Encompass Health Corporation

Good morning, everyone, and welcome to Encompass Health's first quarter 2024 earnings conference call. At this time, I'd like to inform all participants that their alliance will be in a listen-only mode. After the speakers remarks, there'll be a question and answer period. If you would like to ask a question during this time, please press star 1 on your telephone keypad. You'll be limited to one question and one follow-up question. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I'll now turn the call over to Mark Miller, Encompass Health's Chief Investor Relations Officer.

Thank you, Operator, and good morning, everyone. Thank you for joining Encompass Health's first quarter 2024 earnings call. Before we begin, if you do not already have a copy, the first quarter earnings release, supplemental information, and related form 8K filed with the SEC are available on our website at EncompassHealth.com. On page two of the supplemental information, you will find the safe harbor statements, which are also set forth in greater detail on the last page of the earnings release. During the call, we will make forward-looking statements, which are subject to risks and uncertainties, many of which are beyond our control. Certain risks and uncertainties, like those relating to regulatory developments, as well as volume, bad debt, and labor cost trends, that could cause actual results to differ materially from our projections, estimates, and expectations are discussed in the company's SEC filings, including the earnings release and related form 8K, the form 10K for the year ended December 31st, 2023, and the form 10Q for the quarter ended March 31st, 2024, when filed. We encourage you to read them. Your caution not to place undue reliance on the estimates, projections, guidance, and other forward-looking information presented, which are based on current estimates of future events and speak only as of today. We do not undertake a duty to update these forward-looking statements. Our supplemental information and discussion on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information, at the end of the earnings release, and as part of the form 8K filed yesterday with the SEC, all of which are available on our website. I would like to remind everyone that we will adhere to the one question and one follow-up question rule to allow everyone to submit a question. If you have additional questions, please feel free to put yourself back in the queue. With that, I'll turn the call over to Mark Tarr, and Compass Health's President and Chief Executive Officer.

Thank you, Mark, and good morning, everyone. The broad-based momentum of our business continued in the first quarter, evidenced by 13.4% revenue growth and adjusted EBITDA increase of 19.2%. Owing largely to our Q1 results, we are increasing our 2024 guidance. Doug will cover the details of the quarter and increase guidance in his comments. Demand for earth services remains strong, and we are continuing to invest in capacity additions to meet the needs of patients requiring inpatient rehabilitation services. During Q1, we added 51 beds to existing hospitals. Over the balance of the year, we plan to open six de novo hospitals with a total of 280 beds, as well as a 40-bed freestanding hospital to be licensed as a satellite location of an existing hospital. Consistent with our historical practice, the satellite will be accounted for as a bed addition. We anticipate adding another 93 beds to existing hospitals in 2024, inclusive of the aforementioned satellite. We continue to build and maintain an active pipeline of de novo projects, both wholly owned and joint ventures with acute care hospitals. Since the beginning of this year, we've announced three additional de novo projects, bringing our pipeline to 14 hospitals under development with opening dates beyond 2024. We remain keenly focused on further enhancing the quality of our patient care and resulting outcomes through the deployment of clinical technologies and protocols. We have previously highlighted the installation of in-house dialysis capabilities at many of our hospitals. We now offer this service in 88 of our hospitals and will continue the rollout to additional locations in 2024. As another example of an ongoing clinical project, our quality of life improvement project incorporates an individualized approach to inpatient care in which our therapists focus on a specific patient's interest, lifestyle, home improvement, and community mobility needs. The goal of this program is to improve the patient's inpatient experience and readiness for discharge to their community. On March 27th of this year, CMS released the 2025 IRF proposed rule. This included a proposed net market basket update of 2.8%, which we estimate would result in approximately 3% increase for our IRFs beginning October 1st of 2024, based on our current patient mix. The IRF final rule is expected to be released in late July or early August. Review Choice Demonstration, or RCD, began in August 2023 in Alabama. Recall that under RCV cycle one, which lasted six months, every Medicare claim was reviewed for documentation and medical necessity. The affirmation rate target set by CMS under cycle one was 80%. All seven of our Alabama hospitals ended cycle one above the target affirmation rate. For cycle two in Alabama, which runs from May 1st through October 31st, we had the choice of continuing with 100% pre-claim review or a random spot check pre-claim review of 5% of claims. Based on our cycle one claim experience, we elected to continue with 100% pre-claim review for cycle two. The target affirmation rate for cycle two is 85%. On March 1st, CMS announced it is expanding IRF-RCD to Pennsylvania for hospitals billing to the Medicare Administrative Contractor, Novitas. Our nine hospitals in Pennsylvania will not be subject to RCD at this time as they bill to a different Medicare Administrative Contractor. During Q1, many providers across the US healthcare spectrum experienced significant disruptions due to the cyber attack on Change Healthcare. We have historically used Change for the vast majority of our claims processing across our payer base. Our teams in our centralized business office and information technology quickly rallied to successfully implement workarounds using alternative third-party vendors and enhancing our own claims processing capabilities. As a result of these efforts, we experienced minimal impact to our Q1 cash flow from the change outage. We resumed claims processing with change in early April and continue to maintain the alternative channels we recently developed. Across our 160 inpatient rehabilitation hospitals, we are daily providing high-quality, cost-effective care to medically complex patients. Our dedicated clinical teams work collaboratively with physicians to administer this care, producing leading scores in patient satisfaction and quality outcomes. This value proposition increasingly resonates with patients, caregivers, referral sources, and payers. The demand for inpatient rehabilitation services remains considerably underserved and continues to grow as the US population ages. We intend to continue to expand our capacity and capabilities to meet this need. Now I'll turn it over to Doug.