Q3 2025 Encompass Health Corp Earnings Call
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Good morning everyone and welcome to Encompass Health. Third quarter 2025 earnings conference call. At this time, I would like to inform all participants that their lines will be in a listen-only mode. After the speakers are marked. They'll be a question and answer period. If you would like to ask a question during this time, please press star 1 on your telephone keypad, you'll be limited to 1 question and 1 follow-up question. Today's conference call is being recorded if you have any objections, you may disconnect at this time. I will now turn the call over to Mark Miller Encompass, Health Chief, investor relations officer.
Thank you, operator. And good morning, everyone. Thank you for joining Encompass Health's third quarter 2025 earnings call. Before we begin, if you do not already have a copy, the third quarter earnings release, supplemental information, and related Form 8-K filed with the SEC are available on our website at encompasshealth.com.
On page 2 of the supplemental information, you will find the Safe Harbor statements which are also set forth in Greater detail on the last page of the earnings release. During the call, we will make forward-looking statements such as guidance and growth projections, which are subject to risks and uncertainties, many of which are beyond our control.
Certain risks and uncertainties, such as those relating to regulatory developments, as well as volume, bad debt, and cost trends, could cause actual results to differ materially from our projections, estimates, and expectations. These are discussed in the company's SEC filings, including the earnings release and related Form AK, the Form 10-K for the year ended December 31, 2024, and the Form 10-Q for the quarters ended March 31, 2022.
Your caution not to place. Under Reliance on the estimates projections, guidance, and other forward-looking information presented which are based on current estimates of future events and speak only. As of today, we do not undertake a duty to update these forward-looking statements.
Our supplemental information and discussion on this call will include certain non-gaap Financial measures for such measures reconciliation to. The most directly comparable gaap measure is available at the end of the supplemental information at the end of the earnings release. And as part of the Form 8K filed yesterday with the SEC, all of which are available on our website.
Q3 255 annualized, RN turnover of 20.2% and annualized, therapist. Turnover of 7.8% are consistent with last year's. Very favorable trends.
In Q3, we opened 3, new hospitals, a 40 bed hospital in. Danbury Connecticut, our first in that state,
A 50 bed hospital in Daytona, Beach. Florida. And a 50 bed hospital in Wildwood Florida, or The Villages.
We also added 39, beds to existing hospitals.
Earlier this month, we opened a 50 Bed Hospital in St. Petersburg, Florida.
We expect open 2 additional 50 bed, hospitals, in Q4, 1 in Amarillo, Texas, and the other in Lake Forest Florida.
And add approximately 37 beds to existing hospitals.
The demand for inpatient rehabilitation services remains considerably underserved and continues to grow as the US population ages.
The Medicare beneficiary population is the fastest-growing segment of the U.S. population.
It is estimated that by 2030, 1 in 5 Americans—more than 70 million people—will be aged 65 or older.
The population aged 65 or older has been growing consistently at a CAGR of approximately 3%.
The average age of our Medicare beneficiary. Patient is 77 years old.
And the age 75 plus population is growing at approximately 4%.
Yet the supply of licensed Earth beds in the US has increased only nominally.
as a result, the demand for treatment of the complex, medical conditions, such as stroke necessitating, Earth care, intensity remains significantly underserved
We are responding.
To address this unmet need, we will continue to open new hospitals and add beds to existing hospitals.
We have again, increased our expected bed Edition growth
We now expect to add approximately 127, beds to existing hospitals, in 2025, and approximately 150 to 200 in both 2026 and 2027.
Our pipeline of announced new hospitals with opening dates, Beyond 2025, currently consists of 14, hospitals, with 690 beds.
With an active pipeline more than 40 Projects additional hospital locations will soon. Join this list.
To this point. Last week, we received seal and approval to build a 40 bed. Hospital in Clarksville Tennessee.
On October 3rd, we converted our ERP system to Oracle Fusion.
Our team worked, tirelessly and diligently for more than 18 months to accomplish this challenge in feet.
We experienced. No significant disruptions to our operations from the conversion.
Although, like any other project of this magnitude,
There remains bugs to be resolved and refinements to be made.
Now, I'll turn it over to Doug.
Thank you, Mark and good morning everyone.
.3%, increase in net revenue per job discharge.
As we have previously, stated quarterly, fluctuations and discharge volume growth, and the composition of that growth between same and new store is a normal expectation of our business model.
Volume growth in any particular quarter is influenced by factors such as the prior year, period, comp the timing of capacity additions in the current and prior year. And the calendar, for example, the day of the week on which the quarter ends and the timing of any holidays,
Specific to Q3.
Discharge growth comp from Q3 24 is a very strong 8.8%.
Q3 2024: Same-store discharge growth of 6.8% is our highest since Q2 2021 when we were normalizing from COVID.
as for the timing of capacity additions, in comparison to Q3 255,
Q3 24. Same store growth benefited from a significantly higher number of denovo. Beds transitioning from new store to same store, as well as a higher number of bed additions to existing hospitals in the immediately preceding quarters.
Additionally, this year, we can Consolidated 2 satellite locations, comprising 72 beds in Cincinnati Ohio and Sewickley Pennsylvania into their host hospitals.
This was primarily attributable to lease expirations and allows for Market rationalization.
Ultimately, we expect a transition much of the volume in these closed units to the remaining hospitals and in the case of Cincinnati, we are adding beds to accommodate this expectation.
Nonetheless, these consolidations had a negative impact of approximately 35 basis points on Q3 total and same store discharge growth.
As Mark stated the market for Earth Services is growing in underserved.
Reflective of this market opportunity, we are again increasing our estimated annual bed additions to existing hospitals through 2027.
We have increased the estimated bed additions to existing hospitals for 2025 from approximately 110 to approximately 127.
And for each of 2026 and 2027 from approximately 120 to, now, 150 to 200.
taken together with our new hospitals capacity, expansions now total approximately 517 beds in 2025,
540 to 590 beds in 2026.
And 450 to 500 beds in 2027.
Q3 25 adjusted ebit, da increased 11.4% to 300.1 million.
The quarter included 10.8 million of net provider, tax revenue, and increase of 7.7 million from Q3 2424 owing. Largely to retroactive payments related to newly initiated programs in Tennessee and West Virginia.
this increase in net provider, tax revenue was
partially offset by a 1.6 million increase in non-controlling interest expense associated, with higher net, provider tax revenues, and joint, venture hospitals,
2325 adjusted IBA de also included a 1.3 million retroactive property tax assessment associated with 1 of our California hospitals.
Approximately 3 million dollars in accelerated supplies purchases and anticipation of the October Fusion Erp conversion.
Q3 swb per FTE. Increased 2.6%.
Premium labor cost comprised of contract, labor and sign on and ship. Bonuses declined, 5.6 million from Q3 2424 to 27 million.
Benefits expense per FTE increased 1.9% as we anniversary read the large increase in group medical claims experienced in Q3 last year.
The additions.
Q3 adjusted free cash flow decreased 8.2% to 174.2 million, primarily due to a 55.8 million increase in working capital, which included accelerated payments of accounts. Payable in preparation for the October Fusion conversion.
We expect accounts payable balances to normalize during Q4.
On a year-to-date basis. Free cash flow increased, 16.5% to 582.5 million.
We have increased our full year, adjusted free cash flow estimate to 730, to 810 million.
During Q3 we repurchased approximately 221,000, shares of our common stock for approximately 25 million, bringing the year-to-date total to approximately 82 million.
We also declared a cash dividend of 19 cents per share, which was paid earlier this month.
Our leverage and liquidity remained. Well positioned, net leverage at quarter end was 2 times.
In September, we retired the remaining $100 million balance of our 2025 5.75% senior notes.
As Mark stated we have, again raised our 2025 guidance.
We now assume net operating revenue of 5.905 to 5.955 billion.
Adjusted. EBA of 1.235 to 1.255 billion.
And adjusted earnings per share of $5.22 to $5.37.
The key considerations underlying, our guidance can be found on page 11 of the supplemental slides.
And with that, we'll open the lines for Q&A.
At this time, if you would like to ask a question, please press star then 1 on your telephone keypad, you may withdraw your question at any time by pressing star then 2 again. It is star then 1 to ask a question and as a reminder we do ask that you limit yourself to 1 question and 1 follow-up question today.
And we will take our first question from Joanna Gadget with Bank of America. Your line is open. Good morning, Johanna Morning, Joe, hi hi. Good morning, yeah. Hi. How are you? Thanks so much for bringing that question. So, I guess, maybe, first on the discussion around the, um, uh, I guess accelerated that additions and then I was too, but it's going to be the
The volumes seem to be the, the issue, I guess, or, uh, you know, with questions or in terms of just slow down this quarter, but obviously, you kind of explain, couple of things but let's talk about the the future, right? Uh, so how should we think about this accelerated beta Edition plans, like impacting your volume growth going forward and I guess to that point, um, you know, you're 6 to 8% sort of long-term, um, growth ago, can you talk about, you know? Um, I know you don't giving specifics for 26 but kind of how should we think about it in into next year? Thank you.
Yes. So, I think the fact that, for the second time this year, we're increasing bed expansions and now doing it for a multi-year period is really a validation of our business model and strategy. It reflects the fact that our de novos have been performing well and are justifying bed expansions as they mature. It also reflects what we've been saying about the unmet need for Earth Services, really across the country, and our unique position to be able to step in and add capacity.
We've also talked in the past that bed additions to existing hospitals, offer the highest return on invested Capital we have so that's a favorable component as well. And I think all of you have observed as we have that, our occupancy has been steadily rising over the last couple of years. So this is in response to that demand that we're seeing at existing facilities. Uh we continue to be very optimistic.
To those hospitals that have a high percentage of semi-private rooms. So that too is helpful with our overall occupancy. I think it's important to note too that these aren't just numbers that we have specifically identified projects and the number of beds that each 1 of those hospitals supporting those increased ranges for bed additions, over the next 3 years.
Thank you so much.
We can move next to pedo checkering with Deutsche Bank, your line is open.
Hey good morning. Good morning guys. You know, not surprisingly I'm not a similar question there but you know, I guess the stepping back here looking at. So the next couple years here and what, what percent of, you know, I guess what? Level of the capex as a percent of Revenue so we'd be modeling in order to keep your discharge growth. You know, in that 608% range. Uh just you know, as you as scaling up, that additions to sort of, you know uh to get to the proper levels of occupancy for more durable growth.
Yeah. So uh growth capex this year at the midpoint of the estimate is about 580 million dollars. We're increasing the number of bed expansions and holding the number of anticipated. The novos relatively constant from year to year. So if you figure at the midpoint of the range at 175, you're up about 50 beds in each of the next 2 years and the
the average cost for a bed on a bed Edition is roughly 8000, that would be the increment of the 580 that you you might pencil in
Okay, great. And then a question on occupancy, you know, in order to maximize margins. That still maintain growth. What is the target occupancy before you, uh, expand badge that facility. Uh and how quickly can you uh expand capacity at those facilities and any color on what percent of your facilities today? Are at Max, occupancy, and a headwind, for growth. Thanks so much.
Yeah. So uh
A lot of it depends on their as we've talked about before in terms.
Of when you're hitting, what? What might be considered? A peak occupancy, the composition, between private and semi-private beds. That Mark mentioned earlier goes a long way towards that determination. Uh, we've been steadily moving the percentage of our overall portfolio that is comprised of private beds. Uh at the end of the of Q3 it was up again to 57% and again that compares favorably to 41% at the end of 2020. Generally speaking, whether it's semi-private or private
A, a hospital starts in our radar screen for potential bed expansion. After it, crosses of 80% of sustained occupancy within an all private room hospital because you're not facing issues of gender or germ compatibility, you can run into the mid 90% uh and and do that very efficiently with semi-private. You're probably going to peek out just south of of 90%
In terms of ability to add beds, it depends on the physical configuration of the plant, uh, and then really whether or not, you're in a CM state or not. I will note that even for our hospitals and seal in States in almost every instance that we can think of the process for adding beds to an existing hospital is much shorter, and less complicated than it is for getting a CO for a new hospital. Uh, when I mentioned the physical plant for the building, we have some older Legacy hospitals that just cannot be expanded anymore.
Uh, we had the ability to address capacity needs in those markets by adding a freestanding satellite, and you've seen us do that effectively a number of places in our portfolio. Uh, we are also uh in the design process on something that we're going to be talking a lot more in the future, which is what we call a small format Hospital, which will be a, a smaller version of a freestanding unit that can be used for bed expansion opportunities.
And Market diversification. Uh, and that would be roughly a 24 bed unit built on say 2 to 2 and a half acres of land. It's a very efficient plan. Again, we expect to be talking more about that in the future. Uh, in most cases where we do have the ability to add beds to an existing, uh, hospital. It can happen pretty quickly. Meaning from the point of ideation to it working its way through the design and construction timeline it less than 24 months, and it may be closer to 18 months.
Great. Thanks so much.
And we will take our next question from Anne Hines with meizuo Securities. Your line is open.
Good morning. Um, you know, I know your stock's down a little bit on today's earnings, did did expectations come in line with your estimates? Did anything surprise you in the quarter versus what you initially thought? And then secondly maybe if you can give an update just on the Washington Outlook and there's anything that um the company's watching closely, thanks
Say no surprises in the quarter other than the retro payment from Tennessee and West Virginia on the net provider taxes. Uh, and maybe the California property assessment. Those were kind of in the cube, but we weren't sure when they would come through. Uh, otherwise, I would say just kind of scanning down the P&L that everything was pretty much in line with our expectations, had another quarter of really good labor management, both in terms of controlling the spend, seeing a year-to-year decrease.
and the premium labor spend, uh, you know, felt really good. We we had been anticipating but until it gets there, you don't know that. We would see a nice decrease in the inflation rate on the benefits because of what we experienced in the second half of last year and it was nice to see yet another quarter, where bad debt was at the low end of our our, uh, expectations, uh, tpe activity did resume at a modest level in Q3. But, uh, again, nothing that caused any alarm in our performance under rcd remains very strong in the latest cycle. So again, aside from maybe the the timing and the magnitude
Of the outer period provider tax revenue. Nothing. That was a surprise Mark. You want to hear? And and a relative to your question around Washington in spite of Washington being
Closed down a lot of a lot of areas. We remain active, there. We are not seeing anything, uh, near-term. That is, uh, of of concern. Uh, it was, uh, it's our understanding that CMS was called back to the office this week. So, uh, hopefully things go back to a normal, uh, flow there. But, uh, we're just not overly concerned about anything that we see right now on the horizon.
And this is Pat just a quick expansion on the the labor comment uh there's a lot to be proud of here. Both our, our centralized ta team and our operators have done a great job. We posted our best same store, net hiring quarter since Q3 at 2023 uh, turnovers back down to pre-pandemic levels and contract labor shipped and sign on bonus are at their lowest level. Since q1 of 2021.
Great. Thank you.
And we can move next to Matthew Gilmour with KeyBank your line is now open.
Hey, good morning, Matt. Hello, Matt. Hey, good morning. Good morning, guys. Um, I thought I might ask about payer mix. I think there was some favorability in the first half with traditional Medicare and VA. It seems like that may be normalized in the third quarter with the moderation in pricing. Just curious if you could give some comments on how payer mix evolved in the third quarter compared to the first half.
Yeah. So in terms of uh a payer mix, if we just look at the growth rates by payer in Q3, uh, relatively comparable between Medicare and Medicare Advantage. Both were up. Uh, or Medicare was up 4.4%. This is total discharge growth. Medicare Advantage was up, 4.8%, Managed Care, saw another nice increase 9.2%, I'll remind you that, that includes the volume that we're getting under the, uh, VA Community Care Network. And that continued to see another, uh, nice increase in the quarter, that was up. And again, it's a
off of a relatively small base, but that was up almost 26% on a year-over-year basis and that pays at the Medicare CMG rate.
Uh, that contract. Now, comprises about 18% of our total Managed Care volume.
Uh, in terms of Elsewhere in the payer mix, you know, Medicaid was up about 3 and a half percent. So overall we feel like the growth across the pairs was pretty well balanced.
That's great. And then, um, Doug, I thought I might see if you could provide some comments on headwinds and tailwinds for 2026. I know you're not providing specific guidance, but anything to call out just from a modeling perspective as we're thinking about next year.
My guess is because we're going to be at roughly the same level on the novo activity, that's ramped up cost and startup cost will be comparable next year to what they are. This year, could be a little bit of fluctuation in bad debt, but things seem to have settled in their
so,
Matt, you know, we're currently in the budgeting process for 2026, but I'm not aware of anything at this point that I would call out as a significant headwind or tailwind.
And look at continuation of the existing environment would not be a bad thing.
Yeah, got it. All right. Thanks guys.
And we will go next to Whit Mayo with Ling Partners. Your line is open
Morning wet morning, wet.
Uh, thanks guys. Um maybe just back to volumes for a second. He Quantified the uh satellite consolidation. I think that was 35 basis points Doug anyway, to put numbers around, the timing of beds, the calendar. I think fourth of July might have been on a Friday. There's some other factors there. I mean, the comp is the compet is what it is. Just wondering, it's just there's any way to put a framework around, maybe just quantifying what some of those other factors might mean optically for the same store discharges. Thanks.
You can, you can kind of walk yourself in circles a little bit trying to do that. It was a little bit of an odd cadence to the quarter. If we compare it to last year, the toughest comp that we were actually up against was the month of July, and yet, we did pretty well in July.
Quarter volume in the quarter, was kind of a u shape.
July was solid. We reached the nater in August and then recovered nicely in in September and so don't know that we can point to any specifics. It's, you know, we've got kind of the same Dynamic with more holidays.
As we look at Q4. And so I think overall the Dynamics with regard to the impact of the capacity, expansions in the satellites for Q4 set up a lot like Q3 with an extra Dynamic around the timing of holidays, and it's a bit of a wild card. So we can look, for instance, at the the month of October and it ends tomorrow on a Friday that happens to be Halloween. Is that a positive or negative? I don't know, it's Factor though. Uh, likewise Thanksgiving this year is 2 days, short of the latest, it can fall, it falls on Thursday, the 27th again that's going to have an impact but it could be a positive or A negative. So, um, you know, it's, it's, it's Again difficult to be too specific about those things, you know. We look again,
And I think, you know, we're not measuring this, we're we're not managing this business quarter to quarter. And we've said all along that there were going to be fluctuations based on the factors that I identified in my script, we set out a Target uh to have a discharge cater between 2000 and 23 and 2027 total discharges of somewhere in the 6 to 8%. We're almost 3 years through that 5 year Target and we're 7 and a half percent. Uh We've increased the number of capacity additions that we're going to have in future periods. So obviously we feel very good about the prospects of the business.
With there weren't really if you look at our, if you look at our actual program, mix, when we mentioned the payer mix earlier program, mix there weren't anything that really stood out, we continue to uh, see progress, uh made and and continued uh absolute case growth for for strokes other neuro, uh, continues to be strong. So there wasn't anything that really kind of stood out from a volume standpoint that would tie back to our program. Mix. And, and I think that's important to note, you know, obviously, we, we analyze the volume and, and the trends there, uh, in a lot of different ways. We didn't see anything. Looking at the third quarter results, that said we need to make a course, correction other than in the or normal Court, of course, in business, where we do recognize that some markets outperformed others. And we'd like to see a, a rising tide lifts all boats.
Yeah, I can kind of tie your brain into a pretzel uh, trying to figure this out. Um, my second question is really just an update on the reviewed Choice demo and how your experiences evolved this year versus your expectations? Thanks.
so uh, every month
Since the end of the first quarter, we run with all 7 of our hospitals, in the state of Alabama, having a affirmation rates north of 90%.
Affirmation rate. It remains a, uh, a situation where we have to stay very Hands-On with regard to Palmetto and as, as much as we can through a government shutdown, we're also staying very much in touch
with CMS to ensure that we are being treated fairly and appropriately throughout this process. So we continue to have to apply more administrative resources to this and should be necessary. But generally speaking the the the program is running much better than it was during the course of cycle 2 and cycle 3
Thanks.
And we will take our next question from Andrew Mock with Barclays. Your line is open.
Hey Andrew. Good morning, Andrew. Hi. Good morning. Given all the denovos and Supply demand factors. We don't usually hear much about closures or consolidations in the space. So I was hoping you can, you know, speak a little bit to that Dynamic was this truly a unique event or does this happen with more regularity and is only getting called out just giving the extra attention to volumes in the quarter? Thanks,
Hey Andrew, this is Pat. Both of those are uh unique situations where the the
Where we were renting space from the hospital or location closed. So, 1-off events very small percentage of our portfolio and and not anticipating any uh additional activity in the future.
Same time frame that are competing against you for those joint ventures. Any thoughts on on that.
Go back to a couple of things that Mark mentioned in his comments.
Once you've got 14 projects, that were announced and underway as at the end of Q3. Since then, we've already added another project with the awarding of another Co in the state of Tennessee. That's within a total active pipeline. Uh, meaning more than just exploratory conversations of 40 Projects, we feel good about being to being able to operate at at least the midpoint of that 6 to 10 target range. What could change that and move us up in the near term we've talked before about the potential for Co and restrictions to be dropped in some cases?
Namely North Carolina.
In terms of pressure from any other parties. Uh, I think you specifically cited potential joint venture Partners to move more quickly, it tends to be the opposite, which is we can move much more quickly than our partners. Just because of the experience, we have both in operating as a joint venture, and the way that we have streamlined, our design and construction process. So that is not an issue with regard to competition. You've got a number of parties out there, namely Select Medical and HCA who have publicly stated plans to increase the number of beds. They're adding they have different models.
Then we do, and the market remains incredibly underserved. So we don't see that in any way crowding us out. As we've mentioned previously, part of the reason that, in spite of the very attractive market opportunity that's out there, you don't see more competition coming in is that the barriers to entry in this business are really high.
It is capital intensive. It is clinically complex, it is heavily regulated um all of those things, uh you know, make it very difficult for somebody who's not really well capitalized and experience to step into the breach.
no, AJ, the fact that we've done, uh, a lot of new development over the last, uh, X number of years, and we had the resources internally, well, that's through, uh, a real estate or, uh, our design and construction team and we we can move, uh, with high priority on on
First mover of, uh, advantages speed to Market. I think we've shown that over and over again relative to your uh, question around uh, joint venture Partners is Doug noted. It does vary from partner to partner. Uh, but if you look at a partner, like what we have with pedmont, uh, in the state of Georgia. I mean, we collectively have both systems have, uh, really prioritized, uh, post-acute, and and Rehabilitation, in particular. Uh, we now have 7 hospitals with that partnership because we moved, uh, at a
Bruce Pace to make sure we were taking advantage, uh, of the opportunities and the various marketplaces, they serve. So we think we're very well aligned with our partnership opportunities out there.
Okay. Um,
On your uh, at 1 point, when we had met during the summer, you had said that um you may be looking at expanding your prefab. Uh capability that there was some Geographic constraints on it and where does that stand at this point and what might that do for you? If that if that if you are able to open that up to a broader geography? Yeah. So what AJ is referencing specifically is uh, right now there are some geographical limit limit limitations on where we can utilize specifically full pre-fabrication of hospitals and that relates to uh, Transportation costs.
Right now, the way that we are using prefab construction for larger projects is that we're essentially building modules, and those modules are loaded on flatbed trucks and transported to the site. We are using predominantly trucks because the modules are too wide to effectively utilize rail.
Rail. So, there are a number of things underway that I would state are very much still in the evaluation stage.
Okay, thanks a lot.
I will say that the other thing that is changing is a dynamic and you know, this is more uh empirical or anecdotal anecdotal than it is completely empirical. Right now is that we are seeing that increasingly for our type of construction whereas we used to compare conventional to full prefab.
There's really not much happening. There's no pure conventional anymore, almost all conventional construction. Certainly all that we're using, at least uses componentization, meaning the incorporation of prefab bathrooms or head, walls or both. So it's a bit of a hybrid model.
and if that has become the norm,
The cost, differential, that stayed relatively constant between the 2, which is, which is insignificant.
But the the uh the construction timeline which had a, a significant Advantage for pre uh for full prefab.
Is decreasing.
And so there's a there's that's a dynamic, we need to keep an eye on.
A favorable dynamic.
Okay, thanks a lot.
And we'll move to our next question, which comes from Brian. Tenquille. Your line is open morning Brian. Hey, Brian. Good morning guys. Good morning. Um, maybe Doug as I think about the salaries line um, you know, as a percentage of Revenue. It looked pretty good this quarter, but I tying it back to your comments and just telling the ramp, just curious. What, how are you thinking about Labor? And then maybe epov where that eventually optimizes 1, 1, all the ramping of capacity happens.
Yeah, so I'm going to ask first for Pat to comment on on epov and then I'll talk maybe a little bit about just other Trends within this WB.
Thanks Doug, Brian. This is Pat, 1 of the the the comments on the quarter for EPO, you know, part of it is related to the the timing components of of denovo activity, but the other piece ties back to the the the hiring that we've done in Q3, you know, we had 162, net RNs hired for the quarter outside of our ends. We had a really robust hiring quarter and those are people that are currently in, uh, some form of orientation or precepting right now that is is pushing EPO up, uh, that will normalize in the future. And and if retention stays where it is to the benefit of other buckets, like premium pay,
You know, Brad we as we've stayed in the past that 3.4 number on ETL B. We, that that's where we fills the right number. I mean, if you, there might be times when you have a, a volume increase, you might see, the EP will be dropped down a little bit, but on an ongoing basis, we feel that's the right number to make sure that that we are efficient. Um, but yet, we are also responding to the staff and and the ability to retain staff, uh, as critically important. So that 3.4 would be a number that we we really try to work towards
So in terms of of Labor Trends and combining what? What patent Mark have offered on epov, uh, we think that, you know, we've made great progress and more progress that we anticipated on reducing premium, labor, spend in 2025. If if we can hold that relatively steady on a nominal dollar basis, moving into 2026, uh, that would certainly be a positive. Uh, even as volume grows. Uh I think our assumption is that our core underlying swb for FTE. Inflation is probably going to stabilize at least for the near term somewhere around.
3 to 3.25%, the benefits piece, which is about 10 and a half percent of the Total swb Line predominantly because of Group Medical, which is 75% of benefits. Including payroll taxes is likely to have an inflation Factor, uh, in 2026, in the high, single digits,
Clarify that uh 162, net RNs hired was the same store number as well.
Got it and then maybe Doug just quickly in the Erp rollout. Just curious what you can share with us. In terms of number 1, what you're seeing so far the number 2, what kinds of efficiency gains should we expect on the p&l at some point and kind of like the timeline in terms of achieving those um those targets.
So, the good news is, we threw the switch on October 3rd and the lights didn't go out.
Comprehensive Erp, conversion, across all Finance, and Accounting functions across supply chain, which is a big deal for us and across all HR functions. Uh, the overwhelming majority of modules within that
Worked from the get-go smoothly and efficiently and as we had hoped, uh, but as is the case, with every 1 of these, uh, items. Uh, there are bugs that need to be fixed and refinements that need to be made. Uh, that's why you see the $3 million in incremental, post-implementation expenses that we've added for this year. Uh, we in anticipating that this would be the case, uh, asked our implementation consultants and we did this back in the summer.
To uh, to continue to devote those same resources to us for a period of time, post-implementation to help us work through these things in the real term. And those we're we're knocking items off the list on a daily basis. You know, as we had stated from the get-go. Unlike a lot of other erps that were driven because of inefficiencies or uh or inconsistencies in in the in the Legacy system that was not necessarily the case here. Again, many times, the driver for an Erp conversion is a company that is going grown through Acquisitions and is not converted. Every 1 of their various business units over to a single unit. That was an applicable for us. We were
On a, a single operating system. Everybody was basically on people's soft products, and we were operating efficiently.
I say that because ultimately we do believe that there will be enhanced efficiencies in workflows from the full implementation of Fusion, but it's not something that was done for a specific ROI, and therefore we're not looking to quantify its specific impact on our P&L.
Hey, Brian. This is Mark. I I, I mentioned in my, uh, in my script that I do want to give a call out to, to our teams here, uh, in in Birmingham, as well as our teams out in the hospitals as part of this conversion. They've they've worked day and night. Uh, plus the weekends to make sure that this uh, uh, execution uh was near Flawless, uh, and um, you know, not not just any organization, can can do this from the manner that they did, but I'm really proud of what they've done.
And we can move to our next questioner Jared. Hos with William, Blair, your line is open.
Hey, good morning, Jared Jared. Hey hey good morning guys. Uh thanks for taking all the questions and and all the details thus far. Um, I I'll ask another 1 on sort of the backdrop or outlook for Medicare Advantage. And yeah, I'm curious, we've heard a lot about the plans sort of talking about them, moving members from more flexible, PTO products towards these hmos. And you know, I'm curious when you see
Kind of that shift in mixed towards more of a managed care product like that. Um does that have any impact on Encompass? Either from, you know, kind of a pre-authorization perspective or you know maybe your ability to be a part of those, you know call it narrower or tighter Networks.
Hey Jared, this is Pat. We we
Have not seen much change on in the ma side on the, the pre Ops perspective, and don't anticipate, uh, changes as we head into 2026. Uh, you know, we, as Doug said, we have a lot of success on, on the pre, the prior off perspective and and um, you know, as we navigate the layers of of appeal, um, but it it's still a a grind every day dealing with those plans. But our teams are persistent and advocating for the patients in those markets, that deserve our level of care.
Okay, great, that's helpful. Um, and then maybe just a follow-up on occupancy. Um, when we think about the Confluence of your, I guess, 2025 capacity Investments maturing, and then the additions that you have planned for next year. Um, any nuances we should keep in mind from, I guess a Cadence perspective next year on The occupancy rate, or should we sort of pencil that in staying relatively constant in the the mid-70s range?
Yeah I I I think just maybe thinking initially about the Q4 q1 Dynamic. So remember we had a we had a our highest ever occupancy level in q1 of last year.
dependent the the paper yet, but it wouldn't seem surprised me if you saw some downward pressure in terms of the year-over-year comparison in occupancy rates, uh, in the first uh, quarter of next year, of course, all of that can change depending on
The intensity of a flu season, I guess you got to float a throat, Co into the mix and all that other kind of stuff. But at any rate, there will be period to period fluctuations as a result of the timing of capacity additions. But our overall occupancy rates remain on an upward trajectory.
Sure. And our supplemental slides and slide 17. We have the development activity and when the hospitals will come on uh in 2026. So uh just uh, draw your attention to that.
Got it. That's really helpful. Thanks for all the details.
And as a reminder to the audience,
if you'd like to register to ask a question, please press the star, then 1 on your telephone keypad, we will go next to raaj Kumar. Your line is open.
Garage.
Hey, good morning. Um, maybe just kind of um, you know, thanks for caller on the kind of satellite consolidation. Uh, and maybe I missed a comment but uh, what's kind of embedded from a year in a year standpoint in 4 q in terms of the growth headwind? Uh, and then, maybe just 1 on the kind of uh potential impacts from the negative headlines that came out earlier than the 3Q, if you kind of see any changes.
Is it referral patterns as a result of that, or was it kind of business as usual?
No, I I'll take your, I'll answer the last question first. This is Mark, we we've, we've not seen any impact, um, among our referral patterns, uh, as we stated on uh, last quarter's call. We were very proactive in terms of communicating with our joint venture partners with our referral sources. Uh, and, uh, you know, they're all aware of our quality. And, and we share that, uh, openly. So uh, We've not seen any negative Fallout, uh, from that, uh, from that article.
With regard to the uh Q4 Potential headwind from the 2 satellite disclosures. Again, we estimated that at 35 basis points in Q3 even before we add the beds to Cincinnati. We should start seeing a resumption of or consolidation of some of that volume into the remaining hospitals in that market. So I would say it'll probably be a little bit less maybe 25 to 30 basis points in Q4.
Got it. And then as my follow-up, just kind of, you know, thinking about the pre-opening and startup costs, you know, 11 million year to date. I think, you know roughly 7 million from the low end of what's embedded for this year. So if you're kind of helping us think about, you know, from the 3 hospitals that are opening in 4q, how much of that was realized in the third quarter? And, you know, it seems like you have like a back half weighted pipeline next to you as well from an opening standpoint. So maybe what's
Kind of being assumed in 4 q, spend related to the first half, uh, hospitals in 26.
Yeah, so that's it's going to be on kind of a rolling basis. So the estimate for the year is 18 to 22. Uh, you're at 11 half, uh, through 3/4 probably peg in the midpoint of that that range is, is not a bad place to be in terms of the Q4 estimate. Most of that is going to be related to the openings that occur. In Q4 portion is applicable to the early openings in 2026. Uh probably a a good proxy for where we might land with regard to a 26. Number is something in the same range that we had for the full year this year and 2. When you get into the latter stages of 2026, that is going to include some expenses related to the 27 openings,
Great. Thank you.
And at this time there are no additional questions. I'd like to turn the program over to Mark Miller for any closing remarks.
Questions, please call me at 205-970-5860. Thank you again for joining today's call.
Thank you for your participation.
This does conclude today's program, you may disconnect at any time.