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SELECT MEDICAL HOLDINGS CORP – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read this discussion together with the consolidated financial
statements and accompanying notes included elsewhere herein.
This section of this 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 .
Overview
We began operations in 1997 and, based on number of facilities, are one of the largest operators of critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers inthe United States . As ofDecember 31, 2021 , we had operations in 46 states and theDistrict of Columbia . We operated 104 critical illness recovery hospitals in 28 states, 30 rehabilitation hospitals in 12 states, and 1,881 outpatient rehabilitation clinics in 38 states and theDistrict of Columbia .Concentra operated 518 occupational health centers in 41 states as ofDecember 31, 2021 .Concentra also provides contract services at employer worksites. Our reportable segments include the critical illness recovery hospital segment, the rehabilitation hospital segment, the outpatient rehabilitation segment, and theConcentra segment. We had revenue of$6,204.5 million for the year endedDecember 31, 2021 . Of this total, we earned approximately 36% of our revenue from our critical illness recovery hospital segment, approximately 14% from our rehabilitation hospital segment, approximately 17% from our outpatient rehabilitation segment, and approximately 28% from ourConcentra segment. Our critical illness recovery hospital segment consists of hospitals designed to serve the needs of patients recovering from critical illnesses, often with complex medical needs, and our rehabilitation hospital segment consists of hospitals designed to serve patients that require intensive physical rehabilitation care. Patients are typically admitted to our critical illness recovery hospitals and rehabilitation hospitals from general acute care hospitals. Our outpatient rehabilitation segment consists of clinics that provide physical, occupational, and speech rehabilitation services. OurConcentra segment consists of occupational health centers that provide workers' compensation injury care, physical therapy, and consumer health services as well as onsite clinics located at employer worksites that deliver occupational medicine services.
Non-GAAP Measure
We believe that the presentation of Adjusted EBITDA, as defined below, is important to investors because Adjusted EBITDA is commonly used as an analytical indicator of performance by investors within the healthcare industry. Adjusted EBITDA is used by management to evaluate financial performance and determine resource allocation for each of our segments. Adjusted EBITDA is not a measure of financial performance under accounting principles generally accepted inthe United States of America ("GAAP"). Items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Adjusted EBITDA should not be considered in isolation, or as an alternative to, or substitute for, net income, income from operations, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because Adjusted EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying definitions, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies. We define Adjusted EBITDA as earnings excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, gain (loss) on sale of businesses, and equity in earnings (losses) of unconsolidated subsidiaries. We will refer to Adjusted EBITDA throughout the remainder of Management's Discussion and Analysis of Financial Condition and Results of Operations. 53
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The following table reconciles net income and income from operations to Adjusted
EBITDA and should be referenced when we discuss Adjusted EBITDA.
For the Year Ended December 31,
2019 2020 2021
(in thousands)
Net income $ 201,031 $ 344,606 $ 499,949
Income tax expense 63,718 111,867 129,773
Interest expense 200,570 153,011 135,985
Interest income - - (5,350)
Gain on sale of businesses (6,532) (12,387) (2,155)
Equity in earnings of unconsolidated subsidiaries (24,989) (29,440) (44,428)
Loss on early retirement of debt 38,083 - -
Income from operations 471,881 567,657 713,774
Stock compensation expense:
Included in general and administrative 20,334 22,053 24,598
Included in cost of services 6,117 5,197 6,342
Depreciation and amortization 212,576 205,659 202,645
Adjusted EBITDA $ 710,908 $ 800,566 $ 947,359
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Effects of the COVID-19 Pandemic on our Results of Operations
Beginning inMarch 2020 , state governments placed significant restrictions on businesses and mandated closures of non-essential or non-life sustaining businesses, causing many employers to furlough their workforce and temporarily cease or significantly reduce their operations. State governments also implemented restrictions on travel and individual activities outside of the home, closed schools, and mandated other social distancing measures. At the same time, hospitals and other facilities began suspending elective surgeries. In an effort to ensure hospitals and health systems had the capacity to absorb and effectively manage surges of COVID-19 patients, a number of waivers and modifications of certain requirements under the Medicare, Medicaid and CHIP programs were authorized inMarch 2020 , including certain regulations under the Medicare program which govern admissions into our critical illness recovery hospitals and rehabilitation hospitals. Specifically, our critical illness recovery hospitals which are certified as LTCHs became exempt from the greater-than-25-day average length of stay requirement for all cost reporting periods that include the COVID-19 public health emergency period. Our rehabilitation hospitals which are certified as IRFs could exclude patients admitted solely to respond to the emergency from the calculation of the "60 percent rule" thresholds to receive payment as an IRF. The COVID-19 public health emergency period has been extended and is currently in effect throughApril 16, 2022 . The adverse effects of the COVID-19 pandemic, along with the actions of governmental authorities and those in the private sector to limit the spread of COVID-19, caused disruptions in each of our segments; these disruptions were most significant within our outpatient rehabilitation andConcentra segments. Bymid-March 2020 , our outpatient rehabilitation clinics began experiencing significantly less patient visit volume due to declines in patient referrals from physicians, a reduction in workers' compensation injury visits resulting from the temporary closure of businesses, and the suspension of elective surgeries that normally increase the demand for outpatient rehabilitation services. OurConcentra centers experienced similar declines in patient visit volume due to businesses furloughing their workforce and temporarily ceasing or significantly reducing their operations. SinceMarch 2021 , our outpatient rehabilitation clinics andConcentra centers have experienced patient visit volumes which approximate or exceed the levels experienced in the months prior to the widespread emergence of COVID-19 inthe United States . Although it had experienced temporary disruptions in its core businesses as a result of the COVID-19 pandemic, ourConcentra segment was able to expand its services to provide COVID-19 screening and testing. Our critical illness recovery hospitals have played a critical role in caring for patients during the COVID-19 pandemic. The relaxation of certain admission restrictions contributed to volume increases in certain of our hospitals during the year endedDecember 31, 2020 . The revenue of our critical illness recovery hospitals and rehabilitation hospitals has also benefited from the temporary suspension of the 2.0% cut to Medicare payments due to sequestration, which beganMay 1, 2020 following the enactment of the CARES Act, and was extended throughMarch 31, 2022 . FromApril 1, 2022 throughJune 30, 2022 , the sequestration cut will be 1.0% and the full 2.0% sequestration cut will resumeJuly 1, 2022 . Certain of our rehabilitation hospitals did experience temporary declines in patient volume in areas more significantly impacted by the spread of COVID-19 and as a result of the suspension of elective surgeries at hospitals and other facilities, which consequently reduced the demand for inpatient rehabilitation services. Additionally, some of our rehabilitation hospitals temporarily restricted admissions as a result of the COVID-19 pandemic. The declines in volume occurred principally in April andMay 2020 . Beginning at the onset of the COVID-19 pandemic, both our critical illness recovery hospitals and rehabilitation hospitals modified certain of their protocols in order to follow the guidelines and recommendations for patient treatment and for the protection of our patients and staff members. This has resulted in increased labor costs as well as additional costs resulting from the purchase of personal protective equipment. Further, labor shortages have become more pronounced as a result of the COVID-19 pandemic. We have experienced an increase in labor costs in our hospitals as a result of constrained staffing due to a shortage of healthcare workers, an increased dependence on contract clinical workers, the loss of unvaccinated employees in jurisdictions requiring vaccination, and federal unemployment subsidies, including unemployment benefits offered in response to the COVID-19 pandemic. Increased turnover rates within our employee base have also lead to increased overtime to meet demand and increased wage rates to attract and retain employees. The unpredictable effects of the COVID-19 pandemic, including the duration and extent of disruption on our operations, creates uncertainties about our future operating results and financial condition. This is discussed further in our risk factors contained in Item 1A. "Risk Factors." We have provided revenue and certain operating statistics below for each of our segments for each of the periods presented. Please refer to "Summary Financial Results" and "Results of Operations" for further discussion of our segment performance measures and to "Operating Statistics" for a discussion regarding the uses and calculations of the metrics provided below. 55
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Critical Illness Recovery Hospital
Revenue Patient Days Occupancy Rate
Number of Hospitals Owned(1)
2019 2020 2021 2019 2020 2021 2019 2020 2021 2019 2020 2021
(in thousands)
January $ 149,799 $ 163,238 $ 199,611 86,238 90,783 100,933 69% 69% 75% 96 100 99
February 145,586 165,375 190,703 80,806 87,844 92,036 71% 72% 75% 96 100 99
March 162,149 171,908 204,558 91,085 91,831 100,149 73% 70% 74% 96 100 99
Three Months Ended March
31 $ 457,534 $ 500,521 $ 594,872 258,129 270,458 293,118 71% 70% 75% 96 100 99
April $ 156,231 $ 171,445 $ 185,934 88,357 90,710 91,506 70% 71% 70% 99 100 99
May 156,422 178,223 183,471 89,350 95,191 93,708 69% 72% 70% 99 100 99
June 148,490 169,958 174,654 85,153 90,988 87,767 68% 71% 68% 99 100 99
Three Months Ended June
30 $ 461,143 $ 519,626 $ 544,059 262,860 276,889 272,981 69% 72% 69% 99 100 99
Six Months Ended June 30 $ 918,677 $ 1,020,147 $ 1,138,931 520,989 547,347 566,099 70% 71% 72% 99 100 99
July $ 151,416 $ 175,253 $ 171,483 87,143 94,144 88,119 67% 71% 65% 99 99 100
August 155,485 173,967 178,240 86,553 93,964 91,756 66% 71% 68% 99 99 100
September 155,991 170,234 180,923 84,393 90,955 92,579 67% 71% 71% 99 99 100
Three Months Ended
September 30 $ 462,892 $ 519,454 $ 530,646 258,089 279,063 272,454 67% 71% 68% 99 99 100
Nine Months Ended
September 30 $ 1,381,569 $ 1,539,601 $ 1,669,577 779,078 826,410 838,553 69% 71% 70% 99 99 100
October $ 152,791 $ 181,251 $ 195,444 87,188 95,616 99,935 66% 71% 71% 100 100 104
November 150,399 174,133 191,134 84,540 92,651 96,102 67% 71% 71% 100 99 104
December 151,759 182,514 190,617 87,555 97,079 98,449 67% 72% 70% 100 99 104
Three Months Ended
December 31 $ 454,949 $ 537,898 $ 577,195 259,283 285,346 294,486 67% 71% 71% 100 99 104
Twelve Months Ended
December 31 $ 1,836,518 $ 2,077,499 $ 2,246,772 1,038,361 1,111,756 1,133,039 68% 71% 71% 100 99 104
Rehabilitation Hospital
Revenue Patient Days Occupancy Rate Number of Hospitals Owned(1)
2019 2020 2021 2019 2020 2021 2019 2020 2021 2019 2020 2021
(in thousands)
January $ 50,615 $ 61,673 $ 68,297 27,434 32,111 34,404 74% 79% 82% 17 19 20
February 48,080 60,690 64,202 25,442 31,813 32,178 76% 84% 84% 17 19 20
March 55,863 59,656 75,305 29,940 30,644 35,857 78% 76% 85% 18 19 20
Three Months Ended
March 31 $ 154,558 $ 182,019 $ 207,804 82,816 94,568 102,439 76% 79% 84% 18 19 20
April $ 51,991 $ 45,878 $ 70,295 28,266 23,553 34,861 76% 61% 85% 18 19 20
May 56,019 57,815 71,190 29,730 29,787 35,604 75% 73% 84% 19 19 20
June 52,364 64,974 71,181 28,529 30,741 34,483 73% 78% 84% 19 19 20
Three Months Ended
June 30 $ 160,374 $ 168,667 $ 212,666 86,525 84,081 104,948 75% 71% 85% 19 19 20
Six Months Ended June
30 $ 314,932 $ 350,686 $ 420,470 169,341 178,649 207,387 76% 75% 84% 19 19 20
July $ 57,077 $ 62,312 $ 70,467 30,054 31,986 34,894 75% 81% 83% 19 18 20
August 58,072 63,673 71,682 30,228 32,518 34,835 75% 83% 83% 19 18 20
September 58,220 62,090 70,285 29,172 31,176 33,224 75% 82% 81% 19 18 20
Three Months Ended
September 30 $ 173,369 $ 188,075 $ 212,434 89,454 95,680 102,953 75% 82% 82% 19 18 20
Nine Months Ended
September 30 $ 488,301 $ 538,761 $ 632,904 258,795 274,329 310,340 75% 77% 84% 19 18 20
October $ 61,975 $ 66,591 $ 72,509 31,767 33,378 35,908 78% 82% 85% 19 19 20
November 60,353 64,610 71,865 31,022 31,581 34,491 79% 80% 84% 19 19 20
December 60,342 64,711 72,062 31,447 31,545 33,962 78% 78% 80% 19 19 20
Three Months Ended
December 31 $ 182,670 $ 195,912 $ 216,436 94,236 96,504 104,361 78% 80% 83% 19 19 20
Twelve Months Ended
December 31 $ 670,971 $ 734,673 $ 849,340 353,031 370,833 414,701 76% 78% 83% 19 19 20
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Outpatient Rehabilitation
Revenue Visits Working Days(2)
2019 2020 2021 2019 2020 2021 2019 2020 2021
(in thousands)
January $ 83,185 $ 90,924 $ 76,763 687,007 757,171 625,964 22 22 20
February 78,573 88,239 77,063 658,610 739,061 641,942 20 20 20
March 85,147 76,086 98,135 708,866 626,433 832,248 21 22 23
Three Months Ended
March 31 $ 246,905 $ 255,249 $ 251,961 2,054,483 2,122,665 2,100,154 63 64 63
April $ 90,230 $ 49,084 $ 95,251 762,914 386,108 810,314 22 22 22
May 90,272 51,186 89,030 759,829 409,703 758,773 22 20 20
June 81,389 66,868 96,128 680,762 546,456 835,774 20 22 22
Three Months Ended
June 30 $ 261,891 $ 167,138 $ 280,409 2,203,505 1,342,267 2,404,861 64 64 64
Six Months Ended June
30 $ 508,796 $ 422,387 $ 532,370 4,257,988 3,464,932 4,505,015 127 128 127
July $ 89,267 $ 77,793 $ 90,352 754,102 636,826 780,118 22 22 21
August 90,687 79,034 93,056 743,813 651,738 798,459 22 21 22
September 85,376 83,215 91,132 706,413 694,808 768,493 20 21 21
Three Months Ended
September 30 $ 265,330 $ 240,042 $ 274,540 2,204,328 1,983,372 2,347,070 64 64 64
Nine Months Ended
September 30 $ 774,126 $ 662,429 $ 806,910 6,462,316 5,448,304 6,852,085 191 192 191
October $ 96,868 $ 88,274 $ 91,705 808,649 745,562 772,068 23 22 21
November 87,072 82,102 93,345 722,607 685,885 797,756 20 20 21
December 87,945 87,108 92,401 725,710 713,593 771,715 21 22 21
Three Months Ended
December 31 $ 271,885 $ 257,484 $ 277,451 2,256,966 2,145,040 2,341,539 64 64 63
Twelve Months Ended
December 31 $ 1,046,011 $ 919,913 $ 1,084,361 8,719,282 7,593,344 9,193,624 255 256 254
Concentra
Revenue Visits Working Days(2)
2019 2020 2021 2019 2020 2021 2019 2020 2021
(in thousands)
January $ 133,507 $ 141,236 $ 127,103 985,598 1,032,069 867,793 22 22 20
February 126,309 133,690 132,349 919,065 965,741 869,910 20 20 20
March 136,505 123,609 163,388 1,006,944 879,585 1,057,871 21 22 23
Three Months Ended
March 31 $ 396,321 $ 398,535 $ 422,840 2,911,607 2,877,395 2,795,574 63 64 63
April $ 140,050 $ 91,178 $ 152,143 1,040,543 610,555 999,622 22 22 22
May 143,183 99,228 142,228 1,073,763 674,629 956,250 22 20 20
June 130,218 121,932 162,001 988,783 865,896 1,074,206 20 22 22
Three Months Ended
June 30 $ 413,451 $ 312,338 $ 456,372 3,103,089 2,151,080 3,030,078 64 64 64
Six Months Ended June
30 $ 809,772 $ 710,873 $ 879,212 6,014,696 5,028,475 5,825,652 127 128 127
July $ 142,385 $ 132,465 $ 146,509 1,057,809 930,427 1,033,266 22 22 21
August 144,452 130,291 150,333 1,087,165 933,555 1,106,356 22 21 22
September 135,063 129,103 145,348 1,005,929 963,065 1,084,009 20 21 21
Three Months Ended
September 30 $ 421,900 $ 391,859 $ 442,190 3,150,903 2,827,047 3,223,631 64 64 64
Nine Months Ended
September 30 $ 1,231,672 $ 1,102,732 $ 1,321,402 9,165,599 7,855,522 9,049,283 191 192 191
October $ 149,260 $ 139,365 $ 143,609 1,113,408 1,011,816 1,072,531 23 22 21
November 123,152 126,431 135,417 908,159 867,918 991,937 19 19 21
December 124,733 132,906 131,613 881,699 892,648 938,973 21 22 21
Three Months Ended
December 31 $ 397,145 $ 398,702 $ 410,639 2,903,266 2,772,382 3,003,441 63 63 63
Twelve Months Ended
December 31 $ 1,628,817 $ 1,501,434 $ 1,732,041 12,068,865 10,627,904 12,052,724 254 255 254
_______________________________________________________________________________
(1) Represents the number of hospitals owned at the end of each period
presented.
(2) Represents the number of days in which normal business operations were
conducted during the periods presented.
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Summary Financial Results
The following tables reconcile our segment performance measures to our
consolidated operating results for the years ended
2019:
For the Year Ended
Critical Illness Rehabilitation Outpatient Concentra Other Total
Recovery Hospital Hospital Rehabilitation
(in thousands)
Revenue $ 2,246,772 $ 849,340 $ 1,084,361 $ 1,732,041 $ 292,001 $ 6,204,515
Operating expenses (1,998,660) (664,636) (946,086) (1,379,566) (443,176) (5,432,124)
Depreciation and amortization (53,094) (27,677) (29,592) (82,210) (10,072) (202,645)
Other operating income 19,881 - - 34,999 89,148 144,028
Income (loss) from operations 214,899 157,027 108,683 305,264 (72,099) 713,774
Depreciation and amortization 53,094 27,677 29,592 82,210 10,072 202,645
Stock compensation expense - - - 2,142 28,798 30,940
Adjusted EBITDA $ 267,993 $ 184,704 $ 138,275 $ 389,616 $ (33,229) $ 947,359
Adjusted EBITDA margin 11.9 % 21.7 % 12.8 % 22.5 % N/M 15.3 %
For the Year Ended December 31, 2020
Critical Illness Rehabilitation Outpatient Concentra Other Total
Recovery Hospital Hospital Rehabilitation
(in thousands)
Revenue $ 2,077,499 $ 734,673 $ 919,913 $ 1,501,434 $ 298,194 $ 5,531,713
Operating expenses (1,735,072) (581,470) (840,749) (1,252,200) (438,918) (4,848,409)
Depreciation and amortization (51,531) (27,727) (29,009) (87,865) (9,527) (205,659)
Other operating income - - - 1,146 88,866 90,012
Income (loss) from operations 290,896 125,476 50,155 162,515 (61,385) 567,657
Depreciation and amortization 51,531 27,727 29,009 87,865 9,527 205,659
Stock compensation expense - - - 2,512 24,738 27,250
Adjusted EBITDA $ 342,427 $ 153,203 $ 79,164 $ 252,892 $ (27,120) $ 800,566
Adjusted EBITDA margin 16.5 % 20.9 % 8.6 % 16.8 % N/M 14.5 %
For the Year Ended December 31, 2019
Critical Illness Rehabilitation Outpatient Concentra Other Total
Recovery Hospital Hospital Rehabilitation
(in thousands)
Revenue $ 1,836,518 $ 670,971 $ 1,046,011 $ 1,628,817 $ 271,605 $ 5,453,922
Operating expenses (1,581,650) (535,114) (894,180) (1,355,404) (403,117) (4,769,465)
Depreciation and amortization (50,763) (27,322) (28,301) (96,807) (9,383)
(212,576)
Income (loss) from operations 204,105 108,535 123,530 176,606 (140,895)
471,881
Depreciation and amortization 50,763 27,322 28,301 96,807 9,383 212,576 Stock compensation expense - - - 3,069 23,382 26,451 Adjusted EBITDA$ 254,868 $ 135,857 $ 151,831 $ 276,482 $ (108,130) $ 710,908 Adjusted EBITDA margin 13.9 % 20.2 % 14.5 % 17.0 % N/M 13.0 % Net income was$499.9 million ,$344.6 million , and$201.0 million for the years endedDecember 31, 2021 , 2020, and 2019, respectively. Net income included pre-tax gains on sales of businesses of$2.2 million and$12.4 million for the years endedDecember 31, 2021 and 2020, respectively. Net income included pre-tax losses on early retirement of debt of$38.1 million and a pre-tax gain on sale of businesses of$6.5 million for the year endedDecember 31, 2019 . 58
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The following tables summarize the changes in our segment performance measures for the year-to-date periods specified below. Due to the significant impact of the COVID-19 pandemic on our operations during the year endedDecember 31, 2020 , which is discussed further under "Effects of the COVID-19 Pandemic on our Results of Operations," we also provided a comparison of the changes in our segment performance measures for the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2019 . 2021 Compared to 2020 Critical Illness Outpatient Recovery Rehabilitation Hospital Rehabilitation Concentra Other Total Hospital Change in revenue 8.1 % 15.6 % 17.9 % 15.4 % (2.1) % 12.2 % Change in income (loss) from operations (26.1) % 25.1 % 116.7 % 87.8 % N/M 25.7 % Change in Adjusted EBITDA (21.7) % 20.6 % 74.7 % 54.1 % N/M 18.3 % 2021 Compared to 2019 Critical Illness Outpatient Recovery Rehabilitation Hospital Rehabilitation Concentra Other Total Hospital Change in revenue 22.3 % 26.6 % 3.7 % 6.3 % 7.5 % 13.8 % Change in income (loss) from operations 5.3 % 44.7 % (12.0) % 72.9 % N/M 51.3 % Change in Adjusted EBITDA 5.1 % 36.0 % (8.9) % 40.9 % N/M 33.3 % 2020 Compared to 2019 Critical Illness Outpatient Recovery Rehabilitation Hospital Rehabilitation Concentra Other Total Hospital Change in revenue 13.1 % 9.5 % (12.1) % (7.8) % 9.8 % 1.4 % Change in income (loss) from operations 42.5 % 15.6 % (59.4) % (8.0) % N/M 20.3 % Change in Adjusted EBITDA 34.4 % 12.8 % (47.9) % (8.5) % N/M 12.6 %
_______________________________________________________________________________
N/M - Not meaningful. Significant Events Dividend Payments OnMay 5, 2021 ,August 4, 2021 , andNovember 2, 2021 , our board of directors declared cash dividends, each in the amount of$0.125 per share. Cash dividends totaling$50.6 million were paid during the year endedDecember 31, 2021 .
Financing Transactions
OnJune 2, 2021 , Select entered into Amendment No. 5 to its credit agreement which, among other things, increased the aggregate commitments available under the revolving facility from$450.0 million to$650.0 million , including a$125.0 million sublimit for the issuance of standby letters of credit. OnJune 2, 2021 ,Concentra Inc. terminated its obligations under the agreement governing its revolving facility (the "Concentra-JPM first lien credit agreement"). The Concentra-JPM first lien credit agreement provided for commitments of$100.0 million underConcentra Inc.'s revolving facility, which was set to mature onMarch 1, 2022 .
Purchases of Concentra Interest
OnDecember 24, 2021 , Select, WCAS, DHHC, and other members of Concentra Group Holdings Parent entered into agreements pursuant to which Select acquired additional outstanding membership interests of Concentra Group Holdings Parent. The purchase was in lieu of, and collectively deemed to constitute, the exercise of WCAS' and DHHC's third put right. Select acquired substantially all of the outstanding membership interests of Concentra Group Holdings Parent that it did not already own from WCAS, DHHC and the other equity holders of Concentra Group Holdings Parent, in exchange for an aggregate payment of approximately$660.7 million . Upon consummation of the Concentra Interest Purchases, Select owns in the aggregate approximately 99.3% of the outstanding membership interests of Concentra Group Holdings Parent on a fully diluted basis and 100.0% of the outstanding voting membership interests ofConcentra Group Holdings Parent. 59
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Regulatory Changes
The Medicare program reimburses healthcare providers for services furnished to Medicare beneficiaries, which are generally persons age 65 and older, those who are chronically disabled, and those suffering from end stage renal disease. The program is governed by the Social Security Act of 1965 and is administered primarily by theDepartment of Health and Human Services and CMS. Revenue generated directly from the Medicare program represented approximately 26%, 25%, and 23% of the Company's revenue for the years endedDecember 31, 2019 , 2020, and 2021, respectively. The Medicare program reimburses various types of providers using different payment methodologies. Those payment methodologies are complex and are described elsewhere in this report under "Business-Government Regulations." The following is a discussion of some of the more significant healthcare regulatory changes that have affected our financial performance in the periods covered by this report or are likely to affect our financial performance and financial condition in the future.
Federal Health Care Program Changes in Response to the COVID-19 Pandemic
OnJanuary 31, 2020 , HHS declared a public health emergency under section 319 of the Public Health Service Act, 42 U.S.C. § 247d, in response to the COVID-19 outbreak inthe United States . The HHS Secretary renewed the public health emergency determination for 90-day periods effective onApril 26, 2020 ,July 25, 2020 ,October 23, 2020 ,January 21, 2021 ,April 21, 2021 ,July 20, 2021 ,October 18, 2021 , andJanuary 16, 2022 . OnMarch 13, 2020 ,President Trump declared a national emergency due to the COVID-19 pandemic and the HHS Secretary authorized the waiver or modification of certain requirements under the Medicare, Medicaid and CHIP programs pursuant to section 1135 of the Social Security Act. Under this authority, CMS issued a number of blanket waivers that excuse health care providers or suppliers from specific program requirements. The following blanket waivers, while in effect, may impact our results of operations:
i.IRFs, IRF units, and hospitals and units applying to be classified as IRFs,
can exclude patients admitted solely to respond to the emergency from the
calculation of the "60 percent rule" thresholds to receive payment as an IRF.
ii.LTCHs are exempt from the greater-than-25-day average length of stay requirement for all cost reporting periods that include the COVID-19 public health emergency period. Hospitals seeking LTCH classification can exclude patient stays from the greater-than-25-day average length of stay requirement where the patient was admitted or discharged to meet the demands of the COVID-19 public health emergency. iii.Medicare expanded the types of health care professionals who can furnish telehealth services to include all those who are eligible to bill Medicare for their professional services. This allows health care professionals who were previously ineligible to furnish and bill for Medicare telehealth services, including physical therapists, occupational therapists, speech language pathologists, and others, to receive payment for Medicare telehealth services. iv.Medicare will not require out-of-state physician and non-physician practitioners to be licensed in the state where they are providing services when they are licensed in another state, subject to certain conditions and state or local licensure requirements.
v.Many requirements under the hospital conditions of participation ("CoPs") are
waived during the emergency period to give hospitals more flexibility in
treating COVID-19 patients.
vi.Hospitals can operate temporary expansion locations without meeting the
provider-based entity requirements or certain requirements in the physical
environment CoP for hospitals during the emergency. This waiver also allows
hospitals to change the status of their current provider-based department
locations to meet patient needs as part of the state or local pandemic plan.
vii.IRFs, LTCHs and certain other providers did not need to submit quality data to Medicare forOctober 1, 2019 throughJune 30, 2020 to comply with the quality reporting programs. viii.The HHS Secretary waived sanctions under the physician self-referral law (i.e., Stark law) for certain types of remuneration and referral arrangements that are related to a COVID-19 purpose. The OIG will also exercise enforcement discretion to not impose administrative sanctions under the federal anti-kickback statute for many payments covered by the Stark law waivers. 60
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CMS also approved section 1135 waivers and/or temporary changes to Medicaid and/or CHIP state plan amendments for every state Medicaid program (including theDistrict of Columbia ,Puerto Rico , and other territories). In addition, CMS approved traditional changes to some states' Medicaid state plan amendments and section 1115 waivers in certain states for Medicaid demonstration projects addressing the COVID-19 public health emergency. CMS will consider specific waiver requests from providers and suppliers. We have submitted one or more specific waiver requests to make it easier for our operators or referral partners to treat COVID-19 patients, and we may submit others in the future. Pursuant to the Coronavirus Preparedness and Response Supplemental Appropriations Act, Public Law 116-123, CMS has waived Medicare telehealth payment requirements during the emergency so that beneficiaries in all areas of the country (not just rural areas) can receive telehealth services, including in their homes, beginning onMarch 6, 2020 . CMS issued additional waivers to permit more than 160 additional services to be furnished by telehealth, allow physicians to monitor patient services remotely, and fulfill face-to-face requirements in IRFs. In addition to these agency actions, the CARES Act was enacted onMarch 27, 2020 . It provides additional waivers, reimbursement, grants and other funds to assist health care providers during the COVID-19 public health emergency. Some of the CARES Act provisions that may impact our operations include: i.$100 billion in appropriations for thePublic Health and Social Services Emergency Fund to be used for preventing, preparing, and responding to COVID-19, and for reimbursing "eligible health care providers for health care related expenses or lost revenues that are attributable to coronavirus." The Paycheck Protection Program and Health Care Enhancement Act, Public Law 116-139, added$75 billion to this fund. The Consolidated Appropriations Act, 2021, added another$3 billion to this fund. HHS has allocated four general distributions from the fund for payments to Medicare providers. The Phase 1 General Distribution included$30 billion for health care providers that received Medicare fee-for-service payments in 2019. Another$20 billion was allocated to Medicare providers in a manner that was intended to make the entire$50 billion Phase 1 General Distribution proportional to each provider's share of 2018 net patient revenue. Payments from the additional$20 billion allocation were determined based on the lesser of a provider's 2018 (or most recent complete tax year) gross receipts or the sum of incurred losses for March and April of 2020. HHS distributed a total of$46.02 billion from the Phase 1 allocations. The Phase 2 General Distribution allocated$18 billion for providers in state Medicaid/CHIP programs, Medicaid managed care plans, dentists, and certain Medicare providers who did not receive a Phase 1 General Distribution payment. HHS distributed$5.98 billion from the$18 billion Phase 2 allocation. The Phase 3 General Distribution was projected to include$20 billion for providers to apply for if they suffered financial losses or changes in operating expenses caused by COVID-19 or if they were previously ineligible for a general distribution. HHS made$24.5 billion in payments as part of the Phase 3 General Distribution. HHS recently announced a Phase 4 General Distribution allocation of$17 billion . Providers could apply for a Phase 4 General Distribution payment if they had lost revenues and eligible expenses fromJuly 1, 2020 toMarch 31, 2021 . HHS said it intends to make the Phase 4 payments more equitable than earlier distributions and will reimburse smaller providers at a higher rate than large providers. The application for a Phase 4 General Distribution payment also allowed applicants to seek a payment from an$8.5 billion American Rescue Plan fund for providers that serve rural Medicaid, CHIP, or Medicare patients. The remainder of the COVID-19 related appropriations to thePublic Health and Social Services Emergency Fund is for targeted allocations to providers in high impact COVID-19 areas ($20.75 billion ), rural providers (approximately$11.09 billion ), skilled nursing facilities (approximately$5 billion ), nursing home infection control (approximately$2.75 billion ), safety net hospitals (approximately$13.07 billion ),Indian Health Service and urban health centers ($520 million ), children's hospitals ($1.06 billion ), and unspecified allocations for providers treating uninsured COVID-19 patients. HHS also established a$2.25 billion incentive payment structure for skilled nursing facilities and nursing homes for keeping new COVID-19 infection and mortality rates among residents lower than the communities they serve. 61
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Starting onJuly 1, 2021 , recipients of these payments must begin reporting data to HHS on the use of the funds via an online portal. BySeptember 30, 2021 , recipients were required to report to HHS on the use of funds received fromApril 10, 2020 toJune 30, 2020 . HHS announced a 60-day grace period for thisSeptember 30, 2021 deadline because providers were facing challenges from recent natural disasters and theCOVID-19 Delta variant. HHS would not initiate collection activities or enforcement actions against providers during this grace period. The deadline to apply payments received fromApril 10, 2020 toJune 30, 2020 towards eligible expenses and lost revenue attributable to COVID-19 wasJune 30, 2021 . For payments received fromJuly 1, 2020 toDecember 31, 2020 , recipients must use the funds byDecember 31, 2021 and will report to HHS regarding the use of the funds during the period ofJanuary 1, 2022 toMarch 31, 2022 . Next, any payments received fromJanuary 1, 2021 toJune 30, 2021 must be used byJune 30, 2022 and recipients must report to HHS regarding such payments fromJuly 1, 2022 toSeptember 30, 2022 . Finally, if any provider receives payments during the period ofJuly 1, 2021 toDecember 31, 2021 , the provider must use the funds byDecember 31, 2022 and report to HHS on the use of these funds during the period ofJanuary 1, 2023 toMarch 31, 2023 . Any funds that a provider does not apply towards expenses or lost revenue attributable to COVID-19 must be returned to HHS within 30 calendar days after the end of the applicable reporting period. All recipients of funds are subject to audit by HHS, the HHS OIG, or the Pandemic Response Accountability Committee. Audits may include examination of the accuracy of the data providers submitted to HHS in their applications for payments. ii.Expansion of the Accelerated and Advance Payment Program to advance three months of payments to Medicare providers. CMS has the ability to recoup the advanced payments through future Medicare claims. Section 2501 of the Continuing Appropriations Act, 2021 and Other Extensions Act, Public Law 116-159, modified the terms of repayment so that a provider can request no recoupment for one year after the advanced payment was issued, followed by a 25% offset the next 11 months, and a 50% offset the last 6 months. Any amounts that remain unpaid after 29 months will be subject to a 4% interest rate (instead of 10.25%). CMS began recouping advance payments onMarch 30, 2021 , but the actual date for each provider is based on the first anniversary of when the provider received the first payment. CMS publishes repayment data every six months, beginningJune 28, 2021 . iii.Temporary suspension of the 2% cut to Medicare payments due to sequestration so that, for the period ofMay 1, 2020 toDecember 31, 2020 , the Medicare program will be exempt from any sequestration order. The Consolidated Appropriations Act, 2021, extended this temporary suspension of the 2% sequestration cut throughMarch 31, 2021 . The Medicare sequester relief bill, which became Public Law 117-7, extended the temporary suspension of the sequestration cut again, throughDecember 31, 2021 . To pay for the continued suspension of the sequestration cuts throughDecember 31, 2021 ,Congress increased the sequestration cut that will apply in fiscal year 2030. The Protecting Medicare and American Farmers from Sequester Cuts Act, signed into law byPresident Biden onDecember 10, 2021 , further extends the suspension of the sequestration cut throughMarch 31, 2022 , and reduces the sequestration cut to 1% fromApril 1, 2022 throughJune 30, 2022 . The full 2% sequestration cut will resumeJuly 1, 2022 . To pay for this relief,Congress increased the sequestration cut to Medicare payments to 2.25% for the first sixth months of fiscal year 2030 and to 3% for the final sixth months of fiscal year 2030. The same legislation defers an across-the-board 4% payment cut due to the American Rescue Plan from the FY 2022 Statutory Pay-As-You-Go ("PAYGO") scorecard to the FY 2023 PAYGO scorecard. iv.Two waivers of Medicare statutory requirements regarding site neutral payment to LTCHs. The first waives the LTCH discharge payment percentage requirement (i.e., 50% rule) for the cost reporting period(s) that include the emergency period. The second waives application of the site neutral payment rate so that all LTCH cases admitted during the emergency period will be paid the LTCH-PPS standard federal rate. v.Waiver of the IRF 3-hour rule so that IRF services provided during the public health emergency period do not need to meet the coverage requirement that patients receive at least 3 hours of therapy a day or 15 hours of therapy per week.
vi.Broader waiver authority for HHS under section 1135 of the Social Security
Act to issue additional telehealth waivers.
The CARES Act also provides for a 20% increase in the payment weight for
Medicare payments to hospitals paid under the IPPS for treating COVID-19
patients. We are monitoring developments related to this provision, in case CMS
provides a similar payment add-on for LTCHs and IRFs.
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Medicare Reimbursement of LTCH Services
The following is a summary of significant regulatory changes to the Medicare prospective payment system for our critical illness recovery hospitals, which are certified by Medicare as LTCHs, which have affected our results of operations, as well as the policies and payment rates that may affect our future results of operations. Medicare payments to our critical illness recovery hospitals are made in accordance with LTCH-PPS. Fiscal Year 2020. OnAugust 16, 2019 , CMS published the final rule updating policies and payment rates for the LTCH-PPS for fiscal year 2020 (affecting discharges and cost reporting periods beginning on or afterOctober 1, 2019 throughSeptember 30, 2020 ). Certain errors in the final rule were corrected in a document publishedOctober 8, 2019 . The standard federal rate was set at$42,678 , an increase from the standard federal rate applicable during fiscal year 2019 of$41,559 . The update to the standard federal rate for fiscal year 2020 included a market basket increase of 2.9%, less a productivity adjustment of 0.4%. The standard federal rate also included an area wage budget neutrality factor of 1.0020203. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS was set at$26,778 , a decrease from the fixed-loss amount in the 2019 fiscal year of$27,121 . The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate was set at$26,552 , an increase from the fixed-loss amount in the 2019 fiscal year of$25,743 . For LTCH discharges occurring in cost reporting periods beginning in fiscal year 2020, site neutral payment rate cases began to be paid fully on the site neutral payment rate, rather than the transitional blended rate. However, the CARES Act waived the site neutral payment rate for patients admitted during the COVID-19 emergency period and in response to the public health emergency, as discussed above. Fiscal Year 2021. OnSeptember 18, 2020 , CMS published the final rule updating policies and payment rates for the LTCH-PPS for fiscal year 2021 (affecting discharges and cost reporting periods beginning on or afterOctober 1, 2020 throughSeptember 30, 2021 ). Certain errors in the final rule were corrected in a document publishedDecember 7, 2020 . The standard federal rate was set at$43,755 , an increase from the standard federal rate applicable during fiscal year 2020 of$42,678 . The update to the standard federal rate for fiscal year 2021 included a market basket increase of 2.3% with no productivity adjustment. The standard federal rate also included an area wage budget neutrality factor of 1.0016837. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS was set at$27,195 , an increase from the fixed-loss amount in the 2020 fiscal year of$26,778 . The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate was set at$29,064 , an increase from the fixed-loss amount in the 2020 fiscal year of$26,552 . Fiscal Year 2022. OnAugust 13, 2021 , CMS published the final rule updating policies and payment rates for the LTCH-PPS for fiscal year 2022 (affecting discharges and cost reporting periods beginning on or afterOctober 1, 2021 throughSeptember 30, 2022 ). The standard federal rate was set at$44,714 , an increase from the standard federal rate applicable during fiscal year 2021 of$43,755 . The update to the standard federal rate for fiscal year 2022 included a market basket increase of 2.6%, less a productivity adjustment of 0.7%. The standard federal rate also included an area wage budget neutrality factor of 1.002848. As a result of the CARES Act, all LTCH cases are paid at the standard federal rate during the public health emergency. If the public health emergency ends during fiscal year 2022, then CMS will return to using the site-neutral payment rate for reimbursement of cases that do not meet the LTCH patient criteria. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS was set at$33,015 , a significant increase from the fixed-loss amount in the 2021 fiscal year of$27,195 . The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate was set at$30,988 , an increase from the fixed-loss amount in the 2021 fiscal year of$29,064 .
Medicare Reimbursement of IRF Services
The following is a summary of significant regulatory changes to the Medicare prospective payment system for our rehabilitation hospitals, which are certified by Medicare as IRFs, which have affected our results of operations, as well as the policies and payment rates that may affect our future results of operations. Medicare payments to our rehabilitation hospitals are made in accordance with IRF-PPS. Fiscal Year 2020. OnAugust 8, 2019 , CMS published the final rule updating policies and payment rates for the IRF-PPS for fiscal year 2020 (affecting discharges and cost reporting periods beginning on or afterOctober 1, 2019 throughSeptember 30, 2020 ). The standard payment conversion factor for discharges for fiscal year 2020 was set at$16,489 , an increase from the standard payment conversion factor applicable during fiscal year 2019 of$16,021 . The update to the standard payment conversion factor for fiscal year 2020 included a market basket increase of 2.9%, less a productivity adjustment of 0.4%. CMS decreased the outlier threshold amount for fiscal year 2020 to$9,300 from$9,402 established in the final rule for fiscal year 2019. 63
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Fiscal Year 2021. OnAugust 10, 2020 , CMS published the final rule updating policies and payment rates for the IRF-PPS for fiscal year 2021 (affecting discharges and cost reporting periods beginning on or afterOctober 1, 2020 throughSeptember 30, 2021 ). The standard payment conversion factor for discharges for fiscal year 2021 was set at$16,856 , an increase from the standard payment conversion factor applicable during fiscal year 2020 of$16,489 . The update to the standard payment conversion factor for fiscal year 2021 included a market basket increase of 2.4% with no productivity adjustment. CMS decreased the outlier threshold amount for fiscal year 2021 to$7,906 from$9,300 established in the final rule for fiscal year 2020. Fiscal Year 2022. OnAugust 4, 2021 , CMS published the final rule updating policies and payment rates for the IRF-PPS for fiscal year 2022 (affecting discharges and cost reporting periods beginning on or afterOctober 1, 2021 throughSeptember 30, 2022 ). The standard payment conversion factor for discharges for fiscal year 2022 was set at$17,240 , an increase from the standard payment conversion factor applicable during fiscal year 2021 of$16,856 . The update to the standard payment conversion factor for fiscal year 2022 included a market basket increase of 2.6%, less a productivity adjustment of 0.7%. CMS increased the outlier threshold amount for fiscal year 2022 to$9,491 from$7,906 established in the final rule for fiscal year 2021.
Medicare Reimbursement of Outpatient Rehabilitation Clinic Services
Outpatient rehabilitation providers enroll in Medicare as a rehabilitation agency, a clinic, or a public health agency. The Medicare program reimburses outpatient rehabilitation providers based on the Medicare physician fee schedule. For services provided in 2017 through 2019, a 0.5% update was applied each year to the fee schedule payment rates, subject to an adjustment beginning in 2019 under the MIPS. In 2019, CMS added physical and occupational therapists to the list of MIPS eligible clinicians. For these therapists in private practice, payments under the fee schedule are subject to adjustment in a later year based on their performance in MIPS according to established performance standards. Calendar year 2021 is the first year that payments are adjusted, based upon the therapist's performance under MIPS in 2019. Providers in facility-based outpatient therapy settings are excluded from MIPS eligibility and therefore not subject to this payment adjustment. For services provided in 2020 through 2025, a 0.0% percent update will be applied each year to the fee schedule payment rates, subject to adjustments under MIPS and the APMs. In 2026 and subsequent years, eligible professionals participating in APMs who meet certain criteria would receive annual updates of 0.75%, while all other professionals would receive annual updates of 0.25%. Each year from 2019 through 2024 eligible clinicians who receive a significant share of their revenues through an advanced APM (such as accountable care organizations or bundled payment arrangements) that involves risk of financial losses and a quality measurement component will receive a 5% bonus. The bonus payment for APM participation is intended to encourage participation and testing of new APMs and to promote the alignment of incentives across payors. In the 2020 Medicare physician fee schedule final rule, CMS revised coding, documentation guidelines, and increased the valuation for E/M office visit codes, beginning in 2021. Because the Medicare physician fee schedule is budget-neutral, any revaluation of E/M services that will increase spending by more than$20 million will require a budget neutrality adjustment. To increase values for the E/M codes while maintaining budget neutrality under the fee schedule, CMS cut the values of other codes to make up the difference, beginning in 2021. In the 2021 Medicare physician fee schedule final rule, CMS increased the values for the E/M office visit codes and cuts to other specialty codes to maintain budget neutrality. As a result, therapy services provided in our outpatient rehabilitation clinics received an estimated 3.6% decrease in payment from Medicare in calendar year 2021. The Consolidated Appropriations Act, 2021, provided relief in the form of a one-time 3.75% increase in payments in calendar year 2021 for therapy services and other services paid under the physician fee schedule. In the calendar year 2022 physician fee schedule final rule, CMS announced that Medicare payments for the therapy specialty are expected to decrease 1% in 2022. After CMS issued the final rule,Congress passed the Protecting Medicare and American Farmers from Sequester Cuts Act, which provided in Section 3 a one-time 3% increase in payments in calendar year 2022 to offset most of the 3.75% cut to payments for therapy services and other services paid under the physician fee schedule. In the final rule, CMS also adopted its plan to transition the MIPS program to MVPs. CMS will begin the transition to MVPs in 2023 with an initial set of MVPs in which reporting is voluntary. Beginning in 2026, multispecialty groups must form subgroups to report MVPs. CMS plans to develop more MVPs from 2024 to 2027 and is considering that MVP reporting would become mandatory in 2028. Each MVP would include population health claims-based measures and require clinicians to report on the Promoting Interoperability performance category measures. In addition, MVP participants would select certain quality measures and improvement activities and then report data for such measures and activities. 64
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Modifiers to Identify Services of Physical Therapy Assistants or Occupational
Therapy Assistants
In the Medicare Physician Fee Schedule final rule for calendar year 2019, CMS established two new modifiers (CQ and CO) to identify services furnished in whole or in part by PTAs or OTAs. These modifiers were mandated by the Bipartisan Budget Act of 2018, which requires that claims for outpatient therapy services furnished in whole or part by therapy assistants on or afterJanuary 1, 2020 include the appropriate modifier. In the final 2020 Medicare physician fee schedule rule, CMS clarified that when the physical therapist is involved for the entire duration of the service and the PTA provides skilled therapy alongside the physical therapist, theCQ modifier is not required. Also, when the same service (code) is furnished separately by the physical therapist and PTA, CMS will apply the de minimis standard to each 15-minute unit of codes, not on the total physical therapist and PTA time of the service, allowing the separate reporting, on two different claim lines, of the number of units to which the new modifiers apply and the number of units to which the modifiers do not apply. In the calendar year 2022 physician fee schedule final rule, CMS implemented the final part of the requirements in the Bipartisan Budget Act of 2018 regarding PTA and OTA services. For dates of service on and afterJanuary 1, 2022 , CMS will pay for physical therapy and occupational therapy services provided by PTAs and OTAs at 85% of the otherwise applicable Part B payment amount. CMS also modified the de minimis standard for calendar year 2022. Specifically, CMS will allow a timed service to be billed without theCQ or CO modifier when a PTA or OTA participates in providing care, but the physical therapist or occupational therapist meets the Medicare billing requirements without including the PTA's or OTA's minutes. This occurs when the physical therapist or occupational therapist provides more minutes than the 15-minute midpoint. 65
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Critical Accounting Estimates
Revenue Recognition and Accounts Receivable
Our principal revenue source comes from providing healthcare services to
patients. Patient service revenues are recognized at an amount equal to the
consideration we expect to be entitled to in exchange for providing healthcare
services to our patients. Revenue earned from these services is variable in
nature, as we are required to make judgments that impact the transaction price.
We determine the transaction price for services provided to patients who are Medicare beneficiaries using Medicare's prospective payment systems and other payment methods. The expected payment is determined by the level of clinical services provided and is sensitive to the patient's length of stay. Additionally, we are paid by various other non-Medicare payor sources including, but not limited to, insurance companies (including Medicare Advantage plans), state Medicaid programs, workers' compensation programs, health maintenance organizations, preferred provider organizations, other managed care companies and employers, as well as patients themselves. The transaction price for services provided to non-Medicare patients include amounts prescribed by state and federal fee schedules, negotiated contracted amounts, or usual and customary amounts associated with the specific payor or based on the service provided. We apply a portfolio approach in determining revenues for certain homogeneous non-Medicare patient populations. There is variability in the transaction price for services provided to our patients, as the transaction price is impacted by several factors, such as the patient's condition and length of stay, which in turn impact the payment we expect to receive for providing such services. Variable consideration included in the transaction price is inclusive of our estimates of implicit discounts and other adjustments related to timely filing and documentation denials, out of network adjustments, and medical necessity denials, which are estimated using our historical experience. We are also subject to regular post-payment inquiries, investigations, and audits of the claims we submit for services provided. Some claims can take several years for resolution and may result in adjustments to the transaction price. Management includes in its estimates of the transaction price its expectations for these types of adjustments such that the amount of cumulative revenue recognized will not be subject to significant reversal in future periods. Historically, adjustments arising from a change in the transaction price have not been significant. Our accounts receivable is reported at an amount equal to the amount we expect to collect for providing healthcare services to our patients. Because our accounts receivable is typically paid for by highly-solvent, creditworthy payors, such as Medicare, other governmental programs, and highly-regulated commercial insurers on behalf of the patient, our credit losses are infrequent and insignificant in nature; as such, we generally do not recognize allowances for expected credit losses. Insurance Risk Programs Under a number of our insurance programs, which include our employee health insurance, workers' compensation, and professional malpractice liability insurance programs, we are liable for a portion of our losses before we can attempt to recover from the applicable insurance carrier. We accrue for losses under an occurrence-based approach, whereby we estimate the losses that will be incurred in a respective accounting period. The estimate of losses includes actuarial loss projections of both known claims and incurred but not reported claims. These estimates are based on specific claim facts, claim frequency and severity, payment patterns for historical claims, and estimates of fees for outside counsel. In addition to the actuarial loss projections, insurance premiums and out-of-pocket expenses for the administration and analysis of claims are included in the estimate of losses accrued in a respective accounting period. We monitor these programs quarterly and revise our estimates as necessary to take into account additional information. We recorded a liability of$173.6 million and$173.5 million for our estimated losses under these insurance programs atDecember 31, 2020 and 2021, respectively. We also recorded insurance proceeds receivable of$13.0 million and$14.5 million atDecember 31, 2020 and 2021, respectively, for liabilities which exceed our deductibles and self-insured retention limits and are recoverable through our insurance policies. 66
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We operate four reporting units which include the critical illness recovery hospital reporting unit, the rehabilitation hospital reporting unit, the outpatient rehabilitation reporting unit, and theConcentra reporting unit. We assign goodwill to our reporting units based upon the specific nature of the business acquired or, when a business combination contains business components related to more than one reporting unit, goodwill is assigned to each reporting unit based upon an allocation determined by the relative fair values of the business acquired. When we dispose of a business, we allocate a portion of the reporting unit's goodwill to that business based on the relative fair values of the portion of the reporting unit being disposed of and the portion of the reporting unit remaining. We evaluate our reporting units on an annual basis and, if our reporting units are reorganized, we reassign goodwill based on the relative fair values of the new reporting units. We perform an annual goodwill impairment assessment for each of our reporting units as ofOctober 1 or when events or conditions occur that might suggest a possible impairment. Events or conditions which might suggest impairment could include a significant change in the business environment, the regulatory environment, or legal factors; a current period operating or cash flow loss combined with a history of such losses or a projection of continuing losses; or a sale or disposition of a significant portion of a reporting unit. We first assess qualitative factors for each of our reporting units when performing our annual impairment assessment. In performing the qualitative assessment, we apply judgment in determining the events and circumstances that most affect the fair value of the reporting unit and in evaluating the significance of those identified events and circumstances in order to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. As part of our assessments, we considered (i) the relationship between the reporting unit's excess fair value over its carrying amount from the most recent quantitative impairment test, (ii) industry and market conditions, including the impacts of the COVID-19 pandemic, (iii) our historical financial performance, including our revenue, earnings, and operating cash flow growth trends, (iv) our forecasts of revenue, earnings, and operating cash flows, (v) cost factors, including the effects of inflation and rising prices, (vi) the regulatory environment, including reimbursement and compliance requirements such as those that exist under the Medicare program, (vii) other factors specific to each reporting unit, such as a change in strategy, a change in management, or acquisitions and divestitures affecting the composition of the reporting unit and its future operating results, and (viii) consideration of changes in our market capitalization. Historically, each reporting unit's fair value has significantly exceeded its carrying value. We have recorded total goodwill of$3.4 billion atDecember 31, 2021 , of which$1.1 billion related to our critical illness recovery hospital reporting unit,$442.2 million related to our rehabilitation hospital reporting unit,$654.1 million related to our outpatient rehabilitation reporting unit, and$1.2 billion related to theConcentra reporting unit.
Our annual assessment, performed as of
goodwill impairment was likely for any of our reporting units. We did not
identify any goodwill impairment events as of
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Operating Statistics
The following table sets forth operating statistics for each of our segments for
the periods presented. The operating statistics reflect data for the period of
time we managed these operations. Our operating statistics include metrics we
believe provide relevant insight about the number of facilities we operate,
volume of services we provide to our patients, and average payment rates for
services we provide. These metrics are utilized by management to monitor trends
and performance in our businesses and therefore may be important to investors
because management may assess our performance based in part on such metrics.
Other healthcare providers may present similar statistics, and these statistics
are susceptible to varying definitions. Our statistics as presented may not be
comparable to other similarly titled statistics of other companies.
For the Year Ended
2019 2020 2021
Critical illness recovery hospital data:
Number of hospitals owned-start of period 96 100 99
Number of hospitals acquired 4 1 6
Number of hospital start-ups - - -
Number of hospitals closed/sold - (2) (1)
Number of hospitals owned-end of period 100 99 104
Number of hospitals managed-end of period 1 - -
Total number of hospitals (all)-end of period 101 99 104
Available licensed beds(1) 4,265 4,362 4,518
Admissions(1)(2) 36,774 37,456 37,921
Patient days(1)(3) 1,038,361 1,111,756 1,133,039
Average length of stay (days)(1)(4) 28 30 30
Revenue per patient day(1)(5) $ 1,753 $ 1,858 $ 1,972
Occupancy rate(1)(6) 68 % 71 % 71 %
Percent patient days-Medicare(1)(7) 51 % 45 % 38 %
Rehabilitation hospital data:
Number of hospitals owned-start of period 17 19 19
Number of hospitals acquired - 1 1
Number of hospital start-ups 2 - -
Number of hospitals closed/sold - (1) -
Number of hospitals owned-end of period 19 19 20
Number of hospitals managed-end of period 10 11 10
Total number of hospitals (all)-end of period 29 30 30
Available licensed beds(1) 1,309 1,311 1,361
Admissions(1)(2) 24,889 25,081 28,868
Patient days(1)(3) 353,031 370,833 414,701
Average length of stay (days)(1)(4) 14 15 14
Revenue per patient day(1)(5) $ 1,685 $ 1,793 $ 1,868
Occupancy rate(1)(6) 76 % 78 % 83 %
Percent patient days-Medicare(1)(7) 52 % 48 % 49 %
Outpatient rehabilitation data:
Number of clinics owned-start of period 1,423 1,461 1,503
Number of clinics acquired 31 17 33
Number of clinic start-ups 57 55 53
Number of clinics closed/sold (50) (30) (17)
Number of clinics owned-end of period 1,461 1,503 1,572
Number of clinics managed-end of period 279 285 309
Total number of clinics (all)-end of period 1,740 1,788 1,881
Number of visits(1)(8) 8,719,282 7,593,344 9,193,624
Revenue per visit(1)(9) $ 103 $ 104 $ 102
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For the Year Ended
2019 2020 2021
Concentra data:
Number of centers owned-start of period 524 521 517
Number of centers acquired 6 6 6
Number of center start-ups - 1 2
Number of centers closed/sold (9) (11) (7)
Number of centers owned-end of period 521 517 518
Number of onsite clinics operated-end of period 131 134 134
Number of CBOCs owned-end of period 32 - -
Number of visits(1)(8) 12,068,865 10,627,904 12,052,724
Revenue per visit(1)(9) $ 122 $ 123 $ 125
_______________________________________________________________________________
(1)Data excludes locations managed by the Company. For purposes of ourConcentra segment, onsite clinics and community-based outpatient clinics ("CBOCs") are excluded.
(2)Represents the number of patients admitted to our hospitals during the
periods presented.
(3)Each patient day represents one patient occupying one bed for one day during
the periods presented.
(4)Represents the average number of days in which patients were admitted to our hospitals. Average length of stay is calculated by dividing the number of patient days, as presented above, by the number of patients discharged from our hospitals during the periods presented. (5)Represents the average amount of revenue recognized for each patient day. Revenue per patient day is calculated by dividing patient service revenues, excluding revenues from certain other ancillary and outpatient services provided at our hospitals, by the total number of patient days. (6)Represents the portion of our hospitals being utilized for patient care during the periods presented. Occupancy rate is calculated using the number of patient days, as presented above, divided by the total number of bed days available during the period. Bed days available is derived by adding the daily number of available licensed beds for each of the periods presented. (7)Represents the portion of our patient days which are paid by Medicare. The Medicare patient day percentage is calculated by dividing the total number of patient days which are paid by Medicare by the total number of patient days, as presented above.
(8)Represents the number of visits in which patients were treated at our
outpatient rehabilitation clinics and
presented.
(9)Represents the average amount of revenue recognized for each patient visit. Revenue per visit is calculated by dividing patient service revenue, excluding revenues from certain other ancillary services, by the total number of visits. For purposes of this computation for ourConcentra segment, patient service revenue does not include onsite clinics and CBOCs. 69
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Results of Operations
The following table outlines selected operating data as a percentage of revenue
for the periods indicated:
For the Year Ended
2019 2020 2021 Revenue 100.0 % 100.0 % 100.0 % Costs and expenses: Cost of services, exclusive of depreciation and amortization(1) 85.1 85.2 85.2 General and administrative 2.4 2.5 2.4 Depreciation and amortization 3.8 3.6 3.2 Total costs and expenses 91.3 91.3 90.8 Other operating income - 1.6 2.3 Income from operations 8.7 10.3 11.5 Loss on early retirement of debt (0.7) - - Equity in earnings of unconsolidated subsidiaries 0.5 0.5 0.7 Gain on sale of businesses 0.1 0.2 - Interest income - - 0.1 Interest expense (3.7) (2.7) (2.2) Income before income taxes 4.9 8.3 10.1 Income tax expense 1.2 2.1 2.0 Net income 3.7 6.2 8.1 Net income attributable to non-controlling interests 1.0 1.5 1.6
Net income attributable to
Corporation
2.7 % 4.7 % 6.5 %
_______________________________________________________________________________
(1)Cost of services includes salaries, wages and benefits, operating supplies,
lease and rent expense, and other operating costs.
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The following table summarizes selected financial data by segment for the
periods indicated:
Year Ended December 31,
% Change % Change
2019 2020 2021 2019 - 2020 2020 - 2021
(in thousands, except percentages)
Revenue:
Critical illness recovery hospital $ 1,836,518 $ 2,077,499 $ 2,246,772 13.1 % 8.1 %
Rehabilitation hospital 670,971 734,673 849,340 9.5 15.6
Outpatient rehabilitation 1,046,011 919,913 1,084,361 (12.1) 17.9
Concentra 1,628,817 1,501,434 1,732,041 (7.8) 15.4
Other(1) 271,605 298,194 292,001 9.8 (2.1)
Total Company $ 5,453,922 $ 5,531,713 $ 6,204,515 1.4 % 12.2 %
Income (loss) from operations:
Critical illness recovery hospital(2) $ 204,105 $ 290,896 $ 214,899 42.5 % (26.1) %
Rehabilitation hospital 108,535 125,476 157,027 15.6 25.1
Outpatient rehabilitation 123,530 50,155 108,683 (59.4) 116.7
Concentra(2) 176,606 162,515 305,264 (8.0) 87.8
Other(1)(2) (140,895) (61,385) (72,099) N/M N/M
Total Company $ 471,881 $ 567,657 $ 713,774 20.3 % 25.7 %
Adjusted EBITDA:
Critical illness recovery hospital(2) $ 254,868 $ 342,427 $ 267,993 34.4 % (21.7) %
Rehabilitation hospital 135,857 153,203 184,704 12.8 20.6
Outpatient rehabilitation 151,831 79,164 138,275 (47.9) 74.7
Concentra(2) 276,482 252,892 389,616 (8.5) 54.1
Other(1)(2) (108,130) (27,120) (33,229) N/M N/M
Total Company $ 710,908 $ 800,566 $ 947,359 12.6 % 18.3 %
Adjusted EBITDA margins:
Critical illness recovery hospital(2) 13.9 % 16.5 % 11.9 %
Rehabilitation hospital 20.2 20.9 21.7
Outpatient rehabilitation 14.5 8.6 12.8
Concentra(2) 17.0 16.8 22.5
Other(1)(2) N/M N/M N/M
Total Company 13.0 % 14.5 % 15.3 %
Total assets:
Critical illness recovery hospital $ 2,099,833 $ 2,213,892 $ 2,304,116
Rehabilitation hospital 1,127,028 1,148,617 1,194,136
Outpatient rehabilitation 1,289,190 1,302,110 1,348,316
Concentra 2,372,187 2,400,646 2,275,345
Other(1) 452,050 590,134 238,258
Total Company $ 7,340,288 $ 7,655,399 $ 7,360,171
Purchases of property and equipment:
Critical illness recovery hospital $ 45,573 $ 49,726 $ 65,690
Rehabilitation hospital 27,216 7,571 13,003
Outpatient rehabilitation 33,628 28,876 36,301
Concentra 44,101 50,114 46,787
Other(1) 6,608 10,153 18,756
Total Company $ 157,126 $ 146,440 $ 180,537
_______________________________________________________________________________
(1)Other includes our corporate administration and shared services, as well as employee leasing services with our non-consolidating subsidiaries. Total assets include certain non-consolidating joint ventures and minority investments in other healthcare related businesses. (2)For the years endedDecember 31, 2021 and 2020, we recognized other operating income of$144.0 million and$90.0 million , respectively. We did not recognize other operating income during the year endedDecember 31, 2019 . The impact of this income on the operating results of our segments and other activities is outlined within the tables presented under "Summary Financial Results." N/M - Not meaningful. 71
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Year Ended
In the following, we discuss our results of operations related to revenue, operating expenses, other operating income, Adjusted EBITDA, depreciation and amortization, income from operations, equity in earnings of unconsolidated subsidiaries, gain on sale of businesses, interest, income taxes, and net income attributable to non-controlling interests.
Please refer to "Effects of the COVID-19 Pandemic on our Results of Operations"
above for further discussion.
Revenue
Our revenue increased 12.2% to
2021
Critical Illness Recovery Hospital Segment. Revenue increased 8.1% to$2,246.8 million for the year endedDecember 31, 2021 , compared to$2,077.5 million for the year endedDecember 31, 2020 . The increase in revenue was principally due to an increase in revenue per patient day during the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2020 . Revenue per patient day increased 6.1% to$1,972 for the year endedDecember 31, 2021 , compared to$1,858 for the year endedDecember 31, 2020 . We experienced increases in both our non-Medicare and Medicare revenue per patient day during the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 . Occupancy in our critical illness recovery hospitals was 71% for both the years endedDecember 31, 2021 and 2020. Our patient days increased 1.9% to 1,133,039 patient days for the year endedDecember 31, 2021 , compared to 1,111,756 patient days for the year endedDecember 31, 2020 . Our patient days for the year endedDecember 31, 2021 were positively impacted by the acquisition of seven hospitals during 2020 and 2021, as well as the reopening of our Panama City hospital inJuly 2020 . These hospitals contributed 48,239 patient days during the year endedDecember 31, 2021 , as compared to 9,670 patient days during the year endedDecember 31, 2020 . Rehabilitation Hospital Segment. Revenue increased 15.6% to$849.3 million for the year endedDecember 31, 2021 , compared to$734.7 million for the year endedDecember 31, 2020 . The increase in revenue resulted from increases in both patient volume and revenue per patient day during the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2020 . Occupancy in our rehabilitation hospitals increased to 83% for the year endedDecember 31, 2021 , compared to 78% for the year endedDecember 31, 2020 . Our patient days increased 11.8% to 414,701 days for the year endedDecember 31, 2021 , compared to 370,833 days for the year endedDecember 31, 2020 . Our patient volume during the year endedDecember 31, 2020 was adversely affected within our rehabilitation hospitals inNew Jersey andSouth Florida that temporarily restricted their admissions as a result of the COVID-19 pandemic. Certain of our rehabilitation hospitals also experienced lower patient volume due to the suspension of elective surgeries at hospitals and other facilities, which consequently reduced the demand for inpatient rehabilitation services during the year endedDecember 31, 2020 . Our revenue per patient day increased 4.2% to$1,868 for the year endedDecember 31, 2021 , compared to$1,793 for the year endedDecember 31, 2020 . We experienced increases in both our Medicare and non-Medicare revenue per patient day during the year endedDecember 31, 2021 , compared to the year endedDecember 31, 2020 . Outpatient Rehabilitation Segment. Revenue increased 17.9% to$1,084.4 million for the year endedDecember 31, 2021 , compared to$919.9 million for the year endedDecember 31, 2020 . The increase in revenue was attributable to an increase in visits, which increased 21.1% to 9,193,624 for the year endedDecember 31, 2021 , compared to 7,593,344 visits for the year endedDecember 31, 2020 . During the year endedDecember 31, 2020 , our outpatient rehabilitation clinics experienced significant declines in patient visit volume due to fewer patient referrals from physicians, a reduction in workers' compensation injury visits due to the closure of businesses, the suspension of elective surgeries at hospitals and other facilities which resulted in less demand for outpatient rehabilitation services, and social distancing practices resulting from the COVID-19 pandemic. Our revenue per visit was$102 for the year endedDecember 31, 2021 , compared to$104 for the year endedDecember 31, 2020 . During the year endedDecember 31, 2020 , we experienced changes in our payor mix as our patient volume declined from the effects of the COVID-19 pandemic. These changes caused our revenue per visit to increase. As our patient volume increased during the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2020 , our payor mix began to normalize and is now more closely aligned with the mix experienced during the months prior to the widespread emergence of COVID-19 inthe United States . 72
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Concentra Segment. Revenue increased 15.4% to$1,732.0 million for the year endedDecember 31, 2021 , compared to$1,501.4 million for the year endedDecember 31, 2020 . Our patient visits, which increased 13.4% to 12,052,724 for the year endedDecember 31, 2021 , compared to 10,627,904 visits for the year endedDecember 31, 2020 , contributed to the increase in revenue. During the year endedDecember 31, 2020 , our centers experienced significant declines in patient visit volume due to employers furloughing their workforce and temporarily ceasing or significantly reducing their operations. Although we experienced temporary disruptions in our core businesses as a result of the COVID-19 pandemic, we were able to expand our services to provide COVID-19 screening and testing services. These services contributed$137.6 million of revenue during the year endedDecember 31, 2021 , compared to$62.0 million during the year endedDecember 31, 2020 . During the year endedDecember 31, 2021 , our revenue per visit increased to$125 , compared to$123 for the year endedDecember 31, 2020 . We experienced a higher revenue per visit due to increases in the reimbursement rates payable pursuant to certain state fee schedules for workers' compensation visits, as well as increases in our employer services rates, during the year endedDecember 31, 2021 . The increase in revenue per visit was offset partially by a greater percentage of employer services visits, which yield lower per visit rates. Additionally, the sale ofConcentra's Department of Veterans Affairs community-based outpatient clinic business onSeptember 1, 2020 contributed to the change in revenue. TheConcentra segment recognized$58.3 million of revenue related to this business during the year endedDecember 31, 2020 .
Operating Expenses
Our operating expenses consist principally of cost of services and general and administrative expenses. Our operating expenses were$5,432.1 million , or 87.6% of revenue, for the year endedDecember 31, 2021 , compared to$4,848.4 million , or 87.7% of revenue, for the year endedDecember 31, 2020 . Our cost of services, a major component of which is labor expense, was$5,285.1 million , or 85.2% of revenue, for the year endedDecember 31, 2021 , compared to$4,710.4 million , or 85.2% of revenue, for the year endedDecember 31, 2020 . General and administrative expenses were$147.0 million , or 2.4% of revenue, for the year endedDecember 31, 2021 , compared to$138.0 million , or 2.5% of revenue, for the year endedDecember 31, 2020 . Other Operating Income
Other operating income was
compared to
For the year endedDecember 31, 2021 ,$123.8 million of other operating income is related to the recognition of payments received under theProvider Relief Fund for health care related expenses and lost revenues attributable to COVID-19.$89.1 million and$34.7 million of this other operating income is included within the operating results of our other activities andConcentra segment, respectively. For the year endedDecember 31, 2021 ,$19.9 million of other operating income is related to the outcome of litigation with CMS and is included in the operating results of our critical illness recovery hospital segment. For the year endedDecember 31, 2020 , the other operating income of$90.0 million is related to the recognition of payments received under theProvider Relief Fund for health care related expenses and lost revenues attributable to COVID-19.$88.9 million and$1.1 million of other operating income is included within the operating results of our other activities andConcentra segment, respectively.
Adjusted EBITDA
Critical Illness Recovery Hospital Segment. Adjusted EBITDA was$268.0 million for the year endedDecember 31, 2021 , compared to$342.4 million for the year endedDecember 31, 2020 . Our Adjusted EBITDA margin for the critical illness recovery hospital segment was 11.9% for the year endedDecember 31, 2021 , compared to 16.5% for the year endedDecember 31, 2020 . Our Adjusted EBITDA and Adjusted EBITDA margin for the year endedDecember 31, 2021 were adversely affected by the incurrence of additional operating expenses, particularly labor costs, as a result of the effects of the COVID-19 pandemic. Constrained staffing due to a shortage of healthcare workers, increased dependence on contract clinical workers, the loss of unvaccinated employees in jurisdictions requiring vaccination, and other factors described further under "Effects of the COVID-19 Pandemic on our Results of Operations" have contributed to the increased labor costs. The decrease in Adjusted EBITDA for our critical illness recovery hospital segment was offset in part by the recognition of$19.9 million of other operating income related to the outcome of litigation with CMS during the year endedDecember 31, 2021 , as described further above under "Other Operating Income." 73
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Rehabilitation Hospital Segment. Adjusted EBITDA increased 20.6% to$184.7 million for the year endedDecember 31, 2021 , compared to$153.2 million for the year endedDecember 31, 2020 . Our Adjusted EBITDA margin for the rehabilitation hospital segment was 21.7% for the year endedDecember 31, 2021 , compared to 20.9% for the year endedDecember 31, 2020 . The increase in Adjusted EBITDA was driven by increases in both patient volume and revenue per patient day, as discussed further under "Revenue," with the most significant increases occurring in our rehabilitation hospitals inNew Jersey andSouth Florida that temporarily restricted their admissions as a result of the COVID-19 pandemic during the year endedDecember 31, 2020 . Our Adjusted EBITDA and Adjusted EBITDA margin for our rehabilitation hospital segment have been affected by the incurrence of additional operating expenses which are due in part to the effects of the COVID-19 pandemic. Our rehabilitation hospitals have experienced increased usage of contract clinical labor during the year endedDecember 31, 2021 and the cost of this labor has risen significantly due to the demand for healthcare professionals. Outpatient Rehabilitation Segment. Adjusted EBITDA increased 74.7% to$138.3 million for the year endedDecember 31, 2021 , compared to$79.2 million for the year endedDecember 31, 2020 . Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 12.8% for the year endedDecember 31, 2021 , compared to 8.6% for the year endedDecember 31, 2020 . The increases in Adjusted EBITDA and Adjusted EBITDA margin were driven by increases in patient visit volume. During the year endedDecember 31, 2020 , our outpatient rehabilitation clinics experienced significant declines in patient visit volume as a result of the effects of the COVID-19 pandemic, as described further above. Concentra Segment. Adjusted EBITDA increased 54.1% to$389.6 million for the year endedDecember 31, 2021 , compared to$252.9 million for the year endedDecember 31, 2020 . Our Adjusted EBITDA margin for theConcentra segment was 22.5% for the year endedDecember 31, 2021 , compared to 16.8% for the year endedDecember 31, 2020 . The increase in patient visit volume contributed to the increases in Adjusted EBITDA and Adjusted EBITDA margin. As described further above, ourConcentra segment experienced significant declines in patient visit volume as a result of the effects of the COVID-19 pandemic during the year endedDecember 31, 2020 . The increases in Adjusted EBITDA and Adjusted EBITDA margin were also due in part to the COVID-19 screening and testing services provided at our centers and various onsite clinics located at employer worksites, as discussed further under "Revenue." We incur lower operating expenses associated with these services as compared to our core services. OurConcentra segment also recognized$35.0 million of other operating income during the year endedDecember 31, 2021 , as described further above under "Other Operating Income," compared to$1.1 million for the year endedDecember 31, 2020 .
Depreciation and Amortization
Depreciation and amortization expense was
2020
Income from Operations For the year endedDecember 31, 2021 , we had income from operations of$713.8 million , compared to$567.7 million for the year endedDecember 31, 2020 . The improved operating performance of ourConcentra , outpatient rehabilitation, and rehabilitation hospital segments contributed to the increase in income from operations. We also recognized other operating income of$144.0 million during the year endedDecember 31, 2021 , as described further under "Other Operating Income," compared to$90.0 million for the year endedDecember 31, 2020 .
Equity in Earnings of Unconsolidated Subsidiaries
For the year endedDecember 31, 2021 , we had equity in earnings of unconsolidated subsidiaries of$44.4 million , compared to$29.4 million for the year endedDecember 31, 2020 . The increase in equity in earnings is principally due to the improved operating performance of our rehabilitation businesses in which we are a minority owner.
Gain on Sale of Businesses
We recognized a gain of
The gain resulted from the sale of a
We recognized gains of$12.4 million during the year endedDecember 31, 2020 . During the year endedDecember 31, 2020 , we sold an outpatient rehabilitation business, a rehabilitation hospital business, andConcentra's Department of Veterans Affairs community-based outpatient clinic business. These sales resulted in gains of approximately$21.4 million . We also incurred a loss of$9.0 million related to an indemnity claim associated with a previously sold business. 74
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Interest
Interest expense was
compared to
interest expense was principally due to a decline in variable interest rates.
For the year ended
million
Income Taxes
We recorded income tax expense of$129.8 million for the year endedDecember 31, 2021 , which represented an effective tax rate of 20.6%. We recorded income tax expense of$111.9 million for the year endedDecember 31, 2020 , which represented an effective tax rate of 24.5%. The decrease in the effective tax rate resulted from lower state and local effective tax rates and tax credits.
Refer to Note 19 - Income Taxes of the notes to our consolidated financial
statements included herein for the reconciliations of the statutory federal
income tax rate to our effective income rate for the years ended
2021
Net Income Attributable to Non-Controlling Interests
Net income attributable to non-controlling interests was$97.7 million for the year endedDecember 31, 2021 , compared to$85.6 million for the year endedDecember 31, 2020 . The increase in net income attributable to non-controlling interests was principally due to an increase in the net income of ourConcentra segment during the year endedDecember 31, 2021 . This increase resulted primarily from its improved operating performance and the recognition of$35.0 million of other operating income, as described further above, during the year endedDecember 31, 2021 , as compared to$1.1 million for the year endedDecember 31, 2020 . 75
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Liquidity and Capital Resources
Cash Flows for the Years Ended
In the following, we discuss cash flows from operating activities, investing
activities, and financing activities.
For the
Year Ended
2019 2020 2021
Cash flows provided by operating activities $ 445,182 $ 1,028,073 $ 401,228
Cash flows used in investing activities (316,729) (115,353) (256,594)
Cash flows provided by (used in) financing
activities 32,251 (671,541) (647,385)
Net increase (decrease) in cash and cash
equivalents 160,704 241,179 (502,751)
Cash and cash equivalents at beginning of period 175,178 335,882 577,061
Cash and cash equivalents at end of period $ 335,882
Operating activities provided$401.2 million ,$1,028.1 million , and$445.2 million of cash flows for the years endedDecember 31, 2021 , 2020, and 2019, respectively. During the year endedDecember 31, 2020 , we experienced an increase in cash flows provided by operating activities as a result of receiving approximately$318.1 million of advance payments under the Accelerated and Advance Payment Program, as well as approximately$172.6 million of payments under theProvider Relief Fund . During the year endedDecember 31, 2021 , we received an additional$43.1 million of payments under theProvider Relief Fund . Our repayment of the advance payments received under the Accelerated and Advance Payment Program began inApril 2021 . We experienced strong operating cash flows for the year endedDecember 31, 2021 despite CMS recouping$241.2 million of Medicare payments during this period. Refer to Note 22 - CARES Act of the notes to our consolidated financial statements included herein for further information regarding the CARES Act, including the recoupment provisions associated with the Accelerated and Advance Payment Program.
Our days sales outstanding was 52 days at
will fluctuate based upon variability in our collection cycles and patient
volumes.
Investing activities used$256.6 million ,$115.4 million and$316.7 million of cash flows for the years endedDecember 31, 2021 , 2020, and 2019, respectively. For the year endedDecember 31, 2021 , the principal uses of cash were$180.5 million for purchases of property and equipment and$102.9 million for investments in and acquisitions of businesses. The cash outflows were offset in part by proceeds received from the sale of assets and businesses of$26.8 million . For the year endedDecember 31, 2020 , the principal uses of cash were$146.4 million for purchases of property and equipment and$52.2 million for investments in and acquisitions of businesses. We also received proceeds from the sale of assets and business of$83.3 million . For the year endedDecember 31, 2019 , the principal uses of cash were$157.1 million for purchases of property and equipment and$159.8 million for investments in and acquisitions of businesses. Financing activities used$647.4 million of cash flows for the year endedDecember 31, 2021 . The principal use of cash was$660.7 million for the purchase of additional membership interests of Concentra Group Holdings Parent, as discussed above under "Other Significant Events." Other uses of cash included$79.5 million for repurchases of common stock,$73.1 million for distributions to and purchases of non-controlling interests, and$50.6 million of dividend payments to common stockholders. We had borrowings of$160.0 million under our revolving facility. Financing activities used$671.5 million of cash flows for the year endedDecember 31, 2020 . The principal use of cash was$576.4 million for the purchase of additional membership interests of Concentra Group Holdings Parent during the year endedDecember 31, 2020 . We also used$39.8 million of cash for the mandatory prepayment of term loans under our credit facilities. 76
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Financing activities provided$32.3 million of cash flows for the year endedDecember 31, 2019 . The principal sources of cash were from the issuance of$1,225.0 million aggregate principal amount of 6.250% senior notes,$1,115.0 million of incremental term loan borrowings under our credit facilities, and$100.0 million of incremental term loan borrowings under the Concentra-JPM first lien credit agreement. These borrowings provided net financing cash inflows of$2,453.1 million . A portion of the net proceeds of the 6.250% senior notes, together with a portion of the proceeds from the incremental term loan borrowings under our credit facilities, were used by Select to redeem in full its$710.0 million 6.375% senior notes and to make a term loan in an aggregate principal amount of approximately$1,240.3 million toConcentra Inc. Concentra Inc. then repaid its$1,240.3 million term loan outstanding under the Concentra-JPM first lien credit agreement. The proceeds from the incremental term loans under the Concentra-JPM first lien credit agreement were used, in part, to repay the$240.0 million of term loans outstanding under the Concentra-JPM second lien credit agreement. We also used$98.8 million and$33.9 million of cash for mandatory prepayments of term loans outstanding under our credit facilities and the Concentra-JPM first and second lien credit agreements, respectively. During the year endedDecember 31, 2019 , we had net repayments of$20.0 million under our andConcentra Inc.'s revolving facility.
Capital Resources
Working capital. We had net working capital deficit of$133.6 million atDecember 31, 2021 , compared to net working capital of$155.6 million atDecember 31, 2020 . The decrease in our working capital was primarily caused by a reduction in cash resulting from the purchase of additional membership interests of Concentra Group Holdings Parent for$660.7 million onDecember 24, 2021 . Refer to the "Liquidity" section below for additional discussion regarding our ability to finance our operations in the short term. A significant component of our net working capital is our accounts receivable. Collection of these accounts receivable is our primary source of cash and is critical to our liquidity and capital resources. Most of our patients are subject to healthcare coverage through third party payor arrangements, including Medicare and Medicaid. It is our general policy to verify healthcare coverage prior to providing services. We have credit risk associated with our accounts receivable; however, we believe there is a remote possibility of default with these payors. Credit facilities. OnJune 2, 2021 , Select entered into Amendment No. 5 to its credit agreement which, among other things, increased the aggregate commitments available under our revolving facility from$450.0 million to$650.0 million , including a$125.0 million sublimit for the issuance of standby letters of credit. AtDecember 31, 2021 , Select had outstanding borrowings under its credit facilities consisting of a$2,103.4 million term loan (excluding unamortized original issue discounts and debt issuance costs of$13.3 million ). AtDecember 31, 2021 , Select had$434.7 million of availability under its revolving facility after giving effect to$160.0 million of outstanding borrowings and$55.3 million of outstanding letters of credit. On the last day of each calendar quarter, Select is required to pay each lender a commitment fee in respect of any unused commitments under the revolving facility, which is currently 0.375% per annum and subject to adjustment based on Select's leverage ratio, as specified in the credit agreement.
As of
indebtedness to consolidated EBITDA for the prior four consecutive fiscal
quarters), which is required to be maintained at less than 7.00 to 1.00 under
the terms of the revolving facility, was 3.77 to 1.00.
Our credit facilities also contain a number of other affirmative and restrictive covenants, including limitations on mergers, consolidations and dissolutions; sales of assets; investments and acquisitions; indebtedness; liens; affiliate transactions; and dividends and restricted payments. Our credit facilities contain events of default for non-payment of principal and interest when due (subject, as to interest, to a grace period), cross-default and cross-acceleration provisions and an event of default that would be triggered by a change of control. 6.250% senior notes. AtDecember 31, 2021 , Select had$1,225.0 million of 6.250% senior notes outstanding (excluding the unamortized premium and debt issuance costs of$13.7 million ). The terms of the senior notes contains covenants that, among other things, limit Select's ability and the ability of certain of Select's subsidiaries to (i) grant liens on its assets, (ii) make dividend payments, other distributions or other restricted payments, (iii) incur restrictions on the ability of Select's restricted subsidiaries to pay dividends or make other payments, (iv) enter into sale and leaseback transactions, (v) merge, consolidate, transfer or dispose of substantially all of their assets, (vi) incur additional indebtedness, (vii) make investments, (viii) sell assets, including capital stock of subsidiaries, (ix) use the proceeds from sales of assets, including capital stock of restricted subsidiaries, and (x) enter into transactions with affiliates. These covenants are subject to a number of exceptions, limitations and qualifications. 77
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Concentra-JPM First Lien Credit Agreement. OnJune 2, 2021 ,Concentra Inc. terminated its obligations under the Concentra-JPM first lien credit agreement. The Concentra-JPM first lien credit agreement provided for commitments of$100.0 million underConcentra Inc.'s revolving facility, which was set to mature onMarch 1, 2022 . Stock Repurchase Program. Holdings' board of directors previously authorized a common stock repurchase program to repurchase up to$500.0 million worth of shares of its common stock. OnNovember 2, 2021 , the board of directors increased the capacity of the program from$500.0 million to$1.0 billion worth of shares and the program has been extended untilDecember 31, 2023 . The common stock repurchase program will remain in effect until then, unless further extended or earlier terminated by the board of directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Holdings deems appropriate. Holdings funds this program with cash on hand and borrowings under its revolving facility. During the year endedDecember 31, 2021 , Holdings repurchased 1,770,720 shares at a cost of approximately$58.6 million , or$33.09 per share, which includes transaction costs. Since the inception of the program throughDecember 31, 2021 , Holdings has repurchased 40,351,628 shares at a cost of approximately$415.2 million , or$10.29 per share, which includes transaction costs. Use of Capital Resources. We may from time to time pursue opportunities to develop new joint venture relationships with large, regional health systems and other healthcare providers. We also intend to open new outpatient rehabilitation clinics and occupational health centers in local areas that we currently serve where we can benefit from existing referral relationships and brand awareness to produce incremental growth. In addition to our development activities, we may grow through opportunistic acquisitions.
Liquidity
The duration and extent of the impact from the COVID-19 pandemic on our operations and liquidity depends on future developments that cannot be accurately predicted at this time; however, we believe our internally generated cash flows and borrowing capacity under our revolving facility will allow us to finance our operations in both the short and long term. As ofDecember 31, 2021 , we had cash and cash equivalents of$74.3 million and$434.7 million of availability under our revolving facility, after giving effect to$160.0 million of outstanding borrowings and$55.3 million of outstanding letters of credit.
Our material cash requirements from known contractual and other obligations
include:
i.Debt payments, including finance lease payments - Our expected principal
payments total
twelve months. We intend to refinance our long-term indebtedness before it
matures. Refer to Note 11 - Long-Term Debt and Notes Payable of the notes to our
consolidated financial statements included herein for additional information.
ii.Interest payments - Our expected interest payments on the 6.250% senior notes, term loan, and revolving facility total$526.8 million , with$132.4 million payable within the next twelve months. Interest payments for the 6.250% senior notes were calculated using the stated interest rate. Interest payments for the term loan and revolving facility were estimated using the average interest rates for the year endedDecember 31, 2021 , which were 2.5% and 2.6%, respectively. Our interest rate is indexed against 1-month LIBOR, which was less than 1.0% atDecember 31, 2021 . Our interest rate cap limits our 1-month LIBOR rate to 1.0% on$2.0 billion of principal outstanding under the term loan and applies to interest payments from and includingApril 30, 2021 throughSeptember 30, 2024 . We will receive payments from the counterparty when 1-month LIBOR rises above 1.0%. We pay an annual premium equal to 0.0916% on the notional amount to the counterparty. iii.Operating lease payments - Our expected operating lease payments total$1,490.1 million , with$284.4 million payable within the next twelve months. Refer to Note 6 - Leases of the notes to our consolidated financial statements included herein for additional information. iv.Purchase and construction commitments - Our expected payments related to purchase and construction obligations total$207.7 million , with$101.9 million payable within the next twelve months. Our purchase obligations primarily relate to software licensing and support agreements which specify all significant contractual terms and are legally binding and enforceable. Our construction commitments are described further in Note 21 - Commitments and Contingencies. v.Insurance liabilities - Our expected payments related to our insurance liabilities, including those for workers' compensation and professional malpractice liabilities, total$173.5 million , with$69.1 million payable within the next twelve months. The amounts payable within the next twelve months are recorded in accrued other in the consolidated balance sheet as ofDecember 31, 2021 . The remaining amounts are recorded in other non-current liabilities. 78
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vi.Other current liabilities recorded in the consolidated balance sheet as ofDecember 31, 2021 , such as accounts payable, accrued expenses, and government advances received under the Accelerated and Advance Payment Program, which are not specifically identified above. We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, tender offers or otherwise. Such repurchases or exchanges, if any, may be funded from operating cash flows or other sources and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Recent Accounting Pronouncements
Refer to Note 1 - Organization and Significant Accounting Policies of the notes
to our consolidated financial statements included herein for information
regarding recent accounting pronouncements.
UNIVERSAL HEALTH REALTY INCOME TRUST – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations
LHC GROUP, INC – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations.
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