SELECT MEDICAL HOLDINGS CORPORATION
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 revenue, 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 revenue 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 revenue 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 revenue and profitability;
•the failure to maintain established relationships with the physicians in the
areas we serve could reduce our revenue 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
revenue 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, 2020 , in our Quarterly
Report on Form 10-Q for the three months ended March 31, 2021 , and in this
Quarterly Report on Form 10-Q, as such risk factors may be updated from time to
time in our periodic filings with the SEC .
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 September 30, 2021 , we had operations in 46 states and
the District of Columbia . We operated 100 critical illness recovery hospitals in
28 states, 30 rehabilitation hospitals in 12 states, and 1,850 outpatient
rehabilitation clinics in 39 states and the District of Columbia . Concentra , a
joint venture subsidiary, operated 519 occupational health centers in 41 states
as of September 30, 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
the Concentra segment. We had revenue of $4,644.7 million for the nine months
ended September 30, 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 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.
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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 September 30, Nine Months Ended September 30,
2020 2021 2020 2021
(in thousands)
Net income $ 104,457 $ 100,217 $ 242,391 $ 433,639
Income tax expense 31,557 27,665 76,805 138,410
Interest expense 34,026 33,825 117,499 102,115
Interest income - - - (4,749)
Gain on sale of businesses (5,143) - (12,690) -
Equity in earnings of unconsolidated
subsidiaries (8,765) (11,452) (19,677) (33,180)
Income from operations 156,132 150,255 404,328 636,235
Stock compensation expense:
Included in general and administrative 5,600 6,457 16,488 17,537
Included in cost of services 1,362 1,737 4,340 4,465
Depreciation and amortization 50,110 50,128 154,133 150,702
Adjusted EBITDA $ 213,204 $ 208,577 $ 579,289 $ 808,939
25-------------------------------------------------------------------------------- Table of Contents 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 throughJanuary 15, 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 which would have required 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 they have experienced temporary disruptions in their core businesses as a result of the COVID-19 pandemic, our outpatient rehabilitation andConcentra segments have been able to expand their 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, and the relaxation of certain admission restrictions have contributed to volume increases in certain of our hospitals. 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 has been extended throughDecember 31, 2021 . Certain of our rehabilitation hospitals experienced temporary declines in patient volume, beginning inMarch 2020 , 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. 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, including increased contracted labor usage, as well as additional costs resulting from the purchase of personal protective equipment. 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. We have provided revenue and certain operating statistics below for each of our segments for each of the periods presented. Please refer to our risk factors previously reported in our Annual Report on Form 10-K for the year endedDecember 31, 2020 for further discussion. 26
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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
Rehabilitation Hospital
Revenue Patient Days Occupancy Rate Numberof 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
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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
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
_______________________________________________________________________________ (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. Please refer to "Summary Financial Results" and "Results of Operations" for further discussion of our segment performance measures for the three and nine months endedSeptember 30, 2020 and 2021. 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 and nine months endedSeptember 30, 2020 and 2021. 28 -------------------------------------------------------------------------------- Table of Contents Other Significant Events Dividend Payments OnMay 5, 2021 andAugust 4, 2021 , our board of directors declared a cash dividend of$0.125 per share. OnJune 1, 2021 andAugust 30, 2021 , cash dividends totaling$16.9 million and$16.9 million , respectively, were paid. Financing Transactions OnJune 2, 2021 , Select entered into Amendment No. 5 to the Select credit agreement which, among other things, increased the aggregate commitments available under the Select 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 Concentra-JPM first lien credit agreement. The Concentra-JPM first lien credit agreement provided for commitments of$100.0 million under the Concentra-JPM revolving facility, which was set to mature onMarch 1, 2022 . Summary Financial Results Three Months EndedSeptember 30, 2021 For the three months endedSeptember 30, 2021 , our revenue increased 7.8% to$1,534.2 million , compared to$1,423.9 million for the three months endedSeptember 30, 2020 . Income from operations was$150.3 million for the three months endedSeptember 30, 2021 , compared to$156.1 million for the three months endedSeptember 30, 2020 . Income from operations included other operating income of$1.7 million and a reduction to other operating income of$1.2 million for the three months endedSeptember 30, 2021 and 2020, respectively. Net income was$100.2 million for the three months endedSeptember 30, 2021 , compared to$104.5 million for the three months endedSeptember 30, 2020 . Net income included pre-tax gains on sales of businesses of$5.1 million for the three months endedSeptember 30, 2020 . Adjusted EBITDA was$208.6 million for the three months endedSeptember 30, 2021 , compared to$213.2 million for the three months endedSeptember 30, 2020 . Our Adjusted EBITDA margin was 13.6% for the three months endedSeptember 30, 2021 , compared to 15.0% for the three months endedSeptember 30, 2020 . The following tables reconcile our segment performance measures to our consolidated operating results:
Three Months Ended
Critical Illness Rehabilitation Outpatient Concentra Other Total
Recovery Hospital Hospital Rehabilitation
(in thousands)Revenue$ 530,646 $ 212,434 $ 274,540 $ 442,190 $ 74,411 $ 1,534,221 Operating expenses (473,401) (168,358) (235,778) (344,529) (113,501) (1,335,567) Depreciation and amortization (12,972) (6,869) (7,319) (20,419) (2,549) (50,128) Other operating income - - - 1,636 93 1,729 Income (loss) from operations$ 44,273 $ 37,207
12,972 6,869 7,319 20,419 2,549 50,128
Stock compensation expense - - - 535 7,659 8,194
Adjusted EBITDA $ 57,245 $ 44,076 $ 38,762 $ 99,832 $ (31,338) $ 208,577
Adjusted EBITDA margin 10.8 % 20.7 % 14.1 % 22.6 % N/M 13.6 %
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Three Months Ended September 30, 2020
Critical Illness Rehabilitation Outpatient Concentra Other Total
Recovery Hospital Hospital Rehabilitation
(in thousands)Revenue$ 519,454 $ 188,075 $ 240,042 $ 391,859 $ 84,439 $ 1,423,869 Operating expenses (430,624) (143,438) (209,419) (312,175) (120,811) (1,216,467) Depreciation and amortization (12,521) (6,910) (7,231) (21,083) (2,365) (50,110) Other operating income - - - 357 (1,517) (1,160) Income (loss) from operations$ 76,309 $ 37,727
12,521 6,910 7,231 21,083 2,365 50,110
Stock compensation expense - - - 506 6,456 6,962
Adjusted EBITDA $ 88,830 $ 44,637 $ 30,623 $ 80,547 $ (31,433) $ 213,204
Adjusted EBITDA margin 17.1 % 23.7 % 12.8 % 20.6 % N/M 15.0 %
The following table summarizes changes in segment performance measures for the
three months ended September 30, 2021 , compared to the three months ended
September 30, 2020 :
Critical Illness Rehabilitation Hospital Outpatient Concentra Other Total
Recovery Hospital RehabilitationChange in revenue 2.2 % 13.0 % 14.4 % 12.8 % (11.9) % 7.8 % Change in income from operations (42.0) % (1.4) % 34.4 % 33.8 % N/M (3.8) % Change in Adjusted EBITDA (35.6) % (1.3) % 26.6 % 23.9 % N/M (2.2) % _______________________________________________________________________________ N/M - Not meaningful. Nine Months EndedSeptember 30, 2021 For the nine months endedSeptember 30, 2021 , our revenue increased 14.1% to$4,644.7 million , compared to$4,071.2 million for the nine months endedSeptember 30, 2020 . Income from operations increased 57.4% to$636.2 million for the nine months endedSeptember 30, 2021 , compared to$404.3 million for the nine months endedSeptember 30, 2020 . Income from operations included other operating income of$133.8 million and$53.8 million for the nine months endedSeptember 30, 2021 and 2020, respectively. Net income increased to$433.6 million for the nine months endedSeptember 30, 2021 , compared to$242.4 million for the nine months endedSeptember 30, 2020 . Net income included pre-tax gains on sales of businesses of$12.7 million for the nine months endedSeptember 30, 2020 . Adjusted EBITDA increased 39.6% to$808.9 million for the nine months endedSeptember 30, 2021 , compared to$579.3 million for the nine months endedSeptember 30, 2020 . Our Adjusted EBITDA margin was 17.4% for the nine months endedSeptember 30, 2021 , compared to 14.2% for the nine months endedSeptember 30, 2020 . 30
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Table of Contents The following tables reconcile our segment performance measures to our consolidated operating results:
Nine Months Ended
Critical Illness Rehabilitation Outpatient Concentra Other Total
Recovery Hospital Hospital Rehabilitation
(in thousands)
Revenue $ 1,669,577 $ 632,904 $ 806,910 $ 1,321,402 $ 213,911 $ 4,644,704
Operating expenses (1,444,043) (487,526) (696,186) (1,038,053) (325,796) (3,991,604)
Depreciation and amortization (38,958) (20,868) (21,855) (61,547) (7,474) (150,702)
Other operating income 17,887 - - 33,952 81,998 133,837
Income (loss) from operations $ 204,463 $ 124,510 $ 88,869 $ 255,754 $ (37,361) $ 636,235
Depreciation and amortization 38,958 20,868 21,855 61,547 7,474 150,702
Stock compensation expense - - - 1,606 20,396 22,002
Adjusted EBITDA $ 243,421 $ 145,378 $ 110,724 $ 318,907 $ (9,491) $ 808,939
Adjusted EBITDA margin 14.6 % 23.0 % 13.7 % 24.1 % N/M 17.4 %
Nine Months Ended September 30, 2020
Critical Illness Rehabilitation Outpatient Concentra Other Total
Recovery Hospital Hospital Rehabilitation
(in thousands)Revenue$ 1,539,601 $ 538,761 $ 662,429 $ 1,102,732 $ 227,696 $ 4,071,219 Operating expenses (1,272,458) (427,950) (610,966) (922,342) (332,870) (3,566,586) Depreciation and amortization (38,749) (20,704) (21,643) (65,827) (7,210) (154,133) Other operating income - - - 1,146 52,682 53,828 Income (loss) from operations$ 228,394 $ 90,107
38,749 20,704 21,643 65,827 7,210 154,133
Stock compensation expense - - - 1,974 18,854 20,828
Adjusted EBITDA $ 267,143 $ 110,811 $ 51,463 $ 183,510 $ (33,638) $ 579,289
Adjusted EBITDA margin 17.4 % 20.6 % 7.8 % 16.6 % N/M 14.2 %
The following table summarizes changes in segment performance measures for the
nine months ended September 30, 2021 , compared to the nine months ended
September 30, 2020 :
Critical Illness Rehabilitation Hospital Outpatient Concentra Other Total
Recovery Hospital Rehabilitation
Change in revenue 8.4 % 17.5 % 21.8 % 19.8 % (6.1) % 14.1 %
Change in income from
operations (10.5) % 38.2 % 198.0 % 121.0 % N/M 57.4 %
Change in Adjusted EBITDA (8.9) % 31.2 % 115.2 % 73.8 % N/M 39.6 %
_______________________________________________________________________________
N/M - Not meaningful.
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Regulatory Changes
Our Annual Report on Form 10-K for the year ended December 31, 2020 , filed with
the SEC on February 25, 2021 , 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 HHS and CMS. Revenue generated directly from the Medicare
program represented approximately 23% of our revenue for the nine months ended
September 30, 2021 , and 25% of our revenue for the year ended December 31, 2020 .
Federal Health Care Program Changes in Response to the COVID-19 Pandemic
On January 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 in the United States . The HHS Secretary renewed the public health
emergency determination for 90-day periods effective on April 26, 2020 , July 25,
2020 , October 23, 2020 , January 21, 2021 , April 21, 2021 , July 20, 2021 , and
October 18, 2021 . 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") 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 for October 1, 2019 through June 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 Office of the Inspector General
("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.
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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
the District 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 on March 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 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 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 $16 billion from the additional $20 billion allocation. 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 may apply for a Phase 4 General Distribution payment
if they have lost revenues and eligible expenses from July 1, 2020 to March 31,
2021 . HHS says 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
allows applicants to seek a payment from a $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 the Public 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.
33-------------------------------------------------------------------------------- Table of Contents 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 must 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 will 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 sequester cuts that will apply in fiscal year 2030. 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 theSocial 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 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. 34
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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 the long-term care hospital prospective
payment system ("LTCH-PPS").
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 fiscal year 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 the COVID-19 emergency period and in
response to the public health emergency, as discussed above.
Fiscal Year 2021. On September 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 after October 1, 2020
through September 30, 2021 ). Certain errors in the final rule were corrected in
a document published December 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 and a permanent, one-time budget neutrality adjustment of 1.000517 in
connection with the elimination of the 25 Percent Rule. 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 2021,
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 $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. On August 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 after October 1, 2021
through September 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 before or 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 .
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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 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 August 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 after October 1, 2020
through September 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. On August 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 after October 1, 2021
through September 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 Merit-Based 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%.
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 evaluation and
management ("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.
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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 will receive an estimated 3.6% decrease in payment from
Medicare in calendar year 2021. Legislation was introduced in Congress that, if
enacted, would waive the budget neutrality requirement with respect to the E/M
codes for 2021 in order to avoid or minimize cuts to physical and occupational
therapy services and other code values. Separately, the Consolidated
Appropriations Act, 2021, provides a one-time 3.75% increase in payments in
calendar year 2021 for therapy services and other services paid under the
physician fee schedule. This 3.75% increase will expire at the end of calendar
year 2021.
In the display copy of the calendar year 2022 physician fee schedule final rule,
CMS adopted its plan to transition the MIPS program to MIPS Value Pathways
("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. The
first seven MVPs for 2023 align with the following clinical topics: (1)
Rheumatology; (2) Stroke Care and Prevention; (3) Heart Disease; (4) Chronic
Disease Management; (5) Emergency Medicine; (6) Lower Extremity Joint Repair;
and (7) Anesthesia. 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.
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. In the display copy of 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
after January 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 the
CQ 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.
IMPACT Act
In October 2014 , President Obama signed into law the Improving Medicare
Post-Acute Care Transformation Act of 2014 (the "IMPACT Act"). The IMPACT Act
made a number of changes and additions to Medicare quality reporting for LTCHs,
IRFs, skilled nursing facilities ("SNFs"), and home health agencies ("HHAs"). In
addition, the IMPACT Act requires HHS and the Medicare Payment Advisory
Commission ("MedPAC") to develop a technical prototype for a unified post-acute
care ("PAC") prospective payment system ("PPS") that could replace the four
existing payment systems for LTCHs, IRFs, SNFs, and HHAs.
37-------------------------------------------------------------------------------- Table of Contents The IMPACT Act directed HHS to begin requiring providers to report certain standardized patient assessment data to CMS. HHS had to adopt this reporting requirement byOctober 1, 2018 , for LTCHs, IRFs, and SNFs, and byJanuary 1, 2019 , for HHAs. The IMPACT Act also required CMS to adopt and implement new cross-setting quality measures addressing, at a minimum, the following quality domains: (1) functional status, cognitive function, and changes in function and cognitive function; (2) skin integrity and changes in skin integrity; (3) medication reconciliation; (4) incidence of major falls; and (5) providing for the transfer of health information and treatment preferences of the patient upon transition from a hospital or critical access hospital to another setting, including a PAC provider or the individual's home, or upon transition from a PAC provider to another setting including a different PAC provider, hospital, critical access hospital, or the individual's home. Next, the IMPACT Act required that byOctober 1, 2016 , for SNFs, IRFs and LTCHs, and byJanuary 1, 2017 , for HHAs, CMS specify resource use and other measures for inclusion in the applicable reporting provisions. At a minimum, the resource use measures must include the following resource use domains: (1) resource use measures, including total estimated Medicare spending per beneficiary; (2) discharge to community; and (3) measures to reflect all-condition risk-adjusted hospitalization rates of potentially preventable readmission rates. CMS began implementing the IMPACT Act's data reporting requirements in the FY 2016 rulemakings for LTCHs, IRFs, SNFs, and HHAs. In addition to the new reporting requirements, the IMPACT Act outlined a process for the potential development of a unified PAC PPS. The IMPACT Act does not require CMS to adopt a unified PAC PPS, nor does it provide CMS with specific authority to implement a new payment system. However, the IMPACT Act does require HHS and MedPAC to submit a series of reports toCongress with recommendations and a technical prototype for a PAC PPS. These recommendations and prototypes could become the basis of future legislation that would create a unified PAC PPS to replace some or all of the existing Medicare payment systems for LTCHs, IRFs, SNFs, and HHAs. MedPAC submitted the first report toCongress inJune 2016 . The report included recommended features for a unified PAC payment system. The Secretary of HHS will submit the next report toCongress with recommendations and a technical prototype. The Secretary's report is due no later than two years after CMS has collected two years of data on the quality measures required by the IMPACT Act. After the Secretary's report, MedPAC is to submit a second report toCongress with recommendations and a technical prototype for a new PAC payment system. The Secretary is expected to issue his report toCongress sometime in 2022. However, a bipartisan bill introduced in theHouse of Representatives inApril 2021 would require the Secretary to first collect eight quarters of IMPACT Act data, including standardized patient assessment data, quality measure data, resource use and claims data, before submitting his report toCongress . The legislation would require that the eight quarters of data could not include any month in which the COVID-19 public health emergency, or a similar nationwide public health emergency, is ongoing. The recommendations and technical prototype in the Secretary's report would also need to account for the role and value of each PAC provider-type during public health emergencies, including the COVID-19 public health emergency, by, for example, looking at the proportion and acuity levels of COVID-19 patients treated in each PAC setting. If enacted, the Secretary's report would not be submitted before the later ofJanuary 1, 2024 or two years after the Secretary collects eight quarters of data. Price Transparency StartingJanuary 1, 2021 , new regulations went into effect requiring hospitals to provide clear and accessible pricing information online regarding the items and services they provide. First, a new regulation requires hospitals to provide a machine readable file containing the following standard charges for all items and services provided by the hospital: gross charges, discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges. Second, hospitals must provide a consumer-friendly display of standard charges for at least 300 "shoppable services" that consumers can schedule in advance. If a hospital does not offer 300 "shoppable services," then the hospital must provide the consumer-friendly display of standard charges for all of the "shoppable services" that it does provide. For each "shoppable service," hospitals must provide: discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges. For hospitals that do not comply with these requirements, CMS may issue a warning notice, request a corrective action plan, and impose a civil monetary penalty that is publicized on the CMS website. These regulations were promulgated by the Trump administration and, onJuly 9, 2021 ,President Biden issued an Executive Order directing HHS to support the new price transparency regulations. OnJuly 19, 2021 , CMS issued a proposed rule to increase fines for hospitals that do not comply with the price transparency regulations of at least$300 per day, not to exceed$2,007,500 per hospital per year. CMS asked for comments on alternative or additional criteria that could be used to scale a penalty, and its proposal that the machine-readable file of hospital charges is accessible to automated searches and direct downloads. 38 -------------------------------------------------------------------------------- Table of Contents Surprise Billing OnJuly 13, 2021 , HHS, theDepartment of the Treasury , theDepartment of Labor and theOffice of Personnel Management published an interim final rule with comment period to implement certain provisions of the No Surprises Act, which was enacted as part of the Consolidated Appropriations Act, 2021. The interim final rule includes new regulations aimed at limiting surprise medical bills issued by health care providers to consumers. The HHS regulations adopted by this interim final rule are effectiveJanuary 1, 2022 and apply to hospital emergency departments, freestanding emergency departments, health care providers and facilities, and providers of air ambulance services. The new regulations do not apply to patients covered by Medicare, Medicaid,Indian Health Services ,Veterans Affairs health care, or TRICARE because these programs already prohibit balance billing. StartingJanuary 1, 2022 , the interim final rule's new regulations will apply to patients with health insurance coverage from a group health plan (including a self-insured group health plan) or from an individual market health insurance issuer. First, if a plan provides coverage for emergency services, the interim final rule requires that emergency services must be covered: (1) without prior authorization; (2) regardless of whether the provider is an in-network provider or an in-network emergency facility; and (3) regardless of any other term or condition of the plan or coverage other than the exclusion or coordination of benefits, or a permitted affiliation or waiting period. Second, the interim final rule includes new limits on patient cost-sharing obligations for out-of-network services. Specifically, patient cost-sharing amounts for emergency services provided by out-of-network emergency facilities and out-of-network providers, and certain non-emergency services furnished by out-of-network providers at certain in-network facilities, must be calculated based on one of the following amounts: (1) an amount determined by an applicable All-Payer Model Agreement under section 1115A of the Social Security Act; (2) a specified state law if there is no such All-Payer Model Agreement; or (3) if neither of the above apply, the lesser amount of either the billed charge or the qualifying payment amount, which is generally the plan or issuer's median contracted rate. Third, the interim final rule prohibits non-participating providers, health care facilities, and providers of air ambulance services from balance billing participants, beneficiaries, and enrollees in certain situations. Fourth, the interim final rule establishes that the total amount to be paid to an out-of-network provider or facility, including any cost-sharing, is based on: (1) an amount determined by an applicable All-Payer Model Agreement under section 1115A of the Social Security Act; (2) a specified state law if there is no such All-Payer Model Agreement; or (3) an amount agreed upon by the plan or issuer and the provider or facility if there is no such Agreement or state law. If none of these three circumstances apply, then the amount is determined by an independent dispute resolution ("IDR") entity. Fifth, a new regulation requires providers and facilities to make publicly available and provide patients with a one-page notice regarding the requirements and prohibitions applicable to the provider or facility regarding balance billing, any applicable state balance billing prohibitions or limitations, and information on how to contact appropriate state and federal agencies if the patient believes the provider or facility has violated the requirements described in the notice. Finally, the interim final rule establishes a process for HHS to receive and resolve complaints regarding information that any health care provider, provider of air ambulance services, or health care facility may be failing to meet the requirements set forth in the interim final rule. Because these new regulations were adopted through an interim final rule with comment period, they may be modified after CMS reviews public comments. The comment period closed onSeptember 7, 2021 . In a separate interim final rule, published onOctober 7, 2021 , HHS, theDepartment of the Treasury , theDepartment of Labor and theOffice of Personnel Management adopted regulations that will govern the IDR process that will be available to providers and insurers that are unable to agree on the payment rate for out-of-network providers. These new regulations will go into effect onJanuary 1, 2022 . The new IDR process presumes that the qualifying payment amount ("QPA") is the appropriate payment rate for an out-of-network service. Accordingly, the new IDR regulations require arbitrators to choose the offer that is closest to the QPA, unless the arbitrator determines that a party has credible information demonstrating that the QPA is "materially different" from the appropriate out-of-network rate for the item or service. The factors the arbitrator may consider to determine if the QPA is not the appropriate rate include: (1) the provider's training, experience, and quality and outcome measurements; (2) the provider's market share in the region; (3) patient acuity or the complexity of furnishing the item or service to the patient; (4) the provider's teaching status, case mix, and scope of services offered; and (5) whether the provider or the plan engaged in good faith efforts to enter into a network agreement. Separate regulations in this interim final rule address a dispute resolution process for uninsured patients who receive a good faith estimate of expected charges from a provider, but are then billed an amount that substantially exceeds the estimated charges. When the provider's billed charges are more than$400 greater than the good faith estimate, an uninsured patient may initiate a patient-provider dispute resolution process by submitting a notification to HHS within 120 days of receiving the provider's bill. The dispute resolution entity will then examine whether the provider has credible information demonstrating that the excess charges are attributable to unforeseen circumstances that the provider could not have reasonably anticipated when the provider made the good faith estimate. The regulations for both the provider-insurer IDR process and the provider-patient dispute resolution process could be revised in response to comments submitted to the agencies' issuance of this interim final rule. The comment period closes onDecember 6, 2021 . 39 -------------------------------------------------------------------------------- Table of Contents Operating Statistics The following table sets forth operating statistics for each of our reportable 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. Three Months Ended September 30, Nine Months Ended September 30, 2020 2021 2020 2021 Critical illness recovery hospital data: Number of hospitals owned-start of period 100 99 100 99 Number of hospitals acquired - 1 - 1 Number of hospital start-ups - - - - Number of hospitals closed/sold (1) - (1) - Number of hospitals owned-end of period 99 100 99 100 Number of hospitals managed-end of period 1 - 1 - Total number of hospitals (all)-end of period 100 100 100 100 Available licensed beds(1) 4,250 4,369 4,250 4,369 Admissions(1)(2) 9,380 9,250 28,080 28,135 Patient days(1)(3) 279,063 272,454 826,410 838,553 Average length of stay (days)(1)(4) 30 30 30 30 Revenue per patient day(1)(5) $ 1,845$ 1,931 $ 1,850$ 1,982 Occupancy rate(1)(6) 71 % 68 % 71 % 70 % Percent patient days-Medicare(1)(7) 43 % 39 % 45 % 39 % Rehabilitation hospital data: Number of hospitals owned-start of period 19 20 19 19 Number of hospitals acquired - - - 1 Number of hospital start-ups - - - - Number of hospitals closed/sold (1) - (1) - Number of hospitals owned-end of period 18 20 18 20 Number of hospitals managed-end of period 11 10 11 10 Total number of hospitals (all)-end of period 29 30 29 30 Available licensed beds(1) 1,267 1,361 1,267 1,361 Admissions(1)(2) 6,443 7,243 18,489 21,734 Patient days(1)(3) 95,680 102,953 274,329 310,340 Average length of stay (days)(1)(4) 15 14 15 14 Revenue per patient day(1)(5) $ 1,775$ 1,881 $ 1,777$ 1,861 Occupancy rate(1)(6) 82 % 82 % 77 % 84 % Percent patient days-Medicare(1)(7) 48 % 50 % 48 % 50 % Outpatient rehabilitation data: Number of clinics owned-start of period 1,475 1,528 1,461 1,503 Number of clinics acquired 5 5 8 17 Number of clinic start-ups 18 15 43 37 Number of clinics closed/sold (5) (6) (19) (15) Number of clinics owned-end of period 1,493 1,542 1,493 1,542 Number of clinics managed-end of period 284 308 284 308 Total number of clinics (all)-end of period 1,777 1,850 1,777 1,850 Number of visits(1)(8) 1,983,372 2,347,070 5,448,304 6,852,085 Revenue per visit(1)(9) $ 104$ 102 $ 105$ 103 40
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Three Months Ended September 30, Nine Months Ended September 30,
2020 2021 2020 2021
Concentra data:
Number of centers owned-start of period 522 518 521 517
Number of centers acquired 2 - 6 3
Number of center start-ups 1 2 1 2
Number of centers closed/sold (2) (1) (5) (3)
Number of centers owned-end of period 523 519 523 519
Number of onsite clinics operated-end of
period 133 135 133 135
Number of visits(1)(8) 2,827,047 3,223,631 7,855,522 9,049,283
Revenue per visit(1)(9) $ 121 $ 124 $ 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 andConcentra centers during the periods 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. 41 -------------------------------------------------------------------------------- Table of Contents Results of Operations The following table outlines selected operating data as a percentage of revenue for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2020 2021 2020 2021 Revenue 100.0 % 100.0 % 100.0 % 100.0 % Costs and expenses: Cost of services, exclusive of depreciation and amortization(1) 82.9 84.6 85.1 83.6 General and administrative 2.5 2.5 2.5 2.3 Depreciation and amortization 3.5 3.2 3.8 3.3 Total costs and expenses 88.9 90.3 91.4 89.2 Other operating income (0.1) 0.1 1.3 2.9 Income from operations 11.0 9.8 9.9 13.7 Equity in earnings of unconsolidated subsidiaries 0.6 0.7 0.5 0.7 Gain on sale of businesses 0.4 - 0.3 - Interest income - - - 0.1 Interest expense (2.4) (2.2) (2.9) (2.2) Income before income taxes 9.6 8.3 7.8 12.3 Income tax expense 2.3 1.8 1.8 3.0 Net income 7.3 6.5 6.0 9.3 Net income attributable to non-controlling interests 1.9 1.5 1.5 1.7 Net income attributable to Select Medical Holdings Corporation 5.4 % 5.0 % 4.5 % 7.6 %
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(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 September 30, Nine Months Ended September 30,
2020 2021 % Change 2020 2021 % Change
(in thousands, except percentages)
Revenue:
Critical illness recovery hospital$ 519,454 $ 530,646 2.2 %$ 1,539,601 $ 1,669,577 8.4 % Rehabilitation hospital 188,075 212,434 13.0 538,761 632,904 17.5 Outpatient rehabilitation 240,042 274,540 14.4 662,429 806,910 21.8 Concentra 391,859 442,190 12.8 1,102,732 1,321,402 19.8 Other(1) 84,439 74,411 (11.9) 227,696 213,911 (6.1)Total Company $ 1,423,869 $ 1,534,221 7.8 %$ 4,071,219 $ 4,644,704 14.1 % Income (loss) from operations: Critical illness recovery hospital(2)$ 76,309 $ 44,273 (42.0) %$ 228,394 $ 204,463 (10.5) % Rehabilitation hospital 37,727 37,207 (1.4) 90,107 124,510 38.2 Outpatient rehabilitation 23,392 31,443 34.4 29,820 88,869 198.0 Concentra(2) 58,958 78,878 33.8 115,709 255,754 121.0 Other(1)(2) (40,254) (41,546) N/M (59,702) (37,361) N/MTotal Company $ 156,132 $ 150,255 (3.8) %$ 404,328 $ 636,235 57.4 % Adjusted EBITDA: Critical illness recovery hospital(2)$ 88,830 $ 57,245 (35.6) %$ 267,143 $ 243,421 (8.9) % Rehabilitation hospital 44,637 44,076 (1.3) 110,811 145,378 31.2 Outpatient rehabilitation 30,623 38,762 26.6 51,463 110,724 115.2 Concentra(2) 80,547 99,832 23.9 183,510 318,907 73.8 Other(1)(2) (31,433) (31,338) N/M (33,638) (9,491) N/MTotal Company $ 213,204 $ 208,577 (2.2) %$ 579,289 $ 808,939 39.6 %
Adjusted EBITDA margins: Critical illness recovery hospital(2) 17.1 % 10.8 % 17.4 % 14.6 % Rehabilitation hospital 23.7 20.7 20.6 23.0 Outpatient rehabilitation 12.8 14.1 7.8 13.7 Concentra(2) 20.6 22.6 16.6 24.1 Other(1)(2) N/M N/M N/M N/MTotal Company 15.0 % 13.6 % 14.2 % 17.4 % Total assets: Critical illness recovery hospital$ 2,160,157 $ 2,181,405 $ 2,160,157 $ 2,181,405 Rehabilitation hospital 1,144,436 1,191,093 1,144,436 1,191,093 Outpatient rehabilitation 1,298,938 1,339,452 1,298,938 1,339,452 Concentra 2,355,644 2,609,361 2,355,644 2,609,361 Other(1) 700,702 578,162 700,702 578,162Total Company $ 7,659,877 $ 7,899,473 $ 7,659,877 $ 7,899,473 Purchases of property and equipment: Critical illness recovery hospital$ 11,126 $ 12,365 $ 35,061 $ 43,249 Rehabilitation hospital 1,636 4,366 6,884 8,288 Outpatient rehabilitation 7,268 9,481 22,245 24,264 Concentra 11,985 11,353 34,391 31,624 Other(1) 2,304 11,379 6,991 17,961Total Company $ 34,319 $ 48,944 $ 105,572 $ 125,386
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(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) During the three months endedSeptember 30, 2021 and 2020, we recognized other operating income of$1.7 million and a reduction to other operating income of$1.2 million , respectively. During the nine months endedSeptember 30, 2021 and 2020, we recognized other operating income of$133.8 million and$53.8 million , respectively. The impact of this income on the operating results of our critical illness recovery hospital segment,Concentra segment, and other activities is outlined within the tables presented under "Summary Financial Results" for the three and nine months endedSeptember 30, 2021 and 2020. N/M - Not meaningful. 43 -------------------------------------------------------------------------------- Table of Contents Three Months EndedSeptember 30, 2021 , Compared to Three Months EndedSeptember 30, 2020 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 7.8% to$1,534.2 million for the three months endedSeptember 30, 2021 , compared to$1,423.9 million for the three months endedSeptember 30, 2020 . Critical Illness Recovery Hospital Segment. Revenue increased 2.2% to$530.6 million for the three months endedSeptember 30, 2021 , compared to$519.5 million for the three months endedSeptember 30, 2020 . The increase in revenue was due to an increase in revenue per patient day during the three months endedSeptember 30, 2021 , as compared to the three months endedSeptember 30, 2020 . Revenue per patient day increased 4.7% to$1,931 for the three months endedSeptember 30, 2021 , compared to$1,845 for the three months endedSeptember 30, 2020 . We experienced increases in both our non-Medicare and Medicare revenue per patient day during the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 . Occupancy in our critical illness recovery hospitals was 68% for the three months endedSeptember 30, 2021 , 71% for the three months endedSeptember 30, 2020 , and 67% for the three months endedSeptember 30, 2019 . We had 272,454 patient days for the three months endedSeptember 30, 2021 , 279,063 days for the three months endedSeptember 30, 2020 , and 258,089 days for the three months endedSeptember 30, 2019 . Our patient days for the three months endedSeptember 30, 2021 decreased 2.4% and increased 5.6% in comparison to the same periods in 2020 and 2019, respectively. For the three months endedSeptember 30, 2021 , our patient days were positively impacted by the acquisition of two hospitals sinceSeptember 30, 2020 , as well as the reopening of our Panama City hospital inJuly 2020 . These hospitals contributed 9,999 patient days during the three months endedSeptember 30, 2021 , as compared to 1,189 patient days during the three months endedSeptember 30, 2020 . Rehabilitation Hospital Segment. Revenue increased 13.0% to$212.4 million for the three months endedSeptember 30, 2021 , compared to$188.1 million for the three months endedSeptember 30, 2020 . The increase in revenue resulted from increases in both patient volume and revenue per patient day during the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 . Occupancy in our rehabilitation hospitals was 82% for both the three months endedSeptember 30, 2021 and 2020. Our patient days increased 7.6% to 102,953 days for the three months endedSeptember 30, 2021 , compared to 95,680 days for the three months endedSeptember 30, 2020 . We experienced an increase of 6,294 patient days as a result of acquiring controlling interests in two rehabilitation hospitals sinceSeptember 30, 2020 . We also experienced a 1.0% increase in patient days in our rehabilitation hospitals which operated during both the three months endedSeptember 30, 2021 and 2020. Our revenue per patient day increased 6.0% to$1,881 for the three months endedSeptember 30, 2021 , compared to$1,775 for the three months endedSeptember 30, 2020 . We experienced increases in both our non-Medicare and Medicare revenue per patient day during the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 . Outpatient Rehabilitation Segment. Revenue increased 14.4% to$274.5 million for the three months endedSeptember 30, 2021 , compared to$240.0 million for the three months endedSeptember 30, 2020 . The increase in revenue was attributable to an increase in visits, which increased 18.3% to 2,347,070 for the three months endedSeptember 30, 2021 , compared to 1,983,372 visits for the three months endedSeptember 30, 2020 . During the three months endedSeptember 30, 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 three months endedSeptember 30, 2021 , compared to$104 for the three months endedSeptember 30, 2020 . During the three months endedSeptember 30, 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 three months endedSeptember 30, 2021 , as compared to the three months endedSeptember 30, 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 . 44 -------------------------------------------------------------------------------- Table of Contents Concentra Segment. Revenue increased 12.8% to$442.2 million for the three months endedSeptember 30, 2021 , compared to$391.9 million for the three months endedSeptember 30, 2020 . Our patient visits, which increased 14.0% to 3,223,631 for the three months endedSeptember 30, 2021 , compared to 2,827,047 visits for the three months endedSeptember 30, 2020 , contributed to the increase in revenue. During the three months endedSeptember 30, 2020 , our centers experienced significant declines in patient visit volume due to employers furloughing their workforce and temporarily ceasing or significantly reducing their operations. As a result of the COVID-19 pandemic, we generated revenue from COVID-19 screening and testing services. These services contributed$20.6 million of revenue during the three months endedSeptember 30, 2021 , compared to$14.8 million during the three months endedSeptember 30, 2020 . During the three months endedSeptember 30, 2021 , our revenue per visit increased to$124 , compared to$121 for the three months endedSeptember 30, 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 three months endedSeptember 30, 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 change in the revenue of theConcentra segment was impacted by the sale of itsDepartment of Veterans Affairs community-based outpatient clinic business onSeptember 1, 2020 . This business contributed$14.8 million of revenue to theConcentra segment during the three months endedSeptember 30, 2020 . Operating Expenses Our operating expenses consist principally of cost of services and general and administrative expenses. Our operating expenses were$1,335.6 million , or 87.1% of revenue, for the three months endedSeptember 30, 2021 , compared to$1,216.5 million , or 85.4% of revenue, for the three months endedSeptember 30, 2020 . Our cost of services, a major component of which is labor expense, was$1,297.7 million , or 84.6% of revenue, for the three months endedSeptember 30, 2021 , compared to$1,181.0 million , or 82.9% of revenue, for the three months endedSeptember 30, 2020 . The increase in our operating expenses relative to our revenue was principally attributable to the incurrence of additional operating expenses within our critical illness recovery hospital and rehabilitation hospital segments, as explained further within the "Adjusted EBITDA" discussion. General and administrative expenses were$37.9 million , or 2.5% of revenue, for the three months endedSeptember 30, 2021 , compared to$35.5 million , or 2.5% of revenue, for the three months endedSeptember 30, 2020 . Other Operating Income Other operating income was$1.7 million for the three months endedSeptember 30, 2021 , compared to a reduction to other operating income of$1.2 million for the three months endedSeptember 30, 2020 . The 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. The reduction in other operating income for the three months endedSeptember 30, 2020 resulted from changes to the terms and conditions associated with theProvider Relief Fund program. Other operating income of$1.6 million and$0.1 million is included within the operating results of ourConcentra segment and other activities, respectively, for the three months endedSeptember 30, 2021 . Other operating income of$0.4 million and a reduction to other operating income of$1.5 million is included within the operating results of ourConcentra segment and other activities, respectively, for the three months endedSeptember 30, 2020 . Adjusted EBITDA Critical Illness Recovery Hospital Segment. Adjusted EBITDA was$57.2 million for the three months endedSeptember 30, 2021 , compared to$88.8 million for the three months endedSeptember 30, 2020 . Our Adjusted EBITDA margin for the critical illness recovery hospital segment was 10.8% for the three months endedSeptember 30, 2021 , compared to 17.1% for the three months endedSeptember 30, 2020 . Our Adjusted EBITDA and Adjusted EBITDA margin were adversely affected by the incurrence of additional operating expenses as a result of the effects of the COVID-19 pandemic. We experienced an increase in operating expenses during the three months endedSeptember 30, 2021 , as compared to the three months endedSeptember 30, 2020 . Our critical illness recovery hospitals have experienced increased usage of contract clinical labor during this time and the cost of this labor has risen significantly due to the demand for healthcare professionals. Additionally, our critical illness recovery hospitals have modified certain of their protocols which have resulted in increased costs, including adjusting staffing ratios and purchasing additional personal protective equipment, in order to follow the guidelines and recommendations for patient treatment and for the protection of both our patients and staff members. 45 -------------------------------------------------------------------------------- Table of Contents Rehabilitation Hospital Segment. Adjusted EBITDA was$44.1 million for the three months endedSeptember 30, 2021 , compared to$44.6 million for the three months endedSeptember 30, 2020 . Our Adjusted EBITDA margin for the rehabilitation hospital segment was 20.7% for the three months endedSeptember 30, 2021 , compared to 23.7% for the three months endedSeptember 30, 2020 . The decreases in Adjusted EBITDA and Adjusted EBITDA margin for our rehabilitation hospital segment were driven by the incurrence of additional operating expenses. This was due in part to the effects of the COVID-19 pandemic. Our rehabilitation hospitals have experienced increased usage of contract clinical labor during this time and the cost of this labor has risen significantly due to the demand for healthcare professionals. Outpatient Rehabilitation Segment. Adjusted EBITDA increased 26.6% to$38.8 million for the three months endedSeptember 30, 2021 , compared to$30.6 million for the three months endedSeptember 30, 2020 . Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 14.1% for the three months endedSeptember 30, 2021 , compared to 12.8% for the three months endedSeptember 30, 2020 . The increases in Adjusted EBITDA and Adjusted EBITDA margin were driven by increases in patient visit volume. During the three months endedSeptember 30, 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 23.9% to$99.8 million for the three months endedSeptember 30, 2021 , compared to$80.5 million for the three months endedSeptember 30, 2020 . Our Adjusted EBITDA margin for theConcentra segment was 22.6% for the three months endedSeptember 30, 2021 , compared to 20.6% for the three months endedSeptember 30, 2020 . The increase in patient visit volume contributed to the increases in Adjusted EBITDA and Adjusted EBITDA margin. As discussed further above, ourConcentra segment experienced significant declines in patient visit volume as a result of the effects of the COVID-19 pandemic during the three months endedSeptember 30, 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$1.6 million of other operating income during the three months endedSeptember 30, 2021 , as described further above under "Other Operating Income," compared to$0.4 million for the three months endedSeptember 30, 2020 . Depreciation and Amortization Depreciation and amortization expense was$50.1 million for both the three months endedSeptember 30, 2021 and 2020. Income from Operations For the three months endedSeptember 30, 2021 , we had income from operations of$150.3 million , compared to$156.1 million for the three months endedSeptember 30, 2020 . The decline in income from operations was principally attributable to the incurrence of additional operating expenses within our critical illness recovery hospital and rehabilitation hospital segments, as explained further within the "Adjusted EBITDA" discussion. Equity in Earnings of Unconsolidated Subsidiaries For the three months endedSeptember 30, 2021 , we had equity in earnings of unconsolidated subsidiaries of$11.5 million , compared to$8.8 million for the three months endedSeptember 30, 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$5.1 million attributable to the sale of businesses during the three months endedSeptember 30, 2020 . During the three months endedSeptember 30, 2020 , we soldConcentra's Department of Veterans Affairs community-based outpatient clinic business and a rehabilitation hospital business, which resulted in gains totaling$14.1 million . We also incurred a loss of$9.0 million related to an indemnity claim associated with a previously sold business. Interest Interest expense was$33.8 million for the three months endedSeptember 30, 2021 , compared to$34.0 million for the three months endedSeptember 30, 2020 . 46
-------------------------------------------------------------------------------- Table of Contents Income Taxes We recorded income tax expense of$27.7 million for the three months endedSeptember 30, 2021 , which represented an effective tax rate of 21.6%. We recorded income tax expense of$31.6 million for the three months endedSeptember 30, 2020 , which represented an effective tax rate of 23.2%. The decrease in the effective tax rate resulted from stock compensation deductions and research and development tax credits. Net Income Attributable to Non-Controlling Interests Net income attributable to non-controlling interests was$23.3 million for the three months endedSeptember 30, 2021 , compared to$27.5 million for the three months endedSeptember 30, 2020 . The decline in net income attributable to non-controlling interests was principally due to a change in our ownership interest of Concentra Group Holdings Parent that occurred onDecember 31, 2020 . SinceSeptember 30, 2020 , we have acquired additional outstanding membership interests of Concentra Group Holdings Parent. Consequently, the non-controlling interest holders of Concentra Group Holdings Parent are attributed a lesser share of the earnings of theConcentra segment. 47 -------------------------------------------------------------------------------- Table of Contents Nine Months EndedSeptember 30, 2021 , Compared to Nine Months EndedSeptember 30, 2020 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 14.1% to$4,644.7 million for the nine months endedSeptember 30, 2021 , compared to$4,071.2 million for the nine months endedSeptember 30, 2020 . Critical Illness Recovery Hospital Segment. Revenue increased 8.4% to$1,669.6 million for the nine months endedSeptember 30, 2021 , compared to$1,539.6 million for the nine months endedSeptember 30, 2020 . The increase in revenue was principally due to an increase in revenue per patient day during the nine months endedSeptember 30, 2021 , as compared to the nine months endedSeptember 30, 2020 . Revenue per patient day increased 7.1% to$1,982 for the nine months endedSeptember 30, 2021 , compared to$1,850 for the nine months endedSeptember 30, 2020 . We experienced increases in both our non-Medicare and Medicare revenue per patient day during the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 . Our critical illness recovery hospitals experienced an increase in patient acuity during the nine months endedSeptember 30, 2021 which contributed to the increase in Medicare revenue per patient day. The temporary suspension of the 2.0% cut to Medicare payments due to sequestration, which is described further under "Regulatory Changes," also contributed to the increase in revenue per patient day. Occupancy in our critical illness recovery hospitals was 70% for the nine months endedSeptember 30, 2021 , 71% for the nine months endedSeptember 30, 2020 , and 69% for the nine months endedSeptember 30, 2019 . We had 838,553 patient days for the nine months endedSeptember 30, 2021 , 826,410 days for the nine months endedSeptember 30, 2020 , and 779,078 days for the nine months endedSeptember 30, 2019 . Our patient days for the nine months endedSeptember 30, 2021 increased 1.5% and 7.6% in comparison to the same periods in 2020 and 2019, respectively. Our patient days for the nine months endedSeptember 30, 2021 were positively impacted by the acquisition of two hospitals sinceSeptember 30, 2020 and the reopening of our Panama City hospital inJuly 2020 . These hospitals contributed 27,546 patient days during the nine months endedSeptember 30, 2021 , as compared to 1,189 patient days during the nine months endedSeptember 30, 2020 . Rehabilitation Hospital Segment. Revenue increased 17.5% to$632.9 million for the nine months endedSeptember 30, 2021 , compared to$538.8 million for the nine months endedSeptember 30, 2020 . The increase in revenue resulted from increases in both patient volume and revenue per patient day during the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 . Occupancy in our rehabilitation hospitals increased to 84% for the nine months endedSeptember 30, 2021 , compared to 77% for the nine months endedSeptember 30, 2020 . Our patient days increased 13.1% to 310,340 days for the nine months endedSeptember 30, 2021 , compared to 274,329 days for the nine months endedSeptember 30, 2020 . We experienced an increase of 19,145 patient days as a result of acquiring controlling interests in two rehabilitation hospitals sinceSeptember 30, 2020 . We also experienced a 7.5% increase in patient days in our rehabilitation hospitals which operated during both the nine months endedSeptember 30, 2021 and 2020. Our patient volume during the nine months endedSeptember 30, 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 nine months endedSeptember 30, 2020 . Our revenue per patient day increased 4.7% to$1,861 for the nine months endedSeptember 30, 2021 , compared to$1,777 for the nine months endedSeptember 30, 2020 . We experienced increases in both our Medicare and non-Medicare revenue per patient day during the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 . The temporary suspension of the 2.0% cut to Medicare payments due to sequestration, which is described further under "Regulatory Changes," contributed to the increase in revenue per patient day. 48
-------------------------------------------------------------------------------- Table of Contents Outpatient Rehabilitation Segment. Revenue increased 21.8% to$806.9 million for the nine months endedSeptember 30, 2021 , compared to$662.4 million for the nine months endedSeptember 30, 2020 . The increase in revenue was attributable to an increase in visits, which increased 25.8% to 6,852,085 for the nine months endedSeptember 30, 2021 , compared to 5,448,304 visits for the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 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$103 for the nine months endedSeptember 30, 2021 , compared to$105 for the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 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 nine months endedSeptember 30, 2021 , as compared to the nine months endedSeptember 30, 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 . Concentra Segment. Revenue increased 19.8% to$1,321.4 million for the nine months endedSeptember 30, 2021 , compared to$1,102.7 million for the nine months endedSeptember 30, 2020 . Our patient visits, which increased 15.2% to 9,049,283 for the nine months endedSeptember 30, 2021 , compared to 7,855,522 visits for the nine months endedSeptember 30, 2020 , contributed to the increase in revenue. During the nine months endedSeptember 30, 2020 , our centers experienced significant declines in patient visit volume due to employers furloughing their workforce and temporarily ceasing or significantly reducing their operations. As a result of the COVID-19 pandemic, we generated revenue from COVID-19 screening and testing services. These services contributed$127.2 million of revenue during the nine months endedSeptember 30, 2021 , compared to$21.1 million during the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 2021 , our revenue per visit increased to$125 , compared to$123 for the nine months endedSeptember 30, 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 nine months endedSeptember 30, 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 change in the revenue of theConcentra segment was impacted by the sale of itsDepartment of Veterans Affairs community-based outpatient clinic business onSeptember 1, 2020 . This business contributed$58.3 million of revenue to theConcentra segment during the nine months endedSeptember 30, 2020 . Operating Expenses Our operating expenses consist principally of cost of services and general and administrative expenses. Our operating expenses were$3,991.6 million , or 85.9% of revenue, for the nine months endedSeptember 30, 2021 , compared to$3,566.6 million , or 87.6% of revenue, for the nine months endedSeptember 30, 2020 . Our cost of services, a major component of which is labor expense, was$3,882.6 million , or 83.6% of revenue, for the nine months endedSeptember 30, 2021 , compared to$3,463.8 million , or 85.1% of revenue, for the nine months endedSeptember 30, 2020 . The decrease in our operating expenses relative to our revenue was principally attributable to the improved operating performances of ourConcentra , outpatient rehabilitation, and rehabilitation hospital segments. This was driven primarily by an increase in patient volume, as described further within the "Revenue" and "Adjusted EBITDA" discussions. General and administrative expenses were$109.0 million , or 2.3% of revenue, for the nine months endedSeptember 30, 2021 , compared to$102.8 million , or 2.5% of revenue, for the nine months endedSeptember 30, 2020 . Other Operating Income Other operating income was$133.8 million for the nine months endedSeptember 30, 2021 , compared to$53.8 million for the nine months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 ,$115.8 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.$82.0 million and$33.8 million of this other operating income is included within the operating results of our other activities andConcentra segment, respectively. For the nine months endedSeptember 30, 2021 ,$17.9 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 nine months endedSeptember 30, 2020 , the other operating income of$53.8 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.$52.7 million and$1.1 million of other operating income is included within the operating results of our other activities andConcentra segment, respectively. 49 -------------------------------------------------------------------------------- Table of Contents Adjusted EBITDA Critical Illness Recovery Hospital Segment. Adjusted EBITDA was$243.4 million for the nine months endedSeptember 30, 2021 , compared to$267.1 million for the nine months endedSeptember 30, 2020 . Our Adjusted EBITDA margin for the critical illness recovery hospital segment was 14.6% for the nine months endedSeptember 30, 2021 , compared to 17.4% for the nine months endedSeptember 30, 2020 . Our Adjusted EBITDA and Adjusted EBITDA margin were adversely affected by the incurrence of additional operating expenses as a result of the effects of the COVID-19 pandemic. We experienced an increase in operating expenses during the nine months endedSeptember 30, 2021 , as compared to the nine months endedSeptember 30, 2020 . Our critical illness recovery hospitals have experienced increased usage of contract clinical labor during this time and the cost of this labor has risen significantly due to the demand for healthcare professionals. Additionally, our critical illness recovery hospitals have modified certain of their protocols which have resulted in increased costs, including adjusting staffing ratios and purchasing additional personal protective equipment, in order to follow the guidelines and recommendations for patient treatment and for the protection of both our patients and staff members. The decrease in Adjusted EBITDA for our critical illness recovery hospital segment was offset in part by the recognition of$17.9 million of other operating income related to the outcome of litigation with CMS during the nine months endedSeptember 30, 2021 , as described further above under "Other Operating Income." Rehabilitation Hospital Segment. Adjusted EBITDA increased 31.2% to$145.4 million for the nine months endedSeptember 30, 2021 , compared to$110.8 million for the nine months endedSeptember 30, 2020 . Our Adjusted EBITDA margin for the rehabilitation hospital segment was 23.0% for the nine months endedSeptember 30, 2021 , compared to 20.6% for the nine months endedSeptember 30, 2020 . The increases in Adjusted EBITDA and Adjusted EBITDA margin were primarily driven by increases in patient volume and revenue per patient day in our rehabilitation hospitals which operated during both the nine months endedSeptember 30, 2021 and 2020, as discussed further under "Revenue." Our two newly acquired rehabilitation hospitals also contributed$7.4 million of Adjusted EBITDA during the nine months endedSeptember 30, 2021 . Outpatient Rehabilitation Segment. Adjusted EBITDA increased to$110.7 million for the nine months endedSeptember 30, 2021 , compared to$51.5 million for the nine months endedSeptember 30, 2020 . Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 13.7% for the nine months endedSeptember 30, 2021 , compared to 7.8% for the nine months endedSeptember 30, 2020 . The increases in Adjusted EBITDA and Adjusted EBITDA margin were driven by increases in patient visit volume. During the nine months endedSeptember 30, 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 to$318.9 million for the nine months endedSeptember 30, 2021 , compared to$183.5 million for the nine months endedSeptember 30, 2020 . Our Adjusted EBITDA margin for theConcentra segment was 24.1% for the nine months endedSeptember 30, 2021 , compared to 16.6% for the nine months endedSeptember 30, 2020 . The increase in patient visit volume contributed to the increases in Adjusted EBITDA and Adjusted EBITDA margin. As discussed further above, ourConcentra segment experienced significant declines in patient visit volume as a result of the effects of the COVID-19 pandemic during the nine months endedSeptember 30, 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$34.0 million of other operating income during the nine months endedSeptember 30, 2021 , as described further above under "Other Operating Income," compared to$1.1 million for the nine months endedSeptember 30, 2020 . Depreciation and Amortization Depreciation and amortization expense was$150.7 million for the nine months endedSeptember 30, 2021 , compared to$154.1 million for the nine months endedSeptember 30, 2020 . Income from Operations For the nine months endedSeptember 30, 2021 , we had income from operations of$636.2 million , compared to$404.3 million for the nine months endedSeptember 30, 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$133.8 million during the nine months endedSeptember 30, 2021 , as described further under "Other Operating Income," compared to$53.8 million of other operating income for the nine months endedSeptember 30, 2020 . 50 -------------------------------------------------------------------------------- Table of Contents Equity in Earnings of Unconsolidated Subsidiaries For the nine months endedSeptember 30, 2021 , we had equity in earnings of unconsolidated subsidiaries of$33.2 million , compared to$19.7 million for the nine months endedSeptember 30, 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$12.7 million attributable to the sale of businesses during the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 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$21.6 million . We also incurred a loss of$9.0 million related to an indemnity claim associated with a previously sold business. Interest Interest expense was$102.1 million for the nine months endedSeptember 30, 2021 , compared to$117.5 million for the nine months endedSeptember 30, 2020 . The decrease in interest expense was principally due to a decline in variable interest rates. For the nine months endedSeptember 30, 2021 , we recognized interest income of$4.7 million . The interest income is related to the outcome of litigation with CMS. Income Taxes We recorded income tax expense of$138.4 million for the nine months endedSeptember 30, 2021 , which represented an effective tax rate of 24.2%. We recorded income tax expense of$76.8 million for the nine months endedSeptember 30, 2020 , which represented an effective tax rate of 24.1%. Net Income Attributable to Non-Controlling Interests Net income attributable to non-controlling interests was$81.3 million for the nine months endedSeptember 30, 2021 , compared to$60.7 million for the nine months endedSeptember 30, 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 nine months endedSeptember 30, 2021 . This increase resulted primarily from its improved operating performance and the recognition of$34.0 million of other operating income, as described further above, during the nine months endedSeptember 30, 2021 . The increase in net income attributable to non-controlling interests also resulted from improvements in the operating performance of our less than wholly owned critical illness recovery hospitals and rehabilitation hospitals. 51
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