changeIn the ordinary course of our business, we are subject to regulatory and other governmental audits and investigations and are party to various legal actions, proceedings, and claims, including wage and hour, employment and personal injury claims, some of which seek to be certified as class or collective actions.
Therefore, 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 18, Contingencies and Other Commitments , to the accompanying consolidated financial statements. Item 4. Mine Safety Disclosures Not applicable. 47 PART II
Therefore, 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
Some of these matters have been material to us in the past, and others in the future may, either individually or in the aggregate, be material and adverse to our business, financial position, results of operations, and liquidity .
These matters could potentially subject us to sanctions, damages, recoupments, fines, and other penalties. Some of these matters have been material to us in the past, and others in the future may, either individually or in the aggregate, be material and adverse to our business, financial position, results of operations, and liquidity .

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

10 edited+0 added−1 removed12 unchanged
Biggest changePurchases of Equity Securities The following table summarizes our repurchases of equity securities during the three months ended December 31, 2023: 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, 2023 545 $ 64.58 — 198,053,924 November 1 through November 30, 2023 808 62.76 — 198,053,924 December 1 through December 31, 2023 — — — 198,053,924 Total 1,353 $ 63.49 — (1) Except as noted in the following sentence, the number of shares reported in this column represents 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, 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.
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, 2018 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, 2019 in our common stock and each of the indices. The returns below assume reinvestment of dividends paid on the related common stock.
Securities Authorized for Issuance Under Equity Compensation Plans The following table sets forth, as of December 31, 2023, 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, 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.
In October, 545 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 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.
Dividends On October 19, 2023, our board of directors declared a cash dividend of $0.15 per share, payable on January 16, 2024 to stockholders of record on January 2, 2024. We expect quarterly dividends to continue to be paid in January, April, July, and October.
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.
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 14, 2024, there were 100,140,031 shares of Encompass Health common stock issued and outstanding, net of treasury shares, held by approximately 6,438 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 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).
On July 24, 2018, our board approved resetting the aggregate common stock repurchase authorization to $250 million. The repurchase authorization does not require the repurchase of a specific number of shares, has an indefinite term, and is subject to termination at any time by our board of directors.
The repurchase authorization does not require the repurchase of a specific number of shares, has an indefinite term, and is subject to termination at any time by our board of directors.
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 3,354,824 (2) $ 49.51 8,204,463 (3) Plans not approved by stockholders 104,567 (4) — Total 3,459,391 $ 49.51 8,204,463 (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 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.
(2) On October 28, 2013, we announced our board of directors authorized the repurchase of up to $200 million of our common stock. On February 14, 2014, our board approved an increase in this common stock repurchase authorization from $200 million to $250 million.
(2) 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. Most recently, on July 24, 2024, our board approved resetting the aggregate common stock repurchase authorization to $500 million.
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 2018 2019 2020 2021 2022 2023 Encompass Health Corporation 100.00 114.26 138.73 111.12 130.10 146.52 S&P 500 100.00 131.49 155.68 200.37 164.08 207.21 SPSIHP 100.00 119.18 159.48 175.42 140.90 148.19 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 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
Removed
We have paid a quarterly cash dividend on our common stock since October 2013.

Item 7. Management's Discussion & Analysis

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

98 edited+31 added−28 removed86 unchanged
Biggest changeThese other revenues are included in “other income” in the above table. 56 Our Results Our consolidated results of operations were as follows: For the Year Ended December 31, Percentage Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 (In Millions) Net operating revenues $ 4,801.2 $ 4,348.6 $ 4,014.9 10.4 % 8.3 % Operating expenses: Salaries and benefits 2,600.1 2,393.3 2,127.3 8.6 % 12.5 % Other operating expenses 719.1 670.4 595.9 7.3 % 12.5 % Occupancy costs 56.3 54.7 59.0 2.9 % (7.3) % Supplies 218.3 202.1 184.2 8.0 % 9.7 % General and administrative expenses 201.7 154.3 169.5 30.7 % (9.0) % Depreciation and amortization 273.9 243.6 219.6 12.4 % 10.9 % Total operating expenses 4,069.4 3,718.4 3,355.5 9.4 % 10.8 % Loss on early extinguishment of debt — 1.4 1.0 (100.0) % 40.0 % Interest expense and amortization of debt discounts and fees 143.5 175.7 164.3 (18.3) % 6.9 % Other (income) expense (15.7) 5.2 (7.5) (401.9) % (169.3) % Equity in net income of nonconsolidated affiliates (3.2) (2.9) (3.4) 10.3 % (14.7) % Income from continuing operations before income tax expense 607.2 450.8 505.0 34.7 % (10.7) % Provision for income tax expense 132.2 100.1 101.9 32.1 % (1.8) % Income from continuing operations 475.0 350.7 403.1 35.4 % (13.0) % (Loss) income from discontinued operations, net of tax (12.0) 15.2 114.1 (178.9) % (86.7) % Net income 463.0 365.9 517.2 26.5 % (29.3) % Less: Net income attributable to noncontrolling interests included in continuing operations (111.0) (93.6) (103.2) 18.6 % (9.3) % Less: Net income attributable to noncontrolling interests included in discontinued operations — (1.3) (1.8) (100.0) % (27.8) % Less: Net and comprehensive income attributable to noncontrolling interests (111.0) (94.9) (105.0) 17.0 % (9.6) % Net income attributable to Encompass Health $ 352.0 $ 271.0 $ 412.2 29.9 % (34.3) % Operating Expenses as a % of Net Operating Revenues For the Year Ended December 31, 2023 2022 2021 Operating expenses: Salaries and benefits 54.2 % 55.0 % 53.0 % Other operating expenses 15.0 % 15.4 % 14.8 % Occupancy costs 1.2 % 1.3 % 1.5 % Supplies 4.5 % 4.6 % 4.6 % General and administrative expenses 4.2 % 3.5 % 4.2 % Depreciation and amortization 5.7 % 5.6 % 5.5 % Total operating expenses 84.8 % 85.5 % 83.6 % 57 Additional information regarding our operating results is as follows: For the Year Ended December 31, Percentage Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 (In Millions, Except Percentage Change) Net operating revenues: Inpatient $ 4,693.8 $ 4,251.6 $ 3,918.0 10.4 % 8.5 % Outpatient and other 107.4 97.0 96.9 10.7 % 0.1 % Net operating revenues $ 4,801.2 $ 4,348.6 $ 4,014.9 10.4 % 8.3 % (Actual Amounts) Discharges 229,480 211,116 197,639 8.7 % 6.8 % Net patient revenue per discharge $ 20,454 $ 20,139 $ 19,824 1.6 % 1.6 % Outpatient visits 120,835 138,644 161,070 (12.8) % (13.9) % Average length of stay (days) 12.4 12.7 12.8 (2.4) % (0.8) % Occupancy % 72.1% 70.9% 70.0% 1.7 % 1.3 % # of licensed beds 10,778 10,356 9,924 4.1 % 4.4 % Occupied beds 7,771 7,342 6,947 5.8 % 5.7 % Full-time equivalents (FTEs) - internal 25,850 24,080 22,834 7.4 % 5.5 % Contract labor FTEs 425 547 359 (22.3) % 52.4 % Total FTEs* 26,275 24,627 23,193 6.7 % 6.2 % Employees per occupied bed 3.38 3.35 3.34 0.9 % 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.
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.
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.
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.
We continue to have a strong, well-capitalized balance sheet, including a substantial portfolio of owned real estate, 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 ability to adapt to changes in reimbursement, sustain our business model, and grow through de novo and bed additions.
We continue to have a strong, well-capitalized balance sheet, including a substantial portfolio of owned real estate, 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 ability to adapt to changes in reimbursement, sustain our business model, and grow through de novo hospitals and bed additions.
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.
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.
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.
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.
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.
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.
The amount of the 69 valuation allowance has been determined based on the weight of all available evidence, as described above, including management’s estimates of taxable income over the periods in which the related deferred tax assets will be recoverable.
The amount of the valuation allowance has been determined based on the weight of all available evidence, as described above, including management’s estimates of taxable income over the periods in which the related deferred tax assets will be recoverable.
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. 62 (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 comprehensive income. (c) Amounts include interest portion of future minimum finance lease payments.
Based on Adjusted EBITDA for 2023 and the interest rate in effect under our credit agreement during the three-month period ended December 31, 2023, 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 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.
See Note 11, 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 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.
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 10, 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 9, 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 11, 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 10, Self-Insured Risks , to the accompanying consolidated financial statements for a more complete discussion of our self-insured risks.
More specifically, the average age of our Medicare patients is approximately 76, 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 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.
See Note 1, Summary of Significant Accounting Policies , “Income Taxes,” and Note 16, 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 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.
As discussed in Item 1, Business , healthcare will almost certainly be the subject of significant regulatory and legislative changes regardless of party in control of the executive and legislative branches of state and federal governments. We will continue to evaluate these laws and regulations and position the Company for this industry shift.
As discussed in Item 1, Business , healthcare will be the subject of significant regulatory and legislative changes regardless of party in control of the executive and legislative branches of state and federal governments. We will continue to evaluate these laws and regulations and position the Company for this industry shift.
Assessment of Loss Contingencies We have legal and other contingencies that could result in significant losses upon the ultimate resolution of such contingencies. See Note 1, Summary of Significant Accounting Policies , “Litigation Reserves,” and Note 18, Contingencies and Other Commitments , to the accompanying consolidated financial statements for additional information.
Assessment of Loss Contingencies We have legal and other contingencies that could result in significant losses upon the ultimate resolution of such contingencies. See Note 1, Summary of Significant Accounting Policies , “Litigation Reserves,” and Note 17, Contingencies and Other Commitments , to the accompanying consolidated financial statements for additional information.
Executive Overview Our Business We are 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. We operate hospitals in 37 states and Puerto Rico, with concentrations in Florida and Texas.
Executive Overview Our Business We are 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. We operate hospitals in 38 states and Puerto Rico, with concentrations in Florida and Texas.
In the discussion that follows, we use “same-store” comparisons to explain the changes in certain performance metrics and line items within our financial statements. We calculate same-store comparisons based on hospitals open throughout both the full current period and prior periods presented.
In the discussion that follows, we use “same-store” comparisons to explain the changes in certain performance metrics within our financial statements. We calculate same-store comparisons based on hospitals open throughout both the full current period and prior periods presented.
In the case of new-store volume growth, the addition of hospitals to our portfolio also may be difficult and take longer than expected. • Recruiting and Retaining High-Quality Personnel . Recruiting and retaining qualified personnel, including management, for our inpatient hospitals remain a high priority for us.
In the case of new-store volume growth, the addition of hospitals to our portfolio also may be difficult and take longer than expected. • Recruiting and Retaining High-Quality Personnel . Recruiting and retaining qualified personnel, including management, for our inpatient hospitals remains a high priority for us.
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, 2023 and 2022.
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.
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, 2023, 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, 2024, we decreased our valuation allowance by $7.4 million.
Salaries and benefits increased in 2023 compared to 2022 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 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.
Depreciation and Amortization Depreciation and amortization increased during 2023 compared to 2022 due to our capital investments throughout 2022 and 2023. Depreciation and amortization in 2023 included $6.1 million related to the accelerated amortization of the remaining carrying value of certificate of need (“CON”) assets in South Carolina.
Depreciation and Amortization Depreciation and amortization increased during 2024 compared to 2023 due to our capital investments throughout 2023 and 2024. Depreciation and amortization in 2023 included $6.1 million related to the accelerated amortization of the remaining carrying value of certificate of need (“CON”) assets in South Carolina.
Based on our analysis that utilizes, among other things, the acuity of our patients annualized over a twelve-month period ended June 30, 2023, our experience with outlier payments over this same time frame, and other factors, we believe the 2024 IRF Rule will result in a net increase to our Medicare payment rates of approximately 3.3% effective October 1, 2023.
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.
See the “Contractual Obligations” section below for information related to our contractual obligations as of December 31, 2023. 61 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, 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.
In addition, management’s discussion and analysis of our results of operations and cash flows for the year ended December 31, 2022 compared to the year ended December 31, 2021 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, 2022, filed with the Securities and Exchange Commission on February 27, 2023.
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.
As of December 31, 2023 and 2022, $21.0 million and $73.6 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.
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.
(d) We lease approximately 9% of our hospitals as well as other property and equipment under operating leases in the normal course of business. Amounts include interest portion of future minimum operating lease payments. For more information, see Note 8, 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 7, Leases, to the accompanying consolidated financial statements.
See Note 16, Income Taxes , to the accompanying consolidated financial statements and the “Critical Accounting Estimates” section of this Item.
See Note 15, Income Taxes , to the accompanying consolidated financial statements and the “Critical Accounting Estimates” section of this Item.
See also Item 1, Business , “Competitive Strengths” and “Strategy and 2024 Strategic Priorities.” 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.” 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.
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, 2023: As reported, with 50% statistical confidence level 148.1 With 70% statistical confidence level 157.9 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, 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.
These audits as well as the ordinary course claim reviews of our billings result in payment denials, including recoupment of previously paid claims from current accounts receivable. Healthcare providers can challenge any denials through an administrative appeals process that can be extremely lengthy, taking up to several years.
These audits as well as the ordinary course claim reviews of our billings result in payment denials, including recoupment of previously paid claims. Healthcare providers can challenge denials through an administrative appeals process that can be extremely lengthy, taking up to several years.
Approximately $185 million to $195 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 $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.
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 27, 2023, CMS released its notice of final rulemaking for fiscal year 2024 for IRFs (the “2024 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 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”).
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 prior to 2025.
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.
As of December 31, 2023, the maximum leverage ratio requirement per our credit agreement was 4.75x and the minimum interest coverage ratio requirement was 3.0x, and we were in compliance with these covenants.
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.
See the “Executive Overview” section of this Item for additional information on our joint venture de novo locations. 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.
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.
Authorizations for Returning Capital to Stakeholders In October 2022, February 2023, May 2023, July 2023, and October 2023, our board of directors declared cash dividends of $0.15 per share that were paid in January 2023, April 2023, July 2023, October 2023, and January 2024, respectively. We expect quarterly dividends to be paid in January, April, July, and October.
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.
The increase in Net cash provided by operating activities of continuing operations during 2023 compared to 2022 primarily resulted f rom an increase in Net income which was driven by growth in Net operating revenues , and an increase in payroll accruals. Investing activities .
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 .
Cash paid for interest approximated $148 million and $178 million in 2023 and 2022, respectively. For additional information, see Note 10, Long-term Debt , to the accompanying consolidated financial statements. 59 Provision for Income Tax Expense Our Provision for income tax expense increased in 2023 compared to 2022 primarily due to higher Income from continuing operations before income tax expense.
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.
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, 2023 2022 2021 Net cash provided by operating activities $ 850.8 $ 705.8 $ 715.8 Interest expense and amortization of debt discounts and fees 143.5 175.7 164.3 Gain (loss) on sale of investments, excluding impairments 4.6 (15.5) 3.8 Equity in net income of nonconsolidated affiliates 3.2 2.9 3.4 Net income attributable to noncontrolling interests in continuing operations (111.0) (93.6) (103.2) Amortization of debt-related items (9.5) (9.7) (7.8) Distributions from nonconsolidated affiliates (1.6) (4.0) (2.6) Current portion of income tax expense 128.3 72.2 84.5 Change in assets and liabilities (50.3) 30.4 109.9 Cash used in (provided by) operating activities of discontinued operations 16.0 (52.3) (151.1) State regulatory change impact on noncontrolling interests (2.2) — — Change in fair market value of equity securities (0.7) 7.4 (0.6) Adjusted EBITDA $ 971.1 $ 819.3 $ 816.4 65 Reconciliation of Net Income to Adjusted EBITDA For the Year Ended December 31, 2023 2022 2021 Net income $ 463.0 $ 365.9 $ 517.2 Loss (income) from discontinued operations, net of tax, attributable to Encompass Health 12.0 (15.2) (114.1) Net income attributable to noncontrolling interests included in continuing operations (111.0) (93.6) (103.2) Provision for income tax expense 132.2 100.1 101.9 Interest expense and amortization of debt discounts and fees 143.5 175.7 164.3 Loss on early extinguishment of debt — 1.4 1.0 Loss on disposal or impairment of assets 9.8 4.8 1.2 Depreciation and amortization 273.9 243.6 219.6 Stock-based compensation 50.6 29.2 29.1 State regulatory change impact on noncontrolling interests (2.2) — — Change in fair market value of equity securities (0.7) 7.4 (0.6) Adjusted EBITDA $ 971.1 $ 819.3 $ 816.4 For additional information see the “Results of Operations” section of this Item.
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.
For example, the ACA also included provisions intended to promote alternative payment models, such as accountable care organizations (“ACOs”) and bundled payment initiatives, including the Bundled Payments for Care Improvement Initiative Advanced (“BPCI Advanced”) and the Comprehensive Care for Joint Replacement (“CJR”) program. Likewise, CMS regulatory proposals can affect our operations.
For example, the ACA included provisions intended to promote alternative payment models, such as accountable care organizations (“ACOs”) and bundled payment initiatives, including the Bundled Payments for Care Improvement Initiative Advanced (“BPCI Advanced”), the Comprehensive Care for Joint Replacement (“CJR”) program, and more recently, the Transforming Episode Accountability Model (“TEAM”). Likewise, CMS regulatory proposals can affect our operations.
For additional information, see the “Liquidity and Capital Resources” section of this Item. 52 Business Outlook We remain optimistic regarding the intermediate and long-term prospects of our business. Demographic trends, such as population aging, should continue to increase long-term demand for the services we provide.
For additional information on our common stock repurchases and quarterly dividend payments, see the “Liquidity and Capital Resources” section of this Item. Business Outlook We remain optimistic regarding the intermediate and long-term prospects of our business. Demographic trends, such as population aging, should continue to increase long-term demand for the services we provide.
For additional discussion of changes to Medicare reimbursement, including the 2023 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, further entitlement reform legislation affecting the Medicare program, and further reductions to provider payments.
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.
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, 2023 2022 2021 Net cash provided by operating activities $ 866.8 $ 653.5 $ 564.7 Net cash used in investing activities (602.8) (623.5) (547.1) Net cash used in financing activities (197.2) (660.8) (229.9) Increase (decrease) in cash, cash equivalents, and restricted cash $ 66.8 $ (630.8) $ (212.3) 2023 Compared to 2022 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, 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.
Maintaining adequate liquidity is a function of our unrestricted Cash and cash equivalents and our available borrowing capacity. Maintaining flexibility in our capital structure is a function of, among other things, the amount of debt maturities in any given year, the options for debt prepayments without onerous penalties, and limiting restrictive terms and maintenance covenants in our debt agreements.
Maintaining flexibility in our capital structure is a function of, among other things, the amount of debt maturities in any given year, the options for debt prepayments without onerous penalties, and limiting restrictive terms and maintenance covenants in our debt agreements.
These comparisons include the financial results of market consolidation transactions in existing markets, as it is difficult to determine, with precision, the incremental impact of these transactions on our results of operations. 2023 Compared to 2022 Net Operating Revenues Our consolidated Net operating revenues increased during 2023 compared to 2022 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. 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.
Revenue reserves increased during 2023 compared to 2022 as a result of an approximate $22 million reserve recorded in the fourth quarter of 2023 related to appeals pending before the Departmental Appeals Board and various federal district courts.
Revenue reserves during 2023 included an approximate $22 million reserve recorded in the fourth quarter of 2023 related to appeals pending before the Departmental Appeals Board and various federal district courts.
As of December 31, 2023, we had a remaining valuation allowance of $28.4 million which primarily related to unusable foreign tax credits generated by our operations in Puerto Rico.
As of December 31, 2024, we had a remaining valuation allowance of $21.0 million which primarily related to unusable foreign tax credits 68 generated by our operations in Puerto Rico.
If actual results are not consistent with our assumptions and judgments, we may be exposed to gains or losses that could be material. 66 Due to complexities involved in determining amounts ultimately due under reimbursement arrangements with third-party payors, which are often subject to interpretation and review, we may receive reimbursement for healthcare services authorized and provided that is different from our estimates, and such differences could be material.
Due to complexities involved in determining amounts ultimately due under reimbursement arrangements with third-party payors, which are often subject to interpretation and review, we may receive reimbursement for healthcare services authorized and provided that is different from our estimates, and such differences could be material.
As of December 31, 2023 2022 (In Millions) Current: 0 - 30 Days $ 444.5 $ 381.9 31 - 60 Days 66.5 48.0 61 - 90 Days 23.9 22.0 91 - 120 Days 14.1 16.3 120 + Days 50.8 56.6 Patient accounts receivable 599.8 524.8 Other accounts receivable 11.8 12.0 611.6 536.8 Noncurrent patient accounts receivable 20.9 73.3 Accounts receivable $ 632.5 $ 610.1 Changes in general economic conditions (such as increased unemployment rates or periods of recession), business office operations, 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, 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.
Supplemental Guarantor Financial Information Our indebtedness under our credit agreement and the 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.
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.
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.
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.
We have a proven track record of working through difficult situations, and we believe in our ability to overcome current and future challenges. 55 Results of Operations Payor Mix We derived consolidated Net operating revenues from the following payor sources: For the Year Ended December 31, 2023 2022 2021 Medicare 65.0 % 65.3 % 64.4 % Medicare Advantage 16.2 % 15.1 % 15.2 % Managed care 11.1 % 11.6 % 12.1 % Medicaid 4.0 % 4.2 % 4.1 % Other third-party payors 0.9 % 0.9 % 1.1 % Workers' compensation 0.5 % 0.6 % 0.6 % Patients 0.3 % 0.4 % 0.5 % Other income 2.0 % 1.9 % 2.0 % Total 100.0 % 100.0 % 100.0 % 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, 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.
Discharge growth included a 4.8% increase in same-store discharges.
Discharge growth included a 5.6% increase in same-store discharges.
See Item 1, Business , “Regulation” and Item 1A, Risk Factors , “Reimbursement Risks” and “Other Regulatory Risks” for detailed discussions of the most important regulations we face and our programs intended to ensure we comply with those regulations. 53 Reimbursement claims made by healthcare providers, including inpatient rehabilitation hospitals, are subject to audit from time to time by governmental payors, such as 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 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.
These guarantees are full and unconditional and joint and several, subject to certain customary conditions for release. 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.
For additional details on this reserve, see Item 1A, Risk Factors , “Reimbursement Risks,” and Note 1, 58 Summary of Significant Accounting Policies , “Net Operating Revenues,” to the accompanying consolidated financial statements. 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 details on this reserve, see Item 1A, Risk Factors , “Reimbursement Risks,” and Note 1, Summary of Significant Accounting Policies , “Net Operating Revenues,” to the accompanying consolidated financial statements.
Other operating expenses decreased as a percent of Net operating revenues during 2023 compared to 2022 primarily due to higher volumes. 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.
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.
Interest related to finance lease obligations is excluded from this line (see Note 8, Leases , and Note 10, 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 7, Leases , and Note 9, Long-term Debt , to the accompanying consolidated financial statements).
For the Year Ended December 31, 2023 (In Millions) Net operating revenues $ 3,034.3 Intercompany revenues generated from non-guarantor subsidiaries 91.3 Total net operating revenues $ 3,125.6 Operating expenses $ 2,660.7 Intercompany expenses incurred in transactions with non-guarantor subsidiaries 33.6 Total operating expenses $ 2,694.3 Income from continuing operations $ 219.7 Net income $ 207.7 Net income attributable to Encompass Health $ 207.7 As of December 31, 2023 (In Millions) Total current assets $ 562.2 Property and equipment, net $ 2,219.0 Goodwill 902.6 Intercompany receivable due from non-guarantor subsidiaries 193.8 Other noncurrent assets 468.7 Total noncurrent assets $ 3,784.1 Total current liabilities $ 496.1 Long-term debt, net of current portion $ 2,604.7 Other noncurrent liabilities 339.5 Total noncurrent liabilities $ 2,944.2 Adjusted EBITDA Management believes Adjusted EBITDA as defined in our credit agreement is a measure of our ability to service our debt and our ability to make capital expenditures.
For the Year Ended December 31, 2024 (In Millions) Net operating revenues $ 3,327.2 Intercompany revenues generated from non-guarantor subsidiaries 102.7 Total net operating revenues $ 3,429.9 Operating expenses $ 2,912.7 Intercompany expenses incurred in transactions with non-guarantor subsidiaries 36.7 Total operating expenses $ 2,949.4 Income from continuing operations $ 265.8 Net income $ 263.0 Net income attributable to Encompass Health $ 263.0 As of December 31, 2024 (In Millions) Total current assets $ 609.5 Property and equipment, net $ 2,394.0 Goodwill 893.2 Intercompany receivable due from non-guarantor subsidiaries 47.4 Other noncurrent assets 490.9 Total noncurrent assets $ 3,825.5 Total current liabilities $ 677.7 Long-term debt, net of current portion $ 2,273.3 Other noncurrent liabilities 336.1 Total noncurrent liabilities $ 2,609.4 Adjusted EBITDA Management believes Adjusted EBITDA as defined in our credit agreement is a measure of our ability to service our debt and our ability to make capital expenditures.
We estimate we will pay approximately $145 million to $165 million of cash income taxes, net of refunds, in 2024. These payments are expected to primarily result from federal and state income tax expenses based on estimates of taxable income for 2024. In 2023 and 2022, current income tax expense was $128.3 million and $72.2 million, respectively.
These payments are expected to primarily result from federal and state income tax expenses based on estimates of taxable income for 2025. In 2024 and 2023, current income tax expense was $139.5 million and $128.3 million, respectively.
Growth in net patient revenue per discharge in 2023 compared to 2022 primarily resulted from an increase in reimbursement rates partially offset by an increase in revenue reserves, the resumption of sequestration on April 1, 2022 and the change in patient mix.
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.
Our supply chain efforts and our continual focus on monitoring and actively managing medical supplies and pharmaceutical costs have enabled us to accommodate increased pricing related to supplies and other operating expenses over the past few years. However, we cannot predict our ability to cover future cost increases including increase in the cost of PPE.
President Trump has threatened extensive new tariffs, which could increase our costs in the future. Our supply chain efforts and our continual focus on monitoring and actively managing medical supplies and pharmaceutical costs have enabled us to accommodate increased pricing related to supplies and other operating expenses over the past few years.
If actual results are not consistent with our assumptions and judgments, we may be exposed to gains or losses that could be material. Goodwill Absent any impairment indicators, we evaluate goodwill for impairment as of October 1st of each year.
If actual results are not consistent with our assumptions and judgments, we may be exposed to gains or losses that could be material.
Our credit agreement governs the substantial majority of our senior secured borrowing capacity and contains a leverage ratio and an interest coverage ratio as financial covenants. Our leverage ratio is defined in our credit agreement as the ratio of consolidated total debt (less cash on hand) to Adjusted EBITDA for the trailing four quarters.
Our leverage ratio is defined in our credit agreement as the ratio of consolidated total debt (less cash on hand) to Adjusted EBITDA for the trailing four quarters.
The objectives of our capital structure strategy are to ensure we maintain adequate liquidity and flexibility. Pursuing and achieving those objectives allow us to support the execution of our operating and strategic plans and weather temporary disruptions in the capital markets and general business environment.
Pursuing and achieving those objectives allow us to support the execution of our operating and strategic plans and weather temporary disruptions in the capital markets and general business environment. Maintaining adequate liquidity is a function of our unrestricted Cash and cash equivalents and our available borrowing capacity.
Other Operating Expenses Other operating expenses include costs associated with managing and maintaining our hospitals. These expenses include such items as contract services, non-income related taxes, professional fees, utilities, insurance, and repairs and maintenance. Other operating expenses increased during 2023 compared 2022 primarily due to increased provider taxes of approximately $15 million and higher costs resulting from our development activities.
Other Operating Expenses Other operating expenses include costs associated with managing and maintaining our hospitals. These expenses include such items as contract services, non-income related taxes, professional fees, utilities, insurance, and repairs and maintenance.
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. See Item 1A, Risk Factors , for additional information.
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.
Additional Medicare payment reductions are also possible under the Statutory Pay-As-You-Go Act of 2010 (“Statutory PAYGO”). Statutory PAYGO requires, among other things, that mandatory spending and revenue legislation not increase the federal budget deficit over a 5- or 10-year period.
Statutory PAYGO requires, among other things, that mandatory spending and revenue legislation not increase the federal budget deficit over a 5- or 10-year period.
S upplies increased during 2023 compared to 2022 primarily due to higher costs for food and medical supplies. General and Administrative Expenses General and administrative expenses primarily include administrative expenses such as information technology services, human resources, corporate accounting, legal services, and internal audit and controls that are managed from our home office in Birmingham, Alabama.
General and Administrative Expenses General and administrative expenses primarily include administrative expenses such as information technology services, human resources, corporate accounting, legal services, and internal audit and controls that are managed from our home office in Birmingham, Alabama. These expenses also include stock-based compensation expenses.
These borrowings are further explained in Note 10, Long-term Debt, to the accompanying consolidated financial statements. (b) Interest on our fixed rate debt is presented using the stated interest rate. Interest pertaining to our bonds is included to their respective ultimate maturity dates.
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.
John in March 2023; • began operating our new 50-bed inpatient rehabilitation hospital in Clermont, Florida in April 2023; • began operating our new 60-bed inpatient rehabilitation hospital in Bowie, Maryland in June 2023 (joint venture partnership with University of Maryland Rehabilitation Institute of Southern Maryland, LLC began in July 2023); • began operating our new 40-bed inpatient rehabilitation hospital in Columbus, Georgia with our joint venture partner Piedmont Healthcare, Inc. in September 2023; • began operating our new 40-bed inpatient rehabilitation hospital in Prosper, Texas in November 2023; • began operating our new 56-bed inpatient rehabilitation hospital in Fitchburg, Wisconsin in November 2023; • continued our capacity expansions by adding 46 new beds to existing hospitals; and • announced or continued the development of the following hospitals: Number of New Beds 2024 (2) 2025 (2) 2026 (2) Kissimmee, Florida 50 — — Atlanta, Georgia (1) 40 — — Johnston, Rhode Island 50 — — Fort Mill, South Carolina 39 — — Louisville, Kentucky (1) 40 — — Houston, Texas 61 — — Daytona Beach, Florida — 50 — Fort Myers, Florida (1) — 60 — Lake Worth, Florida — 50 — Concordville, Pennsylvania — 50 — Norristown, Pennsylvania — 50 — Wildwood, Florida — 50 — Athens, Georgia (1) — 40 — St.
We: • began operating our new 50-bed inpatient rehabilitation hospital in Kissimmee, Florida in May 2024; • began operating our new 40-bed inpatient rehabilitation hospital in Atlanta, Georgia with our joint venture partner Piedmont in May 2024; • began operating our new 40-bed inpatient rehabilitation hospital in Louisville, Kentucky with our joint venture partner Baptist Health in June 2024; • began operating our new 50-bed inpatient rehabilitation hospital in Johnston, Rhode Island in July 2024; • began operating our new 39-bed inpatient rehabilitation hospital in Fort Mill, South Carolina in September 2024; • began operating our new 61-bed inpatient rehabilitation hospital in Houston, Texas in November 2024; • expanded our capacity by adding 147 new beds to existing hospitals (inclusive of our new 40-bed satellite inpatient rehabilitation hospital in Ballwin, Missouri which began operating in May 2024); and 51 • announced or continued the development of the following hospitals: Expected open date Number of New Beds 2025 2026 2027 De novo projects (1) Athens, Georgia (2) 1Q25 40 — — Fort Myers, Florida (2) 2Q25 60 — — Daytona Beach, Florida 2Q25 50 — — Danbury, Connecticut 3Q25 40 — — Lake Worth, Florida 4Q25 50 — — St.
During the year ended December 31, 2023, we made capital expenditures of approximately $583 million for property, equipment, and intangible assets. During 2024, we expect to spend approximately $580 million to $610 million for capital expenditures using cash on hand and borrowings under our revolving credit facility.
During the year ended December 31, 2024, we made capital expenditures of approximately $643 million for property, equipment, and intangible assets. During 2025, we expect to spend approximately $740 million to $770 million for capital expenditures.
See Note 10, Long-term Debt , to the accompanying consolidated financial statements. On July 24, 2018, our board approved resetting the aggregate common stock repurchase authorization to $250 million. As of December 31, 2023, approximately $198 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, 2024, approximately $489 million remained under this authorization.
As of December 31, 2023, we operate 161 inpatient rehabilitation hospitals. For additional information about our business, see Item 1, Business and Item 1A, Risk Factors , of this report.
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.
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 2025 and beyond.
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.
Net Income Attributable to Noncontrolling Interests The increase in Net income attributable to noncontrolling interests during 2023 compared to 2022 resulted from increased profitability from certain existing joint venture hospitals partially offset by the ramp up of new joint venture de novo locations and a $2.2 million reduction to Net income attributable to noncontrolling interests related to the accelerated amortization of the remaining carrying value of our CON assets in South Carolina (discussed above).
Net Income Attributable to Noncontrolling Interests The increase in Net income attributable to noncontrolling interests during 2024 compared to 2023 primarily resulted from increased profitability from certain existing joint venture hospitals partially offset by the ramp up of new joint venture hospitals and the impact from the impairment related to the closure of our joint venture hospital in Eau Claire, Wisconsin in February 2024, as discussed above.
We have been disciplined in creating a capital structure that is flexible with no significant debt maturities prior to 2025. We continue to have a strong, well-capitalized balance sheet, including a substantial portfolio of owned real estate, and we have significant availability under our revolving credit facility.
We continue to have a strong, well-capitalized balance sheet, including a substantial portfolio of owned real estate, and we have significant availability under our revolving credit facility. We continue to generate strong cash flows from operations, and we have significant flexibility with how we choose to invest our cash and return capital to shareholders.
Relationships and Transactions with Related Parties Related party transactions were not material to our operations in 2023, 2022, or 2021, and therefore, are not presented as a separate discussion within this Item. 60 Liquidity and Capital Resources Our primary sources of liquidity are cash on hand, cash flows from operations, and borrowings under our revolving credit facility.
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.

… 77 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+3 added−1 removed1 unchanged
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, 2023 December 31, 2022 Financial Instrument: Book Value Market Value Book Value Market Value 5.75% Senior Notes due 2025 Carrying Value $ 348.5 $ — $ 347.7 $ — Unamortized debt discount and fees 1.5 — 2.3 — Principal amount 350.0 349.3 350.0 347.7 4.50% Senior Notes due 2028 Carrying Value 785.0 — 781.8 — Unamortized debt discount and fees 15.0 — 18.2 — Principal amount 800.0 763.6 800.0 726.7 4.75% Senior Notes due 2030 Carrying Value 781.5 — 779.0 — Unamortized debt discount and fees 18.5 — 21.0 — Principal amount 800.0 755.0 800.0 703.7 4.625% Senior Notes due 2031 Carrying Value 391.5 — 390.6 — Unamortized debt discount and fees 8.5 — 9.4 — Principal amount 400.0 369.4 400.0 342.2 70 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 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.
See also Note 10, Long-term Debt, and Note 13, 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 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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk HCS, Ltd., our wholly owned insurance captive maintains positions in investment securities for other than trading purposes, which, as of December 31, 2023, had a fair market value of approximately $126 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, 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.
We use a sensitivity analysis model to evaluate the impact of interest rate changes on our variable rate debt. As of December 31, 2023, no amount was outstanding on our primary variable rate debt.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk Our primary exposure to market risk is to changes in interest rates on our variable rate long-term debt. We use a sensitivity analysis model to evaluate the impact of interest rate changes on our variable rate debt.
Removed
During the year ended December 31, 2023, we recorded an unrealized gain of $1.3 million pertaining to these securities. For additional information, see Note 5, Cash and Marketable Securities, and Note 13, Fair Value Measurements, to the accompanying consolidated financial statements. Our primary exposure to market risk is to changes in interest rates on our variable rate long-term debt.
Added
As of December 31, 2024, our primary variable rate debt outstanding related to $20.0 million in advances under our revolving credit facility.
Added
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.
Added
During the year ended December 31, 2024, we recorded an unrealized gain of $1.0 million pertaining to these securities.

Other EHC 10-K year-over-year comparisons