Encompass Health Corp (EHC)

Encompass Health describes itself as the largest operator of inpatient rehabilitation hospitals in the United States: 174 hospitals across 39 states and Puerto Rico as of March 31, 2026, and 263,299 discharges in 2025. The market is tight — the annual report notes that the number of U.S. rehabilitation facilities fell only from 1,179 in 2010 to 1,170 in 2024 while demand grew. Ninety-two percent of patients arrive on referral from acute-care hospitals.

Revenue rose from $4,801.2 million in 2023 to $5,373.2 million in 2024 and $5,935.2 million in 2025, with profit attributable to shareholders climbing from $352.0 million to $566.2 million. Operating cash flow grew from $850.8 million to $1,175.6 million over the same period. In the first quarter of 2026 revenue rose 9.0 percent to $1,586.6 million and same-store discharges 1.6 percent. This is grown, not bought, earning power.

As of March 31, 2026, $2,573.8 million of debt sat against $3,308.4 million of equity; the covenants (leverage no higher than 4.50x, interest coverage at least 3.0x) were met, roughly $726 million of the revolver was undrawn and about 79 percent of the hospital real estate is owned. The May 29, 2026, issue of $500 million of 5.875 percent notes due 2034 spreads out the maturity wall — but costs more than the 4.500 percent notes it redeems.

Per the 2025 annual report, roughly 82 percent of revenue comes from Medicare and Medicare Advantage — $3,886.9 million directly from Medicare plus $974.4 million from Medicare Advantage plans. The price is not negotiated but set by annual rulemaking. The mix is also shifting: about 54 percent of Medicare beneficiaries were in Medicare Advantage plans in 2025, projected by the Congressional Budget Office to reach roughly 64 percent by 2034 — and those plans typically pay less.

MedPAC resolved in January 2026 to recommend to Congress a 7 percent cut in the base payment rate for rehabilitation hospitals; against roughly $4,861 million of Medicare revenue that would be about $340 million a year — more than half the $566.2 million of shareholder profit. Nothing has been enacted, and MedPAC has recommended freezes or cuts every year since 2008; actual rates keep rising, and for fiscal 2027 the CMS proposed rule of April 2, 2026, would add a net 2.4 percent from October 1, 2026, after 2.6 percent in fiscal 2026. Review pressure adds to it: no Alabama hospital reached the opt-out validation rate in the second and third cycles, and the rate has varied across the four completed cycles as of the quarterly report for the period ended March 31, 2026.

Of $759.1 million in 2025 consolidated net income, $192.9 million was attributable to the minority partners in the 66 jointly operated hospitals, up from $111.0 million in 2023 — that share is growing faster than profit. It is the price of secured patient flow and has worked for years, but it distorts every ratio that sets consolidated revenue or consolidated equity against the market value of Encompass shares.