SELECT MEDICAL : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

You should read this discussion together with our unaudited condensed
consolidated financial statements and accompanying notes.
Forward-Looking Statements
This report on Form 10-Q contains forward-looking statements within the meaning
of the federal securities laws. Statements that are not historical facts,
including statements about our beliefs and expectations, are forward-looking
statements. Forward-looking statements include statements preceded by, followed
by or that include the words "may," "could," "would," "should," "believe,"
"expect," "anticipate," "plan," "target," "estimate," "project," "intend," and
similar expressions. These statements include, among others, statements
regarding our expected business outlook, anticipated financial and operating
results, including the potential impact of the COVID-19 pandemic on those
financial and operating results, our business strategy and means to implement
our strategy, our objectives, the amount and timing of capital expenditures, the
likelihood of our success in expanding our business, financing plans, budgets,
working capital needs, and sources of liquidity.
Forward-looking statements are only predictions and are not guarantees of
performance. These statements are based on our management's beliefs and
assumptions, which in turn are based on currently available information.
Important assumptions relating to the forward-looking statements include, among
others, assumptions regarding our services, the expansion of our services,
competitive conditions, and general economic conditions. These assumptions could
prove inaccurate. Forward-looking statements also involve known and unknown
risks and uncertainties, which could cause actual results to differ materially
from those contained in any forward-looking statement. Many of these factors are
beyond our ability to control or predict. Such factors include, but are not
limited to, the following:
•      developments related to the COVID-19 pandemic including, but not limited

to, the duration and severity of the pandemic, additional measures taken

by government authorities and the private sector to limit the spread of

COVID-19, and further legislative and regulatory actions which impact

       healthcare providers, including actions that may impact the Medicare
       program;

• changes in government reimbursement for our services and/or new payment

policies may result in a reduction in net operating revenues, an increase

       in costs, and a reduction in profitability;


•      the failure of our Medicare-certified long term care hospitals or
       inpatient rehabilitation facilities to maintain their Medicare

certifications may cause our net operating revenues and profitability to

       decline;


•      the failure of our Medicare-certified long term care hospitals and
       inpatient rehabilitation facilities operated as "hospitals within

hospitals" to qualify as hospitals separate from their host hospitals may

cause our net operating revenues and profitability to decline;

• a government investigation or assertion that we have violated applicable

regulations may result in sanctions or reputational harm and increased

costs;

• acquisitions or joint ventures may prove difficult or unsuccessful, use

significant resources, or expose us to unforeseen liabilities;

• our plans and expectations related to our acquisitions and our ability to

realize anticipated synergies;

• private third-party payors for our services may adopt payment policies

that could limit our future net operating revenues and profitability;

• the failure to maintain established relationships with the physicians in

       the areas we serve could reduce our net operating revenues and
       profitability;

• shortages in qualified nurses, therapists, physicians, or other licensed

providers, or the inability to attract or retain healthcare professionals

due to the heightened risk of infection related to the COVID-19 pandemic,

could increase our operating costs significantly or limit our ability to

staff our facilities;

• competition may limit our ability to grow and result in a decrease in our

net operating revenues and profitability;

• the loss of key members of our management team could significantly disrupt

our operations;

• the effect of claims asserted against us could subject us to substantial

       uninsured liabilities;


•      a security breach of our or our third-party vendors' information

technology systems may subject us to potential legal and reputational harm

       and may result in a violation of the Health Insurance Portability and
       Accountability Act of 1996 or the Health Information Technology for
       Economic and Clinical Health Act; and



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• other factors discussed from time to time in our filings with the SEC,

including factors discussed under the heading "Risk Factors" in our Annual

Report on Form 10-K for the year ended December 31, 2019, as such risk

factors may be updated from time to time in our periodic filings with the

SEC, including the risk factors discussed in Item 1A. Risk Factors on this

Form 10-Q.

Except as required by applicable law, including the securities laws of the
United States and the rules and regulations of the SEC, we are under no
obligation to publicly update or revise any forward-looking statements, whether
as a result of any new information, future events, or otherwise. You should not
place undue reliance on our forward-looking statements. Although we believe that
the expectations reflected in forward-looking statements are reasonable, we
cannot guarantee future results or performance.
Investors should also be aware that while we do, from time to time, communicate
with securities analysts, it is against our policy to disclose to securities
analysts any material non-public information or other confidential commercial
information. Accordingly, stockholders should not assume that we agree with any
statement or report issued by any securities analyst irrespective of the content
of the statement or report. Thus, to the extent that reports issued by
securities analysts contain any projections, forecasts or opinions, such reports
are not the responsibility of the Company.
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 in
the United States. As of March 31, 2020, we had operations in 47 states and the
District of Columbia. We operated 101 critical illness recovery hospitals in 28
states, 29 rehabilitation hospitals in 12 states, and 1,753 outpatient
rehabilitation clinics in 37 states and the District of Columbia. Concentra, a
joint venture subsidiary, operated 523 occupational health centers in 41 states
as of March 31, 2020. Concentra also provides contract services at employer
worksites and Department of Veterans Affairs community-based outpatient clinics
("CBOCs").
Our reportable segments include the critical illness recovery hospital segment,
the rehabilitation hospital segment, the outpatient rehabilitation segment, and
the Concentra segment. We had net operating revenues of $1,414.6 million for the
three months ended March 31, 2020. Of this total, we earned approximately 35% of
our net operating revenues from our critical illness recovery hospital segment,
approximately 13% from our rehabilitation hospital segment, approximately 18%
from our outpatient rehabilitation segment, and approximately 28% from our
Concentra 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. Our
Concentra 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. Additionally, our Concentra segment delivers veteran's
healthcare through its Department of Veterans Affairs CBOCs.
During the quarter ended June 30, 2019, we began reporting the net operating
revenues and expenses associated with employee leasing services provided to our
non-consolidating subsidiaries as part of our other activities. Previously,
these services were reflected in the financial results of our reportable
segments. Under these employee leasing arrangements, actual labor costs are
passed through to our non-consolidating subsidiaries, resulting in our
recognition of net operating revenues equal to the actual labor costs incurred.
Prior year results presented herein have been changed to conform to the current
presentation.

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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 operating segments. Adjusted EBITDA is not a
measure of financial performance under 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.
The table below reconciles net income and income from operations to Adjusted
EBITDA and should be referenced when we discuss Adjusted EBITDA:
                                                          Three Months Ended March 31,
                                                            2019                 2020
                                                                  (in thousands)
Net income                                            $       53,344       $       70,448
Income tax expense                                            18,467               21,912
Interest expense                                              50,811               46,107
Gain on sale of businesses                                    (6,532 )             (7,201 )
Equity in earnings of unconsolidated subsidiaries             (4,366 )             (2,588 )
Income from operations                                       111,724        

128,678

Stock compensation expense:
Included in general and administrative                         4,748                5,437
Included in cost of services                                   1,507                1,466
Depreciation and amortization                                 52,138               51,752
Adjusted EBITDA                                       $      170,117       $      187,333


Effects of the COVID-19 Pandemic on our Results of Operations
The broader implications of the COVID-19 pandemic on our results of operations
and overall financial performance remain uncertain. We are a healthcare service
provider that provides patient care services in both inpatient and outpatient
settings. We have provided certain additional performance metrics to assist
readers in understanding how the COVID-19 pandemic impacted each of our segments
during the one month ended March 31, 2020, including our (i) net operating
revenues and Adjusted EBITDA for the two months ended February 29, 2020 and
February 28, 2019, (ii) net operating revenues and Adjusted EBITDA for the one
month ended March 31, 2020 and 2019, (iii) net operating revenues and Adjusted
EBITDA for the three months ended March 31, 2020 and 2019, and (iv) certain
operating statistics for each of the aforementioned periods. Please refer to our
risk factors discussed in Item 1A "Risk Factors" of this Form 10-Q and as
previously reported in our Annual Report on Form 10-K for the year ended
December 31, 2019 for further discussion.
Critical Illness Recovery Hospital Segment. Our critical illness recovery
hospitals are a key part of the inpatient hospital continuum of care. Both CMS
and Congress acted to temporarily suspend certain regulations concerning length
of stay requirements, which impact our critical illness recovery hospitals, in
order to facilitate the transfer of patients from general acute care hospitals
(see "Regulatory Changes" for further discussion of the temporary suspension of
regulations). This was done in order to expand hospital bed capacity to care for
COVID-19 patients. As COVID-19 has spread in the general acute care hospitals in
many markets where we operate, we have admitted patients with COVID-19 and have
faced the challenging task of treating them while attempting to protect our
patients and staff members who do not have COVID-19. We have followed CDC
guidelines, directives and recommendations with regard to the use of personal
protective equipment and the isolation and treatment of patients with COVID-19.
The pandemic has caused, and will continue to cause, disruptions in our critical
illness recovery hospitals, which include, in some cases, the addition or
reduction of beds, the creation of isolated units and spaces, temporary
increases or restrictions on admissions, the incurrence of additional costs,
staff illnesses, and the increased use of contract clinical labor.

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Rehabilitation Hospital Segment. Our rehabilitation hospitals receive most of
their admissions from general acute care hospitals. Both CMS and Congress acted
to temporarily suspend certain regulations that govern admissions into our
rehabilitation hospitals to facilitate the transfer of patients from general
acute care hospitals and critical illness recovery hospitals (see "Regulatory
Changes" for further discussion of the temporary suspension of regulations).
This was done in order to expand hospital bed capacity to care for COVID-19
patients. As COVID-19 has spread in the general acute care hospitals in many
markets where we operate, we have admitted patients with COVID-19 and have faced
the challenging task of treating them while attempting to protect our patients
and staff members who do not have COVID-19. We have followed CDC guidelines,
directives and recommendations with regard to the use of personal protective
equipment and the isolation and treatment of patients with COVID-19. The
pandemic has caused, and will continue to cause, disruptions in our
rehabilitation hospitals, which include, in some cases, the addition or
reduction of beds, the creation of isolated units and spaces, temporary
restrictions on admissions, the incurrence of additional costs, staff illnesses,
and the increased use of contract clinical labor. Additionally, elective
surgeries at hospitals and other facilities have been suspended which is
reducing the need for inpatient rehabilitation services.
Outpatient Rehabilitation Segment. Beginning in mid-March, hospitals and other
facilities began to suspend elective surgeries. Additionally, state governments
in the areas experiencing the most significant growth of COVID-19 infections
began implementing mandatory closures of non-essential or non-life sustaining
businesses, restrictions on individual activities outside of the home,
restrictions on travel, and closures of schools. These actions continued to
expand throughout March and by the end of March, most states implemented
significant restrictions on businesses and individuals. The suspension of
elective surgeries at hospitals and other facilities and the reduction of
physician office visits combined with recommendations of social distancing and
the other items noted above have had significant effects on our patient visit
volumes. As a result, we have temporarily consolidated the operations of some of
our clinics by transferring staff and patients.
Concentra Segment. Beginning in mid-March, state governments in the areas
experiencing the most significant growth of COVID-19 infections began
implementing mandatory closures of non-essential or non-life sustaining
businesses. These actions continued to expand throughout March. By the end of
March, most states implemented significant restrictions on businesses. These
actions have had significant effects on our patient visit volumes as employers
have furloughed workforces and temporarily ceased operations or have
significantly reduced their operations. As a result, we have temporarily
consolidated the operations of some of our centers by transferring staff and
patients.
We provided below certain performance measures and operating statistics used by
management to help illustrate the impact of the COVID-19 pandemic on our
operating results. For the quarter ended March 31, 2020, we defined the
pre-COVID-19 outbreak period as the two months ended February 29, 2020, and the
post-COVID-19 outbreak period as the one month ended March 31, 2020. We provided
prior year comparative data for the pre-COVID-19 and post-COVID-19 outbreak
periods presented. The following performance measures and operating
statistics should be considered in conjunction with the operating results for
the full quarter ended March 31, 2020. The performance measures and operating
statistics presented for the two months ended February 29, 2020 and the one
month ended March 31, 2020 are, when combined, equal to the performance measures
and operating statistics presented for the full quarter ended March 31, 2020.
The same is true for the prior year comparative data.

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                              Two Months Ended February                    One Month Ended March                 Three Months Ended March
                                                         %                                          %
                           2019           2020         Change          2019          2020         Change           2019            2020
Selected financial
data:
Net operating
revenues:
Critical illness
recovery hospital      $  295,385     $  328,613       11.2  %     $  162,149     $ 171,908        6.0  %     $    457,534     $   500,521
Rehabilitation
hospital                   98,695        122,363       24.0            55,863        59,656        6.8             154,558         182,019

Outpatient

rehabilitation            161,758        179,163       10.8            85,147        76,086      (10.6 )           246,905         255,249
Concentra                 259,816        274,926        5.8           136,505       123,609       (9.4 )           396,321         398,535
Other(1)                   38,532         54,283       40.9            30,781        24,025      (21.9 )            69,313          78,308
Total Company          $  854,186     $  959,348       12.3  %     $  470,445     $ 455,284       (3.2 )%     $  1,324,631     $ 1,414,632
Income (loss) from
operations:
Critical illness
recovery hospital      $   36,355     $   48,395       33.1  %     $   25,192     $  27,839       10.5  %     $     61,547     $    76,234
Rehabilitation
hospital                   11,605         22,855       96.9             7,790         8,827       13.3              19,395          31,682

Outpatient

rehabilitation             12,623         18,289       44.9             9,336         1,615      (82.7 )            21,959          19,904
Concentra                  23,373         29,624       26.7            17,214         8,188      (52.4 )            40,587          37,812
Other(1)                  (22,432 )      (24,868 )    (10.9 )          (9,332 )     (12,086 )    (29.5 )           (31,764 )       (36,954 )
Total Company          $   61,524     $   94,295       53.3  %     $   50,200     $  34,383      (31.5 )%     $    111,724     $   128,678
Adjusted EBITDA:
Critical illness
recovery hospital      $   44,035     $   56,648       28.6  %     $   28,963     $  31,922       10.2  %     $     72,998     $    88,570
Rehabilitation
hospital                   15,908         27,448       72.5             9,889        11,121       12.5              25,797          38,569

Outpatient

rehabilitation             17,265         23,062       33.6            11,726         4,060      (65.4 )            28,991          27,122
Concentra                  40,785         45,537       11.7            25,473        15,929      (37.5 )            66,258          61,466
Other(1)                  (17,278 )      (19,281 )    (11.6 )          (6,649 )      (9,113 )    (37.1 )           (23,927 )       (28,394 )
Total Company          $  100,715     $  133,414       32.5  %     $   69,402     $  53,919      (22.3 )%     $    170,117     $   187,333
Adjusted EBITDA
margins:
Critical illness
recovery hospital            14.9 %         17.2 %                       17.9 %        18.6 %                         16.0 %          17.7 %
Rehabilitation
hospital                     16.1           22.4                         17.7          18.6                           16.7            21.2
Outpatient
rehabilitation               10.7           12.9                         13.8           5.3                           11.7            10.6
Concentra                    15.7           16.6                         18.7          12.9                           16.7            15.4
Other(1)                      N/M            N/M                          N/M           N/M                            N/M             N/M
Total Company                11.8 %         13.9 %                       14.8 %        11.8 %                         12.8 %          13.2 %

                              Two Months Ended February                    One Month Ended March                 Three Months Ended March
                                                         %                                          %
                           2019           2020         Change          2019          2020         Change           2019            2020
Operating
statistics:
Critical illness
recovery hospital:
Admissions                  6,303          6,427        2.0  %          3,153         3,106       (1.5 )%            9,456           9,533
Patient days              167,044        178,627        6.9  %         91,085        91,831        0.8  %          258,129         270,458
Occupancy rate                 70 %           70 %                         73 %          70 %                           71 %            70 %
Rehabilitation
hospital:
Admissions                  3,758          4,412       17.4  %          2,078         1,921       (7.6 )%            5,836           6,333
Patient days               52,876         63,924       20.9  %         29,940        30,644        2.4  %           82,816          94,568
Occupancy rate                 75 %           81 %                         78 %          76 %                           76 %            79 %
Outpatient
rehabilitation:

Number of visits 1,345,617 1,496,232 11.2 % 708,866 626,433 (11.6 )% 2,054,483 2,122,665 Concentra: Number of visits 1,904,663 1,997,810 4.9 % 1,006,944 879,585 (12.6 )% 2,911,607 2,877,395

_______________________________________________________________________________

N/M - Not meaningful.

(1) Other includes our corporate administration and shared services, as well

as employee leasing services with our non-consolidating subsidiaries.

Please refer to "Summary Financial Results" and "Results of Operations" for
further discussion of our segment performance measures for the three months
ended March 31, 2019 and 2020. Please refer to "Operating Statistics" for
further discussion regarding the uses and calculations of the metrics provided
above, as well as the operating statistics data for each segment for the three
months ended March 31, 2019 and 2020.

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The COVID-19 pandemic and its adverse effects have become more prevalent
throughout April 2020, and we are experiencing more pronounced disruptions in
our outpatient rehabilitation and Concentra operations. The continued
uncertainty of the potential impact of the COVID-19 pandemic on the healthcare
sector could materially adversely impact our business, results of operations,
and overall financial performance in future periods. See "Risk Factors" for
further discussion of the possible impact of the COVID-19 pandemic on our
business.
Other Significant Events
Purchase of Concentra Interest
On January 1, 2020, Select, WCAS, and DHHC entered into an agreement pursuant to
which Select acquired approximately 17.2% of the outstanding membership
interests of Concentra Group Holdings Parent on a fully diluted basis from WCAS,
DHHC, and other equity holders of Concentra Group Holdings Parent for
approximately $338.4 million.
On February 1, 2020, Select, WCAS and DHHC entered into an agreement pursuant to
which Select acquired an additional 1.4% of the outstanding membership interests
of Concentra Group Holdings Parent on a fully diluted basis from WCAS, DHHC, and
other equity holders of Concentra Group Holdings Parent for approximately $27.8
million.
Following these purchases, Select owns approximately 66.6% of the outstanding
membership interests of Concentra Group Holdings Parent on a fully diluted basis
and approximately 68.8% of the outstanding Class A membership interests of
Concentra Group Holdings Parent. These purchases were in lieu of, and are
considered to be, the exercise of the first put right provided to certain equity
holders under the terms of the Concentra LLC Agreement.
Summary Financial Results
For the three months ended March 31, 2020, our net operating revenues increased
6.8% to $1,414.6 million, compared to $1,324.6 million for the three months
ended March 31, 2019. Income from operations increased 15.2% to $128.7 million
for the three months ended March 31, 2020, compared to $111.7 million for the
three months ended March 31, 2019.
Net income increased 32.1% to $70.4 million for the three months ended March 31,
2020, compared to $53.3 million for the three months ended March 31, 2019. Net
income included a pre-tax gain on sale of businesses of $7.2 million and $6.5
million for the three months ended March 31, 2020 and 2019, respectively.
Adjusted EBITDA increased 10.1% to $187.3 million for the three months ended
March 31, 2020, compared to $170.1 million for the three months ended March 31,
2019. Our Adjusted EBITDA margin was 13.2% for the three months ended March 31,
2020, compared to 12.8% for the three months ended March 31, 2019.
The following tables reconcile our segment performance measures to our
consolidated operating results:
                                                        Three Months Ended March 31, 2020
                     Critical Illness      Rehabilitation         Outpatient       Concentra        Other           Total
                    Recovery Hospital         Hospital          Rehabilitation
                                                                 (in thousands)
Net operating
revenues            $     500,521        $       182,019       $      255,249     $  398,535     $   78,308     $ 1,414,632
Operating expenses        411,951                143,450              228,127        337,836        112,838       1,234,202
Depreciation and
amortization               12,336                  6,887                7,218         22,887          2,424          51,752
Income (loss) from
operations          $      76,234        $        31,682       $       19,904     $   37,812     $  (36,954 )   $   128,678
Depreciation and
amortization               12,336                  6,887                7,218         22,887          2,424          51,752
Stock compensation
expense                         -                      -                    -            767          6,136           6,903
Adjusted EBITDA     $      88,570        $        38,569       $       27,122     $   61,466     $  (28,394 )   $   187,333
Adjusted EBITDA
margin                       17.7 %                 21.2 %               10.6 %         15.4 %          N/M            13.2 %



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                                                        Three Months Ended March 31, 2019
                     Critical Illness      Rehabilitation         Outpatient       Concentra        Other           Total
                    Recovery Hospital         Hospital          Rehabilitation
                                                                 (in thousands)
Net operating
revenues(1)         $     457,534        $       154,558       $      246,905     $  396,321     $   69,313     $ 1,324,631
Operating
expenses(1)               384,536                128,761              217,914        330,830         98,728       1,160,769
Depreciation and
amortization               11,451                  6,402                7,032         24,904          2,349          52,138
Income (loss) from
operations          $      61,547        $        19,395       $       21,959     $   40,587     $  (31,764 )   $   111,724
Depreciation and
amortization               11,451                  6,402                7,032         24,904          2,349          52,138
Stock compensation
expense                         -                      -                    -            767          5,488           6,255
Adjusted EBITDA     $      72,998        $        25,797       $       28,991     $   66,258     $  (23,927 )   $   170,117
Adjusted EBITDA
margin                       16.0 %                 16.7 %               11.7 %         16.7 %          N/M            12.8 %


The following table summarizes changes in segment performance measures for the
three months ended March 31, 2020, compared to the three months ended March 31,
2019:
                     Critical
                     Illness       Rehabilitation        Outpatient       Concentra        Other        Total
                     Recovery         Hospital         Rehabilitation
                     Hospital
Change in net
operating revenues       9.4 %           17.8 %              3.4  %           0.6  %        13.0  %        6.8 %
Change in income
from operations         23.9 %           63.4 %             (9.4 )%          (6.8 )%       (16.3 )%       15.2 %
Change in Adjusted
EBITDA                  21.3 %           49.5 %             (6.4 )%         

(7.2 )% (18.7 )% 10.1 %

_______________________________________________________________________________

N/M - Not meaningful.

(1) For the three months ended March 31, 2019, the financial results of our

reportable segments have been changed to remove the net operating revenues

and expenses associated with employee leasing services provided to our

non-consolidating subsidiaries. These results are now reported as part of

       our other activities. We lease employees at cost to these
       non-consolidating subsidiaries.



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Regulatory Changes
Our Annual Report on Form 10-K for the year ended December 31, 2019, filed with
the SEC on February 20, 2020, contains a detailed discussion of the regulations
that affect our business in Part I - 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. The information below should be read in conjunction
with the more detailed discussion of regulations contained in our Form 10-K.
Medicare Reimbursement
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 the Department of Health and Human Services and CMS. Net operating
revenues generated directly from the Medicare program represented approximately
26% of our net operating revenues for the three months ended March 31, 2020, and
26% of our net operating revenues for the year ended December 31, 2019.
Federal Health Care Program Changes in Response to the COVID-19 Pandemic
On January 31, 2020, the Secretary of Health and Human Services ("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 in the United States. On
March 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 Children's Health
Insurance Program ("CHIP") 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.      Inpatient rehabilitation facilities ("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.     Long-term care hospitals ("LTCHs"), and 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 emergency.


iii.    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 state or
        local licensure requirements.

iv. 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.


v.      Hospitals can operate temporary expansion locations without meeting the

provider-based entity requirements or the hospital CoPs that continue to

apply 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.

vi. IRFs, LTCHs and certain other providers do not need to submit quality

data to Medicare for October 1, 2019 through June 30, 2020 to comply with

the quality reporting programs.

vii. The HHS Office of the Inspector General ("OIG") waived sanctions under

the physician self-referral law (i.e., Stark law) for patient referrals

and claims related to the emergency. 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.

CMS also approved 53 state Medicaid program emergency waivers, 39 state plan
amendments, 16 COVID-19 pandemic related Medicaid Disaster Amendments and one
CHIP Disaster Amendment. 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.

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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 on March 6, 2020. CMS issued additional waivers to permit
more than 80 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 on March 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 the Public Health and Social Services

Emergency Fund to be used for preventing, preparing, and responding to

the coronavirus, and for reimbursing "eligible health care providers for

health care related expenses or lost revenues that are attributable to

coronavirus." Half of the fund is allocated for general distribution to

        Medicare providers. The first $30 billion was distributed to health care
        providers that received Medicare fee-for-service payments in 2019. The
        remaining $20 billion is being distributed to Medicare providers in a
        manner that makes the entire $50 billion general distribution
        proportional to providers' share of 2018 net patient revenue. The other
        half of the fund is for targeted allocations to providers in high impact
        COVID-19 areas ($10 billion), rural providers ($10 billion), Indian

Health Service ($400 million), and unspecified allocations for treatment

of uninsured COVID-19 patients and providers who need additional funding

such as skilled nursing facilities, dentists, and providers that only

treat Medicaid patients.

ii. Expansion of the Accelerated and Advance Payment Program to advance three

months of payments to Medicare providers as loans to be repaid after 120

days.

iii. Temporary suspension of the 2% cut to Medicare payments due to

sequestration so that, for the period of May 1, 2020 to December 31,

2020, the Medicare program will be exempt from any sequestration order.

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.


The CARES Act also provides for a 20% increase in the payment weight for
Medicare payments to hospitals paid under the inpatient hospital prospective
payment system ("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.
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 the long term care hospital prospective
payment system ("LTCH-PPS").
Fiscal Year 2019. On August 17, 2018, CMS published the final rule updating
policies and payment rates for the LTCH-PPS for fiscal year 2019 (affecting
discharges and cost reporting periods beginning on or after October 1, 2018
through September 30, 2019). Certain errors in the final rule were corrected in
a document published October 3, 2018. The standard federal rate was set at
$41,559, an increase from the standard federal rate applicable during fiscal
year 2018 of $41,415. The update to the standard federal rate for fiscal year
2019 included a market basket increase of 2.9%, less a productivity adjustment
of 0.8%, and less a reduction of 0.75% mandated by the ACA. The standard federal
rate also included an area wage budget neutrality factor of 0.999215 and a
temporary, one-time budget neutrality adjustment of 0.990878 in connection with
the elimination of the 25 Percent Rule. The fixed-loss amount for high cost
outlier cases paid under LTCH-PPS was set at $27,121, a decrease from the
fixed-loss amount in the 2018 fiscal year of $27,381. The fixed-loss amount for
high cost outlier cases paid under the site-neutral payment rate was set at
$25,743, a decrease from the fixed-loss amount in the 2018 fiscal year of
$26,537.

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Fiscal Year 2020. On August 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 after October 1, 2019
through September 30, 2020). Certain errors in the final rule were corrected in
a document published October 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 and a temporary, one-time budget neutrality adjustment of
0.999858 in connection with the elimination of the 25 Percent Rule. 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 FY 2020, site neutral payment rate cases will
begin to be paid fully on the site neutral payment rate, rather than the
transitional blended rate. However, the CARES Act waives the site neutral
payment rate for patients admitted during such coronavirus emergency period and
in response to the public health emergency, as discussed above.
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
the inpatient rehabilitation facility prospective payment system ("IRF-PPS").
Fiscal Year 2019. On August 6, 2018, CMS published the final rule updating
policies and payment rates for the IRF-PPS for fiscal year 2019 (affecting
discharges and cost reporting periods beginning on or after October 1, 2018
through September 30, 2019). The standard payment conversion factor for
discharges for fiscal year 2019 was set at $16,021, an increase from the
standard payment conversion factor applicable during fiscal year 2018 of
$15,838. The update to the standard payment conversion factor for fiscal year
2019 included a market basket increase of 2.9%, less a productivity adjustment
of 0.8%, and less a reduction of 0.75% mandated by the ACA. CMS increased the
outlier threshold amount for fiscal year 2019 to $9,402 from $8,679 established
in the final rule for fiscal year 2018.
Fiscal Year 2020. On August 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 after October 1, 2019
through September 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.
Fiscal Year 2021. On April 16, 2020, CMS released an advanced copy of the
proposed policies and payment rates for the IRF-PPS for fiscal year 2021
(affecting discharges and cost reporting periods beginning on or after October
1, 2020 through September 30, 2021). The standard payment conversion factor for
discharges for fiscal year 2021 would be set at $16,847, 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, if adopted, would include a market basket increase of 2.9%, less a
productivity adjustment of 0.4%. CMS proposed to decrease the outlier threshold
amount for fiscal year 2021 to $8,102 from $9,300 established in the final rule
for fiscal year 2020.
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 Merit­Based Incentive Payment System ("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 alternative payment models ("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%.


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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 final 2020 Medicare physician fee schedule, CMS revised coding,
documentation guidelines, and valuation for evaluation and management ("E/M")
office visit codes. 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 proposed cuts to other codes to make up the difference, beginning
in 2021. Under the proposal, physical and occupational therapy services could
see code reductions that may result in an estimated 8% decrease in payment.
However, many providers have opposed the proposed cuts, and CMS has not yet
determined the actual cuts to each code.
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 physical therapy assistants ("PTAs") or occupational therapy
assistants ("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 after January 1, 2020 include the
appropriate modifier. CMS intends to use these modifiers to implement a payment
differential that would reimburse services provided by PTAs and OTAs at 85% of
the fee schedule rate beginning on January 1, 2022. 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, the CQ 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.

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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 customers, 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.
                                                   Three Months Ended March 

31,

                                                      2019               

2020

Critical illness recovery hospital data:
Number of hospitals owned-start of period                  96                 100
Number of hospitals acquired                                -                   -
Number of hospital start-ups                                -                   -
Number of hospitals closed/sold                             -               

-

Number of hospitals owned-end of period                    96               

100

Number of hospitals managed-end of period                   1               

1

Total number of hospitals (all)-end of period              97                 101
Available licensed beds(1)                              4,071               4,286
Admissions(1)(2)                                        9,456               9,533
Patient days(1)(3)                                    258,129             270,458
Average length of stay (days)(1)(4)                        28               

29

Net revenue per patient day(1)(5)               $       1,759       $       

1,839

Occupancy rate(1)(6)                                       71 %                70 %
Percent patient days-Medicare(1)(7)                        53 %                49 %
Rehabilitation hospital data:
Number of hospitals owned-start of period                  17                  19
Number of hospitals acquired                                -                   -
Number of hospital start-ups                                1                   -
Number of hospitals closed/sold                             -               

-

Number of hospitals owned-end of period                    18               

19

Number of hospitals managed-end of period                   9               

10

Total number of hospitals (all)-end of period              27                  29
Available licensed beds(1)                              1,239               1,309
Admissions(1)(2)                                        5,836               6,333
Patient days(1)(3)                                     82,816              94,568
Average length of stay (days)(1)(4)                        14               

15

Net revenue per patient day(1)(5)               $       1,633       $       

1,732

Occupancy rate(1)(6)                                       76 %                79 %
Percent patient days-Medicare(1)(7)                        52 %                51 %
Outpatient rehabilitation data:
Number of clinics owned-start of period                 1,423               1,461
Number of clinics acquired                                  4                   2
Number of clinic start-ups                                 11                  12
Number of clinics closed/sold                             (31 )                (4 )
Number of clinics owned-end of period                   1,407               

1,471

Number of clinics managed-end of period                   277               

282

Total number of clinics (all)-end of period             1,684               1,753
Number of visits(1)(8)                              2,054,483           2,122,665
Net revenue per visit(1)(9)                     $         103       $         104




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                                                            Three Months Ended March 31,
                                                               2019               2020
Concentra data:
Number of centers owned-start of period                             524                521
Number of centers acquired                                            1                  4
Number of center start-ups                                            -                  -
Number of centers closed/sold                                         -                 (2 )
Number of centers owned-end of period                               525                523
Number of onsite clinics operated-end of period                     129                128
Number of CBOCs owned-end of period                                  31                 33
Number of visits(1)(8)                                        2,911,607          2,877,395
Net revenue per visit(1)(9)                              $          124     $          123

_______________________________________________________________________________

(1) Data excludes locations managed by the Company. For purposes of our

Concentra segment, onsite clinics and community-based outpatient clinics

       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.

Net 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 Concentra centers during the periods

       presented.


(9)    Represents the average amount of revenue recognized for each patient

visit. Net revenue per visit is calculated by dividing patient service

revenue, excluding revenues from certain other ancillary services, by the

       total number of visits.



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Results of Operations The following table outlines selected operating data as a percentage of net operating revenues for the periods indicated:

                                                            Three Months Ended March 31,
                                                               2019               2020
Net operating revenues                                         100.0  %            100.0  %
Cost of services, exclusive of depreciation and
amortization(1)                                                 85.5        

84.9

General and administrative                                       2.2        

2.4

Depreciation and amortization                                    3.9        

3.6

Income from operations                                           8.4        

9.1

Equity in earnings of unconsolidated subsidiaries                0.3                 0.2
Gain on sale of businesses                                       0.5                 0.5
Interest expense                                                (3.8 )              (3.3 )
Income before income taxes                                       5.4                 6.5
Income tax expense                                               1.4                 1.5
Net income                                                       4.0                 5.0
Net income attributable to non-controlling interests             0.9        

1.2

Net income attributable to Select Medical Holdings Corporation

                                                      3.1  %     

3.8 %

_______________________________________________________________________________

(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:
                                             Three Months Ended March 31,
                                          2019(2)          2020        % Change

Net operating revenues:
Critical illness recovery hospital     $   457,534     $   500,521        9.4  %
Rehabilitation hospital                    154,558         182,019       17.8
Outpatient rehabilitation                  246,905         255,249        3.4
Concentra                                  396,321         398,535        0.6
Other(1)                                    69,313          78,308       13.0
Total Company                          $ 1,324,631     $ 1,414,632        6.8  %
Income (loss) from operations:
Critical illness recovery hospital     $    61,547     $    76,234       23.9  %
Rehabilitation hospital                     19,395          31,682       63.4
Outpatient rehabilitation                   21,959          19,904       (9.4 )
Concentra                                   40,587          37,812       (6.8 )
Other(1)                                   (31,764 )       (36,954 )    (16.3 )
Total Company                          $   111,724     $   128,678       15.2  %
Adjusted EBITDA:
Critical illness recovery hospital     $    72,998     $    88,570       21.3  %
Rehabilitation hospital                     25,797          38,569       49.5
Outpatient rehabilitation                   28,991          27,122       (6.4 )
Concentra                                   66,258          61,466       (7.2 )
Other(1)                                   (23,927 )       (28,394 )    (18.7 )
Total Company                          $   170,117     $   187,333       10.1  %
Adjusted EBITDA margins:
Critical illness recovery hospital            16.0 %          17.7 %
Rehabilitation hospital                       16.7            21.2
Outpatient rehabilitation                     11.7            10.6
Concentra                                     16.7            15.4
Other(1)                                       N/M             N/M
Total Company                                 12.8 %          13.2 %
Total assets:
Critical illness recovery hospital     $ 2,062,659     $ 2,148,779
Rehabilitation hospital                  1,089,391       1,127,267
Outpatient rehabilitation                1,250,015       1,285,449
Concentra                                2,464,317       2,354,169
Other(1)                                   155,110         199,903
Total Company                          $ 7,021,492     $ 7,115,567
Purchases of property and equipment:
Critical illness recovery hospital     $    10,160     $     8,965
Rehabilitation hospital                     13,183           3,325
Outpatient rehabilitation                    9,040           8,384
Concentra                                   15,698          15,586
Other(1)                                       992           2,948
Total Company                          $    49,073     $    39,208

_______________________________________________________________________________

(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 three months ended March 31, 2019, the financial results of our

reportable segments have been changed to remove the net operating revenues

and expenses associated with employee leasing services provided to our

non-consolidating subsidiaries. These results are now reported as part of

our other activities. We lease employees at cost to these

non-consolidating subsidiaries.

N/M - Not meaningful.



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Three Months Ended March 31, 2020, Compared to Three Months Ended March 31, 2019
In the following, we discuss our results of operations related to net operating
revenues, operating expenses, Adjusted EBITDA, depreciation and amortization,
income from operations, equity in earnings of unconsolidated subsidiaries, gain
on sale of businesses, interest expense, income taxes, and net income
attributable to non-controlling interests.
Please refer to "Effects of the COVID-19 Pandemic on our Results of Operations"
for further discussion regarding the impact of the COVID-19 pandemic on our
operating results for the three months ended March 31, 2020.
Net Operating Revenues
Our net operating revenues increased 6.8% to $1,414.6 million for the three
months ended March 31, 2020, compared to $1,324.6 million for the three months
ended March 31, 2019.
Critical Illness Recovery Hospital Segment.  Net operating revenues increased
9.4% to $500.5 million for the three months ended March 31, 2020, compared to
$457.5 million for the three months ended March 31, 2019. The increase in net
operating revenues was due to increases in both patient volume and net revenue
per patient day. Our patient days increased 4.8% to 270,458 days for the three
months ended March 31, 2020, compared to 258,129 days for the three months ended
March 31, 2019. The increase in patient days was primarily attributable to the
acquisition of three hospitals in April 2019 and one hospital in October 2019.
Net revenue per patient day increased 4.5% to $1,839 for the three months ended
March 31, 2020, compared to $1,759 for the three months ended March 31, 2019. We
experienced increases in both our Medicare and non-Medicare net revenue per
patient day.
Rehabilitation Hospital Segment.  Net operating revenues increased 17.8% to
$182.0 million for the three months ended March 31, 2020, compared to $154.6
million for the three months ended March 31, 2019. The increase in net operating
revenues resulted from increases in both patient volume and net revenue per
patient day during the three months ended March 31, 2020. Our patient days
increased 14.2% to 94,568 days for the three months ended March 31, 2020,
compared to 82,816 days for the three months ended March 31, 2019. The increase
in patient days was principally driven by our rehabilitation hospitals which
commenced operations during 2019. We also experienced a 5.7% increase in patient
days in our remaining hospitals. Of the 11,752 day increase experienced during
the three months ended March 31, 2020 compared to the three months ended March
31, 2019, 11,048 of those days occurred in January and February 2020. During the
three months ended March 31, 2020, certain of our rehabilitation hospitals,
particularly those operating in areas more significantly impacted by the spread
of COVID-19, such as New Jersey, experienced lower patient volume. Further, our
rehabilitation hospitals experienced overall lower patient volume during March
2020 due to the suspension of elective surgeries at hospitals and other
facilities, which consequently reduced the demand for inpatient rehabilitation
services. Our net revenue per patient day increased 6.1% to $1,732 for the three
months ended March 31, 2020, compared to $1,633 for the three months ended
March 31, 2019. We experienced increases in both our Medicare and non-Medicare
net revenue per patient day.
Outpatient Rehabilitation Segment.  Net operating revenues increased 3.4% to
$255.2 million for the three months ended March 31, 2020, compared to $246.9
million for the three months ended March 31, 2019. The increase in net operating
revenues was primarily attributable to an increase in visits, which increased
3.3% to 2,122,665 for the three months ended March 31, 2020, compared to
2,054,483 visits for the three months ended March 31, 2019. We experienced an
increase of 150,615 visits during January and February 2020, as compared to the
same period in 2019. During March 2020, our outpatient rehabilitation clinics
experienced a decrease of 82,433 visits, as compared to March 2019. The decline
in volume during March 2020, which became more significant by mid-month,
resulted from the actions taken by governmental authorities and those in the
private sector to limit the spread of COVID-19, combined with recommendations to
practice social distancing. Our outpatient rehabilitation clinics experienced
less demand for services due to a decline in patient referrals from physicians,
a reduction in workers' compensation injury visits due to the temporary closure
of non-essential and non-life sustaining businesses, the suspension of elective
surgeries at hospitals and other facilities, which has resulted in less demand
for outpatient rehabilitation services, as well as mandated social distancing
measures. By the end of March 2020, we have temporarily closed 131 clinics. In
many instances, we were able to transfer patients and our staff to other nearby
outpatient rehabilitation clinics which remained open. Our net revenue per visit
was $104 for the three months ended March 31, 2020, compared to $103 for the
three months ended March 31, 2019.

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Concentra Segment.  Net operating revenues increased 0.6% to $398.5 million for
the three months ended March 31, 2020, compared to $396.3 million for the three
months ended March 31, 2019. Visits in our centers were 2,877,395 for the three
months ended March 31, 2020, compared to 2,911,607 visits for the three months
ended March 31, 2019. We experienced an increase of 93,147 visits during January
and February 2020, as compared to the same period in 2019. During March 2020,
our Concentra centers experienced a decrease of 127,359 visits, as compared to
March 2019. In March 2020, employers began to furlough their workforces and
temporarily cease or significantly reduce their operations as a result of the
actions of governmental authorities and those in the private sector to limit the
spread of COVID-19. Consequently, our centers experienced a reduction in
workers' compensation and employer services visits. By the end of March 2020, we
have temporarily closed 19 centers and reduced the operating hours of 159
centers. In many instances where we temporarily closed centers, we were able to
transfer patients and our staff to other nearby centers which remained open. Net
revenue per visit was $123 for the three months ended March 31, 2020, compared
to $124 for the three months ended March 31, 2019. The decrease in net revenue
per visit was principally due to a decrease in workers' compensation visits,
which yield higher per visit rates, and a decrease in our employer services per
visit rate during the three months ended March 31, 2020.
Operating Expenses
Our operating expenses consist principally of cost of services and general and
administrative expenses. Our operating expenses were $1,234.2 million, or 87.3%
of net operating revenues, for the three months ended March 31, 2020, compared
to $1,160.8 million, or 87.7% of net operating revenues, for the three months
ended March 31, 2019. Our cost of services, a major component of which is labor
expense, was $1,200.4 million, or 84.9% of net operating revenues, for the three
months ended March 31, 2020, compared to $1,132.1 million, or 85.5% of net
operating revenues, for the three months ended March 31, 2019. The decrease in
our operating expenses relative to our net operating revenues was principally
due to the operating performance of our rehabilitation hospital and critical
illness recovery hospital segments. General and administrative expenses were
$33.8 million, or 2.4% of net operating revenues, for the three months ended
March 31, 2020, compared to $28.7 million, or 2.2% of net operating revenues,
for the three months ended March 31, 2019.
Adjusted EBITDA
Critical Illness Recovery Hospital Segment.  Adjusted EBITDA increased 21.3% to
$88.6 million for the three months ended March 31, 2020, compared to $73.0
million for the three months ended March 31, 2019. Our Adjusted EBITDA margin
for the critical illness recovery hospital segment was 17.7% for the three
months ended March 31, 2020, compared to 16.0% for the three months ended
March 31, 2019. The increases in Adjusted EBITDA and Adjusted EBITDA margin for
our critical illness recovery hospital segment were primarily driven by
increases in our net revenue per patient day and the acquisition of four
hospitals during 2019, as discussed above under "Net Operating Revenues."
Rehabilitation Hospital Segment.  Adjusted EBITDA increased 49.5% to $38.6
million for the three months ended March 31, 2020, compared to $25.8 million for
the three months ended March 31, 2019. Our Adjusted EBITDA margin for the
rehabilitation hospital segment was 21.2% for the three months ended March 31,
2020, compared to 16.7% for the three months ended March 31, 2019. The increases
in our Adjusted EBITDA and Adjusted EBITDA margin primarily occurred as a result
of our operating performance in January and February 2020, as compared to the
same period in 2019. Adjusted EBITDA increased 72.5% to $27.4 million for
January and February 2020, compared to $15.9 million for the same period in
2019. Adjusted EBITDA margin increased to 22.4% for January and February 2020,
compared to 16.1% for the same period in 2019. The increases in Adjusted EBITDA
and Adjusted EBITDA margin are primarily attributable to increases in patient
volume and net revenue per patient day at many of our existing hospitals.
Additionally, we experienced an increase in Adjusted EBITDA from our hospitals
which commenced operations during 2019. Though we experienced increases in
Adjusted EBITDA and Adjusted EBITDA margin in March 2020, as compared to the
prior year, these increases were offset, in part, by the effects of the COVID-19
pandemic on our operations, as discussed above. For the three months ended
March 31, 2019, the Adjusted EBITDA results for the rehabilitation hospital
segment include start-up losses of approximately $2.8 million.
Outpatient Rehabilitation Segment.  Adjusted EBITDA was $27.1 million for the
three months ended March 31, 2020, compared to $29.0 million for the three
months ended March 31, 2019. Our Adjusted EBITDA margin for the outpatient
rehabilitation segment was 10.6% for the three months ended March 31, 2020,
compared to 11.7% for the three months ended March 31, 2019. For the three
months ended March 31, 2020, the decline in Adjusted EBITDA and Adjusted EBITDA
margin were primarily caused by an 11.6% decrease in visits during March 2020,
as compared to the same period in 2019. The decline in visits resulted from the
effects of the COVID-19 pandemic, as described above. In response to the decline
in patient volume and in an effort to reduce operating expenses, we temporarily
consolidated, where possible, the operations of clinics which operate within
close proximity to one another and took other steps to reduce labor costs. Prior
to our outpatient rehabilitation clinics becoming affected by the COVID-19
pandemic, our Adjusted EBITDA had increased 33.6% to $23.1 million for January
and February 2020, compared to $17.3 million for the same period in 2019. Our
Adjusted EBITDA margin increased to 12.9% for January and February 2020,
compared to 10.7% for the same period in 2019.

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Concentra Segment.  Adjusted EBITDA was $61.5 million for the three months ended
March 31, 2020, compared to $66.3 million for the three months ended March 31,
2019. Our Adjusted EBITDA margin for the Concentra segment was 15.4% for the
three months ended March 31, 2020, compared to 16.7% for the three months ended
March 31, 2019. For the three months ended March 31, 2020, the decline in
Adjusted EBITDA and Adjusted EBITDA margin were primarily caused by a 12.6%
decrease in visits during March 2020, as compared to the same period in 2019.
The decline in visits resulted from the effects of the COVID-19 pandemic, as
described above. In response to the decline in patient volume and in an effort
to reduce operating expenses, we temporarily consolidated, where possible, the
operations of centers which operate within close proximity to one another,
reduced the operating hours of certain centers, and took other steps to reduce
labor costs. Prior to our centers becoming affected by the COVID-19 pandemic,
Adjusted EBITDA had increased 11.7% to $45.5 million for January and February
2020, compared to $40.8 million for the same period in 2019. Our Adjusted EBITDA
margin increased to 16.6% for January and February 2020, compared to 15.7% for
the same period in 2019.
Depreciation and Amortization
Depreciation and amortization expense was $51.8 million for the three months
ended March 31, 2020, compared to $52.1 million for the three months ended
March 31, 2019.
Income from Operations
For the three months ended March 31, 2020, we had income from operations of
$128.7 million, compared to $111.7 million for the three months ended March 31,
2019. The increase in income from operations occurred within our rehabilitation
hospital and critical illness recovery hospital segments.
Equity in Earnings of Unconsolidated Subsidiaries
Our equity in earnings of unconsolidated subsidiaries relates to rehabilitation
businesses and other healthcare-related businesses in which we are a minority
owner. For the three months ended March 31, 2020, we had equity in earnings of
unconsolidated subsidiaries of $2.6 million, compared to $4.4 million for the
three months ended March 31, 2019. The decrease in equity in earnings was
principally caused by a decline in performance of the healthcare-related
businesses in which we own a minority interest.
Gain on Sale of Businesses
We recognized gains of $7.2 million and $6.5 million during the three months
ended March 31, 2020 and 2019, respectively. These gains were attributable to
the sales of outpatient rehabilitation businesses.
Interest Expense
Interest expense was $46.1 million for the three months ended March 31, 2020,
compared to $50.8 million for the three months ended March 31, 2019. The
decrease in interest expense was principally due a decline in variable interest
rates, as well as the refinancing of our Select credit facilities, Concentra-JPM
credit facilities (as defined below), and senior notes during the third and
fourth quarters of 2019.
Income Taxes
We recorded income tax expense of $21.9 million for the three months ended
March 31, 2020, which represented an effective tax rate of 23.7%. We recorded
income tax expense of $18.5 million for the three months ended March 31, 2019,
which represented an effective tax rate of 25.7%. For the three months ended
March 31, 2020, the lower effective tax rate resulted primarily from the
discrete tax benefits realized from the exercise of certain equity options in
connection with the purchase of additional membership interests in Concentra
Group Holdings Parent, as described under "Other Significant Events." The impact
of these tax benefits were offset, in part, by the sale of an outpatient
rehabilitation business. The selling price for this business exceeded our tax
basis, resulting in a taxable gain. This sale was treated as a discrete tax
event for the three months ended March 31, 2020.
Net Income Attributable to Non-Controlling Interests
Net income attributable to non-controlling interests was $17.3 million for the
three months ended March 31, 2020, compared to $12.5 million for the three
months ended March 31, 2019. The increase was principally due to the improved
performance of several of our joint venture rehabilitation hospitals.


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