Second Quarter 2023 Earnings Report Key Takeaways

Post-acute solutions

On Aug. 1, Encompass Health released its second quarter earnings report. We’re very pleased with our results. Below are a few key takeaways regarding our performance.

Growing Patient Volume and Broadening Acuity

We continue to see more patients in need of our services. Total patient discharges increased 9.8% year-over-year, with 6.2% of that growth coming from our hospitals that have been open for a year or more.

As anticipated, our patient acuity continued to broaden with more normalized patient flows through the healthcare system following the COVID-19 pandemic. While we continued to show solid growth in stroke discharges, which were up 5.5% year-over-year, knee and hip replacement, fracture of the lower extremity, and other orthopedic discharges each grew approximately 15% as well.

View the full second quarter earnings report

Expanding Our Capacity

Given the strong demand for inpatient rehabilitation services, we’ve continued to invest in capacity expansion projects. We opened two new hospitals in the second quarter with a total of 110 beds. This brings us to five new hospitals and 259 beds added this year to date. We also added 10 beds to existing hospitals in the second quarter.

Over the balance of the year, we plan to open two more new hospitals and add 31 beds to existing hospitals. Three of our bed addition projects originally scheduled for 2023 have shifted to 2024, due in each case to local permitting issues. As a result of this shift, we now expect to add approximately 140 beds to existing hospitals in 2024.

We continue to build and maintain an active pipeline of new hospitals projects, both wholly-owned and joint ventures with acute care hospitals. At this time, we’ve announced opening dates for 19 new hospitals beyond 2023.

Managing Labor Costs

During the second quarter, we again met the increasing demand for our services while reducing contract labor, as well as sign-on and shift bonus expenditures. Contract labor was down approximately $13 million, or 37%, year-over-year, while sign-on and shift bonuses decreased approximately $8 million, or 36%, year-over-year.

The second quarter was a very strong hiring quarter, with our talent acquisition efforts resulting in more than 200 net same-store nursing hires.

Preparing for Regulatory Changes

Last week, the Centers for Medicare and Medicaid Services (CMS) issued the 2024 Inpatient Rehabilitation Services Final Rule. This rule included a net market basket update of 3.4%, which we estimate will result in a 3.3% increase for our hospitals beginning Oct. 1.

The Review Choice Demonstration for Inpatient Rehabilitation Facility Services is scheduled to begin on Aug. 21 in Alabama. We have been working closely with CMS and Palmetto, the Medicare Administrative Contractor for the state of Alabama, to prepare for its implementation. While many details have yet to be finalized, we’ve prepared for its implementation and are focused on pre-claim review, as we believe it will allow for a more iterative process and the potential for real-time adjustments.

Increasing Revenues and Guidance

Due to our strong patient volume growth and improvement in labor costs, our second quarter revenues increased 11.7% and Adjusted EBITDA increased 27.1%. Based on our first-half performance and revised expectations for the balance of the year, we are increasing our 2023 guidance to include net operating revenue of $4.750 billion to $4.810 billion, Adjusted EBITDA of $920 million to $950 million, and adjusted earnings per share of $3.31 to $3.53.

A Note of Appreciation

In closing, I want to take a moment to express my heartfelt appreciation to our dedicated staff across the country. Encompass Health is the trusted choice in rehabilitation because of your hard work and passion for patient care. I’m proud of what we’ve accomplished together thus far in 2023, and I look forward to building on that momentum in the second half of the year.

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