ANNUAL REPORT 2020 Who We Are
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ANNUAL REPORT 2020 Who we are Inpatient rehabilitation hospitals Home health locations Hospice locations 137 241 82 # Owner and operator of inpatient th Largest provider of Medicare-certified 1 rehabilitation hospitals in terms of 4 skilled home health services patients treated and discharged, revenues and number of hospitals 8th Largest provider of hospice services Number of states in which we operate ~31% Share of Medicare patients 39 receiving inpatient rehabilitation and Puerto Rico services from Encompass Health SUPERIOR OUTCOMES Placing patients first, both business segments retained a leading position in quality of care in 2020. INPATIENT Discharge to REHABILITATION acute 11.1% 10.4% Lower is better Discharge to Discharge to community SNF 80.8% 79.8% 7.5% 9.1% Higher is better Lower is better Patient Quality satisfaction of care 4.3 stars 3.5 stars 3.9 stars 3.0 stars HOME HEALTH Higher is better Higher is better & HOSPICE 30-day hospitalization readmission Encompass Health Benchmark 16.1% 17.6% Lower is better ADVANCED TECHNOLOGY Encompass Health continued to develop innovative solutions to provide high-quality outcomes for both our patients and partners in care. INPATIENT REHABILITATION We deployed the readmission prevention program, which uses predictive analytics to determine the risk of a patient readmitting to an acute care hospital after they leave our care. HOME HEALTH We fully deployed the Medalogix Care module to further assist us in the eective management of our care plans for home health patients and to promote discharge to community. FINANCIAL STRENGTH Encompass Health is well positioned for the future. We consistently generate high levels of free cash flow. $579.9 Million in adjusted free cash flow $516.5 2020 Million in adjusted free cash flow 2019 Expected 5% to 7% CAGR for adjusted free cash flow from 2020 through 2025 We are well positioned to fund growth opportunities in both of our core business segments. GROWTH TARGETS INPATIENT HOME HEALTH REHABILITATION & HOSPICE 6 to 10 $50 to $100 million de novos per year of acquisitions per year Data disclosed reflects 2020 results for Encompass Health. Disclosures for non-GAAP financial information can be found here. On December 9, 2020, the Company announced it is exploring strategic alternatives for its home health and hospice business. The review is ongoing, and no decision has been made. Accordingly, the Company’s longer term growth targets assume the continuation of the current structure of the business. The growth targets may change depending on the ultimate outcome of the review. Notice of the 2021 Annual Meeting of Stockholders Thursday, May 6, 2021 Proxy Statement and Annual Report on Form 10-K for the year ended December 31, 2020 Dear valued stockholders, At Encompass Health, we have a history of adapting to change and doing it well. If there was ever a year that proved that, it was 2020. Looking back, we’re proud of our Company and how we responded to the changes going on in the world around us. Both of our business segments quickly responded to meet the needs of our patients, employees and business partners. • We continued to provide vital care to an aging population. In 2020, we cared for more than 181,800 patients in our inpatient rehabilitation hospitals and more than 207,000 patients in our home health and hospice agencies. • We opened four new hospitals and expanded existing hospitals by 117 beds. • We continued to develop innovative solutions for both our patients and partners in care. We deployed the readmission prevention program, which uses predictive analytics to determine the risk of a patient being readmitted to a hospital after they leave our care. We also fully deployed the Medalogix Care module to further assist us in the effective management of our care plans for home health patients. • We continue to place a great deal of importance on inclusion, diversity and equity. In 2020, we continued our commitment to inclusion, diversity and equity initiatives in workforce development, patient experience, community partnership and supplier diversity. We emphasized our commitment through our participation in the CEO Action for Diversity and Inclusion Pledge and production of a series of video conversations with various employees and members of executive management in order to highlight personal experience with prejudice and injustice. • Our hospitals have treated over 8,000 patients suffering or recovering from COVID-19. Our focus on specialized rehabilitative care also means that in many cases our hospitals are ideal settings for treating the debilitating effects of COVID-19, such as significant muscle weakness, cognitive impairments, shortness of breath with activity and malnutrition. In addition, our home health agencies have also cared for over 9,000 patients suffering or recovering from COVID-19. • We stayed focused on the patient experience. The impact of our caring and compassionate teams was on full display in 2020. As our hospitals were forced to close their doors to visitors and as our homebound seniors were isolated from family and friends, often the only contacts patients had for weeks at a time were their Encompass Health clinicians. When COVID-19 shut most of the world down, our employees came to work, putting the well-being of our patients first. They truly are heroes. In December 2020, we announced that we are exploring strategic alternatives for our home health and hospice business. We are one of the top home health providers in the nation, as measured by both our financial results and quality outcomes, and that allows us to consider a wide array of transactions and structures. Our strategic review is ongoing, and no timetable has been established for its completion. Accordingly, we remain focused on the diligent execution of our strategy for both segments. As we look ahead into 2021, we are confident the fundamentals of our business are intact and strong. In fact, we believe COVID-19 has created an even stronger awareness of the high level of care we provide in our inpatient rehabilitation hospitals and further reinforced home as a preferred care setting. And, as the population ages, the demand for our high-quality services will increase. In 2021, we plan to open eight new hospitals and add 100 to 150 beds to existing hospitals. Development will continue in 2022, as we expect to open an additional 10 hospitals. In our home health and hospice segment, we expect opportunities for accelerating market share capture both organically and through industry consolidation. We also look forward to the continued rollout of the vaccine and return of elective procedures in 2021 and the resulting growth that will return for both of our segments. Sincerely, Leo I Higdon Jr. Mark Tarr Chairman – Board of Directors President and Chief Executive Officer March 26, 2021 Dear Fellow Stockholder: I am pleased to invite you to attend our 2021 Annual Meeting of Stockholders of Encompass Health Corporation, to be held on Thursday, May 6, 2021, at 11:00 a.m., central time. As we continue our precautions relating to the COVID-19 pandemic, we will conduct this year’s annual meeting by live webcast on the internet. You will be able to attend and participate in the meeting by visiting www.virtualshareholdermeeting.com/EHC2021 and entering the 16-digit control number included on your Notice of Internet Availability of Proxy Materials (the “Notice”) or on your proxy card if you receive the proxy materials by mail. Due to public health and safety considerations, there will not be an in-person meeting this year. We will consider the items of business described in the Notice and in the Proxy Statement accompanying this letter and respond to any questions you may have. The Proxy Statement contains important information about the matters to be voted on and the process for voting, along with information about Encompass Health, its management and its directors. Every stockholder’s vote is important to us. Even if you plan to attend the annual meeting by logging into the virtual annual meeting website, please promptly vote by submitting your proxy by phone, by internet or by mail. The “Commonly Asked Questions” section of the Proxy Statement and the enclosed proxy card contain detailed instructions for submitting your proxy. If you plan to attend the annual meeting by logging into the virtual annual meeting website, you must provide proof of share ownership by entering the 16-digit control number included on your Notice. On behalf of the directors, management and employees of Encompass Health, thank you for your continued support of and ownership in our company. Sincerely, Leo I. Higdon, Jr. Chairman of the Board of Directors ENCOMPASS HEALTH CORPORATION Notice of Annual Meeting of Stockholders TIME 11:00 a.m., central time, on Thursday, May 6, 2021 PLACE As a precaution intended to protect the health and well-being of our employees, stockholders and others during the COVID-19 pandemic, this year’s annual meeting will be conducted by live webcast on the internet. You may attend and participate in the meeting by visiting www.virtualshareholdermeeting.com/EHC2021 and entering the 16-digit control number included on your proxy card or Notice of Internet Availability of Proxy Materials. If you hold your shares through an intermediary, such as a bank or broker, and do not have a control number, please contact the bank or broker. Due to public health and safety considerations, there will not be an in-person meeting. ITEMS OF • To elect 14 directors to the board of directors to serve until our 2022 annual meeting of BUSINESS stockholders. Ø The board of directors recommends a vote FOR each nominee. • To ratify the appointment by Encompass Health’s Audit Committee of PricewaterhouseCoopers LLP as Encompass Health’s independent registered public accounting firm.