3rd Quarter 2022 Earnings Takeaways

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On Oct. 26, Encompass Health released its third quarter earnings report and revised its 2022 guidance. Below are a few key takeaways from the report to help you gain a better understanding of how we performed, grew and responded to challenges in the third quarter.

We Expanded Our Capacity to Meet Demand

Demand for Encompass Health’s services remained strong in the third quarter, with total discharge growth of 7.5%, including a 4.1% increase in same-store discharges. To meet this rising demand, we continued to increase the availability of our services through capacity expansions. We opened three new hospitals and added 20 beds to existing hospitals in the third quarter, for a total of nine new hospital openings and 87 bed additions year-to-date.

We expect to open eight more new hospitals and add 100 to 125 beds to existing hospitals in 2023. We also plan to further our utilization of prefabrication in the design and construction of our new hospitals to enhance speed-to-market, ensure consistent quality and contain costs. Exciting new initiatives for the next generation of prefabrication are on the horizon, and I look forward to sharing more details with you in early 2023.

We Responded Well to Labor Market Challenges

We made continued progress on reducing contract labor through our hiring and retention initiatives in the third quarter, but higher sign-on and shift bonuses again impacted our profitability. We also continued to expand our talent acquisition team, and our strategy of building a centralized recruiting function continues to generate success. We had 183 same-store net nursing hires in the third quarter compared to 149 in the second quarter and 127 in the first quarter, and we saw a 62% increase in same-store net nursing hires for the first three quarters compared to the same period last year.

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We Stayed Ahead of Regulatory Changes

The CMS 2022 IRF-PAI 4.0 form became effective Oct. 1. Consistent with prior regulatory updates, we began preparing for these changes well in advance to ensure our employees were well trained and fully ready for the transition. The new form has been implemented across all of our hospitals with little to no disruption to our operations.

The CMS Fiscal Year 2023 IRF rule also became effective Oct. 1, providing us with an approximately 4% Medicare price increase. This increase is based on trailing information and lags the prevailing inflationary environment, and we expect resulting reimbursement changes to close the gap. The benefit of this fourth quarter reimbursement increase is being partially offset by sequestration.

While CMS has not yet announced a start date for the IRF Review Choice Demonstration, it is slated to begin in our headquartered state of Alabama first. We have proactively reached out to our Medicare Administrative Contractor for Alabama regarding the potential implementation process.

We Prioritized Patient Outcomes

Our discharge-to-community rate, which we want to keep as high as possible, was 81.9% in the third quarter as compared to 81.3% in the same period last year. Our discharge-to-skilled nursing facility rate, which we want to keep as low as possible, was 7.0% in the third quarter as compared to 7.5% in the same period last year.

We’re Proud of Our Team

In addition to elevated staffing costs, Encompass Health’s third quarter profitability was impacted by hurricanes, delayed openings at two new hospitals and inflationary effects on supplies and utility costs. These factors led us to revise our 2022 guidance. We are extremely proud of how our team has continued to respond to this volatile and challenging environment and we remain confident in the long-term prospects of our business.

For more information on our results for the third quarter, view our earnings release and supporting materials.