Encompass Health (EHC) investor relations material

Business outlook and growth strategy

• Strong execution over the past three years and positive outlook driven by aging demographics and supply-demand imbalance in inpatient rehabilitation facilities.

• Expansion plans target both existing and new markets, including North Carolina, South Carolina, Tennessee, Florida, Texas, Connecticut, and states out west.

• Introduction of small-format hospitals to diversify capacity growth, with plans to begin in 2027.

• Accelerated ramp-up for new facilities, with de novos reaching 70% occupancy in 12 months and bed additions ramping even faster.

• Capital investments expected to generate returns above weighted average cost of capital by year three.

Volume trends and capacity management

• Discharge growth moderated in late 2025 due to unit closures, mainly leased units within acute care hospitals, impacting first half 2026 volumes.

• Closures expected to create a 70 basis point drag on discharge growth for 2026, with half mitigated by adding capacity in affected markets.

• Plan to add 500–600 beds annually over the next few years, continuing beyond that.

• Small-format hospitals will operate as remote locations of existing hospitals, leveraging management and insurance contracts.

Payer mix, regulatory environment, and appeals

• Medicare Advantage (MA) penetration nearly doubled from 2019 to 2025, but conversion rates dropped in late 2025 due to policy changes by a major plan.

• Piloting an admit-and-appeal strategy in 10 hospitals for MA patients denied pre-authorization, with early signs of success.

• Appeals process includes expedited review, independent review, ALJ, and further escalation, with historically high win rates on fee-for-service appeals.

• Confident in managing regulatory changes like the TEAM model and RCD expansion, leveraging strong historical performance and quality outcomes.

• RCD expansion into Texas and California expected to be manageable, with affirmation rates above 98% in similar markets.