UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, ~~2017~~

2023

o
☐			TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file numbers: 001-34465 ~~and 001-31441~~

SELECT MEDICAL HOLDINGS CORPORATION

~~SELECT MEDICAL CORPORATION~~

(Exact name of Registrant as specified in its Charter)

~~Delaware~~ ~~Delaware~~	~~20-1764048~~ ~~23-2872718~~
Delaware		20-1764048
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

4714 Gettysburg Road, P.O. Box 2034

Mechanicsburg, PA 17055

(Address of Principal Executive Offices and Zip code)

(717) 972-1100

(~~Registrants’~~Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	SEM	New York Stock Exchange
		(NYSE)

Indicate by check mark whether the ~~Registrants~~Registrant (1) ~~have~~has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as such ~~Registrants were~~Registrant was required to file such reports), and (2) ~~have~~has been subject to such filing requirements for the past 90 days. Yes x☒ No o

☐

Indicate by check mark whether the ~~Registrants have~~Registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the ~~Registrants were~~Registrant was required to submit ~~and post~~ such files). Yes x☒ No o

☐

Indicate by check mark whether the Registrant ~~Select Medical Holdings Corporation,~~ is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filerx		☒		Accelerated filero		☐

Non-accelerated filero	☐		Smaller reporting companyo		☐
~~(Do not check if a smaller reporting company)~~				Emerging Growth Companyo		☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

☐

Indicate by check mark whether the Registrant ~~Select Medical Corporation,~~ is a ~~large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting~~shell company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

~~Large accelerated filer~~ o		~~Accelerated filer~~ o

~~Non-accelerated filer~~ x		~~Smaller reporting company~~ o
~~(Do not check if a smaller reporting company)~~		~~Emerging Growth Company~~ o

~~Indicate by check mark whether the Registrants are shell companies~~ (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x

☒

As of October 31, ~~2017,~~2023, Select Medical Holdings Corporation had outstanding ~~133,824,559~~128,213,538 shares of common stock.

~~This Form 10-Q is a combined quarterly report being filed separately by two Registrants: Select Medical Holdings Corporation and Select Medical Corporation.~~

Unless the context indicates otherwise, any reference in this report to “Holdings” refers to Select Medical Holdings Corporation and any reference to “Select” refers to Select Medical Corporation, the wholly owned operating subsidiary of Holdings, and any of Select’s subsidiaries. Any reference to “Concentra” refers to Concentra ~~Inc., the indirect operating subsidiary of Concentra~~ Group Holdings Parent, LLC (“Concentra Group ~~Holdings”~~Holdings Parent”), and its ~~subsidiaries.~~subsidiaries, including Concentra Inc. References to the “Company,” “we,” “us,” and “our” refer collectively to Holdings, Select, and ~~Concentra Group Holdings and its subsidiaries.~~

Concentra.

Table of Contents

TABLE OF CONTENTS


PART I	FINANCIAL INFORMATION	3

ITEM 1.	CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Condensed consolidated balance sheets	3

	Condensed consolidated statements of operations	4

	Condensed consolidated statements of comprehensive income	5

	Condensed consolidated statements of changes in equity and income	6

	Condensed consolidated statements of cash flows	7 8

	Notes to condensed consolidated financial statements	8 9

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	31 21

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	52 41

ITEM 4.	CONTROLS AND PROCEDURES	52 41

PART II	OTHER INFORMATION	53 42

ITEM 1.	LEGAL PROCEEDINGS	53 42

ITEM 1A.	RISK FACTORS	55 42

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	57 42

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	57 42

ITEM 4.	MINE SAFETY DISCLOSURES	57 42

ITEM 5.	OTHER INFORMATION	57 42

ITEM 6.	EXHIBITS	57 43

SIGNATURES

Table of Contents

PART II: FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Select Medical Holdings Corporation

Condensed Consolidated Balance Sheets

(unaudited)

(in thousands, except share and per share amounts)

Select Medical Holdings Corporation

Select Medical Corporation

December 31,

September 30,

December 31,

September 30,

2016

2017

2016

2017

ASSETS

Current Assets:

Cash and cash equivalents

$
99,029

$
107,300

$
99,029

$
107,300

Accounts receivable, net of allowance for doubtful accounts of $63,787 and $70,574 at 2016 and 2017, respectively

573,752

716,426

573,752

716,426

Prepaid income taxes

12,423

—

12,423

—

Other current assets

77,699

80,324

77,699

80,324

Total Current Assets

762,903

904,050

762,903

904,050

Property and equipment, net

892,217

946,063

892,217

946,063

Goodwill

2,751,000

2,767,896

2,751,000

2,767,896

Identifiable intangible assets, net

340,562

331,036

340,562

331,036

Other assets

173,944

174,762

173,944

174,762

Total Assets

$
4,920,626

$
5,123,807

$
4,920,626

$
5,123,807

LIABILITIES AND EQUITY

Current Liabilities:

Overdrafts

$
39,362

$
18,923

$
39,362

$
18,923

Current portion of long-term debt and notes payable

13,656

37,560

13,656

37,560

Accounts payable

126,558

133,321

126,558

133,321

Accrued payroll

146,397

139,402

146,397

139,402

Accrued vacation

83,261

89,171

83,261

89,171

Accrued interest

22,325

30,998

22,325

30,998

Accrued other

140,076

143,443

140,076

143,443

Income taxes payable

—

6,718

—

6,718

Total Current Liabilities

571,635

599,536

571,635

599,536

Long-term debt, net of current portion

2,685,333

2,752,742

2,685,333

2,752,742

Non-current deferred tax liability

199,078

191,441

199,078

191,441

Other non-current liabilities

136,520

138,118

136,520

138,118

Total Liabilities

3,592,566

3,681,837

3,592,566

3,681,837

Commitments and contingencies (Note 8)

Redeemable non-controlling interests

422,159

621,515

422,159

621,515

Stockholders’ Equity:

Common stock of Holdings, $0.001 par value, 700,000,000 shares authorized, 132,596,758 and 133,884,963 shares issued and outstanding at 2016 and 2017, respectively

132

133

—

—

Common stock of Select, $0.01 par value, 100 shares issued and outstanding

—

—

0

0

Capital in excess of par

443,908

459,004

925,111

942,142

Retained earnings (accumulated deficit)

371,685

262,505

(109,386
)
(220,500
)
Total Select Medical Holdings Corporation and Select Medical Corporation Stockholders’ Equity

815,725

721,642

815,725

721,642

Non-controlling interests

90,176

98,813

90,176

98,813

Total Equity

905,901

820,455

905,901

820,455

Total Liabilities and Equity

$
4,920,626

$
5,123,807

$
4,920,626

$
5,123,807

December 31, 2022 September 30, 2023
ASSETS
Current Assets:
Cash and cash equivalents $ 97,906 $ 77,440
Accounts receivable 941,312 944,219
Prepaid income taxes 31,868 22,716
Current portion of interest rate cap contract 74,857 85,896
Other current assets 125,370 145,816
Total Current Assets 1,271,313 1,276,087
Operating lease right-of-use assets 1,169,740 1,180,907
Property and equipment, net 1,001,440 1,006,842
Goodwill 3,484,200 3,504,654
Identifiable intangible assets, net 351,662 336,639
Interest rate cap contract, net of current portion 45,200 —
Other assets 341,738 378,879
Total Assets $ 7,665,293 $ 7,684,008
LIABILITIES AND EQUITY
Current Liabilities:
Overdrafts $ 31,961 $ 29,994
Current operating lease liabilities 236,784 242,594
Current portion of long-term debt and notes payable 44,351 35,085
Accounts payable 186,729 183,086
Accrued payroll 209,789 210,088
Accrued vacation 150,695 154,655
Accrued interest 29,837 12,044
Accrued other 264,525 297,931
Income taxes payable 480 579
Total Current Liabilities 1,155,151 1,166,056
Non-current operating lease liabilities 1,008,394 1,019,185
Long-term debt, net of current portion 3,835,211 3,695,244
Non-current deferred tax liability 169,793 146,919
Other non-current liabilities 106,137 106,216
Total Liabilities 6,274,686 6,133,620
Commitments and contingencies (Note 13)
Redeemable non-controlling interests 34,043 26,999
Stockholders’ Equity:
Common stock, $0.001 par value, 700,000,000 shares authorized, 127,173,871 and 128,287,211 shares issued and outstanding at 2022 and 2023, respectively 127 128
Capital in excess of par 452,183 482,290
Retained earnings 581,010 722,665
Accumulated other comprehensive income 88,602 62,727
Total Stockholders’ Equity 1,121,922 1,267,810
Non-controlling interests 234,642 255,579
Total Equity 1,356,564 1,523,389
Total Liabilities and Equity $ 7,665,293 $ 7,684,008

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Select Medical Holdings Corporation

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except per share amounts)

Select Medical Holdings Corporation

Select Medical Corporation

For the Three Months Ended September 30,

For the Three Months Ended September 30,

2016

2017

2016

2017

Net operating revenues

$
1,053,795

$
1,097,166

$
1,053,795

$
1,097,166

Costs and expenses:

Cost of services

915,703

938,910

915,703

938,910

General and administrative

27,088

27,065

27,088

27,065

Bad debt expense

17,677

20,321

17,677

20,321

Depreciation and amortization

37,165

38,772

37,165

38,772

Total costs and expenses

997,633

1,025,068

997,633

1,025,068

Income from operations

56,162

72,098

56,162

72,098

Other income and expense:

Loss on early retirement of debt

(10,853
)
—

(10,853
)
—

Equity in earnings of unconsolidated subsidiaries

5,268

4,431

5,268

4,431

Non-operating loss

(1,028
)
—

(1,028
)
—

Interest expense

(44,482
)
(37,688
)
(44,482
)
(37,688
)

Income before income taxes

5,067

38,841

5,067

38,841

Income tax expense

1,075

14,017

1,075

14,017

Net income

3,992

24,824

3,992

24,824

Less: Net income (loss) attributable to non-controlling interests

(2,479
)
6,362

(2,479
)
6,362

Net income attributable to Select Medical Holdings Corporation and Select Medical Corporation

$
6,471

$
18,462

$
6,471

$
18,462

Income per common share:

Basic

$
0.05

$
0.14

Diluted

$
0.05

$
0.14

Weighted average shares outstanding:

Basic

127,848

129,142

Diluted

127,989

129,322

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2022 2023 2022 2023
Revenue $ 1,567,794 $ 1,665,694 $ 4,752,082 $ 5,005,202
Costs and expenses:
Cost of services, exclusive of depreciation and amortization 1,393,817 1,442,509 4,191,377 4,284,931
General and administrative 39,491 41,316 114,272 126,103
Depreciation and amortization 51,459 52,394 153,579 154,758
Total costs and expenses 1,484,767 1,536,219 4,459,228 4,565,792
Other operating income 8,440 485 23,565 1,211
Income from operations 91,467 129,960 316,419 440,621
Other income and expense:
Loss on early retirement of debt — (14,692) — (14,692)
Equity in earnings of unconsolidated subsidiaries 8,084 11,561 19,648 30,618
Interest expense (45,204) (50,271) (121,770) (147,839)
Income before income taxes 54,347 76,558 214,297 308,708
Income tax expense 16,221 15,742 53,983 70,775
Net income 38,126 60,816 160,314 237,933
Less: Net income attributable to non-controlling interests 10,960 12,636 28,824 40,711
Net income attributable to Select Medical Holdings Corporation $ 27,166 $ 48,180 $ 131,490 $ 197,222
Earnings per common share (Note 12):
Basic and diluted $ 0.21 $ 0.38 $ 1.01 $ 1.55

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Select Medical Holdings Corporation

Condensed Consolidated Statements of ~~Operations~~

Comprehensive Income

(unaudited)

(in ~~thousands, except per share amounts)~~

Select Medical Holdings Corporation

Select Medical Corporation

For the Nine Months Ended September 30,

For the Nine Months Ended September 30,

2016

2017

2016

2017

Net operating revenues

$
3,239,756

$
3,329,202

$
3,239,756

$
3,329,202

Costs and expenses:

Cost of services

2,754,950

2,787,497

2,754,950

2,787,497

General and administrative

81,226

83,415

81,226

83,415

Bad debt expense

51,591

59,120

51,591

59,120

Depreciation and amortization

107,887

119,644

107,887

119,644

Total costs and expenses

2,995,654

3,049,676

2,995,654

3,049,676

Income from operations

244,102

279,526

244,102

279,526

Other income and expense:

Loss on early retirement of debt

(11,626
)
(19,719
)
(11,626
)
(19,719
)
Equity in earnings of unconsolidated subsidiaries

14,466

15,618

14,466

15,618

Non-operating gain (loss)

37,094

(49
)
37,094

(49
)
Interest expense

(127,662
)
(116,196
)
(127,662
)
(116,196
)

Income before income taxes

156,374

159,180

156,374

159,180

Income tax expense

51,585

59,593

51,585

59,593

Net income

104,789

99,587

104,789

99,587

Less: Net income attributable to non-controlling interests

9,550

23,200

9,550

23,200

Net income attributable to Select Medical Holdings Corporation and Select Medical Corporation

$
95,239

$
76,387

$
95,239

$
76,387

Income per common share:

Basic

$
0.72

$
0.57

Diluted

$
0.72

$
0.57

Weighted average shares outstanding:

Basic

127,659

128,745

Diluted

127,804

128,916

thousands)

For the Three Months Ended September 30, For the Nine Months Ended September 30,
2022 2023 2022 2023
Net income $ 38,126 $ 60,816 $ 160,314 $ 237,933
Other comprehensive income (loss), net of tax:
Gain on interest rate cap contract 31,079 3,895 82,726 18,726
Reclassification adjustment for gains included in net income (4,485) (16,215) (4,452) (44,601)
Net change, net of tax benefit (expense) of $(8,865), $3,998, $(26,092), and $8,397 26,594 (12,320) 78,274 (25,875)
Comprehensive income 64,720 48,496 238,588 212,058
Less: Comprehensive income attributable to non-controlling interests 10,960 12,636 28,824 40,711
Comprehensive income attributable to Select Medical Holdings Corporation $ 53,760 $ 35,860 $ 209,764 $ 171,347

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Select Medical Holdings Corporation

Condensed Consolidated Statements of Changes in Equity and Income

(unaudited)

(in thousands)

Select Medical Holdings Corporation Stockholders

Redeemable
Non-controlling
interests

Common
Stock
Issued

Common
Stock
Par Value

Capital in
Excess
of Par

Retained
Earnings

Total
Stockholders’
Equity

Non-controlling
Interests

Total
Equity

Balance at December 31, 2016

$
422,159

132,597

$
132

$
443,908

$
371,685

$
815,725

$
90,176

$
905,901

Net income attributable to Select Medical Holdings Corporation

76,387

76,387

76,387

Net income attributable to non-controlling interests

18,519

—

4,681

4,681

Issuance and vesting of restricted stock

1,323

1

13,445

13,446

13,446

Repurchase of common shares

(220
)
0

(1,934
)
(1,669
)
(3,603
)

(3,603
)
Exercise of stock options

185

0

1,634

1,634

1,634

Issuance of non-controlling interests

1,951

1,951

8,944

10,895

Purchase of non-controlling interests

(127
)

7

7

7

Distributions to non-controlling interests

(4,003
)

—

(5,153
)
(5,153
)
Redemption adjustment on non-controlling interests

184,294

(184,294
)
(184,294
)

(184,294
)
Other

673

389

389

165

554

Balance at September 30, 2017

$
621,515

133,885

$
133

$
459,004

$
262,505

$
721,642

$
98,813

$
820,455

Select Medical Corporation Stockholders

Redeemable
Non-controlling
interests

Common
Stock
Issued

Common
Stock
Par Value

Capital in
Excess
of Par

Retained
Earnings

Total
Stockholders’
Equity

Non-controlling
Interests

Total
Equity

Balance at December 31, 2016

$
422,159

0

$
0

$
925,111

$
(109,386
)
$
815,725

$
90,176

$
905,901

Net income attributable to Select Medical Corporation

76,387

76,387

76,387

Net income attributable to non-controlling interests

18,519

—

4,681

4,681

Additional investment by Holdings

1,634

1,634

1,634

Dividends declared and paid to Holdings

(3,603
)
(3,603
)

(3,603
)
Contribution related to restricted stock awards and stock option issuances by Holdings

13,446

13,446

13,446

Issuance of non-controlling interests

1,951

1,951

8,944

10,895

Purchase of non-controlling interests

(127
)

7

7

7

Distributions to non-controlling interests

(4,003
)

—

(5,153
)
(5,153
)
Redemption adjustment on non-controlling interests

184,294

(184,294
)
(184,294
)

(184,294
)
Other

673

389

389

165

554

Balance at September 30, 2017

$
621,515

0

$
0

$
942,142

$
(220,500
)
$
721,642

$
98,813

$
820,455

For the Nine Months Ended September 30, 2023
Total Stockholders’ Equity
Common
Stock
Issued Common
Stock
Par Value Capital in
Excess
of Par Retained
Earnings Accumulated Other Comprehensive Income Total Stockholders’ Equity Non-controlling
Interests Total
Equity
Balance at December 31, 2022 127,173 $ 127 $ 452,183 $ 581,010 $ 88,602 $ 1,121,922 $ 234,642 $ 1,356,564
Net income attributable to Select Medical Holdings Corporation 70,805 70,805 70,805
Net income attributable to non-controlling interests — 12,811 12,811
Cash dividends declared for common stockholders ($0.125 per share) (15,897) (15,897) (15,897)
Issuance of restricted stock 3 0 0 — —
Vesting of restricted stock 10,003 10,003 10,003
Issuance of non-controlling interests — 2,731 2,731
Non-controlling interests acquired in business combination — 3,877 3,877
Distributions to and purchases of non-controlling interests — (6,069) (6,069)
Redemption value adjustment on non-controlling interests (436) (436) (436)
Other comprehensive income (loss) (15,948) (15,948) (15,948)
Other (1) 1 — —
Balance at March 31, 2023 127,176 $ 127 $ 462,185 $ 635,483 $ 72,654 $ 1,170,449 $ 247,992 $ 1,418,441
Net income attributable to Select Medical Holdings Corporation 78,237 78,237 78,237
Net income attributable to non-controlling interests — 11,539 11,539
Cash dividends declared for common stockholders ($0.125 per share) (15,924) (15,924) (15,924)
Issuance of restricted stock 261 0 0 — —
Vesting of restricted stock 10,326 10,326 10,326
Repurchase of common shares (49) 0 (634) (872) (1,506) (1,506)
Issuance of non-controlling interests 1,870 1,870 10,211 12,081
Distributions to and purchases of non-controlling interests 195 195 (14,201) (14,006)
Redemption value adjustment on non-controlling interests (2) (2) (2)
Other comprehensive income 2,393 2,393 2,393
Balance at June 30, 2023 127,388 $ 127 $ 473,942 $ 696,922 $ 75,047 $ 1,246,038 $ 255,541 $ 1,501,579
Net income attributable to Select Medical Holdings Corporation 48,180 48,180 48,180
Net income attributable to non-controlling interests — 10,316 10,316
Cash dividends declared for common stockholders ($0.125 per share) (16,035) (16,035) (16,035)
Issuance of restricted stock 1,217 1 (1) — —
Vesting of restricted stock 11,483 11,483 11,483
Repurchase of common shares (318) 0 (3,866) (5,678) (9,544) (9,544)
Issuance of non-controlling interests — 5,651 5,651
Non-controlling interests acquired in business combination — 5,130 5,130
Distributions to and purchases of non-controlling interests 732 (2,672) (1,940) (21,059) (22,999)
Redemption value adjustment on non-controlling interests 1,912 1,912 1,912
Other comprehensive income (12,320) (12,320) (12,320)
Other 36 36 36
Balance at September 30, 2023 128,287 $ 128 $ 482,290 $ 722,665 $ 62,727 $ 1,267,810 $ 255,579 $ 1,523,389

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~Condensed Consolidated Statements~~Table of ~~Cash Flows~~Contents

~~(unaudited)~~

~~(in thousands)~~

Select Medical Holdings Corporation

Select Medical Corporation

For the Nine Months Ended September 30,

For the Nine Months Ended September 30,

2016

2017

2016

2017

Operating activities

Net income

$
104,789

$
99,587

$
104,789

$
99,587

Adjustments to reconcile net income to net cash provided by operating activities:

Distributions from unconsolidated subsidiaries

16,145

14,542

16,145

14,542

Depreciation and amortization

107,887

119,644

107,887

119,644

Provision for bad debts

51,591

59,120

51,591

59,120

Equity in earnings of unconsolidated subsidiaries

(14,466
)
(15,618
)
(14,466
)
(15,618
)
Loss on extinguishment of debt

11,626

6,527

11,626

6,527

Gain on sale or disposal of assets and businesses

(41,910
)
(9,499
)
(41,910
)
(9,499
)
Gain on sale of equity investment

(241
)
—

(241
)
—

Impairment of equity investment

5,339

—

5,339

—

Stock compensation expense

12,924

14,227

12,924

14,227

Amortization of debt discount, premium and issuance costs

11,845

8,546

11,845

8,546

Deferred income taxes

(13,088
)
(6,126
)
(13,088
)
(6,126
)
Changes in operating assets and liabilities, net of effects of business combinations:

Accounts receivable

(40,776
)
(201,514
)
(40,776
)
(201,514
)
Other current assets

12,094

(2,677
)
12,094

(2,677
)
Other assets

5,146

1,407

5,146

1,407

Accounts payable

(17,752
)
3,913

(17,752
)
3,913

Accrued expenses

52,996

18,752

52,996

18,752

Due to third party payors

11,065

—

11,065

—

Income taxes

5,547

19,141

5,547

19,141

Net cash provided by operating activities

280,761

129,972

280,761

129,972

Investing activities

Business combinations, net of cash acquired

(414,231
)
(19,371
)
(414,231
)
(19,371
)
Purchases of property and equipment

(118,260
)
(173,800
)
(118,260
)
(173,800
)
Investment in businesses

(3,140
)
(11,374
)
(3,140
)
(11,374
)
Proceeds from sale of assets, businesses, and equity investment

72,629

34,555

72,629

34,555

Net cash used in investing activities

(463,002
)
(169,990
)
(463,002
)
(169,990
)

Financing activities

Borrowings on revolving facilities

420,000

805,000

420,000

805,000

Payments on revolving facilities

(545,000
)
(705,000
)
(545,000
)
(705,000
)
Proceeds from term loans

795,344

1,139,487

795,344

1,139,487

Payments on term loans

(434,842
)
(1,176,567
)
(434,842
)
(1,176,567
)
Revolving facility debt issuance costs

—

(4,392
)
—

(4,392
)
Borrowings of other debt

23,801

27,571

23,801

27,571

Principal payments on other debt

(15,477
)
(15,112
)
(15,477
)
(15,112
)
Repurchase of common stock

(1,939
)
(3,603
)
—

—

Dividends paid to Holdings

—

—

(1,939
)
(3,603
)
Proceeds from exercise of stock options

1,488

1,634

—

—

Equity investment by Holdings

—

—

1,488

1,634

Repayments of overdrafts

(8,464
)
(20,439
)
(8,464
)
(20,439
)
Proceeds from issuance of non-controlling interests

11,846

8,986

11,846

8,986

Purchase of non-controlling interests

(1,530
)
(120
)
(1,530
)
(120
)
Distributions to non-controlling interests

(9,198
)
(9,156
)
(9,198
)
(9,156
)
Net cash provided by financing activities

236,029

48,289

236,029

48,289

Net increase in cash and cash equivalents

53,788

8,271

53,788

8,271

Cash and cash equivalents at beginning of period

14,435

99,029

14,435

99,029

Cash and cash equivalents at end of period

$
68,223

$
107,300

$
68,223

$
107,300

Supplemental Information

Cash paid for interest

$
92,928

$
101,341

$
92,928

$
101,341

Cash paid for taxes

$
59,937

$
46,553

$
59,937

$
46,553

For the Nine Months Ended September 30, 2022
Total Stockholders’ Equity
Common
Stock
Issued Common
Stock
Par Value Capital in
Excess
of Par Retained
Earnings Accumulated Other Comprehensive Income Total Stockholders’ Equity Non-controlling
Interests Total
Equity
Balance at December 31, 2021 133,884 $ 134 $ 504,314 $ 593,251 $ 12,282 $ 1,109,981 $ 215,921 $ 1,325,902
Net income attributable to Select Medical Holdings Corporation 49,117 49,117 49,117
Net income attributable to non-controlling interests — 4,891 4,891
Cash dividends declared for common stockholders ($0.125 per share) (16,691) (16,691) (16,691)
Issuance of restricted stock 13 0 0 — —
Vesting of restricted stock 8,288 8,288 8,288
Repurchase of common shares (2,128) (2) (23,459) (28,215) (51,676) (51,676)
Issuance of non-controlling interests 651 651 4,578 5,229
Non-controlling interests acquired in business combination, measurement period adjustment — 12,463 12,463
Distributions to and purchases of non-controlling interests — (9,097) (9,097)
Redemption value adjustment on non-controlling interests (1,381) (1,381) (1,381)
Other comprehensive income 39,853 39,853 39,853
Other (2) (2) (2)
Balance at March 31, 2022 131,769 $ 132 $ 489,794 $ 596,079 $ 52,135 $ 1,138,140 $ 228,756 $ 1,366,896
Net income attributable to Select Medical Holdings Corporation 55,207 55,207 55,207
Net income attributable to non-controlling interests — 9,155 9,155
Cash dividends declared for common stockholders ($0.125 per share) (16,108) (16,108) (16,108)
Issuance of restricted stock 211 0 0 — —
Forfeitures of unvested restricted stock (6) 0 0 3 3 3
Vesting of restricted stock 8,406 8,406 8,406
Repurchase of common shares (5,483) (6) (56,965) (69,976) (126,947) (126,947)
Issuance of non-controlling interests — 1,725 1,725
Distributions to and purchases of non-controlling interests 534 534 (7,348) (6,814)
Redemption value adjustment on non-controlling interests 355 355 355
Other comprehensive loss 11,827 11,827 11,827
Other (4) (4) (4)
Balance at June 30, 2022 126,491 $ 126 $ 441,769 $ 565,556 $ 63,962 $ 1,071,413 $ 232,288 $ 1,303,701
Net income attributable to Select Medical Holdings Corporation 27,166 27,166 27,166
Net income attributable to non-controlling interests — 8,720 8,720
Cash dividends declared for common stockholders ($0.125 per share) (15,893) (15,893) (15,893)
Issuance of restricted stock 1,228 1 (1) — —
Forfeitures of unvested restricted stock (6) 0 0 3 3 3
Vesting of restricted stock 9,649 9,649 9,649
Repurchase of common shares (569) 0 (6,574) (8,417) (14,991) (14,991)
Issuance of non-controlling interests — 142 142
Distributions to and purchases of non-controlling interests (2,450) (2,450) (12,226) (14,676)
Redemption value adjustment on non-controlling interests 4,108 4,108 4,108
Other comprehensive loss 26,594 26,594 26,594
Other (4) (4) (4)
Balance at September 30, 2022 127,144 $ 127 $ 444,843 $ 570,069 $ 90,556 $ 1,105,595 $ 228,924 $ 1,334,519

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

Select Medical Holdings Corporation

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

For the Nine Months Ended September 30,
2022 2023
Operating activities
Net income $ 160,314 $ 237,933
Adjustments to reconcile net income to net cash provided by operating activities:
Distributions from unconsolidated subsidiaries 16,892 9,896
Depreciation and amortization 153,579 154,758
Provision for expected credit losses (41) 1,101
Equity in earnings of unconsolidated subsidiaries (19,648) (30,618)
Loss on extinguishment of debt — 175
Gain on sale or disposal of assets (1,593) (7)
Stock compensation expense 27,956 31,991
Amortization of debt discount, premium and issuance costs 1,696 1,899
Deferred income taxes (7,080) (17,049)
Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable (19,686) (3,014)
Other current assets 2,923 (17,276)
Other assets 9,650 7,028
Accounts payable (22,185) 4,788
Accrued expenses 52,352 21,011
Government advances (82,848) —
Net cash provided by operating activities 272,281 402,616
Investing activities
Business combinations, net of cash acquired (22,027) (20,482)
Purchases of property, equipment, and other assets (135,119) (168,597)
Investment in businesses (17,323) (9,874)
Proceeds from sale of assets 5,364 60
Net cash used in investing activities (169,105) (198,893)
Financing activities
Borrowings on revolving facilities 845,000 635,000
Payments on revolving facilities (625,000) (740,000)
Proceeds from term loans — 2,092,232
Payments on term loans — (2,108,694)
Borrowings of other debt 20,866 30,849
Principal payments on other debt (25,165) (38,298)
Dividends paid to common stockholders (48,692) (47,856)
Repurchase of common stock (193,614) (11,050)
Decrease in overdrafts (9,091) (1,967)
Proceeds from issuance of non-controlling interests 7,096 20,463
Distributions to and purchases of non-controlling interests (40,663) (54,868)
Net cash used in financing activities (69,263) (224,189)
Net increase (decrease) in cash and cash equivalents 33,913 (20,466)
Cash and cash equivalents at beginning of period 74,310 97,906
Cash and cash equivalents at end of period $ 108,223 $ 77,440
Supplemental information
Cash paid for interest, excluding amounts received of $6,232 and $60,353 under the interest rate cap contract $ 143,455 $ 221,697
Cash paid for taxes 24,844 78,502

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

SELECT MEDICAL HOLDINGS CORPORATION ~~AND SELECT MEDICAL CORPORATION~~

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.Basis of Presentation

The unaudited condensed consolidated financial statements of Select Medical Holdings Corporation (“Holdings”) include the accounts of its wholly owned subsidiary, Select Medical Corporation (“Select”). Holdings conducts substantially all of its business through Select and its subsidiaries. Holdings, ~~and~~ Select, and ~~its~~Select’s subsidiaries are collectively referred to as the “Company.” The unaudited condensed consolidated financial statements of the Company as of September 30, ~~2017,~~2023, and for the three and nine month periods ended September 30, ~~2016~~2022 and ~~2017,~~2023, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim reporting and the accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, certain information and disclosures required by GAAP, which are normally included in the notes to the consolidated financial statements, have been condensed or omitted pursuant to those rules and regulations, although the Company believes the disclosure is adequate to make the information presented not misleading. In the opinion of management, such information contains all adjustments, which are normal and recurring in nature, necessary for a fair statement of the financial position, results of operations and cash flow for such periods. All significant intercompany transactions and balances have been eliminated.

The results of operations for the three and nine months ended September 30, ~~2017~~2023, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, ~~2017.~~2023. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, ~~2016~~2022, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February 23, ~~2017.~~

2023.

2.Accounting Policies

Recent Accounting Guidance Not Yet Adopted

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-01, Leases (Topic 842): Common Control Arrangements, which requires companies to amortize leasehold improvements associated with related party leases under common control over the useful life of the leasehold improvement to the common control group. The ASU is effective for annual reporting periods beginning on or after December 15, 2023; however, early adoption is permitted. The ASU can either be applied prospectively or retrospectively.

The Company is currently evaluating this ASU, but does not expect it to have a material impact on its consolidated financial statements upon adoption. The Company plans to adopt the ASU using the prospective method as of January 1, 2024.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, ~~and~~ liabilities, ~~including disclosure of contingencies, at the date of the financial statements and reported amounts of~~ revenues, and ~~expenses during the reporting period.~~expenses. Actual results could differ from those estimates.

~~Recent Accounting Pronouncements~~

~~In January 2017,~~

3. Credit Risk Concentrations

Financial instruments that potentially subject the ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-01,~~ ~~Business Combinations (Topic 805),~~ ~~Clarifying~~Company to concentrations of credit risk consist primarily of cash balances and accounts receivable. The Company’s excess cash is held with large financial institutions. The Company grants unsecured credit to its patients, most of whom reside in the ~~Definition~~service area of ~~a Business~~,the Company’s facilities and are insured under third-party payor agreements.

Because of the diversity in the Company’s non-governmental third-party payor base, as well as their geographic dispersion, accounts receivable due from the Medicare program represent the Company’s only significant concentration of credit risk. Approximately 19% and 15% of the Company’s accounts receivable is due from Medicare at both December 31, 2022, and September 30, 2023, respectively.

Table of Contents

4. Redeemable Non-Controlling Interests

The ownership interests held by outside parties in subsidiaries, which ~~clarifies~~include limited liability companies and limited partnerships, controlled by the ~~definition~~Company are classified as non-controlling interests. Some of ~~a business with~~ the ~~objective~~Company’s non-controlling ownership interests consist of ~~adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. ASU 2017-01 states~~outside parties that have certain redemption rights that, if ~~substantially all of~~exercised, require the ~~fair value of~~Company to purchase the ~~gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the transaction should be accounted for~~parties’ ownership interests. These interests are classified and reported as ~~an asset acquisition. In addition, the ASU clarifies the requirements for a set of activities~~redeemable non-controlling interests and have been adjusted to be considered a business and narrows the definition of an output. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01 will be applied prospectively and is effective for annual periods beginning after December 15, 2017. Early adoption is permitted.

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~Income~~ ~~Taxes (Topic 740), Intra-Entity Transfers of Assets Other Than Inventory.~~ Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The ASU requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The standard will be effective for fiscal years beginning after December 15, 2017. The Company plans to adopt the guidance effective January 1, 2018. Adoption of the guidance will be applied on a modified retrospective approach through a cumulative effect adjustment to retained earnings as of the effective date. The Company is currently evaluating the standard to determine the impact it will have on its consolidated financial statements.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~. This ASU includes a lessee accounting model that recognizes two types of leases; finance and operating. This ASU requires that a lessee recognize on the balance sheet assets and liabilities for all leases with lease terms of more than twelve months. Lessees will need to recognize almost all leases on the balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained the dual model, requiring leases to be classified as either operating or finance. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. For short-term leases of twelve months or less, lessees are permitted to make an accounting election by class of underlying asset not to recognize right-of-use assets or lease liabilities. If the alternative is elected, lease expense would be recognized generally on the straight-line basis over the respective lease term.

The amendments in ASU 2016-02 will take effect for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted as of the beginning of an interim or annual reporting period. A modified retrospective approach is required for leases that exist or are entered intotheir approximate redemption values, after the ~~beginning~~attribution of net income or loss.

The changes in redeemable non-controlling interests are as follows:


	Nine Months Ended September 30,
	2022		2023
	(in thousands)
Balance as of January 1	$	39,033	$	34,043
Net income attributable to redeemable non-controlling interests	1,918		1,641

Distributions to redeemable non-controlling interests	(1,198)		(1,900)

Redemption value adjustment on redeemable non-controlling interests	1,381		436
Other	536		179
Balance as of March 31	$	41,670	$	34,399
Net income attributable to redeemable non-controlling interests	1,900		2,084

Distributions to and purchases of redeemable non-controlling interests	(1,553)		(2,110)
Redemption value adjustment on redeemable non-controlling interests	(355)		2
Other	535		—
Balance as of June 30	$	42,197	$	34,375
Net income attributable to redeemable non-controlling interests	2,240		2,320
Distributions to and purchases of redeemable non-controlling interests	(7,325)		(7,784)
Redemption value adjustment on redeemable non-controlling interests	(4,108)		(1,912)
Other	536		—
Balance as of September 30	$	33,540	$	26,999

5. Variable Interest Entities

Certain states prohibit the ~~earliest comparative period in the financial statements.~~

~~Upon adoption,~~“corporate practice of medicine,” which restricts the Company ~~will recognize significant assets~~from owning medical practices which directly employ physicians or therapists and ~~liabilities on~~from exercising control over medical decisions by physicians and therapists. In these states, the ~~consolidated balance sheets as a result of~~Company enters into long-term management agreements with medical practices that are owned by licensed physicians or therapists, which, in turn, employ or contract with physicians or therapists who provide professional medical services. The management agreements provide for the operating lease obligations of the Company. Operating lease expense will still be recognized as rent expense on a straight-line basis over the respective lease terms in the consolidated statements of operations.

~~The~~ Company ~~will implement the new standard beginning January 1, 2019. The Company’s implementation efforts are focused on designing accounting processes, disclosure processes, and internal controls in order~~ to ~~account for its leases under the new standard.~~

~~In May 2014, March 2016, April 2016, and December 2016, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~~~, ASU 2016-08,~~ ~~Revenue from Contracts with Customers, Principal versus Agent Considerations~~~~, ASU 2016-10,~~ ~~Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing~~~~, ASU 2016-12,~~ ~~Revenue from Contracts with Customers, Narrow Scope Improvements and Practical Expedients~~~~, and ASU 2016-20,~~ ~~Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customer~~ (collectively “the standards”), respectively, which supersede most of the current revenue recognition requirements. The core principle of the new guidance is that an entity should recognize revenue to depictdirect the transfer of ~~promised goods or services to customers in an amount that reflects~~ownership of the ~~consideration to~~medical practices. Based on the provisions of the management agreements, the medical practices are variable interest entities for which the ~~entity expects to be entitled in exchange for those goods or services. New disclosures about~~Company is the ~~nature, amount, timing and uncertainty~~primary beneficiary.

As of ~~revenue and cash flows arising from contracts with customers are also required. The standards require the selection of a retrospective or cumulative effect transition method.~~

The Company will implement the new standard beginning January 1, 2018 using the retrospective transition method. Adoption of the new standard will result in material changes to the presentation of net operating revenues and bad debt expense in the consolidated statements of operations, but the presentation of the amount of income from operations and net income is not expected to materially change upon adoption of the new standards. The principal change is how the new standard requires healthcare providers to estimate the amount of variable consideration to be included in the transaction price up to an amount which is probable that a significant reversal will not occur. The most common form of variable consideration the Company experiences are amounts for services provided that are ultimately not realizable from a customer. Under the current standards, the Company’s estimate for unrealizable amounts was recorded to bad debt expense. Under the new standards, the Company’s estimate for unrealizable amounts will be recognized as a constraint to revenue and will be reflected as an allowance. Substantially all of the bad debt expense as of September 30, 2016December 31, 2022, and September 30, ~~2017 will be reclassified as an allowance when~~2023, the total assets of the Company’s variable interest entities were $232.1 million and $273.4 million, respectively, and are principally comprised of accounts receivable. As of December 31, 2022, and September 30, 2023, the total liabilities of the Company’s variable interest entities were $78.8 million and $85.8 million, respectively, and are principally comprised of accounts payable and accrued expenses. These variable interest entities have obligations payable for services received under their management agreements with the Company ~~retrospectively applies the guidance~~of $158.3 million and $195.1 million as of December 31, 2022, and September 30, 2023, respectively. These intercompany balances are eliminated in ~~the standards on January 1, 2018.~~

consolidation.

Table of Contents

6. Leases

The Company’s ~~remaining implementation efforts are focused principally on refining the accounting processes, disclosure processes, and internal controls.~~

total lease cost is as follows:


	Three Months Ended September 30, 2022						Three Months Ended September 30, 2023
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Operating lease cost	$	73,795	$	1,810	$	75,605	$	78,147	$	1,834	$	79,981
Finance lease cost:
Amortization of right-of-use assets	381		—		381		387		—		387
Interest on lease liabilities	335		—		335		352		—		352
Short-term lease cost	24		—		24		—		—		—
Variable lease cost	14,855		141		14,996		16,562		—		16,562
Sublease income	(1,963)		—		(1,963)		(1,633)		—		(1,633)
Total lease cost	$	87,427	$	1,951	$	89,378	$	93,815	$	1,834	$	95,649


	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2023
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Operating lease cost	$	221,726	$	5,428	$	227,154	$	231,671	$	5,501	$	237,172
Finance lease cost:
Amortization of right-of-use assets	1,105		—		1,105		1,185		—		1,185
Interest on lease liabilities	1,011		—		1,011		1,059		—		1,059
Short-term lease cost	74		—		74		—		—		—
Variable lease cost	42,917		321		43,238		48,854		84		48,938
Sublease income	(5,869)		—		(5,869)		(5,027)		—		(5,027)
Total lease cost	$	260,964	$	5,749	$	266,713	$	277,742	$	5,585	$	283,327

~~Recently Adopted Accounting Pronouncements~~

~~In November 2015, the FASB issued ASU No. 2015-17,~~ ~~Balance Sheet Classification~~Table of ~~Deferred Taxes~~, which changed the presentation of deferred income taxes. The standard changed the presentation of deferred income taxes through the requirement that all deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The Company adopted the standard on January 1, 2017. The consolidated balance sheet at December 31, 2016 has been retrospectively adjusted. Adoption of the new standard impacted the Company’s previously reported results as follows:

December 31, 2016

As Reported

As Adjusted

(in thousands)

Current deferred tax asset

$
45,165

$
—

Total current assets

808,068

762,903

Other assets

152,548

173,944

Total assets

4,944,395

4,920,626

Non-current deferred tax liability

222,847

199,078

Total liabilities

3,616,335

3,592,566

Total liabilities and equity

4,944,395

4,920,626

~~Reclassifications~~

Certain reclassifications have been made to prior year amounts in order to conform to current year presentation. As discussed above, the condensed consolidated balance sheet at December 31, 2016 has been changed in order to conform to the current year balance sheet presentation for the adoption of ASU No. 2015-17, ~~Balance Sheet Classification of Deferred Taxes.~~

~~3. Acquisitions~~

~~Physiotherapy Acquisition~~

On March 4, 2016, Select acquired 100% of the issued and outstanding equity securities of Physiotherapy Associates Holdings, Inc. (“Physiotherapy”) for $406.3 million, net of $12.3 million of cash acquired.

For the Physiotherapy acquisition, the Company allocated the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair value in accordance with the provisions of Accounting Standards Codification (“ASC”) 805, ~~Business Combinations~~~~. During the quarter ended March 31, 2017, the Company finalized the purchase price allocation.~~

~~The following table reconciles the allocation of the consideration given for identifiable net assets and goodwill acquired to the net cash paid for the acquired business (in thousands):~~

Cash and cash equivalents

$
12,340

Identifiable tangible assets, excluding cash and cash equivalents

87,832

Identifiable intangible assets

32,484

Goodwill

343,187

Total assets

475,843

Total liabilities

54,685

Acquired non-controlling interests

2,514

Net assets acquired

418,644

Less: Cash and cash equivalents acquired

(12,340
)
Net cash paid

$
406,304

Contents

Goodwill of $343.2 million has been recognized in the business combination, representing the excess of the consideration given over the fair value of identifiable net assets acquired. The value of goodwill is derived from Physiotherapy’s future earnings potential and its assembled workforce. Goodwill has been assigned to the outpatient rehabilitation reporting unit and is not deductible for tax purposes. However, prior to its acquisition by the Company, Physiotherapy completed certain acquisitions that resulted in tax deductible goodwill with an estimated value of $8.8 million, which the Company will deduct through 2030.

~~Due to the integration of Physiotherapy into our outpatient rehabilitation operations, it is not practicable to separately identify net revenue and earnings of Physiotherapy on a stand-alone basis.~~

The following pro forma unaudited results of operations have been prepared assuming the acquisition of Physiotherapy occurred on January 1, 2015. These results are not necessarily indicative of results of future operations nor of the results that would have actually occurred had the acquisition been consummated on the aforementioned date. The Company’s results of operations for the three months ended September 30, 2016 and for the three and nine months ended September 30, 2017 include Physiotherapy for the entire period. There were no pro forma adjustments during these periods; therefore, no pro forma information is presented.

Nine Months Ended
September 30, 2016

(in thousands, except per
share amounts)

Net revenue

$
3,293,286

Net income attributable to Holdings

93,418

Income per common share:

Basic

$
0.71

Diluted

$
0.71

The net income tax impact was calculated at a statutory rate, as if Physiotherapy had been a subsidiary of the Company as of January 1, 2015. Pro forma results for the nine months ended September 30, 2016 were adjusted to exclude approximately $3.2 million of Physiotherapy acquisition costs.

~~Other Acquisitions~~

The Company completed acquisitions within our specialty hospitals, outpatient rehabilitation, and Concentra segments during the nine months ended September 30, 2017. The Company provided total consideration of $21.7 million, consisting principally of $19.4 million of cash and the issuance of non-controlling interests. The assets received in these acquisitions consisted principally of accounts receivable, property and equipment, identifiable intangible assets, and goodwill, of which $0.8 million, $1.8 million, and $14.5 million of goodwill was recognized in our specialty hospitals, outpatient rehabilitation, and Concentra reporting units, respectively.

4.~~Intangible Assets and Liabilities~~

~~Goodwill~~

~~The following table shows changes in the carrying amounts of goodwill by reporting unit for the nine months ended September 30, 2017:~~

Specialty
Hospitals

Outpatient
Rehabilitation

Concentra

Total

(in thousands)

Balance as of December 31, 2016

$
1,447,406

$
643,557

$
660,037

$
2,751,000

Acquired

797

1,768

14,505

17,070

Measurement period adjustment

(342
)
168

—

(174
)
Balance as of September 30, 2017

$
1,447,861

$
645,493

$
674,542

$
2,767,896

~~See Note 3 for details of the goodwill acquired during the period.~~

~~Identifiable Intangible Assets and Liabilities~~

~~The following table provides the gross carrying amounts, accumulated amortization, and net carrying amounts for the Company’s identifiable intangible assets and liabilities:~~

December 31, 2016

September 30, 2017

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

(in thousands)

Indefinite-lived assets:

Trademarks

$
166,698

$
—

$
166,698

$
166,698

$
—

$
166,698

Certificates of need

17,026

—

17,026

19,166

—

19,166

Accreditations

2,235

—

2,235

1,965

—

1,965

Finite-lived assets:

Customer relationships

142,198

(23,185
)
119,013

143,953

(34,482
)
109,471

Favorable leasehold interests

13,089

(2,317
)
10,772

13,295

(3,745
)
9,550

Non-compete agreements

26,655

(1,837
)
24,818

27,555

(3,369
)
24,186

Total identifiable intangible assets

$
367,901

$
(27,339
)
$
340,562

$
372,632

$
(41,596
)
$
331,036

Finite-lived liabilities:

Unfavorable leasehold interests

$
5,139

$
(1,410
)
$
3,729

$
5,343

$
(2,529
)
$
2,814

The Company’s customer relationships and non-compete agreements amortize over their estimated useful lives. Amortization expense was $4.1 million and $4.4 million for the three months ended September 30, 2016 and 2017, respectively. Amortization expense was $12.2 million and $13.1 million for the nine months ended September 30, 2016 and 2017, respectively.

The Company’s favorable and unfavorable leasehold interests are amortized to rent expense over the remaining term of their respective leases to reflect a market rent per period based upon the market conditions present at the acquisition date. The Company’s unfavorable leasehold interests are not separately presented on the condensed consolidated balance sheets but are included as a component of accrued other and other non-current liabilities.

The Company’s accreditations and trademarks have renewal terms and the costs to renew these intangible assets are expensed as incurred. At September 30, 2017, the accreditations and trademarks have a weighted average time until next renewal of 1.5 years and 2.1 years, respectively.

7.Long-Term Debt and Notes Payable

~~For purposes~~

As of ~~this indebtedness footnote, references to Select exclude Concentra because~~September 30, 2023, the ~~Concentra credit facilities are non-recourse to Holdings and Select.~~

~~The~~ Company’s long-term debt and notes payable ~~as of September 30, 2017~~ are as ~~follows (in thousands):~~

Principal
Outstanding

Unamortized
Premium
(Discount)

Unamortized
Issuance
Costs

Carrying
Value

Fair
Value

Select:

6.375% senior notes

$
710,000

$
835

$
(7,032
)
$
703,803

$
731,300

Credit facilities:

Revolving facility

320,000

—

—

320,000

294,400

Term loan

1,144,250

(12,962
)
(13,019
)
1,118,269

1,158,553

Other

35,184

—

—

35,184

35,184

Total Select debt

2,209,434

(12,127
)
(20,051
)
2,177,256

2,219,437

Concentra:

Credit facilities:

Term loan

619,175

(2,385
)
(11,268
)
605,522

620,917

Other

7,524

—

—

7,524

7,524

Total Concentra debt

626,699

(2,385
)
(11,268
)
613,046

628,441

Total debt

$
2,836,133

$
(14,512
)
$
(31,319
)
$
2,790,302

$
2,847,878

follows:


	Principal Outstanding		Unamortized Premium (Discount)		Unamortized Issuance Costs		Carrying Value		Fair Value
	(in thousands)
6.250% senior notes	$	1,225,000	$	17,046	$	(8,697)	$	1,233,349	$	1,193,126
Credit facilities:
Revolving facility	340,000		—		—		340,000		331,500
Term loan	2,097,743		(12,999)		(3,487)		2,081,257		2,087,254
Other debt, including finance leases	75,804		—		(81)		75,723		75,723
Total debt	$	3,738,547	$	4,047	$	(12,265)	$	3,730,329	$	3,687,603

Principal maturities of the Company’s long-term debt and notes payable are approximately as ~~follows (in thousands):~~

2017

2018

2019

2020

2021

Thereafter

Total

Select:

6.375% senior notes

$
—

$
—

$
—

$
—

$
710,000

$
—

$
710,000

Credit facilities:

Revolving facility

—

—

—

—

—

320,000

320,000

Term loan

2,875

11,500

11,500

11,500

11,500

1,095,375

1,144,250

Other

17,828

5,437

11,827

68

14

10

35,184

Total Select debt

20,703

16,937

23,327

11,568

721,514

1,415,385

2,209,434

Concentra:

Credit facilities:

Term loan

—

—

—

3,016

6,520

609,639

619,175

Other

657

2,843

144

161

160

3,559

7,524

Total Concentra debt

657

2,843

144

3,177

6,680

613,198

626,699

Total debt

$
21,360

$
19,780

$
23,471

$
14,745

$
728,194

$
2,028,583

$
2,836,133

~~The~~follows:


	2023		2024		2025		2026		2027		Thereafter		Total
	(in thousands)
6.250% senior notes	$	—	$	—	$	—	$	1,225,000	$	—	$	—	$	1,225,000
Credit facilities:
Revolving facility	—		—		—		—		340,000		—		340,000
Term loan	5,258		21,030		21,030		21,030		2,029,395		—		2,097,743
Other debt, including finance leases	5,962		50,988		2,527		2,427		1,941		11,959		75,804
Total debt	$	11,220	$	72,018	$	23,557	$	1,248,457	$	2,371,336	$	11,959	$	3,738,547

As of December 31, 2022, the Company’s long-term debt and notes payable ~~as of December 31, 2016~~ are as ~~follows (in thousands):~~

Principal
Outstanding

Unamortized
Premium
(Discount)

Unamortized
Issuance
Costs

Carrying
Value

Fair
Value

Select:

6.375% senior notes

$
710,000

$
1,006

$
(8,461
)
$
702,545

$
710,000

Credit facilities:

Revolving facility

220,000

—

—

220,000

204,600

Term loans

1,147,751

(11,967
)
(13,581
)
1,122,203

1,165,860

Other

22,688

—

—

22,688

22,688

Total Select debt

2,100,439

(10,961
)
(22,042
)
2,067,436

2,103,148

Concentra:

Credit facilities:

Term loan

642,239

(2,773
)
(13,091
)
626,375

644,648

Other

5,178

—

—

5,178

5,178

Total Concentra debt

647,417

(2,773
)
(13,091
)
631,553

649,826

Total debt

$
2,747,856

$
(13,734
)
$
(35,133
)
$
2,698,989

$
2,752,974

follows:

Principal
Outstanding Unamortized Premium (Discount) Unamortized
Issuance Costs Carrying Value Fair Value
(in thousands)
6.250% senior notes $ 1,225,000 $ 21,555 $ (10,948) $ 1,235,607 $ 1,163,689
Credit facilities:
Revolving facility 445,000 — — 445,000 443,331
Term loan 2,103,437 (4,376) (4,771) 2,094,290 2,056,110
Other debt, including finance leases 104,800 — (135) 104,665 104,665
Total debt $ 3,878,237 $ 17,179 $ (15,854) $ 3,879,562 $ 3,767,795

Select Credit Facilities

On ~~March 6, 2017, Select~~July 31, 2023, the Company entered into Amendment No. 8 to the Select credit agreement. Amendment No. 8 provides for a new ~~senior secured credit agreement (the “Select credit agreement”) that provides for $1.6 billion~~tranche of term loans in ~~senior secured credit facilities comprising a $1.15 billion, seven-year~~an aggregate principal amount of $2,103.0 million to replace the existing term ~~loan (the “Select term loan”)~~loans and a ~~$450.0~~$710.0 million ~~five-year~~new revolving credit facility ~~(the “Select~~to replace the $650.0 million existing revolving ~~facility” and together with the Select term loan, the “Select~~ credit ~~facilities”), including a $75.0 million sublimit for the issuance of standby letters of credit.~~

~~Select used borrowings under the Select credit facilities to: (i) repay in full the series E tranche B~~facility. The term loans ~~due June 1, 2018,~~and the ~~series F tranche B~~extended revolving credit facility will mature on March 6, 2027, with an early springing maturity 90 days prior to the senior notes maturity, triggered if more than $300.0 million of senior notes remain outstanding on May 15, 2026. The term loans ~~due March 31, 2021,~~have an interest rate of Term SOFR plus 3.00% and the revolving credit facility ~~maturing March 1, 2018 under its then existing~~has an interest rate of Adjusted Term SOFR (which includes a 0.10% credit ~~facilities; and (ii) pay fees and expenses in connection with~~spread adjustment) plus 2.50%, subject to a leverage-based pricing grid. During the ~~refinancing, which resulted in $6.5~~three months ended September 30, 2023, the Company recognized a $14.7 million loss on early retirement of debt ~~extinguishment losses and $13.2 million of debt modification losses during the first quarter of 2017.~~

Borrowings under the Select credit facilities bear interest at a rate equal to: (i) in the case of the Select term loan, Adjusted LIBO (as defined in the Select credit agreement) plus 3.50% (subject to an Adjusted LIBO floor of 1.00%), or Alternate Base Rate (as defined in the Select credit agreement) plus 2.50% (subject to an Alternate Base Rate floor of 2.00%); and (ii) in the case of the Select revolving facility, Adjusted LIBO plus a percentage ranging from 3.00% to 3.25% or Alternate Base Rate plus a percentage ranging from 2.00% to 2.25%, in each case based on Select’s leverage ratio.

The Select term loan amortizes in equal quarterly installments in amounts equal to 0.25% of the aggregate original principal amount of the Select term loan commencing on June 30, 2017. The balance of the Select term loan will be payable on March 8, 2024; however, if the Select 6.375% senior notes, which are due June 1, 2021, are outstanding on March 1, 2021, the maturity date for the Select term loan will become March 1, 2021. The Select revolving facility will be payable on March 8, 2022; however, if the Select 6.375% senior notes are outstanding on February 1, 2021, the maturity date for the Select revolving facility will become February 1, 2021.

~~Select will be required to prepay borrowings under the Select credit facilities with (i) 100% of the net cash proceeds received from non-ordinary course asset sales or other dispositions, or~~ as a result of ~~a casualty or condemnation, subject~~the amendment to ~~reinvestment provisions and other customary carveouts and, to the extent required, the payment of certain indebtedness secured by liens having priority over the debt under~~ the Select credit ~~facilities or subject~~agreement.

Table of Contents

8. Interest Rate Cap

The Company is ~~greater than 4.50~~subject to ~~1.00~~market risk exposure arising from changes in interest rates on its term loan. The term loan bears interest at a variable rate that is indexed to a benchmark which changed from LIBOR to SOFR on May 31, 2023. The Company’s objective in using an interest rate derivative is to mitigate its exposure to increases in interest rates. The interest rate cap limits the Company’s exposure to increases in the variable rate index to 1.0% on $2.0 billion of principal outstanding under the term loan, as the interest rate cap provides for payments from the counterparty when interest rates rise above 1.0%. The interest rate cap has a $2.0 billion notional amount and ~~25%~~is effective through September 30, 2024. The Company will pay a monthly premium for the interest rate cap over the term of ~~excess~~the agreement. The annual premium is equal to 0.0916% of the notional amount, or approximately $1.8 million.

The interest rate cap has been designated as a cash flow ~~if Select’s leverage ratio~~hedge and is ~~less than or equal to 4.50 to 1.00~~highly effective at offsetting the changes in cash outflows when the variable rate index exceeds 1.0%. Changes in the fair value of the interest rate cap, net of tax, are recognized in other comprehensive income and ~~greater than 4.00 to 1.00,~~are reclassified out of accumulated other comprehensive income and into interest expense when the hedged interest obligations affect earnings.

The following table outlines the changes in ~~each case, reduced by the aggregate amount~~accumulated other comprehensive income (loss), net of ~~term loans, revolving loans and certain other debt optionally prepaid~~tax, during the ~~applicable fiscal year. Select~~periods presented:


	Nine Months Ended September 30,
	2022		2023
	(in thousands)
Balance as of January 1	$	12,282	$	88,602
Gain (loss) on interest rate cap cash flow hedge	39,814		(2,696)
Amounts reclassified from accumulated other comprehensive income	39		(13,252)
Balance as of March 31	$	52,135	$	72,654
Gain on interest rate cap cash flow hedge	11,833		17,527
Amounts reclassified from accumulated other comprehensive income	(6)		(15,134)
Balance as of June 30	$	63,962	$	75,047
Gain on interest rate cap cash flow hedge	31,079		3,895
Amounts reclassified from accumulated other comprehensive income	(4,485)		(16,215)
Balance as of September 30	$	90,556	$	62,727

The effects on net income of amounts reclassified from accumulated other comprehensive income are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
Statement of Operations	2022		2023		2022		2023
	(in thousands)
Gains included in interest expense	$	5,980	$	21,477	$	5,936	$	59,074
Income tax expense	(1,495)		(5,262)		(1,484)		(14,473)
Amounts reclassified from accumulated other comprehensive income	$	4,485	$	16,215	$	4,452	$	44,601

The Company expects that approximately $83.0 million of estimated pre-tax gains will ~~not~~ be ~~required~~reclassified from accumulated other comprehensive income into interest expense within the next twelve months.

Refer to ~~prepay borrowings with excess cash flow if Select’s leverage ratio is less than or equal to 4.00 to 1.00.~~

~~The Select revolving facility requires Select to maintain a leverage ratio (as defined in~~Note 9 – Fair Value of Financial Instruments for information on the Select credit agreement), which is tested quarterly, not to exceed 6.25 to 1.00. After March 31, 2019, the leverage ratio must not exceed 6.00 to 1.00. Failure to comply with this covenant would result in an event of default under the Select revolving facility and, absent a waiver or an amendment from the revolving lenders, preclude Select from making further borrowings under the Select revolving facility and permit the revolving lenders to accelerate all outstanding borrowings under the Select revolving facility. The terminationfair value of the ~~Select revolving facility commitments~~Company’s interest rate cap contract and ~~the acceleration~~its balance sheet classification.

Table of ~~amounts outstanding thereunder would constitute an event~~Contents

9. Fair Value of ~~default with respect to the Select term loan. As of September 30, 2017, Select’s leverage ratio was 5.82 to 1.00.~~

~~The Select credit facilities also contain~~Financial Instruments

Financial instruments which are measured at fair value, or for which a number of other affirmative and restrictive covenants, including limitations on mergers, consolidations and dissolutions; sales of assets; investments and acquisitions; indebtedness; liens; affiliate transactions; and dividends and restricted payments. The Select credit facilities contain events of default for non-payment of principal and interest when due (subject, as to interest, to a grace period), cross-default and cross-acceleration provisions and an event of default that would be triggered by a change of control.

~~Borrowings under the Select credit facilities~~fair value is disclosed, are guaranteed by Holdings and substantially all of Select’s current domestic subsidiaries and will be guaranteed by substantially all of Select’s future domestic subsidiaries and secured by substantially all of Select’s existing and future property and assets and by a pledge of Select’s capital stock, the capital stock of Select’s domestic subsidiaries and up to 65% of the capital stock of Select’s foreign subsidiaries held directly by Select or a domestic subsidiary.

~~Excess Cash Flow Payment~~

On March 1, 2017, Concentra made a principal prepayment of $23.1 million associated with the Concentra first lien term loans in accordance with the provision in the Concentra credit facilities that requires mandatory prepayments of term loans as a result of annual excess cash flow, as defined in the Concentra credit facilities.

~~Fair Value~~

~~The Company considers the inputs in the valuation process to be Level 2~~classified in the fair value hierarchy, ~~for Select’s 6.375% senior notes and for its credit facilities. Level 2~~as outlined below, on the basis of the observability of the inputs used in the fair value ~~hierarchy is defined as~~measurement:

•Level 1 – inputs ~~that~~ are ~~observable for the asset or liability, either directly or indirectly, which includes~~based upon quoted prices for identical ~~assets~~instruments in active markets.

•Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or ~~liabilities~~similar instruments in markets that are not ~~active.~~

active, and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data.

•Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the instrument.

The Company’s interest rate cap contract is recorded at its fair value in the condensed consolidated balance sheets on a recurring basis. The fair ~~values~~value of the ~~Select~~interest rate cap contract is based upon a model-derived valuation using observable market inputs, such as interest rates and interest rate volatility, and the strike price.

Financial Instrument

Balance Sheet Classification

Level

December 31, 2022

September 30, 2023

Asset:

(in thousands)

Interest rate cap contract, current portion

Current portion of interest rate cap contract

Level 2

74,857

85,896

Interest rate cap contract, non-current portion

Interest rate cap contract, net of current portion

Level 2

45,200

—

The Company does not measure its indebtedness at fair value in its condensed consolidated balance sheets. The fair value of the credit facilities ~~and the Concentra credit facilities were~~is based on quoted market prices for this debt in the syndicated loan market. The fair value of ~~Select’s 6.375%~~the senior notes ~~was~~is based on quoted market prices. The carrying ~~amount~~value of the Company’s other debt, ~~principally short-term notes payable,~~as disclosed in Note 7 – Long-Term Debt and Notes Payable, approximates fair value.


		December 31, 2022				September 30, 2023
Financial Instrument	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
		(in thousands)
6.250% senior notes	Level 2	$	1,235,607	$	1,163,689	$	1,233,349	$	1,193,126
Credit facilities:
Revolving facility	Level 2	445,000		443,331		340,000		331,500
Term loan	Level 2	2,094,290		2,056,110		2,081,257		2,087,254

The Company’s other financial instruments, which primarily consist of cash and cash equivalents, accounts receivable, and accounts payable, approximate fair value because of the short-term maturities of these instruments.

Table of Contents

10. Segment Information

The Company’s reportable segments consist ~~of: specialty hospitals,~~of the critical illness recovery hospital segment, rehabilitation hospital segment, outpatient rehabilitation segment, and ~~Concentra.~~Concentra segment. Other activities include the Company’s corporate shared services, certain investments, and ~~certain other~~employee leasing services with non-consolidating ~~joint ventures and minority investments in other healthcare related businesses.~~ subsidiaries.

The Company evaluates the performance of ~~the~~its segments based on Adjusted EBITDA. Adjusted EBITDA is defined as earnings excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, ~~Physiotherapy acquisition costs, non-operating~~ gain (loss), on sale of businesses, and equity in earnings (losses) of unconsolidated subsidiaries.

The Company has provided additional information regarding its reportable segments, such as total assets, which contributes to the understanding of the Company and provides useful information to the users of the consolidated financial statements.

The following tables summarize selected financial data for the Company’s reportable segments.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2023		2022		2023
	(in thousands)
Revenue:
Critical illness recovery hospital	$	524,584	$	563,628	$	1,672,247	$	1,732,645
Rehabilitation hospital	229,387		247,101		678,908		719,419
Outpatient rehabilitation	284,993		291,804		844,191		890,679
Concentra	444,576		473,964		1,309,356		1,397,341
Other	84,254		89,197		247,380		265,118
Total Company	$	1,567,794	$	1,665,694	$	4,752,082	$	5,005,202
Adjusted EBITDA:
Critical illness recovery hospital	$	11,013	$	46,362	$	66,999	$	188,631
Rehabilitation hospital	49,772		53,626		141,996		155,531
Outpatient rehabilitation	25,715		26,346		85,912		89,395
Concentra	90,025		98,907		272,101		293,046
Other(1)	(23,412)		(31,404)		(69,054)		(99,234)
Total Company	$	153,113	$	193,837	$	497,954	$	627,369
Total assets:
Critical illness recovery hospital	$	2,368,968	$	2,454,578	$	2,368,968	$	2,454,578
Rehabilitation hospital	1,189,486		1,222,853		1,189,486		1,222,853
Outpatient rehabilitation	1,377,010		1,401,148		1,377,010		1,401,148
Concentra	2,309,392		2,321,671		2,309,392		2,321,671
Other	310,120		283,758		310,120		283,758
Total Company	$	7,554,976	$	7,684,008	$	7,554,976	$	7,684,008
Purchases of property, equipment, and other assets:
Critical illness recovery hospital	$	21,534	$	21,098	$	60,631	$	76,119
Rehabilitation hospital	392		4,813		11,487		15,298
Outpatient rehabilitation	10,098		8,855		28,826		29,263
Concentra	9,074		15,456		28,030		45,702
Other	844		(24)		6,145		2,215
Total Company	$	41,942	$	50,198	$	135,119	$	168,597

(1) For the three and nine months ended September 30, 2023, Adjusted EBITDA included other operating income of $0.5 million.

For the three and nine months ended September 30, 2022, Adjusted EBITDA included other operating income of $8.1 million and $23.2 million, respectively. The ~~segment results~~other operating income was principally related to the recognition of ~~Holdings are identical~~payments received under the Provider Relief Fund for health care related expenses and loss of revenue attributable to ~~those~~COVID-19.

Table of ~~Select.~~

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2017

2016

2017

(in thousands)

Net operating revenues:

Specialty hospitals

$
544,491

$
585,288

$
1,729,261

$
1,785,035

Outpatient rehabilitation(1)

250,710

250,527

745,720

764,450

Concentra

258,507

261,295

764,252

779,030

Other

87

56

523

687

Total Company

$
1,053,795

$
1,097,166

$
3,239,756

$
3,329,202

Adjusted EBITDA:

Specialty hospitals

$
48,264

$
69,454

$
217,759

$
256,291

Outpatient rehabilitation(1)

31,995

29,298

99,006

102,575

Concentra

40,888

40,003

118,080

125,656

Other

(23,070
)
(22,928
)
(66,696
)
(71,125
)
Total Company

$
98,077

$
115,827

$
368,149

$
413,397

Total assets:(2)

Specialty hospitals

$
2,469,060

$
2,748,761

$
2,469,060

$
2,748,761

Outpatient rehabilitation

955,359

945,765

955,359

945,765

Concentra

1,318,866

1,332,012

1,318,866

1,332,012

Other

73,992

97,269

73,992

97,269

Total Company

$
4,817,277

$
5,123,807

$
4,817,277

$
5,123,807

Purchases of property and equipment, net:

Specialty hospitals

$
24,378

$
37,376

$
79,366

$
106,424

Outpatient rehabilitation(1)

6,234

6,496

15,032

19,370

Concentra

2,720

5,369

10,647

21,656

Other

4,670

19,257

13,215

26,350

Total Company

$
38,002

$
68,498

$
118,260

$
173,800

Contents

A reconciliation of Adjusted EBITDA to income before income taxes is as follows:

Three Months Ended September 30, 2016

Specialty
Hospitals

Outpatient
Rehabilitation(1)

Concentra

Other

Total

(in thousands)

Adjusted EBITDA

$
48,264

$
31,995

$
40,888

$
(23,070
)

Depreciation and amortization

(14,317
)
(6,159
)
(15,278
)
(1,411
)

Stock compensation expense

—

—

(193
)
(4,557
)

Income (loss) from operations

$
33,947

$
25,836

$
25,417

$
(29,038
)
$
56,162

Loss on early retirement of debt

(10,853
)
Equity in earnings of unconsolidated subsidiaries

5,268

Non-operating loss

(1,028
)
Interest expense

(44,482
)
Income before income taxes

$
5,067


	Three Months Ended September 30, 2022
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Adjusted EBITDA	$	11,013	$	49,772	$	25,715	$	90,025	$	(23,412)
Depreciation and amortization	(16,055)		(6,994)		(8,157)		(17,781)		(2,472)
Stock compensation expense	—		—		—		(535)		(9,652)
Income (loss) from operations	$	(5,042)	$	42,778	$	17,558	$	71,709	$	(35,536)	$	91,467

Equity in earnings of unconsolidated subsidiaries											8,084


Interest expense											(45,204)
Income before income taxes											$	54,347


	Three Months Ended September 30, 2023
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Adjusted EBITDA	$	46,362	$	53,626	$	26,346	$	98,907	$	(31,404)
Depreciation and amortization	(16,402)		(7,106)		(8,861)		(17,959)		(2,066)
Stock compensation expense	—		—		—		—		(11,483)
Income (loss) from operations	$	29,960	$	46,520	$	17,485	$	80,948	$	(44,953)	$	129,960
Loss on early retirement of debt											(14,692)
Equity in earnings of unconsolidated subsidiaries											11,561


Interest expense											(50,271)
Income before income taxes											$	76,558


	Nine Months Ended September 30, 2022
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Adjusted EBITDA	$	66,999	$	141,996	$	85,912	$	272,101	$	(69,054)
Depreciation and amortization	(45,276)		(20,971)		(24,316)		(55,323)		(7,693)
Stock compensation expense	—		—		—		(1,606)		(26,350)
Income (loss) from operations	$	21,723	$	121,025	$	61,596	$	215,172	$	(103,097)	$	316,419

Equity in earnings of unconsolidated subsidiaries											19,648


Interest expense											(121,770)
Income before income taxes											$	214,297


	Nine Months Ended September 30, 2023
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Adjusted EBITDA	$	188,631	$	155,531	$	89,395	$	293,046	$	(99,234)
Depreciation and amortization	(46,925)		(20,881)		(26,097)		(54,552)		(6,303)
Stock compensation expense	—		—		—		(178)		(31,812)
Income (loss) from operations	$	141,706	$	134,650	$	63,298	$	238,316	$	(137,349)	$	440,621
Loss on early retirement of debt											(14,692)
Equity in earnings of unconsolidated subsidiaries											30,618


Interest expense											(147,839)
Income before income taxes											$	308,708

Table of Contents

Three Months Ended September 30, 2017

Specialty
Hospitals

Outpatient
Rehabilitation

Concentra

Other

Total

(in thousands)

Adjusted EBITDA

$
69,454

$
29,298

$
40,003

$
(22,928
)

Depreciation and amortization

(15,437
)
(5,964
)
(15,014
)
(2,357
)

Stock compensation expense

—

—

(212
)
(4,745
)

Income (loss) from operations

$
54,017

$
23,334

$
24,777

$
(30,030
)
$
72,098

Equity in earnings of unconsolidated subsidiaries

4,431

Interest expense

(37,688
)
Income before income taxes

$
38,841

Nine Months Ended September 30, 2016

Specialty
Hospitals

Outpatient
Rehabilitation(1)

Concentra

Other

Total

(in thousands)

Adjusted EBITDA

$
217,759

$
99,006

$
118,080

$
(66,696
)

Depreciation and amortization

(42,022
)
(16,397
)
(45,570
)
(3,898
)

Stock compensation expense

—

—

(577
)
(12,347
)

Physiotherapy acquisition costs

—

—

—

(3,236
)

Income (loss) from operations

$
175,737

$
82,609

$
71,933

$
(86,177
)
$
244,102

Loss on early retirement of debt

(11,626
)
Equity in earnings of unconsolidated subsidiaries

14,466

Non-operating gain

37,094

Interest expense

(127,662
)
Income before income taxes

$
156,374

Nine Months Ended September 30, 2017

Specialty
Hospitals

Outpatient
Rehabilitation

Concentra

Other

Total

(in thousands)

Adjusted EBITDA

$
256,291

$
102,575

$
125,656

$
(71,125
)

Depreciation and amortization

(49,391
)
(18,182
)
(46,566
)
(5,505
)

Stock compensation expense

—

—

(782
)
(13,445
)

Income (loss) from operations

$
206,900

$
84,393

$
78,308

$
(90,075
)
$
279,526

Loss on early retirement of debt

(19,719
)
Equity in earnings of unconsolidated subsidiaries

15,618

Non-operating loss

(49
)
Interest expense

(116,196
)
Income before income taxes

$
159,180

11. Revenue from Contracts with Customers

~~(1)~~

The ~~outpatient rehabilitation segment includes the operating results of~~following tables disaggregate the Company’s ~~contract therapy businesses through March 31, 2016~~revenue for the three and ~~Physiotherapy beginning March 4, 2016.~~

~~(2)~~ ~~Reflects the retrospective adoption of ASU No. 2015-17,~~ ~~Balance Sheet Classification of Deferred Taxes.~~ ~~Total assets as of~~nine months ended September 30, ~~2016 were retrospectively conformed to reflect~~2022 and 2023:


	Three Months Ended September 30, 2022
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Patient service revenue:
Medicare	$	201,558	$	106,584	$	45,193	$	205	$	—	$	353,540
Non-Medicare	320,896		111,509		221,275		443,040		—		1,096,720
Total patient services revenues	522,454		218,093		266,468		443,245		—		1,450,260
Other revenue	2,130		11,294		18,525		1,331		84,254		117,534
Total revenue	$	524,584	$	229,387	$	284,993	$	444,576	$	84,254	$	1,567,794


	Three Months Ended September 30, 2023
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Patient service revenue:
Medicare	$	201,881	$	115,145	$	45,286	$	261	$	—	$	362,573
Non-Medicare	360,847		119,524		228,386		472,171		—		1,180,928
Total patient services revenues	562,728		234,669		273,672		472,432		—		1,543,501
Other revenue	900		12,432		18,132		1,532		89,197		122,193
Total revenue	$	563,628	$	247,101	$	291,804	$	473,964	$	89,197	$	1,665,694


	Nine Months Ended September 30, 2022
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Patient service revenue:
Medicare	$	634,225	$	314,635	$	131,530	$	577	$	—	$	1,080,967
Non-Medicare	1,031,000		331,652		660,345		1,304,865		—		3,327,862
Total patient services revenues	1,665,225		646,287		791,875		1,305,442		—		4,408,829
Other revenue	7,022		32,621		52,316		3,914		247,380		343,253
Total revenue	$	1,672,247	$	678,908	$	844,191	$	1,309,356	$	247,380	$	4,752,082


	Nine Months Ended September 30, 2023
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Patient service revenue:
Medicare	$	639,007	$	338,650	$	137,734	$	754	$	—	$	1,116,145
Non-Medicare	1,090,650		344,885		696,617		1,392,136		—		3,524,288
Total patient services revenues	1,729,657		683,535		834,351		1,392,890		—		4,640,433
Other revenue	2,988		35,884		56,328		4,451		265,118		364,769
Total revenue	$	1,732,645	$	719,419	$	890,679	$	1,397,341	$	265,118	$	5,005,202

Table of Contents

12. Earnings per Share

The Company’s capital structure includes common stock and unvested restricted stock awards. To compute earnings per share (“EPS”), the ~~adoption of the standard, resulting in a reduction to total assets of $28.1 million.~~

~~7. Income per Common Share~~

~~Holdings~~Company applies the two-class method ~~for calculating and presenting income per~~because the Company’s unvested restricted stock awards are participating securities which are entitled to participate equally with the Company’s common ~~share. The~~stock in undistributed earnings. Application of the Company’s two-class method is ~~an earnings allocation formula~~as follows:

(i)Net income attributable to the Company is reduced by the amount of dividends declared and by the contractual amount of dividends that ~~determines earnings per share~~must be paid for the current period for each class of stock. There were no contractual dividends paid for the three and nine months ended September 30, 2022 and 2023.

(ii)The remaining undistributed net income of the Company is then equally allocated to its common stock ~~participation rights~~and unvested restricted stock awards, as if all of the earnings for the period had been distributed. The total net income allocated to each security is determined by adding both distributed and undistributed net income for the period.

(iii)The net income allocated to each security is then divided by the weighted average number of outstanding shares for the period to determine the EPS for each security considered in ~~undistributed earnings.~~

the two-class method.

The following table sets forth the ~~calculation of~~net income ~~per share in Holdings’ condensed consolidated statements of operations and~~attributable to the ~~differences between basic weighted average~~Company, its common shares outstanding, and ~~diluted~~its participating securities outstanding.


	Basic and Diluted EPS
	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2023		2022		2023
	(in thousands)
Net income	$	38,126	$	60,816	$	160,314	$	237,933
Less: net income attributable to non-controlling interests	10,960		12,636		28,824		40,711
Net income attributable to the Company	27,166		48,180		131,490		197,222
Less: Distributed and undistributed income attributable to participating securities	992		1,722		4,588		7,155
Distributed and undistributed income attributable to common shares	$	26,174	$	46,458	$	126,902	$	190,067

The following tables set forth the computation of EPS under the two-class method:


	Three Months Ended September 30,
	2022					2023
	Net Income Allocation		Shares(1)	Basic and Diluted EPS		Net Income Allocation		Shares(1)	Basic and Diluted EPS
	(in thousands, except for per share amounts)
Common shares	$	26,174	122,193	$	0.21	$	46,458	123,400	$	0.38
Participating securities	992		4,631	$	0.21	1,722		4,574	$	0.38
Total Company	$	27,166				$	48,180


	Nine Months Ended September 30,
	2022					2023
	Net Income Allocation		Shares(1)	Basic and Diluted EPS		Net Income Allocation		Shares(1)	Basic and Diluted EPS
	(in thousands, except for per share amounts)
Common shares	$	126,902	125,341	$	1.01	$	190,067	122,865	$	1.55
Participating securities	4,588		4,532	$	1.01	7,155		4,625	$	1.55
Total Company	$	131,490				$	197,222

_______________________________________________________________________________

(1) Represents the weighted average ~~shares~~share count outstanding ~~used to compute basic and diluted earnings per share, respectively.~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2016

2017

2016

2017

(in thousands, except per share amounts)

Numerator:

Net income attributable to Select Medical Holdings Corporation

$
6,471

$
18,462

$
95,239

$
76,387

Less: Earnings allocated to unvested restricted stockholders

209

608

2,852

2,464

Net income available to common stockholders

$
6,262

$
17,854

$
92,387

$
73,923

Denominator:

Weighted average shares—basic

127,848

129,142

127,659

128,745

Effect of dilutive securities:

Stock options

141

180

145

171

Weighted average shares—diluted

127,989

129,322

127,804

128,916

Basic income per common share:

$
0.05

$
0.14

$
0.72

$
0.57

Diluted income per common share:

$
0.05

$
0.14

$
0.72

$
0.57

8.during the period.

Table of Contents

13. Commitments and Contingencies

Litigation

The Company is a party to various legal actions, proceedings, and claims (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of its business. The Company cannot predict the ultimate outcome of pending litigation, proceedings, and regulatory and other governmental audits and investigations. These matters could potentially subject the Company to sanctions, damages, recoupments, fines, and other penalties. The Department of Justice, Centers for Medicare & Medicaid Services (“CMS”), or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the Company’s businesses in the future that may, either individually or in the aggregate, have a material adverse effect on the Company’s business, financial position, results of operations, and liquidity.

To address claims arising out of the Company’s operations, the Company maintains professional malpractice liability insurance and general liability insurance ~~subject~~coverages through a number of different programs that are dependent upon such factors as the state where the Company is operating and whether the operations are wholly owned or are operated through a joint venture. For the Company’s wholly owned hospital and outpatient clinic operations, the Company currently maintains insurance coverages under a combination of policies with a total annual aggregate limit of up to ~~self-insured retention of $2.0~~$37.0 million ~~per medical incident~~ for professional malpractice liability ~~claims~~insurance and ~~$2.0~~$40.0 million ~~per occurrence~~ for general liability ~~claims.~~insurance. For the Company’s Concentra center operations, the Company currently maintains insurance coverages under a combination of policies with a total annual aggregate limit of up to $19.0 million for professional malpractice liability insurance and $19.0 million for general liability insurance. The Company’s insurance for the professional liability coverage is written on a “claims-made” basis, and its commercial general liability coverage is maintained on an “occurrence” basis. These coverages apply after a self-insured retention limit is exceeded. For the Company’s joint venture operations, the Company has designed a separate insurance program that responds to the risks of specific joint ventures. Most of the Company’s joint ventures are insured under a master program with an annual aggregate limit of up to $80.0 million, subject to a sublimit aggregate ranging from $23.0 million to $33.0 million. The policies are generally written on a “claims-made” basis. Each of these programs has either a deductible or self-insured retention limit. The Company also maintains ~~umbrella~~additional types of liability insurance covering claims, ~~which,~~that due to their nature or amount, are not covered by or not fully covered by the Company’s ~~other~~professional and general liability insurance policies. These insurance policies also do not generally cover punitive damages and are subject to various deductibles and policy limits. The Company reviews its insurance program annually and may make adjustments to the amount of insurance coverage and self-insured retentions in future years. Significant legal actions, as well as the cost and possible lack of available insurance, could subject the Company to substantial uninsured liabilities. In the Company’s opinion, the outcome of these actions, individually or in the aggregate, will not have a material adverse effect on its financial position, results of operations, or cash flows.

Healthcare providers are subject to lawsuits under the qui tam provisions of the federal False Claims Act. Qui tam lawsuits typically remain under seal (hence, usually unknown to the defendant) for some time while the government decides whether or not to intervene on behalf of a private qui tam plaintiff (known as a relator) and take the lead in the litigation. These lawsuits can involve significant monetary damages and penalties and award bounties to private plaintiffs who successfully bring the suits. The Company is and has been a defendant in these cases in the past, and may be named as a defendant in similar cases from time to time in the future.

~~Evansville Litigation~~

Oklahoma City Subpoena.On ~~October 19, 2015,~~August 24, 2020, the ~~plaintiff-relators filed a Second Amended Complaint in United States of America, ex rel. Tracy Conroy, Pamela Schenk~~Company and ~~Lisa Wilson v. Select Medical Corporation,~~ Select Specialty Hospital—Evansville, LLC (“SSH-Evansville”), Select Employment Services, Inc., and Dr. Richard Sloan. The case is a civil action filed in the United States District Court for the Southern District of Indiana by private plaintiff-relators on behalf of the United States under the federal False Claims Act. The plaintiff-relators are the former CEO and two former case managers at SSH-Evansville, and the defendants currently include the Company, SSH-Evansville, a subsidiary of the Company serving as common paymaster for its employees, and a physician who practices at SSH-Evansville. The plaintiff-relators allege that SSH-Evansville discharged patients too early or held patients too long, improperly discharged patients to and readmitted them from short stay hospitals, up-coded diagnoses at admission, and admitted patients for whom long-term acute care was not medically necessary. They also allege that the defendants engaged in retaliation in violation of federal and state law. The Second Amended Complaint replaced a prior complaint that was filed under seal on September 28, 2012 and served on the Company on February 15, 2013, after a federal magistrate judge unsealed it on January 8, 2013. All deadlines in the case had been stayed after the seal was lifted in order to allow the government time to complete its investigation and to decide whether or not to intervene. On June 19, 2015, the United States Department of Justice notified the District Court of its decision not to intervene in the case.

In December 2015, the defendants filed a Motion to Dismiss the Second Amended Complaint on multiple grounds, including that the action is disallowed by the False Claims Act’s public disclosure bar, which disqualifies qui tam actions that are based on fraud already publicly disclosed through enumerated sources, unless the relator is an original source, and that the plaintiff-relators did not plead their claims with sufficient particularity, as required by the Federal Rules of Civil Procedure.

Thereafter, the United States filed a notice asserting a veto of the defendants’ use of the public disclosure bar for claims arising from conduct from and after March 23, 2010, which was based on certain statutory changes to the public disclosure bar language included in the Affordable Care Act. On September 30, 2016, the District Court partially granted and partially denied the defendants’ Motion to Dismiss. It ruled that the plaintiff-relators alleged substantially the same conduct as had been publicly disclosed and that the plaintiff relators are not original sources, so that the public disclosure bar requires dismissal of all non-retaliation claims arising from conduct before March 23, 2010. The District Court also ruled that the statutory changes to the public disclosure bar gave the United States the power to veto its applicability to claims arising from conduct on and after March 23, 2010, and therefore did not dismiss those claims based on the public disclosure bar. However, the District Court ruled that the plaintiff-relators did not plead certain of their claims relating to interrupted stay manipulation and premature discharging of patients with the requisite particularity, and dismissed those claims. The District Court declined to dismiss the plaintiff relators’ claims arising from conduct from and after March 23, 2010 relating to delayed discharging of patients and up-coding and the plaintiff relators’ retaliation claims. The plaintiff-relators then proposed a case management plan seeking nationwide discovery involving all of the Company’s LTCHs for the period from March 23, 2010 through the present, which the defendants have opposed. The Company intends to vigorously defend this action, but at this time the Company is unable to predict the timing and outcome of this matter.

~~Knoxville Litigation~~

On July 13, 2015, the United States District Court for the Eastern District of Tennessee unsealed a qui tam Complaint in Armes v. Garman, et al, No. 3:14-cv-00172-TAV-CCS, which named as defendants Select, Select Specialty Hospital—Knoxville,Hospital – Oklahoma City, Inc. (“~~SSH-Knoxville”~~SSH–Oklahoma City”), Select Specialty Hospital—North Knoxville, Inc. and ten current or former employees of these facilities. The Complaint was unsealed after the United States and the State of Tennessee notified the court on July 13, 2015 that each had decided not to intervene in the case. The Complaint is a civil action that was filed under seal on April 29, 2014 by a respiratory therapist formerly employed at SSH-Knoxville. The Complaint alleges violations of the federal False Claims Act and the Tennessee Medicaid False Claims Act based on extending patient stays to increase reimbursement and to increase average length of stay; artificially prolonging the lives of patients to increase Medicare reimbursements and decrease inspections; admitting patients who do not require medically necessary care; performing unnecessary procedures and services; and delaying performance of procedures to increase billing. The Complaint was served on some of the defendants during October 2015.

In November 2015, the defendants filed a Motion to Dismiss the Complaint on multiple grounds. The defendants first argued that False Claims Act’s first-to-file bar required dismissal of plaintiff-relator’s claims. Under the first-to-file bar, if a qui tam case is pending, no person may bring a related action based on the facts underlying the first action. The defendants asserted that the plaintiff-relator’s claims were based on the same underlying facts as were asserted in the Evansville litigation, discussed above. The defendants also argued that the plaintiff-relator’s claims must be dismissed under the public disclosure bar, and because the plaintiff-relator did not plead his claims with sufficient particularity.

In June 2016, the District Court granted the defendants’ Motion to Dismiss and dismissed with prejudice the plaintiff-relator’s lawsuit in its entirety. The District Court ruled that the first-to-file bar precludes all but one of the plaintiff-relator’s claims, and that the remaining claim must also be dismissed because the plaintiff-relator failed to plead it with sufficient particularity. In July 2016, the plaintiff-relator filed a Notice of Appeal to the United States Court of Appeals for the Sixth Circuit. Then, on October 11, 2016, the plaintiff-relator filed a Motion to Remand the case to the District Court for further proceedings, arguing that the September 30, 2016 decision in the Evansville litigation, discussed above, undermines the basis for the District Court’s dismissal. After the Court of Appeals denied the Motion to Remand, the plaintiff-relator then sought an indicative ruling from the District Court that it would vacate its prior dismissal ruling and allow plaintiff-relator to supplement his Complaint, which the defendants have opposed. The case has been fully briefed and argued in the Court of Appeals. The Company intends to vigorously defend this action, but at this time the Company is unable to predict the timing and outcome of this matter.

~~Wilmington Litigation~~

On January 19, 2017, the United States District Court for the District of Delaware unsealed a qui tam Complaint in United States of America and State of Delaware ex rel. Theresa Kelly v. Select Specialty Hospital—Wilmington, Inc. (“SSH-Wilmington”), Select Specialty Hospitals, Inc., Select Employment Services, Inc., Select Medical Corporation, and Crystal Cheek, No. 16-347-LPS. The Complaint was initially filed under seal on May 12, 2016 by a former chief nursing officer at SSH-Wilmington and was unsealed after the United States filed a Notice of Election to Decline Intervention on January 13, 2017. The corporate defendants were served on March 6, 2017. In the complaint, the plaintiff-relator alleges that the Select defendants and an individual defendant, who is a former health information manager at SSH-Wilmington, violated the False Claims Act and the Delaware False Claims and Reporting Act based on allegedly falsifying medical practitioner signatures on medical records and failing to properly examine the credentials of medical practitioners at SSH-Wilmington. In response to the Select defendants’ motion to dismiss the Complaint, on May 17, 2017 the plaintiff-relator filed an Amended Complaint asserting the same causes of action. The Select defendants filed a Motion to Dismiss the Amended Complaint, which is now pending, based on numerous grounds, including that the Amended Complaint did not plead any alleged fraud with sufficient particularity, failed to plead that the alleged fraud was material to the government’s payment decision, failed to plead sufficient facts to establish that the Select defendants knowingly submitted false claims or records, and failed to allege any reverse false claim.

On March 24, 2017, the plaintiff-relator initiated a second action by filing a Complaint in the Superior Court of the State of Delaware in Theresa Kelly v. Select Medical Corporation, Select Employment Services, Inc., and SSH-Wilmington, C.A. No. N17C-03-293 CLS. The Delaware Complaint alleges that the defendants retaliated against her in violation of the Delaware Whistleblowers’ Protection Act for reporting the same alleged violations that are the subject of the federal Amended Complaint. The defendants filed a motion to dismiss, or alternatively to stay, the Delaware Complaint based on the pending federal Amended Complaint and the failure to allege facts to support a violation of the Delaware Whistleblowers’ Protection Act. The motion is currently pending.

~~The Company intends to vigorously defend these actions, but at this time the Company is unable to predict the timing and outcome of this matter.~~

~~Contract Therapy Subpoena~~

~~On May 18, 2017, the Company~~ received ~~a subpoena~~Civil Investigative Demands (“CIDs”) from the U.S. Attorney’s Office for the Western District of ~~New Jersey~~Oklahoma seeking responses to interrogatories and the production of various documents principally relating to the ~~Company’s contract therapy division, which contracted~~documentation, billing and reviews of medical services furnished to ~~furnish rehabilitation therapy services to residents of skilled nursing facilities (“SNFs”) and other providers.~~patients at SSH-Oklahoma City. The Company ~~operated its contract therapy division through a subsidiary until March 31, 2016, when~~understands that the Company sold the stock of the subsidiary. The subpoena seeks documents that appear to be aimed at assessing whether therapy services were furnished and billed in compliance with Medicare SNF billing requirements, including whether therapy services were coded at inappropriate levels and whether excessive or unnecessary therapy was furnished to justify coding at higher paying levels. The Company does not know whether the subpoena has been issued in connection withinvestigation arose from a qui tam lawsuit ~~or in connection with possible civil, criminal or administrative proceedings by the government.~~alleging billing fraud related to charges for respiratory therapy services at SSH-Oklahoma City and Select Specialty Hospital - Wichita, Inc. The Company ~~is producing~~has produced documents in response to the ~~subpoena~~CIDs and ~~intends to~~is fully ~~cooperate~~cooperating with this investigation. At this time, the Company is unable to predict the timing and outcome of this matter.

~~Northern District~~

Table of ~~Alabama Investigation~~

Contents

Physical Therapy Billing. On October ~~30, 2017,~~7, 2021, the Company ~~was contacted by~~received a letter from a Trial Attorney at the U.S. ~~Attorney’s Office for~~Department of Justice, Civil Division, Commercial Litigation Branch, Fraud Section (“DOJ”) stating that the ~~Northern District~~DOJ, in conjunction with the U.S. Department of ~~Alabama to request cooperation~~Health and Human Services (“HHS”), is investigating the Company in connection with anpotential violations of the False Claims Act, 31 U.S.C. § 3729, et seq. The letter specified that the investigation relates to the Company’s billing for physical therapy services, and indicated that ~~may involve Medicare billing compliance at~~the DOJ would be requesting certain records from the Company. In 2021, the DOJ requested, and the Company furnished, records relating to six of the Company’s ~~Physiotherapy~~ outpatient ~~rehabilitation clinics.~~therapy clinics in Florida. In 2022, the DOJ requested certain data relating to all of the Company’s outpatient therapy clinics nationwide, and sought information about the Company’s ability to produce additional data relating to the physical therapy services furnished by the Company’s outpatient therapy clinics and Concentra. The Company ~~intends to cooperate with~~has produced data and other documents requested by the DOJ and is fully cooperating on this investigation. At this time, the Company is unable to predict the timing and outcome of this matter.

14. Subsequent ~~Event~~

Events

On October 23, 2017, Select announced that Concentra Group Holdings entered into an Equity Purchase and Contribution Agreement (the “Purchase Agreement”) dated October 22, 2017 with Concentra, Concentra Group Holdings Parent, LLC (“Group Holdings Parent”), U.S. HealthWorks, Inc. (“U.S. HealthWorks”), and Dignity Health Holdings Company (“DHHC”). PursuantNovember 2, 2023, the Company’s Board of Directors declared a cash dividend of $0.125 per share. The dividend will be payable on or about November 28, 2023, to ~~the terms~~stockholders of record as of the ~~Purchase Agreement, Concentra will acquire the issued and outstanding shares~~close of ~~stock~~business on November 15, 2023.

Table of ~~U.S. HealthWorks, an occupational medicine and urgent care service provider.~~

In connection with the closing of the transaction, it is expected that Concentra Group Holdings will redeem certain of its outstanding equity interests from existing minority equity holders and subsequently, Concentra Group Holdings and a wholly owned subsidiary of Group Holdings Parent will merge, with Concentra Group Holdings surviving the merger and becoming a wholly owned subsidiary of Group Holdings Parent. As a result of the merger, the equity interests of Concentra Group Holdings outstanding after the redemption described above will be exchanged for membership interests in Group Holdings Parent.

The transaction values U.S. HealthWorks at $753.0 million, subject to certain customary adjustments for working capital, cash, debt, transaction expenses and other items in accordance with the terms of the Purchase Agreement. DHHC, a subsidiary of Dignity Health, will be issued a 20% equity interest in Group Holdings Parent, which is valued at $238.0 million. The remainder of the purchase price will be paid in cash. Select will retain a majority voting interest in Group Holdings Parent following the closing of the transaction.

Concentra expects to finance the transaction and related expenses using a proposed $555.0 million senior secured incremental term facility under its existing credit facility and a proposed $240.0 million second lien term facility, for which JP Morgan Chase, N.A. has provided Concentra with a debt commitment letter.

The transaction, which is expected to close in the first quarter of 2018, is subject to a number of closing conditions, including clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Contents

~~10. Condensed Consolidating Financial Information~~

Select’s 6.375% senior notes are fully and unconditionally and jointly and severally guaranteed, except for customary limitations, on a senior basis by all of Select’s wholly owned subsidiaries (the “Subsidiary Guarantors”). The Subsidiary Guarantors are defined as subsidiaries where Select, or a subsidiary of Select, holds all of the outstanding ownership interests. Certain of Select’s subsidiaries did not guarantee the 6.375% senior notes (the “Non-Guarantor Subsidiaries” and Concentra Group Holdings and its subsidiaries, the “Non-Guarantor Concentra”).

Select conducts a significant portion of its business through its subsidiaries. Presented below is condensed consolidating financial information for Select, the Subsidiary Guarantors, the Non-Guarantor Subsidiaries, and Non-Guarantor Concentra at December 31, 2016 and September 30, 2017 and for the three and nine months ended September 30, 2016 and 2017.

The equity method has been used by Select with respect to investments in subsidiaries. The equity method has been used by Subsidiary Guarantors with respect to investments in Non-Guarantor Subsidiaries. Separate financial statements for Subsidiary Guarantors are not presented.

~~Certain reclassifications have been made to prior reported amounts in order to conform to the current year guarantor structure.~~

~~Select Medical Corporation~~

~~Condensed Consolidating Balance Sheet~~

~~September 30, 2017~~

~~(unaudited)~~

Select (Parent
Company Only)

Subsidiary
Guarantors

Non-Guarantor
Subsidiaries

Non-Guarantor
Concentra

Consolidating
and Eliminating
Adjustments

Consolidated
Select Medical
Corporation

(in thousands)

Assets

Current Assets:

Cash and cash equivalents

$
73

$
6,359

$
4,548

$
96,320

$
—

$
107,300

Accounts receivable, net

—

468,370

120,463

127,593

—

716,426

Intercompany receivables

—

1,488,527

36,784

—

(1,525,311
)(a)
—

Prepaid income taxes

2,882

—

—

—

(2,882
)(f)
—

Other current assets

10,937

30,142

16,814

22,431

—

80,324

Total Current Assets

13,892

1,993,398

178,609

246,344

(1,528,193
)
904,050

Property and equipment, net

50,736

646,672

75,315

173,340

—

946,063

Investment in affiliates

4,421,777

116,370

—

—

(4,538,147
)(b)(c)
—

Goodwill

—

2,093,354

—

674,542

—

2,767,896

Identifiable intangible assets, net

—

104,570

4,824

221,642

—

331,036

Other assets

42,852

101,285

36,285

16,144

(21,804
)(e)
174,762

Total Assets

$
4,529,257

$
5,055,649

$
295,033

$
1,332,012

$
(6,088,144
)
$
5,123,807

Liabilities and Equity

Current Liabilities:

Overdrafts

$
18,923

$
—

$
—

$
—

$
—

$
18,923

Current portion of long-term debt and notes payable

30,838

773

2,483

3,466

—

37,560

Accounts payable

13,066

82,662

24,196

13,397

—

133,321

Intercompany payables

1,488,527

36,784

—

—

(1,525,311
)(a)
—

Accrued payroll

11,186

86,257

3,931

38,028

—

139,402

Accrued vacation

3,848

55,949

12,040

17,334

—

89,171

Accrued interest

28,763

7

—

2,228

—

30,998

Accrued other

40,075

59,088

12,183

32,097

—

143,443

Income taxes payable

—

—

—

9,600

(2,882
)(f)
6,718

Total Current Liabilities

1,635,226

321,520

54,833

116,150

(1,528,193
)
599,536

Long-term debt, net of current portion

2,133,355

243

9,564

609,580

—

2,752,742

Non-current deferred tax liability

—

131,902

767

80,576

(21,804
)(e)
191,441

Other non-current liabilities

39,034

55,572

8,039

35,473

—

138,118

Total Liabilities

3,807,615

509,237

73,203

841,779

(1,549,997
)
3,681,837

Redeemable non-controlling interests

—

—

—

14,641

606,874
(d)
621,515

Stockholder’s Equity:

Common stock

0

—

—

—

—

0

Capital in excess of par

942,142

—

—

—

—

942,142

Retained earnings (accumulated deficit)

(220,500
)
1,328,453

(40,068
)
34,338

(1,322,723
)(c)(d)
(220,500
)
Subsidiary investment

—

3,217,959

261,898

437,568

(3,917,425
)(b)(d)
—

Total Select Medical Corporation Stockholder’s Equity

721,642

4,546,412

221,830

471,906

(5,240,148
)
721,642

Non-controlling interests

—

—

—

3,686

95,127
(d)
98,813

Total Equity

721,642

4,546,412

221,830

475,592

(5,145,021
)
820,455

Total Liabilities and Equity

$
4,529,257

$
5,055,649

$
295,033

$
1,332,012

$
(6,088,144
)
$
5,123,807

~~(a)~~ ~~Elimination of intercompany balances.~~

~~(b)~~ ~~Elimination of investments in consolidated subsidiaries.~~

~~(c)~~ ~~Elimination of investments in consolidated subsidiaries’ earnings.~~

~~(d)~~ ~~Reclassification of equity attributable to non-controlling interests.~~

~~(e)~~ ~~Reclassification of non-current deferred tax asset to report net non-current deferred tax liability in consolidation.~~

~~(f)~~ ~~Reclassification of prepaid income taxes to report net income taxes payable in consolidation.~~

~~Select Medical Corporation~~

~~Condensed Consolidating Statement of Operations~~

~~For the Three Months Ended September 30, 2017~~

~~(unaudited)~~

Select (Parent
Company Only)

Subsidiary
Guarantors

Non-Guarantor
Subsidiaries

Non-Guarantor
Concentra

Consolidating
and Eliminating
Adjustments

Consolidated
Select Medical
Corporation

(in thousands)

Net operating revenues

$
56

$
661,676

$
174,139

$
261,295

$
—

$
1,097,166

Costs and expenses:

Cost of services

667

570,564

151,609

216,070

—

938,910

General and administrative

27,028

37

—

—

—

27,065

Bad debt expense

—

10,879

4,008

5,434

—

20,321

Depreciation and amortization

2,355

17,982

3,421

15,014

—

38,772

Total costs and expenses

30,050

599,462

159,038

236,518

—

1,025,068

Income (loss) from operations

(29,994
)
62,214

15,101

24,777

—

72,098

Other income and expense:

Intercompany interest and royalty fees

7,864

(4,194
)
(3,670
)
—

—

—

Intercompany management fees

51,241

(41,048
)
(10,193
)
—

—

—

Equity in earnings of unconsolidated subsidiaries

—

4,416

15

—

—

4,431

Interest income (expense)

(30,239
)
270

(20
)
(7,699
)
—

(37,688
)

Income (loss) before income taxes

(1,128
)
21,658

1,233

17,078

—

38,841

Income tax expense (benefit)

(1,032
)
8,377

330

6,342

—

14,017

Equity in earnings of consolidated subsidiaries

18,558

399

—

—

(18,957
)(a)
—

Net income

18,462

13,680

903

10,736

(18,957
)
24,824

Less: Net income attributable to non-controlling interests

—

—

383

5,979

—

6,362

Net income attributable to Select Medical Corporation

$
18,462

$
13,680

$
520

$
4,757

$
(18,957
)
$
18,462

~~(a)~~ ~~Elimination of equity in earnings of consolidated subsidiaries.~~

~~Select Medical Corporation~~

~~Condensed Consolidating Statement of Operations~~

~~For the Nine Months Ended September 30, 2017~~

~~(unaudited)~~

Select (Parent
Company Only)

Subsidiary
Guarantors

Non-Guarantor
Subsidiaries

Non-Guarantor
Concentra

Consolidating
and Eliminating
Adjustments

Consolidated
Select Medical
Corporation

(in thousands)

Net operating revenues

$
687

$
2,038,955

$
510,530

$
779,030

$
—

$
3,329,202

Costs and expenses:

Cost of services

1,843

1,713,091

434,130

638,433

—

2,787,497

General and administrative

83,291

124

—

—

—

83,415

Bad debt expense

—

32,456

10,941

15,723

—

59,120

Depreciation and amortization

5,503

57,471

10,104

46,566

—

119,644

Total costs and expenses

90,637

1,803,142

455,175

700,722

—

3,049,676

Income (loss) from operations

(89,950
)
235,813

55,355

78,308

—

279,526

Other income and expense:

Intercompany interest and royalty fees

24,760

(13,586
)
(11,174
)
—

—

—

Intercompany management fees

176,443

(147,117
)
(29,326
)
—

—

—

Loss on early retirement of debt

(19,719
)
—

—

—

—

(19,719
)
Equity in earnings of unconsolidated subsidiaries

—

15,555

63

—

—

15,618

Non-operating loss

—

(49
)
—

—

—

(49
)
Interest income (expense)

(93,725
)
269

(104
)
(22,636
)
—

(116,196
)

Income (loss) before income taxes

(2,191
)
90,885

14,814

55,672

—

159,180

Income tax expense (benefit)

(3,230
)
41,620

943

20,260

—

59,593

Equity in earnings of consolidated subsidiaries

75,348

10,174

—

—

(85,522
)(a)
—

Net income

76,387

59,439

13,871

35,412

(85,522
)
99,587

Less: Net income attributable to non-controlling interests

—

—

3,627

19,573

—

23,200

Net income attributable to Select Medical Corporation

$
76,387

$
59,439

$
10,244

$
15,839

$
(85,522
)
$
76,387

~~(a)~~ ~~Elimination of equity in earnings of consolidated subsidiaries.~~

~~Select Medical Corporation~~

~~Condensed Consolidating Statement of Cash Flows~~

~~For the Nine Months Ended September 30, 2017~~

~~(unaudited)~~

Select (Parent
Company Only)

Subsidiary
Guarantors

Non-Guarantor
Subsidiaries

Non-Guarantor
Concentra

Consolidating
and Eliminating
Adjustments

Consolidated
Select Medical
Corporation

(in thousands)

Operating activities

Net income

$
76,387

$
59,439

$
13,871

$
35,412

$
(85,522
)(a)
$
99,587

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Distributions from unconsolidated subsidiaries

—

14,493

49

—

—

14,542

Depreciation and amortization

5,503

57,471

10,104

46,566

—

119,644

Provision for bad debts

—

32,456

10,941

15,723

—

59,120

Equity in earnings of unconsolidated subsidiaries

—

(15,555
)
(63
)
—

—

(15,618
)
Equity in earnings of consolidated subsidiaries

(75,348
)
(10,174
)
—

—

85,522
(a)
—

Loss on extinguishment of debt

6,527

—

—

—

—

6,527

Loss (gain) on sale or disposal of assets and businesses

(8
)
(4,824
)
(4,687
)
20

—

(9,499
)
Stock compensation expense

13,445

—

—

782

—

14,227

Amortization of debt discount, premium and issuance costs

6,113

—

—

2,433

—

8,546

Deferred income taxes

5,014

—

—

(11,140
)
—

(6,126
)
Changes in operating assets and liabilities, net of effects of business combinations:

Accounts receivable

—

(137,255
)
(33,634
)
(30,625
)
—

(201,514
)
Other current assets

1,016

3,816

(6,731
)
(778
)
—

(2,677
)
Other assets

1,633

(3,709
)
3,044

439

—

1,407

Accounts payable

2,375

(616
)
1,373

781

—

3,913

Accrued expenses

164

(2,075
)
11,181

9,482

—

18,752

Income taxes

3,776

—

—

15,365

—

19,141

Net cash provided by (used in) operating activities

46,597

(6,533
)
5,448

84,460

—

129,972

Investing activities

Business combinations, net of cash acquired

—

(3,356
)
(295
)
(15,720
)
—

(19,371
)
Purchases of property and equipment

(26,350
)
(102,150
)
(23,644
)
(21,656
)
—

(173,800
)
Investment in businesses

—

(11,374
)
—

—

—

(11,374
)
Proceeds from sale of assets and businesses

8

15,007

19,537

3

—

34,555

Net cash used in investing activities

(26,342
)
(101,873
)
(4,402
)
(37,373
)
—

(169,990
)

Financing activities

Borrowings on revolving facilities

805,000

—

—

—

—

805,000

Payments on revolving facilities

(705,000
)
—

—

—

—

(705,000
)
Proceeds from term loans

1,139,487

—

—

—

—

1,139,487

Payments on term loans

(1,153,502
)
—

—

(23,065
)
—

(1,176,567
)
Revolving facility debt issuance costs

(4,392
)
—

—

—

—

(4,392
)
Borrowings of other debt

21,572

—

3,232

2,767

—

27,571

Principal payments on other debt

(10,122
)
(306
)
(2,150
)
(2,534
)
—

(15,112
)
Dividends paid to Holdings

(3,603
)
—

—

—

—

(3,603
)
Equity investment by Holdings

1,634

—

—

—

—

1,634

Intercompany

(101,888
)
108,724

(6,836
)
—

—

—

Proceeds from issuance of non-controlling interests

—

—

8,986

—

—

8,986

Repayments of overdrafts

(20,439
)
—

—

—

—

(20,439
)
Purchase of non-controlling interests

—

(120
)
—

—

—

(120
)
Distributions to non-controlling interests

—

—

(4,786
)
(4,370
)
—

(9,156
)
Net cash provided by (used in) financing activities

(31,253
)
108,298

(1,554
)
(27,202
)
—

48,289

Net increase (decrease) in cash and cash equivalents

(10,998
)
(108
)
(508
)
19,885

—

8,271

Cash and cash equivalents at beginning of period

11,071

6,467

5,056

76,435

—

99,029

Cash and cash equivalents at end of period

$
73

$
6,359

$
4,548

$
96,320

$
—

$
107,300

~~(a)~~ ~~Elimination of equity in earnings of consolidated subsidiaries.~~

~~Select Medical Corporation~~

~~Condensed Consolidating Balance Sheet~~

~~December 31, 2016~~

~~(unaudited)~~

Select (Parent
Company Only)

Subsidiary
Guarantors

Non-Guarantor
Subsidiaries

Non-Guarantor
Concentra

Consolidating
and Eliminating
Adjustments

Consolidated
Select Medical
Corporation

(in thousands)

Assets

Current Assets:

Cash and cash equivalents

$
11,071

$
6,467

$
5,056

$
76,435

$
—

$
99,029

Accounts receivable, net

—

363,470

97,770

112,512

—

573,752

Intercompany receivables

—

1,573,960

25,578

—

(1,599,538
)(a)
—

Prepaid income taxes

6,658

—

—

5,765

—

12,423

Other current assets

11,953

33,958

10,269

21,519

—

77,699

Total Current Assets

29,682

1,977,855

138,673

216,231

(1,599,538
)
762,903

Property and equipment, net

48,697

603,408

50,869

189,243

—

892,217

Investment in affiliates

4,493,684

89,288

—

—

(4,582,972
)(b)(c)
—

Goodwill

—

2,090,963

—

660,037

—

2,751,000

Identifiable intangible assets, net

—

106,439

2,693

231,430

—

340,562

Other assets

45,636

84,803

53,954

16,235

(26,684
)(e)
173,944

Total Assets

$
4,617,699

$
4,952,756

$
246,189

$
1,313,176

$
(6,209,194
)
$
4,920,626

Liabilities and Equity

Current Liabilities:

Overdrafts

$
39,362

$
—

$
—

$
—

$
—

$
39,362

Current portion of long-term debt and notes payable

7,227

445

1,324

4,660

—

13,656

Accounts payable

10,775

78,608

22,397

14,778

—

126,558

Intercompany payables

1,573,960

25,578

—

—

(1,599,538
)(a)
—

Accrued payroll

16,963

92,216

4,246

32,972

—

146,397

Accrued vacation

3,440

55,486

10,668

13,667

—

83,261

Accrued interest

20,114

—

—

2,211

—

22,325

Accrued other

39,155

62,384

4,639

33,898

—

140,076

Total Current Liabilities

1,710,996

314,717

43,274

102,186

(1,599,538
)
571,635

Long-term debt, net of current portion

2,048,154

601

9,685

626,893

—

2,685,333

Non-current deferred tax liability

—

133,852

596

91,314

(26,684
)(e)
199,078

Other non-current liabilities

42,824

53,537

5,727

34,432

—

136,520

Total Liabilities

3,801,974

502,707

59,282

854,825

(1,626,222
)
3,592,566

Redeemable non-controlling interests

—

—

—

15,493

406,666
(d)
422,159

Stockholder’s Equity:

Common stock

0

—

—

—

—

0

Capital in excess of par

925,111

—

—

—

—

925,111

Retained earnings (accumulated deficit)

(109,386
)
1,269,009

(32,826
)
2,723

(1,238,906
)(c)(d)
(109,386
)
Subsidiary investment

—

3,181,040

219,733

436,786

(3,837,559
)(b)(d)
—

Total Select Medical Corporation Stockholder’s Equity

815,725

4,450,049

186,907

439,509

(5,076,465
)
815,725

Non-controlling interests

—

—

—

3,349

86,827
(d)
90,176

Total Equity

815,725

4,450,049

186,907

442,858

(4,989,638
)
905,901

Total Liabilities and Equity

$
4,617,699

$
4,952,756

$
246,189

$
1,313,176

$
(6,209,194
)
$
4,920,626

~~(a)~~ ~~Elimination of intercompany balances.~~

~~(b)~~ ~~Elimination of investments in consolidated subsidiaries.~~

~~(c)~~ ~~Elimination of investments in consolidated subsidiaries’ earnings.~~

~~(d)~~ ~~Reclassification of equity attributable to non-controlling interests.~~

~~(e)~~ ~~Reclassification of non-current deferred tax asset to report net non-current deferred tax liability in consolidation.~~

~~Select Medical Corporation~~

~~Condensed Consolidating Statement of Operations~~

~~For the Three Months Ended September 30, 2016~~

~~(unaudited)~~

Select (Parent
Company Only)

Subsidiary
Guarantors

Non-Guarantor
Subsidiaries

Non-Guarantor
Concentra

Consolidating
and Eliminating
Adjustments

Consolidated
Select Medical
Corporation

(in thousands)

Net operating revenues

$
85

$
655,663

$
139,540

$
258,507

$
—

$
1,053,795

Costs and expenses:

Cost of services

626

569,167

133,480

212,430

—

915,703

General and administrative

26,967

121

—

—

—

27,088

Bad debt expense

—

9,662

2,633

5,382

—

17,677

Depreciation and amortization

1,411

17,335

3,141

15,278

—

37,165

Total costs and expenses

29,004

596,285

139,254

233,090

—

997,633

Income (loss) from operations

(28,919
)
59,378

286

25,417

—

56,162

Other income and expense:

Intercompany interest and royalty fees

8,458

(4,884
)
(3,574
)
—

—

—

Intercompany management fees

33,693

(25,880
)
(7,813
)
—

—

—

Loss on early retirement of debt

—

—

—

(10,853
)
—

(10,853
)
Equity in earnings of unconsolidated subsidiaries

—

5,238

30

—

—

5,268

Non-operating gain (loss)

(6,963
)
5,935

—

—

—

(1,028
)
Interest income (expense)

(34,424
)
137

(31
)
(10,164
)
—

(44,482
)

Income (loss) before income taxes

(28,155
)
39,924

(11,102
)
4,400

—

5,067

Income tax expense (benefit)

5,701

(7,284
)
1,484

1,174

—

1,075

Equity in earnings (losses) of consolidated subsidiaries

40,327

(7,877
)
—

—

(32,450
)(a)
—

Net income (loss)

6,471

39,331

(12,586
)
3,226

(32,450
)
3,992

Less: Net income (loss) attributable to non-controlling interests

—

(6
)
(4,804
)
2,331

—

(2,479
)

Net income (loss) attributable to Select Medical Corporation

$
6,471

$
39,337

$
(7,782
)
$
895

$
(32,450
)
$
6,471

~~(a)~~ ~~Elimination of equity in earnings of consolidated subsidiaries.~~

~~Select Medical Corporation~~

~~Condensed Consolidating Statement of Operations~~

~~For the Nine Months Ended September 30, 2016~~

~~(unaudited)~~

Select (Parent
Company Only)

Subsidiary
Guarantors

Non-Guarantor
Subsidiaries

Non-Guarantor
Concentra

Consolidating
and Eliminating
Adjustments

Consolidated
Select Medical
Corporation

(in thousands)

Net operating revenues

$
522

$
2,095,102

$
379,880

$
764,252

$
—

$
3,239,756

Costs and expenses:

Cost of services

1,576

1,780,606

340,254

632,514

—

2,754,950

General and administrative

81,198

28

—

—

—

81,226

Bad debt expense

—

30,665

6,691

14,235

—

51,591

Depreciation and amortization

3,898

49,983

8,436

45,570

—

107,887

Total costs and expenses

86,672

1,861,282

355,381

692,319

—

2,995,654

Income (loss) from operations

(86,150
)
233,820

24,499

71,933

—

244,102

Other income and expense:

Intercompany interest and royalty fees

22,793

(12,314
)
(10,479
)
—

—

—

Intercompany management fees

127,832

(108,007
)
(19,825
)
—

—

—

Loss on early retirement of debt

(773
)
—

—

(10,853
)
—

(11,626
)
Equity in earnings of unconsolidated subsidiaries

—

14,384

82

—

—

14,466

Non-operating gain

33,932

3,162

—

—

—

37,094

Interest income (expense)

(97,239
)
293

(71
)
(30,645
)
—

(127,662
)

Income (loss) before income taxes

395

131,338

(5,794
)
30,435

—

156,374

Income tax expense

13,840

24,701

2,091

10,953

—

51,585

Equity in earnings (losses) of consolidated subsidiaries

108,684

(6,004
)
—

—

(102,680
)(a)
—

Net income (loss)

95,239

100,633

(7,885
)
19,482

(102,680
)
104,789

Less: Net income (loss) attributable to non-controlling interests

—

27

(2,109
)
11,632

—

9,550

Net income (loss) attributable to Select Medical Corporation

$
95,239

$
100,606

$
(5,776
)
$
7,850

$
(102,680
)
$
95,239

~~(a)~~ ~~Elimination of equity in earnings of consolidated subsidiaries.~~

~~Select Medical Corporation~~

~~Condensed Consolidating Statement of Cash Flows~~

~~For the Nine Months Ended September 30, 2016~~

~~(unaudited)~~

Select (Parent
Company Only)

Subsidiary
Guarantors

Non-Guarantor
Subsidiaries

Non-Guarantor
Concentra

Consolidating
and Eliminating
Adjustments

Consolidated
Select Medical
Corporation

(in thousands)

Operating activities

Net income

$
95,239

$
100,633

$
(7,885
)
$
19,482

$
(102,680
)(a)
$
104,789

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Distributions from unconsolidated subsidiaries

—

16,075

70

—

—

16,145

Depreciation and amortization

3,898

49,983

8,436

45,570

—

107,887

Provision for bad debts

—

30,665

6,691

14,235

—

51,591

Equity in earnings of unconsolidated subsidiaries

—

(14,384
)
(82
)
—

—

(14,466
)
Equity in earnings of consolidated subsidiaries

(108,684
)
6,004

—

—

102,680
(a)
—

Loss on extinguishment of debt

773

—

—

10,853

—

11,626

Loss (gain) on sale or disposal of assets and businesses

(33,707
)
(8,367
)
185

(21
)
—

(41,910
)
Gain on sale of equity investment

—

(241
)
—

—

—

(241
)
Impairment of equity investment

—

5,339

—

—

—

5,339

Stock compensation expense

12,347

—

—

577

—

12,924

Amortization of debt discount, premium and issuance costs

9,289

—

—

2,556

—

11,845

Deferred income taxes

(902
)
—

—

(12,186
)
—

(13,088
)
Changes in operating assets and liabilities, net of effects of business combinations:

Accounts receivable

—

6,288

(27,966
)
(19,098
)
—

(40,776
)
Other current assets

(1,153
)
9,745

(6,113
)
9,615

—

12,094

Other assets

(3,881
)
53,100

(53,961
)
9,888

—

5,146

Accounts payable

(239
)
(22,529
)
487

4,529

—

(17,752
)
Accrued expenses

19,692

36,051

(214
)
(2,533
)
—

52,996

Due to third party payors

—

15,019

(3,954
)
—

—

11,065

Income taxes

3,230

—

—

2,317

—

5,547

Net cash provided by (used in) operating activities

(4,098
)
283,381

(84,306
)
85,784

—

280,761

Investing activities

Business combinations, net of cash acquired

(406,305
)
(3,523
)
—

(4,403
)
—

(414,231
)
Purchases of property and equipment

(13,315
)
(68,609
)
(25,689
)
(10,647
)
—

(118,260
)
Investment in businesses

—

(3,140
)
—

—

—

(3,140
)
Proceeds from sale of assets, businesses, and equity investment

63,418

9,205

6

—

—

72,629

Net cash used in investing activities

(356,202
)
(66,067
)
(25,683
)
(15,050
)
—

(463,002
)

Financing activities

Borrowings on revolving facilities

420,000

—

—

—

—

420,000

Payments on revolving facilities

(540,000
)
—

—

(5,000
)
—

(545,000
)
Proceeds from term loans

600,127

—

—

195,217

—

795,344

Payments on term loans

(228,962
)
—

—

(205,880
)
—

(434,842
)
Borrowings of other debt

8,748

—

12,237

2,816

—

23,801

Principal payments on other debt

(10,971
)
(528
)
(1,813
)
(2,165
)
—

(15,477
)
Dividends paid to Holdings

(1,939
)
—

—

—

—

(1,939
)
Equity investment by Holdings

1,488

—

—

—

—

1,488

Intercompany

116,274

(214,053
)
97,779

—

—

—

Proceeds from issuance of non-controlling interests

—

—

11,846

—

—

11,846

Repayments of overdrafts

(8,464
)
—

—

—

—

(8,464
)
Purchase of non-controlling interests

—

(1,530
)
—

—

—

(1,530
)
Distributions to non-controlling interests

—

(217
)
(6,545
)
(2,436
)
—

(9,198
)
Net cash provided by (used in) financing activities

356,301

(216,328
)
113,504

(17,448
)
—

236,029

Net increase (decrease) in cash and cash equivalents

(3,999
)
986

3,515

53,286

—

53,788

Cash and cash equivalents at beginning of period

4,070

3,706

625

6,034

—

14,435

Cash and cash equivalents at end of period

$
71

$
4,692

$
4,140

$
59,320

$
—

$
68,223

~~(a)~~ ~~Elimination of equity in earnings of consolidated subsidiaries.~~

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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:

•adverse economic conditions including an inflationary environment could cause us to continue to experience increases in the prices of labor and other costs of doing business resulting in a negative impact on our business, operating results, cash flows, and financial condition;

•shortages in qualified nurses, therapists, physicians, or other licensed providers, and/or the inability to attract or retain qualified healthcare professionals could limit our ability to staff our facilities;

•shortages in qualified health professionals could cause us to increase our dependence on contract labor, increase our efforts to recruit and train new employees, and expand upon our initiatives to retain existing staff, which could increase our operating costs significantly;

•the continuing effects of the COVID-19 pandemic including, but not limited to, the prolonged disruption to the global financial markets, increased operational costs due to recessionary pressures and labor costs, 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 ~~due to the implementation of healthcare reform legislation, deficit reduction measures,~~ and/or new payment policies (including, for example, the expiration of the moratorium limiting the full application of the 25 Percent Rule that would reduce our Medicare payments for those patients admitted to a long term acute care hospital from a referring hospital in excess of an applicable percentage admissions threshold) may result in a reduction in ~~net operating revenues,~~revenue, an increase in costs, and a reduction in profitability;

· the impact of the Bipartisan Budget Act of 2013 (the “BBA of 2013”), which established payment limits for Medicare patients who do not meet specified criteria, may result in a reduction in net operating revenues and profitability of our long term acute care hospitals (“LTCHs”);

•the failure of our ~~specialty~~Medicare-certified long term care hospitals or inpatient rehabilitation facilities to maintain their Medicare certifications may cause our ~~net operating revenues~~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 ~~net operating revenues~~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 ~~the pending acquisition of U.S. HealthWorks~~our acquisitions and our ability to realize anticipated synergies;

•private third-party payors for our services may adopt payment policies that could limit our future ~~net operating revenues~~revenue and profitability;

•the failure to maintain established relationships with the physicians in the areas we serve could reduce our ~~net operating revenues~~revenue and profitability;

Table of Contents

· ~~shortages in qualified nurses, therapists, physicians, or other licensed providers could increase our operating costs significantly or limit our ability to staff our facilities;~~

•competition may limit our ability to grow and result in a decrease in our ~~net operating revenues~~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

•other factors discussed from time to time in our filings with the SEC, including factors discussed under the heading “Risk Factors” in our quarterly reports on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, ~~2016, as such risk factors may be updated from time to time in our periodic filings with the SEC.~~

2022.

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.

Table of Contents

Overview

We began operations in 1997 and, based on number of facilities, are one of the largest operators of ~~specialty~~critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational ~~medicine~~health centers in the United States. As of September 30, ~~2017,~~2023, we had operations in 46 states and the District of Columbia. ~~As of September 30, 2017, we~~We operated ~~123 specialty~~107 critical illness recovery hospitals in 28 states, ~~and 1,604~~33 rehabilitation hospitals in 13 states, 1,946 outpatient rehabilitation clinics in 3739 states and the District of ~~Columbia. Concentra, which is operated through a joint venture subsidiary, operated 312 medical~~Columbia, 539 occupational health centers in 3841 states, ~~as of September 30, 2017. Concentra also provides contract services~~and 145 onsite clinics at employer ~~worksites and Department of Veterans Affairs community-based outpatient clinics, or “CBOCs.”~~

~~We manage our Company through three business segments: specialty hospitals,~~worksites.

Our reportable segments include the critical illness recovery hospital segment, the rehabilitation hospital segment, the outpatient rehabilitation segment, and ~~Concentra.~~the Concentra segment. We had ~~net operating revenues~~revenue of ~~$3,329.2~~$5,005.2 million for the nine months ended September 30, ~~2017.~~2023. Of this total, we earned approximately ~~54%~~35% of our ~~net operating revenues~~revenue from our ~~specialty hospitals~~critical illness recovery hospital segment, approximately ~~23%~~14% from our rehabilitation hospital segment, approximately 18% from our outpatient rehabilitation segment, and approximately ~~23%~~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 ~~specialty~~critical illness recovery hospitals and rehabilitation hospitals from general acute care hospitals. ~~These patients have specialized needs, with serious and often complex medical conditions.~~ Our outpatient rehabilitation segment consists of clinics that provide physical, occupational, and speech rehabilitation services. Our Concentra segment consists of ~~medical~~occupational health centers that provide workers’ compensation injury care, physical therapy, and ~~contract~~consumer health services ~~provided~~as well as onsite clinics located at employer worksites ~~and Department of Veterans Affairs CBOCs~~ that deliver occupational medicine ~~physical therapy, veteran’s healthcare, and consumer health~~ services.

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 ~~accounting principles generally accepted in the United States of America (“GAAP”).~~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 ~~calculations,~~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, ~~Physiotherapy acquisition costs, non-operating~~ 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 following 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,

2016

2017

2016

2017

(in thousands)

Net income

$
3,992

$
24,824

$
104,789

$
99,587

Income tax expense

1,075

14,017

51,585

59,593

Interest expense

44,482

37,688

127,662

116,196

Non-operating loss (gain)

1,028

—

(37,094
)
49

Equity in earnings of unconsolidated subsidiaries

(5,268
)
(4,431
)
(14,466
)
(15,618
)
Loss on early retirement of debt

10,853

—

11,626

19,719

Income from operations

56,162

72,098

244,102

279,526

Stock compensation expense:

Included in general and administrative

3,932

4,079

10,771

11,603

Included in cost of services

818

878

2,153

2,624

Depreciation and amortization

37,165

38,772

107,887

119,644

Physiotherapy acquisition costs

—

—

3,236

—

Adjusted EBITDA

$
98,077

$
115,827

$
368,149

$
413,397

EBITDA:

Three Months Ended September 30, Nine Months Ended September 30,
2022 2023 2022 2023
(in thousands)
Net income $ 38,126 $ 60,816 $ 160,314 $ 237,933
Income tax expense 16,221 15,742 53,983 70,775
Interest expense 45,204 50,271 121,770 147,839
Equity in earnings of unconsolidated subsidiaries (8,084) (11,561) (19,648) (30,618)
Loss on early retirement of debt — 14,692 — 14,692
Income from operations 91,467 129,960 316,419 440,621
Stock compensation expense:
Included in general and administrative 8,000 9,425 21,995 26,383
Included in cost of services 2,187 2,058 5,961 5,607
Depreciation and amortization 51,459 52,394 153,579 154,758
Adjusted EBITDA $ 153,113 $ 193,837 $ 497,954 $ 627,369

Table of Contents

Summary Financial Results

Three Months Ended September 30, ~~2017~~

~~For the three months ended September 30, 2017,~~2023

The following tables reconcile our ~~net~~segment performance measures to our consolidated operating ~~revenues increased 4.1% to $1,097.2 million, compared to $1,053.8~~results:


	Three Months Ended September 30, 2023
	Critical Illness Recovery Hospital			Rehabilitation Hospital			Outpatient Rehabilitation			Concentra			Other		Total
	(in thousands)
Revenue	$	563,628		$	247,101		$	291,804		$	473,964		$	89,197	$	1,665,694
Operating expenses	(517,266)			(193,475)			(265,458)			(375,057)			(132,569)		(1,483,825)
Depreciation and amortization	(16,402)			(7,106)			(8,861)			(17,959)			(2,066)		(52,394)
Other operating income	—			—			—			—			485		485
Income (loss) from operations	$	29,960		$	46,520		$	17,485		$	80,948		$	(44,953)	$	129,960
Depreciation and amortization	16,402			7,106			8,861			17,959			2,066		52,394
Stock compensation expense	—			—			—			—			11,483		11,483
Adjusted EBITDA	$	46,362		$	53,626		$	26,346		$	98,907		$	(31,404)	$	193,837
Adjusted EBITDA margin	8.2		%	21.7		%	9.0		%	20.9		%	N/M		11.6		%


	Three Months Ended September 30, 2022
	Critical Illness Recovery Hospital			Rehabilitation Hospital			Outpatient Rehabilitation			Concentra			Other		Total
	(in thousands)
Revenue	$	524,584		$	229,387		$	284,993		$	444,576		$	84,254	$	1,567,794
Operating expenses	(513,691)			(179,856)			(259,278)			(355,086)			(125,397)		(1,433,308)
Depreciation and amortization	(16,055)			(6,994)			(8,157)			(17,781)			(2,472)		(51,459)
Other operating income	120			241			—			—			8,079		8,440
Income (loss) from operations	$	(5,042)		$	42,778		$	17,558		$	71,709		$	(35,536)	$	91,467
Depreciation and amortization	16,055			6,994			8,157			17,781			2,472		51,459
Stock compensation expense	—			—			—			535			9,652		10,187
Adjusted EBITDA	$	11,013		$	49,772		$	25,715		$	90,025		$	(23,412)	$	153,113
Adjusted EBITDA margin	2.1		%	21.7		%	9.0		%	20.2		%	N/M		9.8		%

Net income was $60.8 million for the three months ended September 30, ~~2016. Income from operations increased 28.4%~~2023, compared to ~~$72.1~~$38.1 million for the three months ended September 30, ~~2017, compared to $56.2 million~~2022.

The following table summarizes changes in segment performance measures for the three months ended September 30, ~~2016. Net income increased~~2023, compared to ~~$24.8 million for~~ the three months ended September 30, ~~2017, compared to $4.0 million for the three months ended September 30, 2016. Net income for the three months ended September 30, 2016 included a pre-tax loss on early retirement~~2022:


	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
Change in revenue	7.4	%	7.7	%	2.4	%	6.6	%	5.9	%	6.2	%
Change in income from operations	694.2	%	8.7	%	(0.4)	%	12.9	%	N/M		42.1	%
Change in Adjusted EBITDA	321.0	%	7.7	%	2.5	%	9.9	%	N/M		26.6	%

_______________________________________________________________________________

N/M — Not meaningful.

Table of debt of $10.9 million and a pre-tax non-operating loss of $1.0 million. Our Adjusted EBITDA increased 18.1% to $115.8 million for the three months ended September 30, 2017, compared to $98.1 million for the three months ended September 30, 2016. Our Adjusted EBITDA margin was 10.6% for the three months ended September 30, 2017, compared to 9.3% for the three months ended September 30, 2016.

Contents

Nine Months Ended September 30, ~~2017~~

~~For the nine months ended September 30, 2017,~~2023

The following tables reconcile our ~~net~~segment performance measures to our consolidated operating ~~revenues increased 2.8% to $3,329.2 million, compared to $3,239.8~~results:


	Nine Months Ended September 30, 2023
	Critical Illness Recovery Hospital			Rehabilitation Hospital			Outpatient Rehabilitation			Concentra			Other		Total
	(in thousands)
Revenue	$	1,732,645		$	719,419		$	890,679		$	1,397,341		$	265,118	$	5,005,202
Operating expenses	(1,544,014)			(564,224)			(801,523)			(1,104,624)			(396,649)		(4,411,034)
Depreciation and amortization	(46,925)			(20,881)			(26,097)			(54,552)			(6,303)		(154,758)
Other operating income	—			336			239			151			485		1,211
Income (loss) from operations	$	141,706		$	134,650		$	63,298		$	238,316		$	(137,349)	$	440,621
Depreciation and amortization	46,925			20,881			26,097			54,552			6,303		154,758
Stock compensation expense	—			—			—			178			31,812		31,990
Adjusted EBITDA	$	188,631		$	155,531		$	89,395		$	293,046		$	(99,234)	$	627,369
Adjusted EBITDA margin	10.9		%	21.6		%	10.0		%	21.0		%	N/M		12.5		%


	Nine Months Ended September 30, 2022
	Critical Illness Recovery Hospital			Rehabilitation Hospital			Outpatient Rehabilitation			Concentra			Other		Total
	(in thousands)
Revenue	$	1,672,247		$	678,908		$	844,191		$	1,309,356		$	247,380	$	4,752,082
Operating expenses	(1,605,368)			(537,153)			(758,279)			(1,038,842)			(366,007)		(4,305,649)
Depreciation and amortization	(45,276)			(20,971)			(24,316)			(55,323)			(7,693)		(153,579)
Other operating income (expense)	120			241			—			(19)			23,223		23,565
Income (loss) from operations	$	21,723		$	121,025		$	61,596		$	215,172		$	(103,097)	$	316,419
Depreciation and amortization	45,276			20,971			24,316			55,323			7,693		153,579
Stock compensation expense	—			—			—			1,606			26,350		27,956
Adjusted EBITDA	$	66,999		$	141,996		$	85,912		$	272,101		$	(69,054)	$	497,954
Adjusted EBITDA margin	4.0		%	20.9		%	10.2		%	20.8		%	N/M		10.5		%

Net income was $237.9 million for the nine months ended September 30, ~~2016. Income from operations increased 14.5%~~2023, compared to ~~$279.5~~$160.3 million for the nine months ended September 30, ~~2017, compared to $244.1 million~~2022.

The following table summarizes the changes in our segment performance measures for the nine months ended September 30, ~~2016. Net income was $99.6 million for~~2023, compared to the nine months ended September 30, ~~2017, which includes pre-tax losses on early retirement~~2022:


	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
Change in revenue	3.6	%	6.0	%	5.5	%	6.7	%	7.2	%	5.3	%
Change in income from operations	552.3	%	11.3	%	2.8	%	10.8	%	N/M		39.3	%
Change in Adjusted EBITDA	181.5	%	9.5	%	4.1	%	7.7	%	N/M		26.0	%

_______________________________________________________________________________

N/M — Not meaningful.

Table of debt of $19.7 million. Net income was $104.8 million for the nine months ended September 30, 2016, which included pre-tax non-operating gains of $37.1 million and pre-tax losses on early retirement of debt of $11.6 million. Our Adjusted EBITDA increased 12.3% to $413.4 million for the nine months ended September 30, 2017, compared to $368.1 million for the nine months ended September 30, 2016. Our Adjusted EBITDA margin was 12.4% for the nine months ended September 30, 2017, compared to 11.4% for the nine months ended September 30, 2016.

~~Implementation of Patient Criteria~~

~~As discussed below under “~~Contents

Regulatory Changes ~~— Medicare Reimbursement of LTCH Services — Patient Criteria~~,” our LTCHs transitioned to new Medicare regulations, which established payment limits for Medicare patients discharged from an LTCH who do not meet specified patient criteria, beginning October 1, 2015. Since completing our transition to the new LTCH Medicare patient criteria regulations during the third quarter of 2016, we have experienced an increase in admissions of patients eligible for the full LTCH-PPS standard reimbursement rate.

~~The table below illustrates the trends of our case mix index and occupancy percentages during the periods in which our LTCHs became subject to the new patient criteria requirements.~~

2015

2016

2017

Occupancy
Percentage

Case Mix
Index(1)

Occupancy
Percentage

Case Mix
Index(1)

Occupancy
Percentage

Case Mix
Index(1)

Three months ended:

March 31

71
%
1.22

71
%
1.24

68
%
1.28

June 30

70
%
1.21

67
%
1.27

66
%
1.28

September 30

70
%
1.18

61
%
1.26

65
%
1.27

December 31

70
%
1.21

63
%
1.26

~~(1)~~ Case mix index, which is calculated as the sum of all diagnostic-related group weights for the period divided by the sum of discharges for the same period, is reflective of the level of patient-acuity in our LTCHs.

From 2015 to 2017, our case mix index has increased, which is reflective of the higher-acuity patients we are now admitting under patient criteria. This has resulted in increases in our net revenue per patient day due to higher reimbursement rates for these cases. Our LTCH occupancy percentage reached its lowest level during the third quarter of 2016, which is the first quarter in which all of our LTCHs operated under the new Medicare payment rules.

~~Significant Events~~

~~Refinancing~~

On March 6, 2017, Select entered into a new senior secured credit agreement that provides for $1.6 billion in senior secured credit facilities comprising a $1.15 billion, seven-year term loan and a $450.0 million, five-year revolving credit facility, including a $75.0 million sublimit for the issuance of standby letters of credit. Select used borrowings under the new Select credit facilities to: (i) repay the series E tranche B term loans due June 1, 2018, the series F tranche B term loans due March 31, 2021, and the revolving facility maturing March 1, 2018 under Select’s 2011 senior secured credit facility; and (ii) pay fees and expenses in connection with the refinancing.

~~Pending Acquisition of U.S. HealthWorks~~

On October 23, 2017, Select announced that Concentra Group Holdings entered into a Purchase Agreement dated October 22, 2017 with Concentra, Group Holdings Parent, U.S. HealthWorks, and DHHC. Pursuant to the terms of the Purchase Agreement, Concentra will acquire the issued and outstanding shares of stock of U.S. HealthWorks, an occupational medicine and urgent care service provider.

~~Regulatory Changes~~

Our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2022, filed with the SEC on February 23, ~~2017,~~2023, contains a detailed discussion of the regulations that affect our business in Part I — Business — Government Regulations. The following is a discussion of some of the more significant healthcare regulatory changes that have affected our financial performance in the periods covered by this report, or are likely to affect our financial performance and financial condition in the future. The information below should be read in conjunction with the more detailed discussion of regulations contained in our Form 10-K.

Medicare Reimbursement

The Medicare program reimburses healthcare providers for services furnished to Medicare beneficiaries, which are generally persons age 65 and older, those who are chronically disabled, and those suffering from end stage renal disease. The program is governed by the Social Security Act of 1965 and is administered primarily by the Department of Health and Human Services (“HHS”) and CMS. ~~Net operating revenues~~Revenue generated directly from the Medicare program represented approximately ~~30%~~22% of our ~~net operating revenues~~revenue for ~~both~~ the nine months ended September 30, ~~2017~~2023, and 23% for the year ended December 31, ~~2016.~~

2022.

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 subsequent 90-day periods until February 9, 2023. On February 9, 2023, the HHS Secretary signed the final renewal and the public health emergency ended on May 11, 2023. The COVID-19 national emergency that was declared by President Trump on March 13, 2020, which was separate from the public health emergency, ended on April 10, 2023 when H.R.J. Res. 7 was signed into law.

As a result of the COVID-19 national emergency, the HHS Secretary authorized the waiver or modification of certain requirements under Medicare, Medicaid, and the 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 excused health care providers or suppliers from specific program requirements. Our Annual Report on Form 10-K for the year ended December 31, 2022, contains a detailed discussion of the federal health care program changes made in response to the COVID-19 pandemic, including these COVID-19 waivers, in Part II — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Regulatory Changes. Most of these COVID-19 waivers, including the waiver of the IRF 60% Rule and the waiver of Medicare statutory requirements regarding site neutral payments to long-term care hospitals (“LTCHs”), ended when the public health emergency expired on May 11, 2023. However, 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. As a result, LTCH cost reporting periods that started prior to May 11, 2023, will continue to be exempt for the remainder of that cost reporting year. However, LTCH cost reporting periods that begin on or after May 11, 2023, must comply with the greater-than-25-day average length of stay requirement.

In addition, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and related legislation temporarily suspended the 2% cut to Medicare payments due to sequestration from May 1, 2020, through March 31, 2022, and reduced the sequestration adjustment from 2% to 1% from April 1 through June 30, 2022. The full 2% reduction resumed on July 1, 2022. To pay for this relief, Congress increased the sequestration cut to Medicare payments to 2.25% for the first six months of fiscal year 2030 and to 3% for the final six months of fiscal year 2030. Additionally, an across-the-board 4% payment cut required to take effect in January 2022 due to the American Rescue Plan from the FY 2022 Statutory Pay-As-You-Go (“PAYGO”) scorecard was deferred by Congress until 2025.

The CARES Act and related legislation also provided more than $178 billion in appropriations for the Public Health and Social Services Emergency Fund, also known as the Provider Relief 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.” HHS began distributing these funds to providers in April 2020. Recipients of payments were required to report data to HHS on the use of the funds via an online portal by specific deadlines established by HHS based on the date of the payment. 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. Additional distributions are not expected and as a result, the Company does not expect to recognize additional income associated with these funds in the future.

Table of Contents

Medicare Reimbursement of LTCH Services

There have been significant regulatory changes affecting LTCHs that have affected our net operating revenues and, in some cases, caused us to change our operating models and strategies. We have been subject to regulatory changes that occur through the rulemaking procedures of CMS. All Medicare payments to our LTCHs are made in accordance with the long term care hospital prospective payment system (“LTCH-PPS”). Proposed rules specifically related to LTCHs are generally published in April or May, finalized in August, and effective on October 1st of each year.

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 ~~financial performance in~~results of operations, as well as the ~~periods covered by this report or~~policies and payment rates that may affect our ~~financial performance and financial condition~~future results of operations. Medicare payments to our critical illness recovery hospitals are made in accordance with the ~~future.~~

long-term care hospital prospective payment system (“LTCH-PPS”).

Fiscal Year ~~2016~~.2022. On August ~~17, 2015,~~13, 2021, CMS published the final rule updating policies and payment rates for the LTCH-PPS for fiscal year ~~2016~~2022 (affecting discharges and cost reporting periods beginning on or after October 1, ~~2015~~2021, through September 30, ~~2016)~~2022). The standard federal rate was set at ~~$41,763,~~$44,714, an increase from the standard federal rate applicable during fiscal year ~~2015~~2021 of ~~$41,044.~~$43,755. The update to the standard federal rate for fiscal year ~~2016~~2022 included a market basket increase of ~~2.4%~~2.6%, less a productivity adjustment of 0.5%, and less a reduction of 0.2% mandated by the Affordable Care Act (“ACA”). The fixed loss amount for high cost outlier cases paid under LTCH-PPS was set at $16,423, an increase from the fixed loss amount in the 2015 fiscal year of $14,972. The fixed loss amount for high cost outlier cases paid under the site neutral payment rate described below was set at $22,538.

~~Fiscal Year 2017~~. On August 22, 2016, CMS published the final rule updating policies and payment rates for the LTCH-PPS for fiscal year 2017 (affecting discharges and cost reporting periods beginning on or after October 1, 2016 through September 30, 2017)0.7%. The standard federal rate ~~was set at $42,476,~~also included an ~~increase from the standard federal rate applicable during fiscal year 2016~~area wage budget neutrality factor of $41,763. The update to the standard federal rate for fiscal year 2017 included a market basket increase of 2.8%, less a productivity adjustment of 0.3%, and less a reduction of 0.75% mandated by the ACA.1.002848. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS was set at ~~$21,943,~~$33,015, an increase from the fixed-loss amount in the ~~2016~~2021 fiscal year of ~~$16,423.~~$27,195. The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate was set at ~~$23,573,~~$30,988, an increase from the fixed-loss amount in the ~~2016~~2021 fiscal year of ~~$22,538.~~

$29,064.

Fiscal Year ~~2018~~2023. On August ~~14, 2017,~~10, 2022, CMS published the final rule updating policies and payment rates for the LTCH-PPS for fiscal year ~~2018~~2023 (affecting discharges and cost reporting periods beginning on or after October 1, ~~2017~~2022, through September 30, ~~2018)~~2023). Certain errors in the final rule were corrected in ~~a final rule~~documents published ~~October~~November 4, ~~2017.~~2022, and December 13, 2022. The standard federal rate for fiscal year 2023 was set at ~~$41,415, a decrease~~$46,433, an increase from the standard federal rate applicable during fiscal year ~~2017~~2022 of ~~$42,476.~~$44,714. The update to the standard federal rate for fiscal year ~~2018~~2023 included a market basket increase of ~~2.7%~~4.1%, less a productivity adjustment of ~~0.6%, and less~~0.3%. The standard federal rate also included an area wage budget neutrality factor of 1.0004304. As a ~~reduction~~result of ~~0.75% mandated by~~ the ~~ACA. As noted below, the update to~~CARES Act, all LTCH cases were paid at the standard federal rate during the public health emergency. When the public health emergency ended on May 11, 2023, CMS returned to using the site-neutral payment rate for ~~fiscal year 2018 is impacted further by~~reimbursement of cases that do not meet the ~~Medicare Access and CHIP Reauthorization Act of 2015, which limits the update for fiscal year 2018 to 1.0%.~~LTCH patient criteria. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS was set at ~~$27,381,~~$38,518, an increase from the fixed-loss amount in the ~~2017~~2022 fiscal year of ~~$21,943.~~$33,015. The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate was set at ~~$26,537,~~$38,788, an increase from the fixed-loss amount in the ~~2017~~2022 fiscal year of ~~$23,573.~~

~~Patient Criteria~~

~~The BBA of 2013, enacted December 26, 2013, establishes a dual-rate~~$30,988.

Fiscal Year 2024. On August 28, 2023, CMS published the final rule updating policies and payment rates for the LTCH-PPS for ~~Medicare patients discharged from an LTCH. Specifically, for Medicare patients discharged in~~fiscal year 2024 (affecting discharges and cost reporting periods beginning on or after October 1, ~~2015, LTCHs will be reimbursed at~~2023, through September 30, 2024). Certain errors in the ~~LTCH-PPS~~final rule were corrected in a document published on October 4, 2023. The standard federal payment rate only if, immediately preceding the patient’s LTCH admission, the patient was discharged from a “subsection (d) hospital” (generally, a short-term acute care hospital paid under the inpatient prospective payment system, or “IPPS”) and either the patient’s stay included at least three days in an intensive care unit (ICU) or coronary care unit (CCU) at the subsection (d) hospital, or the patient was assigned to Medicare severity diagnosis-related group (“MS-LTC-DRG”) for LTCHs for cases receiving at least 96 hours of ventilator services in the LTCH. In addition, to be paid at the LTCH-PPS standard federal payment rate, the patient’s discharge from the LTCH may not include a principal diagnosis relating to psychiatric or rehabilitation services. For any Medicare patient who does not meet these criteria, the LTCH will be paid a lower “site neutral” payment rate, which will be the lower of: (i) IPPS comparable per diem payment rate capped at the Medicare severity diagnosis-related group (“MS-DRG”) payment rate plus any outlier payments; or (ii) 100 percent of the estimated costs for services.

~~The BBA of 2013 provides for a transition to the site-neutral payment~~ rate for those patients not paid at the LTCH-PPS standard federal payment rate. During the transition period (applicable to hospital cost reporting periods beginning on or after October 1, 2015 and on or before September 30, 2017), a blended rate will be paid for Medicare patients not meeting the new criteria thatfiscal year 2024 is ~~equal to 50% of the site-neutral payment rate amount and 50% of~~$48,117, an increase from the standard federal ~~payment~~ rate ~~amount. For discharges in cost reporting periods beginning on or after October 1, 2017, only~~applicable during fiscal year 2023 of $46,433. The update to the ~~site-neutral payment rate will apply for Medicare patients not meeting the new criteria.~~

~~In addition, for cost reporting periods beginning on or after October 1, 2019, qualifying discharges from an LTCH will continue to be paid at the LTCH-PPS~~ standard federal ~~payment~~ rate ~~unless~~for fiscal year 2024 includes a market basket increase of 3.5%, less a productivity adjustment of 0.2%. The standard federal rate also includes an area wage budget neutrality factor of 1.0031599. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS is $59,873, an increase from the ~~number~~fixed-loss amount in the 2023 fiscal year of ~~discharges~~$38,518. The fixed-loss amount for ~~which payment is made~~high cost outlier cases paid under the site-neutral payment rate is ~~greater than 50% of the total number of discharges~~$42,750, an increase from the ~~LTCH for that period. If the number of discharges for which payment is made under the site-neutral payment rate is greater than 50%, then beginning~~fixed-loss amount in the next cost reporting period all discharges from the LTCH will be reimbursed at the site-neutral payment rate. The BBA of 2013 requires CMS to establish a process for an LTCH subject to only the site-neutral payment rate to be reinstated for payment under the dual-rate LTCH-PPS.

Payment adjustments, including the interrupted stay policy and the 25 Percent Rule (discussed below), apply to LTCH discharges regardless of whether the case is paid at the standard federal payment rate or the site-neutral payment rate. However, short stay outlier payment adjustments do not apply to cases paid at the site-neutral payment rate. CMS calculates the annual recalibration of the MS-LTC-DRG relative payment weighting factors using only data from LTCH discharges that meet the criteria for exclusion from the site-neutral payment rate. In addition, CMS applies the IPPS fixed-loss amount for high cost outliers to site-neutral cases, rather than the LTCH-PPS fixed-loss amount. CMS calculates the LTCH-PPS fixed-loss amount using only data from cases paid at the LTCH-PPS payment rate, excluding cases paid at the site-neutral rate.

~~Medicare Market Basket Adjustments~~

The ACA instituted a market basket payment adjustment to LTCHs. In fiscal years 2018 and 2019, the market basket update will be reduced by 0.75%. The Medicare Access and CHIP Reauthorization Act of 2015 sets the annual update for2023 fiscal year ~~2018 at 1% after taking into account the market basket payment reduction~~ of ~~0.75% mandated by the ACA. The ACA specifically allows these market basket reductions to result in less than a 0% payment update and payment rates that are less than the prior year.~~

~~25 Percent Rule~~

The “25 Percent Rule” is a downward payment adjustment that applies if the percentage of Medicare patients discharged from LTCHs who were admitted from a referring hospital (regardless of whether the LTCH or LTCH satellite is co-located with the referring hospital) exceeds the applicable percentage admissions threshold during a particular cost reporting period. For Medicare patients above the applicable percentage admissions threshold, the LTCH is reimbursed at a rate equivalent to that under general acute care hospital IPPS, which is generally lower than LTCH-PPS rates. Cases that reach outlier status in the referring hospital do not count toward the admissions threshold and are paid under LTCH-PPS.

Current law, as amended by the 21st Century Cures Act, precludes CMS from applying the 25 Percent Rule for freestanding LTCHs to cost reporting years beginning before July 1, 2016 and for discharges occurring on or after October 1, 2016 and before October 1, 2017. In addition, current law applies higher percentage admissions thresholds under the 25 Percent Rule for most hospitals within hospitals (“HIHs”) for cost reporting years beginning before July 1, 2016 and effective for discharges occurring on or after October 1, 2016 and before October 1, 2017. For freestanding LTCHs the percentage admissions threshold is suspended during the relief periods. For HIHs the percentage admissions threshold is raised from 25% to 50% during the relief periods. In the special case of rural LTCHs, LTCHs co-located with an urban single hospital, or LTCHs co-located with a Metropolitan Statistical Area (“MSA”) dominant hospital the referral percentage was raised from 50% to 75%. Grandfathered HIHs are exempt from the 25 Percent Rule regulations.

For fiscal year 2018, CMS adopted a regulatory moratorium on the implementation of the 25 Percent Rule. As a result, the 25 Percent Rule applies to discharges occurring on or after October 1, 2018. After the expiration of the regulatory moratorium, our LTCHs (whether freestanding, HIH or satellite) will be subject to a downward payment adjustment for any Medicare patients who were admitted from a co-located or a non-co-located hospital and that exceed the applicable percentage admissions threshold of all Medicare patients discharged from the LTCH during the cost reporting period. These regulatory changes will have an adverse financial impact on the net operating revenues and profitability of many of these hospitals for discharges on or after October 1, 2018.

~~Short Stay Outlier Policy~~

CMS established a different payment methodology for Medicare patients with a length of stay less than or equal to five-sixths of the geometric average length of stay for that particular MS-LTC-DRG, referred to as a short stay outlier, or “SSO.” SSO cases are paid based on the lesser of (i) 100% of the average cost of the case, (ii) 120% of the MS-LTC-DRG specific per diem amount multiplied by the patient’s length of stay, (iii) the full MS-LTC-DRG payment, or (iv) a per diem rate derived from blending 120% of the MS-LTC-DRG specific per diem amount with a per diem rate based on the general acute care hospital IPPS.

For fiscal year 2018, CMS adopted changes to the SSO policy such that all SSO cases discharged on or after October 1, 2017 are paid based on a per diem rate derived from blending 120% of the MS-LTC-DRG specific per diem amount with a per diem rate based on the general acute care hospital IPPS. Under this policy, as the length of stay of a SSO case increases, the percentage of the per diem payment amounts based on the full MS-LTCH-DRG standard federal payment rate increases and the percentage of the payment based on the IPPS comparable amount decreases.

~~Moratorium on New LTCHs, LTCH Satellite Facilities and LTCH beds~~

Current law imposes a moratorium on the establishment and classification of new LTCHs or LTCH satellite facilities, and on the increase of LTCH beds in existing LTCHs or satellite facilities through September 30, 2017. There are three exceptions to the moratorium for projects that were under development when the moratorium began on April 1, 2014. Only one exception needs to exist for the moratorium not to apply.

$38,788.

Medicare Reimbursement of ~~Inpatient Rehabilitation Facility~~IRF Services

The following is a summary of significant regulatory changes to the Medicare prospective payment system for ~~inpatient~~our rehabilitation ~~facilities (“IRFs”)~~hospitals, which are certified by Medicare as IRFs, which have affected our ~~financial performance in~~results of operations, as well as the ~~periods covered by this report or~~policies and payment rates that may affect our ~~financial performance and financial condition in the future.~~future results of operations. Medicare payments to our ~~IRFs~~rehabilitation hospitals are made in accordance with the inpatient rehabilitation facility prospective payment system (“IRF-PPS”).

Fiscal Year ~~2016~~.2022. On August ~~6, 2015,~~4, 2021, CMS published the final rule updating policies and payment rates for the IRF-PPS for fiscal year ~~2016~~2022 (affecting discharges and cost reporting periods beginning on or after October 1, ~~2015~~2021, through September 30, ~~2016)~~2022). The standard payment conversion factor for discharges for fiscal year ~~2016~~2022 was set at ~~$15,478,~~$17,240, an increase from the standard payment conversion factor applicable during fiscal year ~~2015~~2021 of ~~$15,198.~~$16,856. The update to the standard payment conversion factor for fiscal year ~~2016~~2022 included a market basket increase of ~~2.4%~~2.6%, less a productivity adjustment of ~~0.5%, and less a reduction of 0.2% mandated by the ACA.~~0.7%. CMS ~~decreased~~increased the outlier threshold amount for fiscal year ~~2016~~2022 to ~~$8,658~~$9,491 from ~~$8,848~~$7,906 established in the final rule for fiscal year ~~2015.~~

2021.

Fiscal Year ~~2017~~.2023. On August ~~5, 2016,~~1, 2022, CMS published the final rule updating policies and payment rates for the IRF-PPS for fiscal year ~~2017~~2023 (affecting discharges and cost reporting periods beginning on or after October 1, ~~2016~~2022, through September 30, ~~2017)~~2023). The standard payment conversion factor for discharges for fiscal year ~~2017~~2023 was set at ~~$15,708,~~$17,878, an increase from the standard payment conversion factor applicable during fiscal year ~~2016~~2022 of ~~$15,478.~~$17,240. The update to the standard payment conversion factor for fiscal year ~~2017~~2023 included a market basket increase of ~~2.7%~~4.2%, less a productivity adjustment of 0.3%~~, and less a reduction of 0.75% mandated by the ACA.~~. CMS ~~decreased~~increased the outlier threshold amount for fiscal year ~~2017~~2023 to ~~$7,984~~$12,526 from ~~$8,658~~$9,491 established in the final rule for fiscal year ~~2016.~~

2022.

Table of Contents

Fiscal Year ~~2018~~.2024. On August ~~3, 2017,~~2, 2023, CMS published the final rule ~~updating~~to update policies and payment rates for the IRF-PPS for fiscal year ~~2018~~2024 (affecting discharges and cost reporting periods beginning on or after October 1, ~~2017~~2023, through September 30, ~~2018)~~2024). Certain errors in the final rule were corrected in a document published on October 4, 2023. The standard payment conversion factor for discharges for fiscal year ~~2018~~2024 was set at ~~$15,838,~~$18,541, an increase from the standard payment conversion factor applicable during fiscal year ~~2017~~2023 of ~~$15,708.~~$17,878. The update to the standard payment conversion factor for fiscal year ~~2018~~2024 included a market basket increase of ~~2.6%~~3.6%, less a productivity adjustment of 0.6%, and less a reduction of 0.75% mandated by the ACA. As noted below, the standard payment conversion factor for fiscal year 2018 is impacted further by the Medicare Access and CHIP Reauthorization Act of 2015, which limits the update for fiscal year 2018 to 1.0%0.2%. CMS ~~increased~~decreased the outlier threshold amount for fiscal year ~~2018~~2024 to ~~$8,679~~$10,423 from ~~$7,984~~$12,526 established in the final rule for fiscal year ~~2017.~~

~~Medicare Market Basket Adjustments~~

The ACA instituted a market basket payment adjustment for IRFs. In fiscal years 2018 and 2019, the market basket update will be reduced by 0.75%. The Medicare Access and CHIP Reauthorization Act of 2015 sets the annual update for fiscal year 2018 at 1% after taking into account the market basket payment reduction of 0.75% mandated by the ACA. The ACA specifically allows these market basket reductions to result in less than a 0% payment update and payment rates that are less than the prior year.

~~Patient Classification Criteria~~

In order to qualify as an IRF a hospital must demonstrate that during its most recent twelve month cost reporting period it served an inpatient population of whom at least 60% required intensive rehabilitation services for one or more of 13 conditions specified by regulation. Compliance with the 60% rule is demonstrated through either medical review or the “presumptive” method, in which a patient’s diagnosis codes are compared to a “presumptive compliance” list. For fiscal year 2018, CMS revised the 60% rule’s presumptive methodology by (i) including certain International Classification of Diseases, Tenth Revision, Clinical Modification (“ICD-10-CM”) diagnosis codes for patients with traumatic brain injury and hip fracture conditions; and (ii) revising the presumptive methodology list for major multiple trauma by counting IRF cases that contain two or more of the ICD-10-CM codes from three major multiple trauma lists in the specified combinations.

2023.

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,~~In the calendar year 2024 physician fee schedule proposed rule, CMS calculated the payment rates without the 2.5% payment increase to calendar year 2023 rates from the Consolidated Appropriations Act of 2023, but with the 1.25% payment increase to calendar year 2024 rates from that legislation. As a ~~0.5% update will be applied each~~result of the lower statutory payment increase for calendar year 2024 and a negative 2.17% budget neutrality adjustment associated with changes to the relative value units, physician fee schedule payments are expected to decrease in 2024. CMS expects that its proposed policies for 2024 would result in a 2% decrease in Medicare payments for the therapy specialty. CMS also proposes changes to the quality payment ~~rates, subject to an adjustment beginning in 2019 under~~program, including a transition from the ~~Merit-Based~~Merit‑Based Incentive Payment System (“MIPS”) to the MIPS Value Pathways (“MVPs”). ~~For~~First, CMS proposes revisions to the existing set of 12 MVPs that it previously adopted in the calendar year 2022 and 2023 final rules. CMS would remove certain improvement activities from these MVPs and add other quality measures for MVP participants to choose from for data reporting. CMS also proposes to consolidate two of the existing MVPs into a single primary care MVP. Finally, CMS proposed to add five new MVPs. According to CMS, the proposed Rehabilitation Support of Musculoskeletal Care MVP will be most applicable to clinicians who specialize in rehabilitation support for musculoskeletal care, including physical therapists and occupational therapists. If finalized, these new MVPs would be available for voluntary reporting for the calendar year 2024 performance period.

Modifiers to Identify Services of Physical Therapy Assistants or Occupational Therapy Assistants

Our Annual Report on Form 10-K for the year ended December 31, 2022, contains a detailed discussion of Medicare regulations concerning services provided by physical therapy assistants and occupational therapy assistants in ~~2020 through 2025,~~Part I — Business — Government Regulations and in Part II — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Regulatory Changes. Since we submitted our last Annual Report on Form 10-K, CMS released the calendar year 2024 physician fee schedule proposed rule. The proposed rule does not contain any proposals concerning the modifiers for services provided by physical therapy and occupational therapy assistants. However, the proposed rule includes some potential changes to Medicare policies relating to supervision of services provided by physical therapy assistants and occupational therapy assistants. First, CMS is proposing to establish a ~~0.0% percent update will be applied each year~~general supervision policy for remote therapeutic monitoring services provided by physical therapy assistants and occupational therapy assistants in private practice settings. In addition, CMS is seeking comments from stakeholders regarding a potential change to the ~~fee schedule payment rates, subject~~requirement for direct supervision of physical therapy assistants and occupational therapy assistants by physical therapists and occupational therapists in private practice. Specifically, CMS is considering a change to ~~adjustments under MIPS~~this direct supervision requirement to instead require only general supervision for all physical therapy and ~~the alternative payment models (“APMs”). In 2026~~occupational therapy services furnished in private practice by physical therapy assistants and ~~subsequent years eligible professionals participating in APMs that meet certain criteria would receive annual updates~~occupational therapy assistants.

Table of ~~0.75%, while all other professionals would receive annual updates of 0.25%.~~

Beginning in 2019, payments under the fee schedule are subject to adjustment based on performance in MIPS, which measures performance based on certain quality metrics, resource use, and meaningful use of electronic health records. Under the MIPS requirements a provider’s performance is assessed according to established performance standards and used to determine an adjustment factor that is then applied to the professional’s payment for a year. Each year from 2019 through 2024 professionals who receive a significant share of their revenues through an 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. The specifics of the MIPS and APM adjustments beginning in 2019 and 2020, respectively, will be subject to future notice and comment rule-making.

Contents

Operating Statistics

The following table sets forth operating statistics for each of our ~~operating~~ segments for ~~each of~~ the periods presented. The operating statistics reflect data for the period of time we managed these ~~operations:~~

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,
	2022			2023			2022			2023
Critical illness recovery hospital data:
Number of consolidated hospitals—start of period(1)	105			108			104			103
Number of hospitals acquired	—			—			2			1
Number of hospital start-ups	—			—			1			4
Number of hospitals closed/sold	—			(1)			(2)			(1)
Number of consolidated hospitals—end of period(1)	105			107			105			107


Available licensed beds(3)	4,509			4,524			4,509			4,524
Admissions(3)(4)	9,056			8,736			27,319			27,099
Patient days(3)(5)	278,137			267,910			840,487			831,022
Average length of stay (days)(3)(6)	31			31			31			30
Revenue per patient day(3)(7)	$	1,878		$	2,095		$	1,981		$	2,076
Occupancy rate(3)(8)	67		%	64		%	68		%	68		%
Percent patient days—Medicare(3)(9)	40		%	38		%	39		%	38		%
Rehabilitation hospital data:
Number of consolidated hospitals—start of period(1)	20			20			20			20
Number of hospitals acquired	—			1			—			1
Number of hospital start-ups	—			—			—			—
Number of hospitals closed/sold	—			—			—			—
Number of consolidated hospitals—end of period(1)	20			21			20			21
Number of unconsolidated hospitals managed—end of period(2)	11			12			11			12
Total number of hospitals (all)—end of period	31			33			31			33
Available licensed beds(3)	1,391			1,479			1,391			1,479
Admissions(3)(4)	7,517			7,840			22,149			23,363
Patient days(3)(5)	109,076			112,095			321,690			330,142
Average length of stay (days)(3)(6)	15			14			15			14
Revenue per patient day(3)(7)	$	1,931		$	2,025		$	1,934		$	2,001
Occupancy rate(3)(8)	85		%	84		%	85		%	84		%
Percent patient days—Medicare(3)(9)	48		%	49		%	48		%	49		%
Outpatient rehabilitation data:
Number of consolidated clinics—start of period	1,599			1,638			1,572			1,622
Number of clinics acquired	6			3			16			16
Number of clinic start-ups	9			12			34			33
Number of clinics closed/sold	(5)			(8)			(13)			(26)
Number of consolidated clinics—end of period	1,609			1,645			1,609			1,645
Number of unconsolidated clinics managed—end of period	324			301			324			301
Total number of clinics (all)—end of period	1,933			1,946			1,933			1,946
Number of visits(3)(10)	2,404,868			2,627,362			7,165,866			7,984,622
Revenue per visit(3)(11)	$	103		$	100		$	103		$	100

Table of Contents


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2023		2022		2023
Concentra data:
Number of consolidated centers—start of period	518		540		518		540
Number of centers acquired	—		—		3		1
Number of center start-ups	1		—		1		—
Number of centers closed/sold	—		(1)		(3)		(2)
Number of consolidated centers—end of period	519		539		519		539
Number of onsite clinics operated—end of period	147		145		147		145

Number of visits(3)(10)	3,273,031		3,281,042		9,604,441		9,766,881
Revenue per visit(3)(11)	$	128	$	136	$	127	$	135

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2017

2016

2017

Specialty hospitals data:(1)

Number of hospitals owned—start of period

116

114

118

115

Number of hospitals acquired

1

—

4

1

Number of hospital start-ups

1

2

2

2

Number of hospitals closed/sold

(3
)
(2
)
(9
)
(4
)
Number of hospitals owned—end of period

115

114

115

114

Number of hospitals managed—end of period

8

9

8

9

Total number of hospitals (all)—end of period

123

123

123

123

Long term acute care hospitals

104

101

104

101

Rehabilitation hospitals

19

22

19

22

Available licensed beds(2)

5,208

5,189

5,208

5,189

Admissions(2)

12,586

13,728

39,541

41,314

Patient days(2)

296,202

316,170

951,292

950,419

Average length of stay (days)(2)

24

23

24

23

Net revenue per patient day(2)(3)

$
1,642

$
1,676

$
1,651

$
1,707

Occupancy rate(2)

62
%
66
%
67
%
67
%
Percent patient days—Medicare(2)

53
%
53
%
55
%
54
%

Outpatient rehabilitation data:

Number of clinics owned—start of period

1,435

1,441

896

1,445

Number of clinics acquired

3

4

546

5

Number of clinic start-ups

7

3

20

17

Number of clinics closed/sold

(8
)
(13
)
(25
)
(32
)
Number of clinics owned—end of period

1,437

1,435

1,437

1,435

Number of clinics managed—end of period

166

169

166

169

Total number of clinics (all)—end of period

1,603

1,604

1,603

1,604

Number of visits(2)

2,052,678

1,986,213

5,751,562

6,168,763

Net revenue per visit(2)(4)

$
102

$
104

$
102

$
103

Concentra data:

Number of centers owned—start of period

301

315

300

300

Number of centers acquired

1

—

3

11

Number of center start-ups

—

—

—

4

Number of centers closed/sold

(1
)
(3
)
(2
)
(3
)
Number of centers owned—end of period

301

312

301

312

Number of visits(5)

1,906,242

1,979,481

5,642,305

5,848,551

Net revenue per visit(5)(6)

$
119

$
116

$
118

$
117

(1) ~~Specialty~~Represents the number of hospitals ~~consist~~included in our consolidated financial results at the end of ~~LTCHs and IRFs.~~

each period presented.

(2)Represents the number of hospitals which are managed by us at the end of each period presented. We have minority ownership interests in these businesses.

(3)Data excludes ~~specialty hospitals and outpatient clinics~~locations managed by the Company.

~~(3)~~ ~~Net~~ For purposes of our Concentra segment, onsite clinics are excluded.

(4)Represents the number of patients admitted to our hospitals during the periods presented.

(5)Each patient day represents one patient occupying one bed for one day during the periods presented.

(6)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.

(7)Represents the average amount of revenue recognized for each patient day. Revenue per patient day is calculated by dividing ~~specialty hospitals direct~~ patient service revenues, excluding revenues from certain other ancillary and outpatient services provided at our hospitals, by the total number of patient days.

~~(4)~~ ~~Net~~

(8)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.

(9)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.

(10)Represents the number of visits in which patients were treated at our outpatient rehabilitation clinics and Concentra centers during the periods presented. COVID-19 screening and testing services provided by our Concentra segment are not included in these figures.

(11)Represents the average amount of revenue recognized for each patient visit. Revenue per visit is calculated by dividing ~~outpatient rehabilitation clinic direct~~ patient service revenue, excluding revenues from certain other ancillary services, by the total number of visits. For purposes of this computation ~~outpatient rehabilitation direct~~for our Concentra segment, patient service ~~clinic~~ revenue does not include ~~managed~~onsite clinics or ~~contract therapy revenue.~~

~~(5)~~ ~~Data excludes onsite clinics~~revenues generated from COVID-19 screening and ~~CBOCs.~~

~~(6)~~ ~~Net revenue per visit is calculated by dividing center direct patient service revenue by the total number~~testing services.

Table of ~~center visits.~~

Contents

Results of Operations

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2023		2022		2023
Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Costs and expenses:
Cost of services, exclusive of depreciation and amortization(1)	88.9		86.6		88.2		85.6
General and administrative	2.5		2.5		2.4		2.5
Depreciation and amortization	3.3		3.1		3.2		3.1
Total costs and expenses	94.7		92.2		93.8		91.2
Other operating income	0.5		0.0		0.5		0.0
Income from operations	5.8		7.8		6.7		8.8
Loss on early retirement of debt	—		(0.9)		—		(0.3)
Equity in earnings of unconsolidated subsidiaries	0.6		0.7		0.4		0.6


Interest expense	(2.9)		(3.0)		(2.6)		(3.0)
Income before income taxes	3.5		4.6		4.5		6.1
Income tax expense	1.1		0.9		1.1		1.4
Net income	2.4		3.7		3.4		4.7
Net income attributable to non-controlling interests	0.7		0.8		0.6		0.8
Net income attributable to Select Medical Holdings Corporation	1.7	%	2.9	%	2.8	%	3.9	%

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2017

2016

2017

Net operating revenues

100.0
%
100.0
%
100.0
%
100.0
%
Cost of services(1)

86.9

85.6

85.0

83.7

General and administrative

2.6

2.5

2.5

2.5

Bad debt expense

1.7

1.9

1.6

1.8

Depreciation and amortization

3.5

3.4

3.4

3.6

Income from operations

5.3

6.6

7.5

8.4

Loss on early retirement of debt

(1.0
)
—

(0.4
)
(0.6
)
Equity in earnings of unconsolidated subsidiaries

0.5

0.3

0.5

0.5

Non-operating gain (loss)

(0.1
)
—

1.1

(0.0
)
Interest expense

(4.2
)
(3.4
)
(3.9
)
(3.5
)
Income before income taxes

0.5

3.5

4.8

4.8

Income tax expense

0.1

1.2

1.6

1.8

Net income

0.4

2.3

3.2

3.0

Net income (loss) attributable to non-controlling interests

(0.2
)
0.6

0.3

0.7

Net income attributable to Holdings and Select

0.6
%
1.7
%
2.9
%
2.3
%

(1)Cost of services includes salaries, wages and benefits, operating supplies, lease and rent expense, and other operating costs.

Table of Contents

The following table summarizes selected financial data by ~~business~~ segment for the periods indicated:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2022			2023			% Change		2022			2023			% Change
	(in thousands, except percentages)
Revenue:
Critical illness recovery hospital	$	524,584		$	563,628		7.4	%	$	1,672,247		$	1,732,645		3.6	%
Rehabilitation hospital	229,387			247,101			7.7		678,908			719,419			6.0
Outpatient rehabilitation	284,993			291,804			2.4		844,191			890,679			5.5
Concentra	444,576			473,964			6.6		1,309,356			1,397,341			6.7
Other(1)	84,254			89,197			5.9		247,380			265,118			7.2
Total Company	$	1,567,794		$	1,665,694		6.2	%	$	4,752,082		$	5,005,202		5.3	%
Income (loss) from operations:
Critical illness recovery hospital	$	(5,042)		$	29,960		694.2	%	$	21,723		$	141,706		552.3	%
Rehabilitation hospital	42,778			46,520			8.7		121,025			134,650			11.3
Outpatient rehabilitation	17,558			17,485			(0.4)		61,596			63,298			2.8
Concentra	71,709			80,948			12.9		215,172			238,316			10.8
Other(1)	(35,536)			(44,953)			N/M		(103,097)			(137,349)			N/M
Total Company	$	91,467		$	129,960		42.1	%	$	316,419		$	440,621		39.3	%
Adjusted EBITDA:
Critical illness recovery hospital	$	11,013		$	46,362		321.0	%	$	66,999		$	188,631		181.5	%
Rehabilitation hospital	49,772			53,626			7.7		141,996			155,531			9.5
Outpatient rehabilitation	25,715			26,346			2.5		85,912			89,395			4.1
Concentra	90,025			98,907			9.9		272,101			293,046			7.7
Other(1)	(23,412)			(31,404)			N/M		(69,054)			(99,234)			N/M
Total Company	$	153,113		$	193,837		26.6	%	$	497,954		$	627,369		26.0	%
Adjusted EBITDA margins:
Critical illness recovery hospital	2.1		%	8.2		%			4.0		%	10.9		%
Rehabilitation hospital	21.7			21.7					20.9			21.6
Outpatient rehabilitation	9.0			9.0					10.2			10.0
Concentra	20.2			20.9					20.8			21.0
Other(1)	N/M			N/M					N/M			N/M
Total Company	9.8		%	11.6		%			10.5		%	12.5		%
Total assets:
Critical illness recovery hospital	$	2,368,968		$	2,454,578				$	2,368,968		$	2,454,578
Rehabilitation hospital	1,189,486			1,222,853					1,189,486			1,222,853
Outpatient rehabilitation	1,377,010			1,401,148					1,377,010			1,401,148
Concentra	2,309,392			2,321,671					2,309,392			2,321,671
Other(1)	310,120			283,758					310,120			283,758
Total Company	$	7,554,976		$	7,684,008				$	7,554,976		$	7,684,008
Purchases of property, equipment, and other assets:
Critical illness recovery hospital	$	21,534		$	21,098				$	60,631		$	76,119
Rehabilitation hospital	392			4,813					11,487			15,298
Outpatient rehabilitation	10,098			8,855					28,826			29,263
Concentra	9,074			15,456					28,030			45,702
Other(1)	844			(24)					6,145			2,215
Total Company	$	41,942		$	50,198				$	135,119		$	168,597

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2017

% Change

2016

2017

% Change

(in thousands)

Net operating revenues:

Specialty hospitals

$
544,491

$
585,288

7.5
%
$
1,729,261

$
1,785,035

3.2
%
Outpatient rehabilitation(1)

250,710

250,527

(0.1
)
745,720

764,450

2.5

Concentra

258,507

261,295

1.1

764,252

779,030

1.9

Other(2)

87

56

N/M

523

687

N/M

Total Company

$
1,053,795

$
1,097,166

4.1
%
$
3,239,756

$
3,329,202

2.8
%
Income (loss) from operations:

Specialty hospitals

$
33,947

$
54,017

59.1
%
$
175,737

$
206,900

17.7
%
Outpatient rehabilitation(1)

25,836

23,334

(9.7
)
82,609

84,393

2.2

Concentra

25,417

24,777

(2.5
)
71,933

78,308

8.9

Other(2)

(29,038
)
(30,030
)
(3.4
)
(86,177
)
(90,075
)
(4.5
)
Total Company

$
56,162

$
72,098

28.4
%
$
244,102

$
279,526

14.5
%
Adjusted EBITDA:

Specialty hospitals

$
48,264

$
69,454

43.9
%
$
217,759

$
256,291

17.7
%
Outpatient rehabilitation(1)

31,995

29,298

(8.4
)
99,006

102,575

3.6

Concentra

40,888

40,003

(2.2
)
118,080

125,656

6.4

Other(2)

(23,070
)
(22,928
)
0.6

(66,696
)
(71,125
)
(6.6
)
Total Company

$
98,077

$
115,827

18.1
%
$
368,149

$
413,397

12.3
%
Adjusted EBITDA margins:

Specialty hospitals

8.9
%
11.9
%

12.6
%
14.4
%

Outpatient rehabilitation(1)

12.8

11.7

13.3

13.4

Concentra

15.8

15.3

15.5

16.1

Other(2)

N/M

N/M

N/M

N/M

Total Company

9.3
%
10.6
%

11.4
%
12.4
%

Total assets:(3)

Specialty hospitals

$
2,469,060

$
2,748,761

$
2,469,060

$
2,748,761

Outpatient rehabilitation

955,359

945,765

955,359

945,765

Concentra

1,318,866

1,332,012

1,318,866

1,332,012

Other(2)

73,992

97,269

73,992

97,269

Total Company

$
4,817,277

$
5,123,807

$
4,817,277

$
5,123,807

Purchases of property and equipment, net:

Specialty hospitals

$
24,378

$
37,376

$
79,366

$
106,424

Outpatient rehabilitation(1)

6,234

6,496

15,032

19,370

Concentra

2,720

5,369

10,647

21,656

Other(2)

4,670

19,257

13,215

26,350

Total Company

$
38,002

$
68,498

$
118,260

$
173,800

~~N/M—Not Meaningful.~~

(1) ~~The outpatient rehabilitation segment includes the operating results of our contract therapy businesses through March 31, 2016 and Physiotherapy beginning March 4, 2016.~~

~~(2)~~ Other includes our corporate administration and shared services, ~~and~~as well as employee leasing services with our non-consolidating subsidiaries. Total assets include certain ~~other~~ non-consolidating joint ventures and minority investments in other healthcare related businesses.

~~(3)~~ ~~Reflects the retrospective adoption~~

N/M — Not meaningful.

Table of ~~ASU No. 2015-17,~~ ~~Balance Sheet Classification of Deferred Taxes.~~ ~~Total assets as of September 30, 2016 were retrospectively conformed to reflect the adoption of the standard, resulting in a reduction to total assets of $28.1 million.~~

Contents

Three Months Ended September 30, ~~2017~~2023, Compared to Three Months Ended September 30, ~~2016~~

In2022

For the ~~following,~~three months ended September 30, 2023, we ~~discuss our results~~had revenue of ~~operations related to net operating revenues, operating expenses, Adjusted EBITDA, depreciation~~$1,665.7 million and ~~amortization,~~ income from operations ~~loss on early retirement~~ of ~~debt, equity in earnings~~$130.0 million, as compared to revenue of ~~unconsolidated subsidiaries, interest expense,~~$1,567.8 million and income ~~taxes, and net income (loss) attributable to non-controlling interests, which, in each case, are the same for Holdings and Select.~~

~~Net Operating Revenues~~

~~Our net operating revenues increased 4.1% to $1,097.2~~from operations of $91.5 million for the three months ended September 30, ~~2017,~~2022. For the three months ended September 30, 2023, Adjusted EBITDA was $193.8 million, with an Adjusted EBITDA margin of 11.6%, as compared to $~~1,053.8~~Adjusted EBITDA of $153.1 million and an Adjusted EBITDA margin of 9.8% for the three months ended September 30, 2022.

A decrease in labor costs in our critical illness recovery hospital segment continued to be a contributor to the improvement in our financial performance, as well as an increase in revenue, for the three months ended September 30, 2023, compared to the three months ended September 30, 2022. The investments we made in the recruitment, hiring, and retention of full-time staff in 2022 resulted in a significant decrease in contract labor utilization in 2023. Additionally, reduced demand in the marketplace resulted in lower contract labor rates, which further contributed to the decrease in total contract labor costs. We believe the ratio of personnel expense to net revenue for the critical illness recovery hospital segment for the three months ended September 30, 2023, is indicative of a more stabilized labor environment. Other operating income during the three months ended September 30, 2023, included $0.5 million, compared to $8.4 million during the three months ended September 30, 2022. Our other operating income was principally related to the recognition of payments received under the Provider Relief Fund for health care related expenses and lost revenues attributable to COVID-19.

Revenue

Critical Illness Recovery Hospital Segment. Revenue increased 7.4% to $563.6 million for the three months ended September 30, ~~2016.~~

~~Specialty Hospitals Segment.~~ ~~Net operating revenues increased 7.5%~~2023, compared to ~~$585.3~~$524.6 million for the three months ended September 30, ~~2017,~~2022. The increase was due to revenue per patient day, which increased 11.6% to $2,095 for the three months ended September 30, 2023, compared to ~~$544.5~~$1,878 for the three months ended September 30, 2022. Our patient days were 267,910 days for the three months ended September 30, 2023, compared to 278,137 days for the three months ended September 30, 2022. Occupancy in our critical illness recovery hospitals was 64% and 67% for the three months ended September 30, 2023 and 2022, respectively.

Rehabilitation Hospital Segment. Revenue increased 7.7% to $247.1 million for the three months ended September 30, ~~2016~~2023, compared to $229.4 million for ~~our specialty hospitals segment. The increase in net operating revenues is principally due~~the three months ended September 30, 2022. Revenue per patient day increased 4.9% to ~~several new inpatient rehabilitation facilities which commenced operations during 2016 and 2017 and an increase in patient volumes at our LTCHs.~~$2,025 for the three months ended September 30, 2023, compared to $1,931 for the three months ended September 30, 2022. Our patient days increased ~~6.7%~~2.8% to ~~316,170~~112,095 days for the three months ended September 30, ~~2017,~~2023, compared to ~~296,202~~109,076 days for the three months ended September 30, ~~2016. The average net revenue per patient day for~~2022. Occupancy in our ~~specialty~~rehabilitation hospitals ~~increased 2.1% to $1,676~~was 84% and 85% for the three months ended September 30, ~~2017, compared to $1,642 for the three months ended September 30, 2016.~~

2023 and 2022, respectively.

Outpatient Rehabilitation Segment. ~~Net operating revenues were $250.5~~ Revenue increased 2.4% to $291.8 million for the three months ended September 30, ~~2017,~~2023, compared to ~~$250.7~~$285.0 million for the three months ended September 30, ~~2016 for our outpatient rehabilitation segment.~~2022. The ~~decrease in net operating revenues~~increase was ~~principally~~ due to ~~a decline in~~patient visits, ~~within areas affected by Hurricanes Harvey and Irma,~~ which caused an estimated $2.9 million decrease in net operating revenues. Additionally, we experienced a decline in visits at Physiotherapy clinics within some of our markets. We had 1,986,213 visits in our clinics for the three months ended September 30, 2017, comparedincreased 9.3% to ~~2,052,678~~2,627,362 visits for the three months ended September 30, ~~2016. The decline in net operating revenues attributable~~2023, compared to ~~lower patient volumes was offset in part by an increase in net revenue per visit. Net revenue per visit increased 2.0% to $104~~2,404,868 visits for the three months ended September 30, ~~2017, compared to $102~~2022. Our revenue per visit was $100 for the three months ended September 30, ~~2016.~~

2023, compared to $103 for the three months ended September 30, 2022. The decrease in revenue per visit was principally due to a decrease in Medicare reimbursement, changes in payor mix, and an increase in variable discounts.

Concentra Segment. ~~Net operating revenues~~ Revenue increased ~~1.1%~~6.6% to ~~$261.3~~$474.0 million for the three months ended September 30, ~~2017,~~2023, compared to ~~$258.5~~$444.6 million for the three months ended September 30, ~~2016 for our Concentra segment.~~2022. The increase ~~in net operating revenues~~ was principally due to ~~an increase in~~revenue per visit, which increased 6.3% to $136 for the three months ended September 30, 2023, compared to $128 for the three months ended September 30, 2022. Our patient visits from newly acquired and developed medical centers, offset in part by a decline in visits within areas affected by Hurricanes Harvey and Irma, which caused an estimated $1.2 million decrease in net operating revenues. Visits in our centers increased ~~3.8%~~ to ~~1,979,481~~3,281,042 visits for the three months ended September 30, ~~2017,~~2023, compared to ~~1,906,242~~3,273,031 visits for the three months ended September 30, ~~2016. The growth in visits primarily related to an increase in employer~~2022.

Operating Expenses

Our operating expenses consist principally of cost of services ~~visits. Net~~and general and administrative expenses. Our operating expenses were $1,483.8 million, or 89.1% of revenue, ~~per visit was $116~~ for the three months ended September 30, ~~2017,~~2023, compared to ~~$119~~$1,433.3 million, or 91.4% of revenue, for the three months ended September 30, ~~2016. The decrease in net revenue per visit is principally due to an increased proportion of employer service visits, which yield lower per visit rates.~~

~~Operating Expenses~~

Our operating expenses include our cost of services, general and administrative expense, and bad debt expense. Our operating expenses were $986.3 million, or 90.0% of net operating revenues, for the three months ended September 30, 2017, compared to $960.5 million, or 91.1% of net operating revenues, for the three months ended September 30, 2016.2022. Our cost of services, a major component of which is labor expense, was ~~$938.9~~$1,442.5 million, or ~~85.6%~~86.6% of ~~net operating revenues,~~revenue, for the three months ended September 30, ~~2017,~~2023, compared to ~~$915.7~~$1,393.8 million, or ~~86.9%~~88.9% of ~~net operating revenues,~~revenue, for the three months ended September 30, ~~2016.~~ 2022. The decrease in our operating expenses relative to our revenue was principally due to the decreased labor costs within our critical illness recovery hospital segment, as explained further within the “Adjusted EBITDA” discussion. General and administrative expenses were $41.3 million, or 2.5% of revenue, for the three months ended September 30, 2023, compared to $39.5 million, or 2.5% of revenue, for the three months ended September 30, 2022.

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Other Operating Income

For the threemonths ended September 30, 2023, we had other operating income of $0.5 million, compared to $8.4 million for the three months ended September 30, 2022. The other operating income for the three months ended September 30, 2022, is included within the operating results of our other activities, and is principally related to the recognition of payments received under the Provider Relief Fund for health care related expenses and lost revenues attributable to COVID-19.

Adjusted EBITDA

Critical Illness Recovery Hospital Segment. Adjusted EBITDA increased 321.0% to $46.4 million for the three months ended September 30, 2023, compared to $11.0 million for the three months ended September 30, 2022. Our Adjusted EBITDA margin for the critical illness recovery hospital segment was 8.2% for the three months ended September 30, 2023, compared to 2.1% for the three months ended September 30, 2022. The increases in our Adjusted EBITDA and Adjusted EBITDA margin during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, were principally due to an increase in net revenue as well as a decrease in labor costs. The decrease in labor costs resulted from our efforts in 2022 to hire additional full-time nursing staff, improve retention among our employees, and decrease our reliance on contract labor, as well as the lower contract labor rates due to reduced demand in the marketplace. Our total contract labor costs decreased by approximately 36% during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, which was driven by an approximate 30% decrease in the utilization of contract registered nurses and an approximate 9% decrease in the rate per hour for contract registered nurses.

Rehabilitation Hospital Segment. Adjusted EBITDA increased 7.7% to $53.6 million for the three months ended September 30, 2023, compared to $49.8 million for the three months ended September 30, 2022. Our Adjusted EBITDA margin for the rehabilitation hospital segment was 21.7% for each of the third quarters ended September 30, 2023, and September 30, 2022. The increase in our Adjusted EBITDA was principally due to an increase in revenue.

Outpatient Rehabilitation Segment. Adjusted EBITDA increased 2.5% to $26.3 million for the three months ended September 30, 2023, compared to $25.7 million for the three months ended September 30, 2022. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 9.0% for the three months ended September 30, 2023, and September 30, 2022.

Concentra Segment. Adjusted EBITDA increased 9.9% to $98.9 million for the three months ended September 30, 2023, compared to $90.0 million for the three months ended September 30, 2022. Our Adjusted EBITDA margin for the Concentra segment was 20.9% for the three months ended September 30, 2023, compared to 20.2% for the three months ended September 30, 2022. The increases in Adjusted EBITDA and Adjusted EBITDA margin during the three months ended September 30, 2023, as compared to the three months ended September 30, 2022, were principally due to an increase in revenue.

Depreciation and Amortization

Depreciation and amortization expense was $52.4 million for the three months ended September 30, 2023, compared to $51.5 million for the three months ended September 30, 2022.

Income from Operations

For the three months ended September 30, 2023, we had income from operations of $130.0 million, compared to $91.5 million for the three months ended September 30, 2022. The decline in labor costs and increase in revenue experienced within our critical illness recovery hospital segment was the primary cause of the increase in income from operations, as discussed above under “Adjusted EBITDA.” Income from operations for the three months ended September 30, 2023, included other operating ~~revenues~~income of $0.5 million, compared to $8.4 million for the three months ended September 30, 2022, as described under “Other Operating Income” above.

Loss on Early Retirement of Debt

For the three months ended September 30, 2023, we had a loss on early retirement of debt of $14.7 million related to an amendment to the Select credit agreement, as described in Note 7 - Long-Term Debt and Notes Payable.

Equity in Earnings of Unconsolidated Subsidiaries

For the three months ended September 30, 2023, we had equity in earnings of unconsolidated subsidiaries of $11.6 million, compared to $8.1 million for the three months ended September 30, 2022. The increase in equity in earnings is principally due to the improved operating performance of our ~~acquired and start-up specialty hospitals. Facility rent~~rehabilitation businesses in which we are a minority owner.

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Interest

Our term loan is subject to an interest rate cap, which limits the variable interest rate index to 1.0% on $2.0 billion of principal outstanding under the term loan. The Term SOFR rate was 5.33% at September 30, 2023, compared to the one-month LIBOR rate of 3.14% at September 30, 2022. Interest expense ~~a component of cost of services,~~ was ~~$57.9~~$50.3 million for the three months ended September 30, ~~2017,~~2023, compared to ~~$58.5~~$45.2 million for the three months ended September 30, 2016. General and administrative expenses were $27.1 million for both the three months ended September 30, 2017 and 2016. General and administrative expenses as a percentage of net operating revenues were 2.5% for the three months ended September 30, 2017, compared to 2.6% for the three months ended September 30, 2016. Our bad debt expense was $20.3 million, or 1.9% of net operating revenues, for the three months ended September 30, 2017, compared to $~~17.7 million, or 1.7% of net operating revenues, for the three months ended September 30, 2016.~~2022. The increase in ~~bad debt~~interest expense ~~occurred~~was principally due to an increase in the variable interest rate on borrowings made under our ~~specialty hospitals segment.~~

~~Adjusted EBITDA~~

~~Specialty Hospitals Segment.~~ ~~Adjusted EBITDA increased 43.9% to $69.5~~revolving credit facility.

Income Taxes

We recorded income tax expense of $15.7 million for the three months ended September 30, ~~2017, compared to $48.3~~2023, which represented an effective tax rate of 20.6%. We recorded income tax expense of $16.2 million for the three months ended September 30, ~~2016 for our specialty hospitals segment. Our Adjusted EBITDA margin for the specialty hospitals segment was 11.9%~~2022, which represented an effective tax rate of 29.8%. The higher effective tax rate for the three months ended September 30, ~~2017, compared to 8.9% for the three months ended September 30, 2016. The increases in Adjusted EBITDA and Adjusted EBITDA margin for our specialty hospitals segment were~~2022, resulted primarily driven by the improved operating performance of our LTCHs and reductions in Adjusted EBITDA losses in our start-up specialty hospitals. Adjusted EBITDA losses in our start-up specialty hospitals were $1.5 million for the three months ended September 30, 2017, compared to $9.0 million for the three months ended September 30, 2016.

~~Outpatient Rehabilitation Segment.~~ Adjusted EBITDA was $29.3 million for the three months ended September 30, 2017, compared to $32.0 million for the three months ended September 30, 2016 for our outpatient rehabilitation segment. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 11.7% for the three months ended September 30, 2017, compared to 12.8% for the three months ended September 30, 2016. The decrease in Adjusted EBITDA was principally due to a decline in visits within areas affected by Hurricanes Harvey and Irma, as discussed above under “~~Net Operating Revenues~~.” Additionally, we experienced a decline in visits at Physiotherapy clinics within some of our markets. The decline in our Adjusted EBITDA margin for our outpatient rehabilitation segment was the result of higher labor expenses relative to our net operating revenues within markets which have experienced a decline in patient volumes.

~~Concentra Segment.~~ Adjusted EBITDA was $40.0 million for the three months ended September 30, 2017, compared to $40.9 million for the three months ended September 30, 2016 for our Concentra segment. Our Adjusted EBITDA margin for the Concentra segment was 15.3% for the three months ended September 30, 2017, compared to 15.8% for the three months ended September 30, 2016. The decrease in Adjusted EBITDA was principally due to a decline in visits within areas affected by Hurricanes Harvey and Irma, as discussed above under “~~Net Operating Revenues~~.”

~~Other.~~ ~~The Adjusted EBITDA loss was $22.9 million for the three months ended September 30, 2017, compared to an Adjusted EBITDA loss of $23.1 million for the three months ended September 30, 2016.~~

~~Depreciation and Amortization~~

~~Depreciation and amortization expense was $38.8 million for the three months ended September 30, 2017, compared to~~ ~~$37.2 million for the three months ended September 30, 2016. The increase was principally due to new inpatient rehabilitation facilities operating in our specialty hospitals segment.~~

~~Income from Operations~~

For the three months ended September 30, 2017, we had income from operations of $72.1 million, compared to $56.2 million for the three months ended September 30, 2016. The increase in income from operations resulted principally from the ~~improved operating performance of our specialty hospitals segment.~~

~~Loss on Early Retirement of Debt~~

On September 26, 2016, Concentra prepaid the second lien term loan under the Concentra credit facilities, resulting in a loss on early retirement of debt of approximately $10.9 million. The loss on early retirement of debt consistedeffect of a ~~prepayment premium, unamortized debt issuance costs, and unamortized original issue discounts.~~

~~Equity~~change in ~~Earnings of Unconsolidated Subsidiaries~~

For the three months ended September 30, 2017, we had equity in earnings of unconsolidated subsidiaries of $4.4 million, compared to $5.3 million for the three months ended September 30, 2016. The decrease in our equity in earnings of unconsolidated subsidiaries resulted principally from losses incurred by start-up companies in which we own a minority interest.

~~Interest Expense~~

Interest expense was $37.7 million for the three months ended September 30, 2017, compared to $44.5 million for the three months ended September 30, 2016. The decrease in interest expense was principally the result of decreases in our interest

~~rates associated with the refinancing of the Select credit facilities during the quarter ended March 31, 2017 and the Concentra credit facilities during the quarter ended September 30, 2016.~~

~~Income Taxes~~

We recorded income tax expense of $14.0 million for the three months ended September 30, 2017, which represented an effective tax rate of 36.1%. We recorded income tax expense of $1.1 million for the three months ended September 30, 2016, which represented an effective tax rate of 21.2%. Our quarterly effectivePennsylvania’s corporate income tax rate ~~is derived from our full year estimated effective income~~on the net deferred tax ~~rate and can be impacted by discrete items specific to a particular quarter and quarterly changes in our full year tax provision estimate.~~

~~Net Income (Loss) Attributable to Non-Controlling Interests~~

~~Net income attributable to non-controlling interests was $6.4 million for the three months ended September 30, 2017, compared to net losses attributable to non-controlling interests~~asset.

Table of $2.5 million for the three months ended September 30, 2016. The increase is principally due to increases in net income of our joint venture subsidiary, Concentra, and the improved operating performance of joint venture inpatient rehabilitation facilities operating within our specialty hospitals segment.

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Nine Months Ended September 30, ~~2017~~2023, Compared to Nine Months Ended September 30, ~~2016~~

In2022

For the ~~following,~~nine months ended September 30, 2023, we ~~discuss our results~~had revenue of ~~operations related to net operating revenues, operating expenses, Adjusted EBITDA, depreciation~~$5,005.2 million and ~~amortization,~~ income from operations ~~loss on early retirement~~ of ~~debt, equity in earnings~~$440.6 million, respectively, as compared to revenue of ~~unconsolidated subsidiaries, non-operating gain, interest expense,~~$4,752.1 million and income ~~taxes, and net income attributable to non-controlling interests, which, in each case, are the same for Holdings and Select.~~

~~Net Operating Revenues~~

~~Our net operating revenues increased 2.8% to $3,329.2~~from operations of $316.4 million for the nine months ended September 30, ~~2017,~~2022. For the nine months ended September 30, 2023, Adjusted EBITDA was $627.4 million, with an Adjusted EBITDA margin of 12.5%, as compared to $~~3,239.8~~Adjusted EBITDA of $498.0 million and an Adjusted EBITDA margin of 10.5% for the nine months ended September 30, 2022, respectively.

A significant contributor to the improvement in our financial performance for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, was a decrease in labor costs and an increase in revenue in our critical illness recovery hospital segment as the investments we made in the recruitment, hiring, and retention of full-time staff in 2022 resulted in a significant decrease in contract labor utilization in 2023. Additionally, reduced demand in the marketplace resulted in lower contract labor rates, which further contributed to the decrease in total contract labor costs. We believe the ratio of personnel expense to net revenue for the critical illness recovery hospital segment for the nine months ended September 30, 2023, is indicative of a more stabilized labor environment. Other operating income during the nine months ended September 30, 2023 included $1.2 million. Other operating income during the nine months ended September 30, 2022, included $23.6 million, principally related to the recognition of payments received under the Provider Relief Fund for health care related expenses and lost revenues attributable to COVID-19.

Revenue

Critical Illness Recovery Hospital Segment. Revenue increased 3.6% to $1,732.6 million for the nine months ended September 30, ~~2016.~~

~~Specialty Hospitals Segment.~~ ~~Net operating revenues increased 3.2%~~2023, compared to ~~$1,785.0~~$1,672.2 million for the nine months ended September 30, ~~2017,~~2022. The increase was due to revenue per patient day, which increased 4.8% to $2,076 for the nine months ended September 30, 2023, compared to ~~$1,729.3~~$1,981 for the nine months ended September 30, 2022. The increase in revenue per patient day is inclusive of the reinstatement of the 2.0% cut to Medicare payments due to sequestration. Our patient days were 831,022 for the nine months ended September 30, 2023, compared to 840,487 days for the nine months ended September 30, 2022. Occupancy in our critical illness recovery hospitals was 68% for the nine months ended September 30, 2023 and 2022.

Rehabilitation Hospital Segment. Revenue increased 6.0% to $719.4 million for the nine months ended September 30, ~~2016 for our specialty hospitals segment. The increase in net operating revenues is principally due~~2023, compared to ~~several new inpatient rehabilitation facilities which commenced operations during 2016 and 2017. The average net revenue per patient day for our specialty hospitals increased 3.4% to $1,707~~$678.9 million for the nine months ended September 30, ~~2017, compared~~2022. Revenue per patient day increased 3.5% to ~~$1,651~~$2,001 for the nine months ended September 30, ~~2016. For~~2023, compared to $1,934 for the nine months ended September 30, ~~2017, we had 950,419~~2022. Our patient days ~~compared~~increased 2.6% to ~~951,292~~330,142 days for the nine months ended September 30, ~~2016. The decrease~~2023, compared to 321,690 days for the nine months ended September 30, 2022. Occupancy in ~~patient days is principally due to closed specialty hospitals.~~

our rehabilitation hospitals was 84% and 85% for the nine months ended September 30, 2023 and 2022, respectively.

Outpatient Rehabilitation Segment. ~~Net operating revenues~~ Revenue increased ~~2.5%~~5.5% to ~~$764.5~~$890.7 million for the nine months ended September 30, ~~2017,~~2023, compared to ~~$745.7~~$844.2 million for the nine months ended September 30, ~~2016 for our outpatient rehabilitation segment.~~2022. The increase ~~in net operating revenues~~ was ~~principally~~ due to ~~the acquisition of Physiotherapy on March 4, 2016,~~patient visits, which ~~contributed~~increased 11.4% to the overall growth in our visits. Additionally, we experienced an increase in our net revenue per visit. Visits increased 7.3% to 6,168,763 for the nine months ended September 30, 2017, compared to 5,751,5627,984,622 visits for the nine months ended September 30, ~~2016. Net~~2023, compared to 7,165,866 visits for the nine months ended September 30, 2022. Our revenue per visit ~~increased 1.0%~~was $100 for the nine months ended September 30, 2023, compared to $103 for the nine months ended September 30, ~~2017, compared~~2022, principally due to ~~$102 for the nine months ended September 30, 2016. The~~a decrease in Medicare reimbursement, changes in payor mix, and an increase in ~~net operating revenues was offset in part by the sale of our contract therapy businesses on March 31, 2016.~~

variable discounts.

Concentra Segment. ~~Net operating revenues~~ Revenue increased ~~1.9%~~6.7% to ~~$779.0~~$1,397.3 million for the nine months ended September 30, ~~2017,~~2023, compared to ~~$764.3~~$1,309.4 million for the nine months ended September 30, ~~2016 for our Concentra segment. The increase in net operating revenues was principally due~~2022. Our revenue per visit increased 6.3% to ~~an increase in visits from newly acquired and developed medical centers. Visits in our centers increased 3.7% to 5,848,551~~$135 for the nine months ended September 30, ~~2017,~~2023, compared to ~~5,642,305~~$127 for the nine months ended September 30, 2022. Our patient visits increased 1.7% to 9,766,881 for the nine months ended September 30, 2023, compared to 9,604,441 visits for the nine months ended September 30, ~~2016. The growth in visits principally related~~2022. COVID-19 screening and testing services did not contribute to ~~an increase in employer services visits. Net~~the Concentra segment’s revenue ~~per visit was $117~~ for the nine months ended September 30, ~~2017,~~2023, compared to ~~$118~~$19.3 million of revenue from these services during the nine months ended September 30, 2022.

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Operating Expenses

Our operating expenses consist principally of cost of services and general and administrative expenses. Our operating expenses were $4,411.0 million, or 88.1% of revenue, for the nine months ended September 30, ~~2016. The decrease in net revenue per visit is principally due~~2023, compared to ~~an increased proportion of employer service visits, which yield lower per visit rates.~~

~~Operating Expenses~~

~~Our operating expenses include our cost of services, general and administrative expense, and bad debt expense. Our operating expenses were $2,930.0~~$4,305.6 million, or ~~88.0%~~90.6% of ~~net operating revenues,~~revenue, for the nine months ended September 30, ~~2017, compared to $2,887.8 million, or 89.1% of net operating revenues, for the nine months ended September 30, 2016.~~2022. Our cost of services, a major component of which is labor expense, was ~~$2,787.5~~$4,284.9 million, or ~~83.7%~~85.6% of ~~net operating revenues,~~revenue, for the nine months ended September 30, ~~2017,~~2023, compared to ~~$2,755.0~~$4,191.4 million, or ~~85.0%~~88.2% of ~~net operating revenues,~~revenue, for the nine months ended September 30, ~~2016.~~2022. The decrease in our operating expenses relative to our revenue was principally due to the decreased labor costs within our critical illness recovery hospital segment, as explained further within the “Adjusted EBITDA” discussion. General and administrative expenses were $126.1 million, or 2.5% of revenue, for the nine months ended September 30, 2023, compared to $114.3 million, or 2.4% of revenue, for the nine months ended September 30, 2022.

Other Operating Income

For the ninemonths ended September 30, 2023, we had other operating income of $1.2 million, compared to $23.6 million for the nine months ended September 30, 2022. The other operating income for the nine months ended September 30, 2022, is included within the operating results of our other activities, and is principally related to the recognition of payments received under the Provider Relief Fund for health care related expenses and lost revenues attributable to COVID-19.

Adjusted EBITDA

Critical Illness Recovery Hospital Segment. Adjusted EBITDA increased 181.5% to $188.6 million for the nine months ended September 30, 2023, compared to $67.0 million for the nine months ended September 30, 2022. Our Adjusted EBITDA margin for the critical illness recovery hospital segment was 10.9% for the nine months ended September 30, 2023, compared to 4.0% for the nine months ended September 30, 2022. The increases in our Adjusted EBITDA and Adjusted EBITDA margin during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, were due to lower labor costs as well as an increase in net revenue. The decrease in labor costs resulted from our efforts in 2022 to hire additional full-time nursing staff, improve retention among our employees, and decrease our reliance on contract labor, as well as the lower contract labor rates due to reduced demand in the marketplace. Our total contract labor costs decreased by approximately 65% during the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, which was driven by an approximate 45% decrease in the utilization of contract registered nurses and an approximate 33% decrease in the rate per hour for contract registered nurses.

Rehabilitation Hospital Segment. Adjusted EBITDA increased 9.5% to $155.5 million for the nine months ended September 30, 2023, compared to $142.0 million for the nine months ended September 30, 2022. Our Adjusted EBITDA margin for the rehabilitation hospital segment was 21.6% for the nine months ended September 30, 2023, compared to 20.9% for the nine months ended September 30, 2022. The increase in Adjusted EBITDA and Adjusted EBITDA margin for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, was principally due to an increase in revenue.

Outpatient Rehabilitation Segment. Adjusted EBITDA increased 4.1% to $89.4 million for the nine months ended September 30, 2023, compared to $85.9 million for the nine months ended September 30, 2022. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 10.0% for the nine months ended September 30, 2023, compared to 10.2% for the nine months ended September 30, 2022.

Concentra Segment. Adjusted EBITDA increased 7.7% to $293.0 million for the nine months ended September 30, 2023, compared to $272.1 million for the nine months ended September 30, 2022. Our Adjusted EBITDA margin for the Concentra segment was 21.0% for the nine months ended September 30, 2023, compared to 20.8% for the nine months ended September 30, 2022. The increase in Adjusted EBITDA and Adjusted EBITDA margin was principally due to an increase in revenue for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022.

Depreciation and Amortization

Depreciation and amortization expense was $154.8 million for the nine months ended September 30, 2023, compared to $153.6 million for the nine months ended September 30, 2022.

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Income from Operations

For the nine months ended September 30, 2023, we had income from operations of $440.6 million, compared to $316.4 million for the nine months ended September 30, 2022. The decline in labor costs and increase in revenue experienced within our critical illness recovery hospital segment was the primary cause of the increase in income from operations, as discussed above under “Adjusted EBITDA.” Other operating ~~revenues~~income during the nine months ended September 30, 2023, was $1.2 million, compared to $23.6 million for the nine months ended September 30, 2022, as described under “Other Operating Income” above.

Loss on Early Retirement of Debt

For the nine months ended September 30, 2023, we had a loss on early retirement of debt of $14.7 million related to an amendment to the Select credit agreement, as described in Note 7 - Long-Term Debt and Notes Payable.

Equity in Earnings of Unconsolidated Subsidiaries

For the nine months ended September 30, 2023, we had equity in earnings of unconsolidated subsidiaries of $30.6 million, compared to $19.6 million for the nine months ended September 30, 2022. The increase in equity in earnings is principally due to the improved operating performance of our ~~acquired and start-up specialty hospitals, specialty hospitals closures, and cost reductions achieved by Concentra. Facility rent~~rehabilitation businesses in which we are a minority owner.

Interest

Income Taxes

We recorded income tax expense of $70.8 million for the nine months ended September 30, ~~2017, compared to $81.2~~2023, which represented an effective tax rate of 22.9%. We recorded income tax expense of $54.0 million for the nine months ended September 30, 2016, which included $3.2 million of Physiotherapy acquisition costs. General and administrative expenses as a percentage of net operating revenues were 2.5% for both the nine months ended September 30, 2017 and 2016. Our bad debt expense was $59.1 million, or 1.8% of net operating revenues, for the nine months ended September 30, 2017, compared to $51.6 million, or 1.6% of net operating revenues, for the nine months ended September 30, 2016. The increase was principally the result of increases in bad debt expense in our specialty hospitals and Concentra segments.

~~Adjusted EBITDA~~

~~Specialty Hospitals Segment.~~ Adjusted EBITDA increased 17.7% to $256.3 million for the nine months ended September 30, 2017, compared to $217.8 million for the nine months ended September 30, 2016 for our specialty hospitals segment. Our Adjusted EBITDA margin for the segment was 14.4% for the nine months ended September 30, 2017, compared to 12.6% for the nine months ended September 30, 2016. The increases in Adjusted EBITDA and Adjusted EBITDA margin for our specialty hospitals segment were primarily driven by the improved operating performance of our LTCHs, reductions in Adjusted EBITDA losses in our start-up specialty hospitals, and the closure of specialty hospitals which had generated Adjusted EBITDA losses during the nine months ended September 30, 2016. Adjusted EBITDA losses in our start-up specialty hospitals were $4.7 million for the nine months ended September 30, 2017, compared to $19.4 million for the nine months ended September 30, 2016.

~~Outpatient Rehabilitation Segment.~~ Adjusted EBITDA increased 3.6% to $102.6 million for the nine months ended September 30, 2017, compared to $99.0 million for the nine months ended September 30, 2016 for our outpatient rehabilitation segment. The increase in Adjusted EBITDA was principally due to growth in visits and an increase in net revenue per visit, as discussed above under “~~Net Operating Revenues~~.” Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 13.4% for the nine months ended September 30, 2017, compared to 13.3% for the nine months ended September 30, 2016. The increase in Adjusted EBITDA margin was principally due to the sale of our contract therapy businesses on March 31, 2016, which operated at lower Adjusted EBITDA margins than our outpatient rehabilitation clinics.

~~Concentra Segment.~~ Adjusted EBITDA increased 6.4% to $125.7 million for the nine months ended September 30, 2017, compared to $118.1 million for the nine months ended September 30, 2016 for our Concentra segment. Our Adjusted EBITDA margin for the Concentra segment was 16.1% for the nine months ended September 30, 2017, compared to 15.5% for the nine months ended September 30, 2016. The increases in Adjusted EBITDA and Adjusted EBITDA margins for our Concentra segment were principally the result of cost reductions we have achieved.

~~Other.~~ The Adjusted EBITDA loss was $71.1 million for the nine months ended September 30, 2017, compared to an Adjusted EBITDA loss of $66.7 million for the nine months ended September 30, 2016. The increase in our Adjusted EBITDA loss was due to an increase in general and administrative costs, which encompass our corporate shared service activities.

~~Depreciation and Amortization~~

~~Depreciation and amortization expense was $119.6 million for the nine months ended September 30, 2017, compared to~~ ~~$107.9 million for the nine months ended September 30, 2016. The increase was principally due to new inpatient rehabilitation facilities operating in our specialty hospitals segment.~~

~~Income from Operations~~

For the nine months ended September 30, 2017, we had income from operations of $279.5 million, compared to $244.1 million for the nine months ended September 30, 2016. The increase in income from operations resulted principally from the improved operating performance of our specialty hospitals and Concentra segments.

~~Loss on Early Retirement of Debt~~

~~On March 6, 2017, we refinanced Select’s senior secured credit facilities which resulted in losses on early retirement of debt of $19.7 million during the nine months ended September 30, 2017.~~

On March 4, 2016, we refinanced a portion of our term loans under Select’s 2011 senior secured credit facility which resulted in a loss on early retirement of debt of $0.8 million. On September 26, 2016, Concentra prepaid the second lien term loan under the Concentra credit facilities, resulting in a loss on early retirement of debt of approximately $10.9 million.

~~Equity in Earnings of Unconsolidated Subsidiaries~~

For the nine months ended September 30, 2017, we had equity in earnings of unconsolidated subsidiaries of $15.6 million, compared to $14.5 million for the nine months ended September 30, 2016. The increase in our equity in earnings of unconsolidated subsidiaries resulted principally from improved performance of the inpatient rehabilitation businesses in which we have a minority interest.

~~Non-Operating Gain~~

We recognized a non-operating gain of $37.1 million during the nine months ended September 30, 2016. The non-operating gain was principally due to the sale of our contract therapy businesses on March 31, 2016, as well as the sale of nine outpatient rehabilitation clinics to a non-consolidating subsidiary and the sale of five specialty hospitals in an exchange transaction during the quarter ended June 30, 2016.

~~Interest Expense~~

~~Interest expense was $116.2 million for the nine months ended September 30, 2017, compared to~~ $127.7 million for the nine months ended September 30, 2016. The decrease in interest expense was principally the result of decreases in our interest rates associated with the refinancing of the Select credit facilities during the quarter ended March 31, 2017 and the Concentra credit facilities during the quarter ended September 30, 2016.

~~Income Taxes~~

~~We recorded income tax expense of $59.6 million for the nine months ended September 30, 2017,~~2022, which represented an effective tax rate of ~~37.4% We recorded income tax expense of~~ ~~$51.6 million for the nine months ended September 30, 2016, which represented an effective tax rate of 33.0%~~25.2%.

Our effective income tax rate is derived from our full year estimated effective income tax rate and can be impacted by discrete items specific to a particular quarter and quarterly changes in our full year tax provision estimate. On March 31, 2016, we sold our contract therapy businesses. Our tax basis in our contract therapy businesses exceeded our selling price; as a result, we had no tax expense from the sale. During the quarter ended June 30, 2016, we exchanged five specialty hospitals. Our tax basis in the five specialty hospitals was less than our book basis, resulting in a tax gain exceeding our book gain. The ~~lower~~higher effective tax rate for the ~~nine~~three months ended September 30, ~~2016~~2022, resulted primarily from the effect of a change in Pennsylvania’s corporate income tax rate on the net ~~effects~~deferred tax asset.

Table of ~~the two discrete tax events discussed above.~~

~~Net Income Attributable to Non-Controlling Interests~~

~~Net income attributable to non-controlling interests was $23.2 million for the nine months ended September 30, 2017, compared to~~ $9.6 million for the nine months ended September 30, 2016. The increase is principally due to increases in net income of our joint venture subsidiary, Concentra, and the improved operating performance of joint venture inpatient rehabilitation facilities operating within our specialty hospitals segment.

Contents

Liquidity and Capital Resources

Cash Flows for the Nine Months Ended September 30, ~~2017~~2023 and Nine Months Ended September 30, ~~2016~~

2022

In the following, we discuss cash flows from operating activities, investing activities, and financing ~~activities, which, in each case, are the same for Holdings and Select.~~

Nine Months Ended September 30,

2016

2017

(in thousands)

Cash flows provided by operating activities

$
280,761

$
129,972

Cash flows used in investing activities

(463,002
)
(169,990
)
Cash flows provided by financing activities

236,029

48,289

Net increase in cash and cash equivalents

53,788

8,271

Cash and cash equivalents at beginning of period

14,435

99,029

Cash and cash equivalents at end of period

$
68,223

$
107,300

activities.


	Nine Months Ended September 30,
	2022		2023
	(in thousands)
Cash flows provided by operating activities	$	272,281	$	402,616
Cash flows used in investing activities	(169,105)		(198,893)
Cash flows used in financing activities	(69,263)		(224,189)
Net increase (decrease) in cash and cash equivalents	33,913		(20,466)
Cash and cash equivalents at beginning of period	74,310		97,906
Cash and cash equivalents at end of period	$	108,223	$	77,440

Operating activities provided ~~$130.0~~$402.6 million of cash flows for the nine months ended September 30, ~~2017. The decrease in operating~~2023, compared to $272.3 million of cash flows for the nine months ended September 30, ~~2017 compared to~~2022. The cash flows from operating activities during the nine months ended September 30, ~~2016~~2022, included the repayment of $82.8 million of Medicare advance payments. The remaining change in cash flows provided by operating activities year over year is principally due to ~~increases~~an increase in ~~our accounts receivable.~~ net income.

Our days sales outstanding was ~~60 days at September 30, 2017, compared to 51 days at December 31, 2016 and~~ 52 days at September 30, ~~2016.~~2023, compared to 55 days at December 31, 2022. Our days sales outstanding was 53 days at September 30, 2022, compared to 52 days at December 31, 2021. Our days sales outstanding will fluctuate based upon variability in our collection ~~cycles. The increase in our days sales outstanding~~cycles and related decline in our operating cash flows is primarily related to the current underpayments we are receiving through the periodic interim payment program from Medicare in our LTCHs. These underpayments will be corrected in future months as our periodic interim payments are reconciled and reset by our fiscal intermediaries.

patient volumes.

Investing activities used $170.0 million for the nine months ended September 30, 2017. The principal use of cash was $173.8 million for purchases of property and equipment and $19.4 million for the acquisition of businesses, offset in part by $34.6 million of proceeds received from the sale of assets. Investing activities used $463.0$198.9 million of cash flows for the nine months ended September 30, ~~2016, principally due to the acquisition~~2023. The principal uses of ~~Physiotherapy. Investing activities for the nine months ended September 30, 2016 also included $118.3~~cash were $168.6 million for purchases of property, equipment, and ~~equipment, offset~~other assets, and $30.4 million for investments in ~~part by proceeds received from the sales~~and acquisitions of ~~businesses and an equity investment of $72.6 million.~~

~~Financing~~businesses. Investing activities ~~provided $48.3~~used $169.1 million of cash flows for the nine months ended September 30, ~~2017.~~2022. The principal ~~source~~uses of cash ~~was $100.0~~were $135.1 million for purchases of ~~net borrowings under the Select revolving facility, offset~~property and equipment and $39.4 million for investments in ~~part by $23.1 million~~and acquisitions of cash used for a principal prepayment associated with the Concentra credit facilities, $5.8 million of cash used for term loan payments associated with the Select credit facilities, and cash used for the payment of financing costs related to the refinancing of the Select credit facilities.

businesses.

Financing activities ~~provided $236.0~~used $224.2 million of cash flows for the nine months ended September 30, ~~2016.~~2023. The principal uses of cash were net repayments under our revolving facility of $105.0 million, $54.9 million for distributions to and purchases of non-controlling interests, and $47.9 million of dividend payments to common stockholders. Financing activities used $69.3 million of cash flows for the nine months ended September 30, 2022. The principal uses of cash were $193.6 million for repurchases of common stock, $48.7 million of dividend payments to common stockholders and $40.7 million for distributions to and purchases of non-controlling interests. The principal source of cash was ~~the issuance~~net borrowings under our revolving facility of ~~$625.0 million~~$220.0 million.

Table of series F tranche B term loans, resulting in net proceeds of $600.1 million, offset in part by $215.7 million of cash used to repay the series D tranche B term loans and $125.0 million of net repayments under the Select and Concentra revolving facilities.

Contents

Capital Resources

Working capital. We had net working capital of ~~$304.5~~$110.0 million at September 30, ~~2017,~~2023, compared to ~~$191.3~~$116.2 million at December 31, ~~2016. The increase in net working capital is primarily due~~2022.

Credit facilities. On July 31, 2023, the Company entered into Amendment No. 8 to ~~an increase in our accounts receivable.~~

the Select credit ~~facilities.~~ ~~On March 6, 2017, Select entered into~~agreement. Amendment No. 8 provides for a new ~~senior secured credit agreement that provides for $1.6 billion~~tranche of term loans in ~~senior secured credit facilities comprising a $1.15 billion, seven-year~~an aggregate principal amount of $2,103.0 million to replace the existing term ~~loan~~loans and a ~~$450.0~~$710.0 million ~~five-year~~new revolving credit facility ~~including a $75.0~~to replace the $650.0 million ~~sublimit for the issuance of standby letters of credit. Select used borrowings under the Select~~existing revolving credit ~~facilities to: (i) repay the series E tranche B~~facility. The term loans ~~due June 1, 2018,~~and the ~~series F tranche B~~extended revolving credit facility will mature on March 6, 2027, with an early springing maturity 90 days prior to the senior notes maturity, triggered if more than $300.0 million of senior notes remain outstanding on May 15, 2026. The term loans ~~due March 31, 2021,~~have an interest rate of Term SOFR plus 3.00% and the revolving credit facility ~~maturing March 1, 2018 under its then existing~~has an interest rate of Adjusted Term SOFR (which includes a 0.10% credit ~~facilities; and (ii) pay fees and expenses in connection with the refinancing.~~

Borrowings under the Select credit facilities bear interest at a rate equal to: (i) in the case of the Select term loan, Adjusted LIBO (as defined in the Select credit agreement) plus 3.50% (subject to an Adjusted LIBO floor of 1.00%), or Alternate Base Rate (as defined in the Select credit agreement)spread adjustment) plus 2.50% ~~(subject~~, subject to ~~an Alternate Base Rate floor~~a leverage-based pricing grid. During the three months ended September 30, 2023, the Company recognized a $14.7 million loss on early retirement of 2.00%); and (ii) in the case of the Select revolving facility, Adjusted LIBO plus a percentage ranging from 3.00% to 3.25% or Alternate Base Rate plus a percentage ranging from 2.00% to 2.25%, in each case based on Select’s leverage ratio.

~~Select will be required to prepay borrowings under the Select credit facilities with (i) 100% of the net cash proceeds received from non-ordinary course asset sales or other dispositions, or~~debt as a result of ~~a casualty or condemnation, subject~~the amendment to ~~reinvestment provisions and other customary carveouts and, to the extent required, the payment of certain indebtedness secured by liens having priority over the debt under~~ the Select credit ~~facilities or subject~~agreement.

On August 31, 2023, the Company entered into Amendment No. 9 to a first lien intercreditor agreement, (ii) 100% of the net cash proceeds received from the issuance of debt obligations other than certain permitted debt obligations, and (iii) 50% of excess cash flow (as defined in the Select credit agreement) if Select’s leverage ratio is greater than 4.50 to 1.00 and 25% of excess cash flow if Select’s leverage ratio is less than or equal to 4.50 to 1.00 and greater than 4.00 to 1.00, in each case, reduced by the aggregate amount of term loans, revolving loans and certain other debt optionally prepaid during the applicable fiscal year. Select will not be required to prepay borrowings with excess cash flow if Select’s leverage ratio is less than or equal to 4.00 to 1.00.

The Select revolving facility requires Select to maintain a leverage ratio (as defined in the Select credit agreement), which is tested quarterly, not to exceed 6.25 to 1.00. After March 31, 2019, the leverage ratio must not exceed 6.00 to 1.00. Failure to comply with this covenant would result in an event of default under the Select revolving facility and, absent a waiver or an amendment fromagreement. Amendment No. 9 increased the revolving lenders, preclude Select from making further borrowings under the Select revolving facility and permit the revolving lenders to accelerate all outstanding borrowings under the Select revolving facility. The termination of the Select revolvingcredit facility commitments ~~and the acceleration of amounts outstanding thereunder would constitute an event of default with respect~~from $710.0 million to ~~the Select term loan. As of September 30, 2017, Select’s leverage ratio was 5.82 to 1.00.~~

The Select credit facilities also contain a number of other affirmative and restrictive covenants, including limitations on mergers, consolidations and dissolutions; sales of assets; investments and acquisitions; indebtedness; liens; affiliate transactions; and dividends and restricted payments. The Select credit facilities contain events of default for non-payment of principal and interest when due (subject, as to interest, to a grace period), cross-default and cross-acceleration provisions and an event of default that would be triggered by a change of control.

Borrowings under the Select credit facilities are guaranteed by Holdings and substantially all of Select’s current domestic subsidiaries and will be guaranteed by substantially all of Select’s future domestic subsidiaries and secured by substantially all of Select’s existing and future property and assets and by a pledge of Select’s capital stock, the capital stock of Select’s domestic subsidiaries and up to 65% of the capital stock of Select’s foreign subsidiaries held directly by Select or a domestic subsidiary.

$770.0 million.

At September 30, ~~2017,~~2023, Select had outstanding borrowings under ~~the Select~~its credit facilities consisting of a ~~$1,144.3~~$2,097.7 million ~~Select~~ term loan (excluding unamortized original issue discounts and debt issuance costs of ~~$26.0~~$16.5 million) and borrowings of ~~$320.0~~$340.0 million ~~(excluding letters of credit)~~ under ~~the Select~~its revolving facility. At September 30, ~~2017,~~2023, Select had ~~$91.4 million of availability under the Select revolving facility after giving effect to $38.6 million of outstanding letters of credit.~~

~~Concentra credit facilities.~~ Select and Holdings are not parties to the Concentra credit facilities and are not obligors with respect to Concentra’s debt under such agreements. While this debt is non-recourse to Select, it is included in Select’s consolidated financial statements.

On March 1, 2017, Concentra made a principal prepayment of $23.1 million associated with its first lien term loans in accordance with the provision in the Concentra credit facilities that requires mandatory prepayments of term loans as a result of annual excess cash flow, as defined in the Concentra credit facilities.

As of September 30, 2017, Concentra had $619.2 million of first lien term loans outstanding (excluding unamortized discounts and debt issuance costs of $13.7 million) under the Concentra credit facilities. Concentra did not have any borrowings, excluding letters of credit, outstanding under the Concentra revolving facility. At September 30 2017, Concentra had $43.4$374.2 million of availability under its revolving facility after giving effect to ~~$6.6~~$55.8 million of outstanding letters of credit.

Stock Repurchase Program. Holdings’ ~~board~~Board of ~~directors~~Directors has authorized a common stock repurchase program to repurchase up to ~~$500.0 million~~$1.0 billion worth of shares of its common stock. ~~The~~On November 2, 2023, the Board of Directors extended the common stock repurchase program ~~has been extended until~~from December 31, ~~2018, and~~2023, to December 31, 2025. The common stock repurchase program will remain in effect until then, unless further extended or earlier terminated by the ~~board~~Board of ~~directors.~~Directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Holdings deems appropriate. Holdings funds this program with cash on hand and borrowings under ~~the Select~~its revolving facility. Holdings did not repurchase shares under the program during the ~~three~~nine months ended September 30, ~~2017.~~2023. Since the inception of the program through September 30, ~~2017,~~2023, Holdings has repurchased ~~35,924,128~~48,234,823 shares at a cost of approximately ~~$314.7~~$600.3 million, or ~~$8.76~~$12.45 per share, which includes transaction costs.

~~Liquidity.~~ The Inflation Reduction Act of 2022, which enacted a 1% excise tax on stock repurchases that exceed $1.0 million, became effective January 1, 2023.

Use of Capital Resources. We may from time to time pursue opportunities to develop new joint venture relationships with large, regional health systems and other healthcare providers. We also intend to open new outpatient rehabilitation clinics and occupational health centers in local areas that we currently serve where we can benefit from existing referral relationships and brand awareness to produce incremental growth. In addition to our development activities, we may grow through opportunistic acquisitions.

Liquidity

We believe our internally generated cash flows and borrowing capacity under ~~the Select and Concentra credit facilities~~our revolving facility will ~~be sufficient~~allow us to finance our operations ~~over~~in both the ~~next twelve months.~~ short and long term. As of September 30, 2023, we had cash and cash equivalents of $77.4 million and $374.2 million of availability under the revolving facility after giving effect to $340.0 million of outstanding borrowings and $55.8 million of outstanding letters of credit.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, tender offers or otherwise. Such repurchases or exchanges, if any, may be funded from operating cash flows or other sources and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

~~Use~~

Dividend

On February 16, 2023, May 3, 2023, and August 2, 2023, our Board of ~~Capital Resources.~~ ~~We may from time to time pursue opportunities to develop new joint venture relationships with significant health systems~~Directors declared a cash dividend of $0.125 per share. On March 15, 2023, May 31, 2023, and ~~other healthcare providers,~~September 1, 2023, cash dividends totaling $15.9 million, $15.9 million, and from time to time we may also develop new inpatient rehabilitation hospitals and occupational medicine centers. We also intend to open new outpatient rehabilitation clinics in local areas that we currently serve where we can benefit from existing referral relationships and brand awareness to produce incremental growth. In addition to$16.0 million were paid.

On November 2, 2023, our ~~development activities, we may grow through opportunistic acquisitions such as the pending acquisition~~Board of ~~U.S. HealthWorks.~~

~~Recent Accounting Pronouncements~~

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805),~~ ~~Clarifying the Definition~~Directors declared a cash dividend of ~~a Business~~, which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. ASU 2017-01 states that if substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the transaction should be accounted for as an asset acquisition. In addition, the ASU clarifies the requirements for a set of activities to be considered a business and narrows the definition of an output.$0.125 per share. The ~~definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. ASU 2017-01~~dividend will be ~~applied prospectively and is effective for annual periods beginning after December 15, 2017. Early adoption is permitted.~~

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~Income~~ ~~Taxes (Topic 740), Intra-Entity Transfers~~payable on or about November 28, 2023, to stockholders of ~~Assets Other Than Inventory.~~ Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. The ASU requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The standard will be effective for fiscal years beginning after December 15, 2017. The Company plans to adopt the guidance effective January 1, 2018. Adoption of the guidance will be applied on a modified retrospective approach through a cumulative effect adjustment to retained earningsrecord as of the ~~effective date.~~close of business on November 15, 2023.

Table of Contents

There is no assurance that future dividends will be declared. The ~~Company~~declaration and payment of dividends in the future are at the discretion of our Board of Directors after taking into account various factors, including, but not limited to, our financial condition, operating results, available cash and current and anticipated cash needs, the terms of our indebtedness, and other factors our Board of Directors may deem to be relevant.

Effects of Inflation

The healthcare industry is ~~currently evaluating~~labor intensive and our largest expenses are labor related costs. Wage and other expenses increase during periods of inflation and when labor shortages occur in the ~~standard~~marketplace. We have recently experienced higher labor costs related to ~~determine~~an inflationary environment and competitive labor market. In addition, suppliers have passed along rising costs to us in the ~~impact it will have on its~~form of higher prices. We cannot predict our ability to pass along cost increases to our customers.

Recent Accounting Pronouncements

Refer to Note 2 – Accounting Policies of the notes to our condensed consolidated financial ~~statements.~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~~~. This ASU includes a lessee~~statements included herein for information regarding recent accounting model that recognizes two types of leases; finance and operating. This ASU requires that a lessee recognize on the balance sheet assets and liabilities for all leases with lease terms of more than twelve months. Lessees will need to recognize almost all leases on the balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained the dual model, requiring leases to be classified as either operating or finance. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee will depend on its classification as a finance or operating lease. For short-term leases of twelve months or less, lessees are permitted to make an accounting election by class of underlying asset not to recognize right-of-use assets or lease liabilities. If the alternative is elected, lease expense would be recognized generally on the straight-line basis over the respective lease term.

The amendments in ASU 2016-02 will take effect for public companies for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted as of the beginning of an interim or annual reporting period. A modified retrospective approach is required for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements.

Upon adoption, the Company will recognize significant assets and liabilities on the consolidated balance sheets as a result of the operating lease obligations of the Company. Operating lease expense will still be recognized as rent expense on a straight-line basis over the respective lease terms in the consolidated statements of operations.

The Company will implement the new standard beginning January 1, 2019. The Company’s implementation efforts are focused on designing accounting processes, disclosure processes, and internal controls in order to account for its leases under the new standard.

~~In May 2014, March 2016, April 2016, and December 2016, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers~~~~, ASU 2016-08,~~ ~~Revenue from Contracts with Customers, Principal versus Agent Considerations~~~~, ASU 2016-10,~~ ~~Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing~~~~, ASU 2016-12,~~ ~~Revenue from Contracts with Customers, Narrow Scope Improvements and Practical Expedients~~~~, and ASU 2016-20,~~ ~~Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customer~~ (collectively “the standards”), respectively, which supersede most of the current revenue recognition requirements. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. New disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers are also required. The standards require the selection of a retrospective or cumulative effect transition method.

~~The Company’s remaining implementation efforts are focused principally on refining the accounting processes, disclosure processes, and internal controls.~~

~~Recently Adopted Accounting Pronouncements~~

~~In November 2015, the FASB issued ASU No. 2015-17,~~ ~~Balance Sheet Classification of Deferred Taxes~~, which changed the presentation of deferred income taxes. The standard changed the presentation of deferred income taxes through the requirement that all deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The Company adopted the standard on January 1, 2017. The consolidated balance sheet at December 31, 2016 has been retrospectively adjusted. Adoption of the new standard impacted the Company’s previously reported results as follows:

pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to interest rate risk in connection with our variable rate long-term indebtedness. Our principal interest rate exposure relates to the loans outstanding under ~~the Select~~our credit facilities, ~~and Concentra credit facilities.~~

~~As of~~which bear interest rates that are indexed against SOFR.

At September 30, ~~2017,~~2023, Select had outstanding borrowings under its credit facilities consisting of a ~~$1,144.3~~$2,097.7 million term loan ~~outstanding~~ (excluding unamortized original issue discounts and debt issuance costs of ~~$26.0~~$16.5 million) and ~~$320.0~~$340.0 million inof borrowings under its revolving ~~borrowings~~facility.

In order to mitigate our exposure to rising interest rates, we entered into an interest rate cap transaction to limit our variable interest rate to 1.0% on $2.0 billion of principal outstanding under ~~the Select credit facilities, which bear~~our term loan. The agreement applies to interest ~~at variable rates.~~

payments through September 30, 2024. As of September 30, ~~2017, Concentra had $619.2~~2023, the Term SOFR rate was 5.33%. As of September 30, 2023, $97.7 million of ~~first lien~~our term ~~loans outstanding (excluding unamortized discounts and debt issuance costs~~loan borrowings are subject to variable interest rates.

As of ~~$13.7 million) under the Concentra credit facilities, which bear interest at variable rates. Concentra did not have any outstanding revolving borrowings at~~ September 30, ~~2017.~~

~~At September 30, 2017, the 3-month LIBOR rate was 1.33%. Consequently,~~2023, each 0.25% increase in market interest rates will impact the annual interest expense on ~~Select’s and Concentra’s~~our variable rate debt by ~~$5.2 million per annum.~~

$1.1 million.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered in this report. Based on this evaluation, as of September 30, 2023, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures, including the accumulation and communication of disclosure to our principal executive officer and principal financial officer as appropriate to allow timely decisions regarding disclosure, are effective ~~as of September 30, 2017~~ to provide reasonable assurance that material information required to be included in our periodic SEC reports is recorded, processed, summarized, and reported within the time periods specified in the relevant SEC rules and forms.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) identified in connection with the evaluation required by Rule 13a-15(d) of the Securities Exchange Act of 1934 that occurred during the third quarter ended September 30, ~~2017~~2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.

Table of Contents

PART IIII: OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

The Company is a party to various legal actions, proceedings, and claims (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of its business. The Company cannot predict the ultimate outcome of pending litigation, proceedings, and regulatory and other governmental audits and investigations. These matters could potentially subject the Company to sanctions, damages, recoupments, fines, and other penalties. The Department of Justice, CMS, or other federal and state enforcement and regulatory agencies may conduct additional investigations related

Refer to the ~~Company’s businesses in the future that may, either individually or in the aggregate, have a material adverse effect on the Company’s business, financial position, results of operations,~~“Litigation” section contained within Note 13 – Commitments and ~~liquidity.~~

~~To address claims arising out~~Contingencies of the ~~Company’s operations, the Company maintains professional malpractice liability insurance and general liability insurance, subject~~notes to self-insured retention of $2.0 million per medical incident for professional liability claims and $2.0 million per occurrence for general liability claims. The Company also maintains umbrella liability insurance covering claims which, due to their nature or amount, are not covered by or not fully covered by the Company’s other insurance policies. These insurance policies also do not generally cover punitive damages and are subject to various deductibles and policy limits. Significant legal actions, as well as the cost and possible lack of available insurance, could subject the Company to substantial uninsured liabilities. In the Company’s opinion, the outcome of these actions, individually or in the aggregate, will notour condensed consolidated financial statements included herein.

ITEM 1A.RISK FACTORS

There have abeen no material ~~adverse effect on its financial position, results of operations or cash flows.~~

~~Evansville Litigation~~

On October 19, 2015, the plaintiff-relators filed a Second Amended Complaint in United States of America, ex rel. Tracy Conroy, Pamela Schenk and Lisa Wilson v. Select Medical Corporation, Select Specialty Hospital—Evansville, LLC (“SSH-Evansville”), Select Employment Services, Inc., and Dr. Richard Sloan. The case is a civil action filed in the United States District Court for the Southern District of Indiana by private plaintiff-relators on behalf of the United States under the federal False Claims Act. The plaintiff-relators are the former CEO and two former case managers at SSH-Evansville, and the defendants currently include the Company, SSH-Evansville, a subsidiary of the Company serving as common paymaster for its employees, and a physician who practices at SSH-Evansville. The plaintiff-relators allege that SSH-Evansville discharged patients too early or held patients too long, improperly discharged patients to and readmitted them from short stay hospitals, up-coded diagnoses at admission, and admitted patients for whom long-term acute care was not medically necessary. They also allege that the defendants engaged in retaliation in violation of federal and state law. The Second Amended Complaint replaced a prior complaint that was filed under seal on September 28, 2012 and served on the Company on February 15, 2013, after a federal magistrate judge unsealed it on January 8, 2013. All deadlines in the case had been stayed after the seal was lifted in order to allow the government time to complete its investigation and to decide whether or not to intervene. On June 19, 2015, the United States Department of Justice notified the District Court of its decision not to intervene in the case.

the District Court ruled that the plaintiff-relators did not plead certain of their claims relating to interrupted stay manipulation and premature discharging of patients with the requisite particularity, and dismissed those claims. The District Court declined to dismiss the plaintiff relators’ claims arising from conduct from and after March 23, 2010 relating to delayed discharging of patients and up-coding and the plaintiff relators’ retaliation claims. The plaintiff-relators then proposed a case management plan seeking nationwide discovery involving all of the Company’s LTCHs for the period from March 23, 2010 through the present, which the defendants have opposed. The Company intends to vigorously defend this action, but at this time the Company is unable to predict the timing and outcome of this matter.

~~Knoxville Litigation~~

On July 13, 2015, the United States District Court for the Eastern District of Tennessee unsealed a qui tam Complaint in Armes v. Garman, et al, No. 3:14-cv-00172-TAV-CCS, which named as defendants Select, Select Specialty Hospital—Knoxville, Inc. (“SSH-Knoxville”), Select Specialty Hospital—North Knoxville, Inc. and ten current or former employees of these facilities. The Complaint was unsealed after the United States and the State of Tennessee notified the court on July 13, 2015 that each had decided not to intervene in the case. The Complaint is a civil action that was filed under seal on April 29, 2014 by a respiratory therapist formerly employed at SSH-Knoxville. The Complaint alleges violations of the federal False Claims Act and the Tennessee Medicaid False Claims Act based on extending patient stays to increase reimbursement and to increase average length of stay; artificially prolonging the lives of patients to increase Medicare reimbursements and decrease inspections; admitting patients who do not require medically necessary care; performing unnecessary procedures and services; and delaying performance of procedures to increase billing. The Complaint was served on some of the defendants during October 2015.

~~Wilmington Litigation~~

~~The Company intends to vigorously defend these actions, but at this time the Company is unable to predict the timing and outcome of this matter.~~

~~Contract Therapy Subpoena~~

On May 18, 2017, the Company received a subpoena from the U.S. Attorney’s Office for the District of New Jersey seeking various documents principally relating to the Company’s contract therapy division, which contracted to furnish rehabilitation therapy services to residents of skilled nursing facilities (“SNFs”) and other providers. The Company operated its contract therapy division through a subsidiary until March 31, 2016, when the Company sold the stock of the subsidiary. The subpoena seeks documents that appear to be aimed at assessing whether therapy services were furnished and billed in compliance with Medicare SNF billing requirements, including whether therapy services were coded at inappropriate levels and whether excessive or unnecessary therapy was furnished to justify coding at higher paying levels. The Company does not know whether the subpoena has been issued in connection with a qui tam lawsuit or in connection with possible civil, criminal or administrative proceedings by the government. The Company is producing documents in response to the subpoena and intends to fully cooperate with this investigation. At this time, the Company is unable to predict the timing and outcome of this matter.

~~Northern District of Alabama Investigation~~

On October 30, 2017, the Company was contacted by the U.S. Attorney’s Office for the Northern District of Alabama to request cooperation in connection with an investigation that may involve Medicare billing compliance at certain of the Company’s Physiotherapy outpatient rehabilitation clinics. The Company intends to cooperate with this investigation. At this time, the Company is unable to predict the timing and outcome of this matter.

~~ITEM 1A.~~~~RISK FACTORS~~

~~The information set forth in this report should be read in conjunction with the~~our risk factors set forth ~~below and the risk factors discussed~~ in ~~Item 1A of~~ our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

The closing of the acquisition of U.S. HealthWorks by Concentra is subject to the satisfaction of certain conditions, and we cannot predict whether the necessary conditions will be satisfied or waived.

~~The closing of the acquisition of U.S. HealthWorks by Concentra is subject to regulatory approvals and customary conditions, including, without limitation:~~

· ~~the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;~~

· ~~the accuracy of the representations and warranties in the Purchase Agreement and compliance with the respective covenants of the parties, subject to certain qualifiers;~~

· ~~the absence of any law or injunction that prohibits the consummation of the acquisition;~~

· ~~the absence of certain governmental actions; and~~

· ~~the absence of a material adverse effect on U.S. HealthWorks or Concentra.~~

The acquisition of U.S. HealthWorks may not close in the anticipated time frame, if at all. The Company has no control over certain conditions in the Purchase Agreement, and cannot predict whether such conditions will be satisfied or waived.

~~The acquisition of U.S. HealthWorks by Concentra and future acquisitions may use significant resources, may be unsuccessful and could expose us to unforeseen liabilities.~~

As part of our growth strategy, we may pursue acquisitions of specialty hospitals, outpatient rehabilitation clinics and other related healthcare facilities and services. These acquisitions, including the acquisition of U.S. HealthWorks by Concentra, may involve significant cash expenditures, debt incurrence, additional operating losses and expenses and compliance risks that could have a material adverse effect on our financial condition and results of operations.

We may not be able to successfully integrate U.S. HealthWorks or other acquired businesses into ours, and therefore we may not be able to realize the intended benefits from an acquisition. If we fail to successfully integrate U.S. HealthWorks or other acquisitions, our financial condition and results of operations may be materially adversely affected. The acquisition of U.S. HealthWorks by Concentra and other acquisitions could result in difficulties integrating acquired operations, technologies and personnel into our business. Such difficulties may divert significant financial, operational and managerial resources from our existing operations and make it more difficult to achieve our operating and strategic objectives. We may fail to retain employees or patients acquired through the acquisition of U.S. HealthWorks by Concentra or other acquisitions, which may negatively impact the integration efforts. The acquisition of U.S. HealthWorks by Concentra or other acquisitions could also have a negative impact on our results of operations if it is subsequently determined that goodwill or other acquired intangible assets are impaired, thus resulting in an impairment charge in a future period.

In addition, the acquisition of U.S. HealthWorks by Concentra and other acquisitions involve risks that the acquired businesses will not perform in accordance with expectations; that we may become liable for unforeseen financial or business liabilities of the acquired businesses, including liabilities for failure to comply with healthcare regulations; that the expected synergies associated with acquisitions will not be achieved; and that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove incorrect, which could have an material adverse effect on our financial condition and results of operations.

~~Our substantial indebtedness may limit the amount of cash flow available to invest in the ongoing needs of our business.~~

We have a substantial amount of indebtedness. As of September 30, 2017, Select had approximately $2,177.3 million of total indebtedness, and Concentra had approximately $613.0 million of total indebtedness, which is nonrecourse to Select. As of September 30, 2017, our total indebtedness was $2,790.3 million. In connection with the closing of the acquisition of U.S. HealthWorks, Concentra’s indebtedness is expected to substantially increase with the addition of a proposed $555.0 million senior secured incremental term facility under its existing credit facility and a proposed $240.0 million second lien term facility. Our indebtedness could have important consequences to you. For example, it:

· requires us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, reducing the availability of our cash flow to fund working capital, capital expenditures, development activity, acquisitions, and other general corporate purposes;

· ~~increases our vulnerability to adverse general economic or industry conditions;~~

· ~~limits our flexibility in planning for, or reacting to, changes in our business or the industries in which we operate;~~

· ~~makes us more vulnerable to increases in interest rates, as borrowings under our senior secured credit facilities are at variable rates;~~

· ~~limits our ability to obtain additional financing in the future for working capital or other purposes; and~~

· ~~places us at a competitive disadvantage compared to our competitors that have less indebtedness.~~

Any of these consequences could have a material adverse effect on our business, financial condition, results of operations, prospects, and ability to satisfy our obligations under our indebtedness. In addition, there would be a material adverse effect on our business, financial condition, results of operations and cash flows if we were unable to service our indebtedness or obtain additional financing, as needed.

~~See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”~~

2022.

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Purchases of Equity Securities by the Issuer

Holdings’ ~~board~~Board of ~~directors has~~Directors authorized a common stock repurchase program to repurchase up to ~~$500.0 million~~$1.0 billion worth of shares of its common stock. ~~The~~On November 2, 2023, the Board of Directors extended the common stock repurchase program ~~has been extended until~~from December 31, ~~2018 and~~2023, to December 31, 2025. The common stock repurchase program will remain in effect until then, unless further extended or earlier terminated by the ~~board~~Board of ~~directors.~~Directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Holdings deems appropriate. ~~Holdings did not repurchase shares during the three months ended September 30, 2017 under the authorized common stock repurchase program.~~

The following table provides information regarding repurchases of our common stock during the three months ended September 30, ~~2017.~~2023.


	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under Plans or Programs
July 1 - July 31, 2023(1)	244,452	$	30.03	—	$	399,677,961
August 1 - August 31, 2023(1)	73,650	29.92		—	399,677,961
September 1 - September 30, 2023	—	—		—	399,677,961
Total	318,102	$	—	—	$	399,677,961

(1) The shares ~~repurchased during the three months ended September 30, 2017 relate entirely to shares of~~purchased represent common stock surrendered to us to satisfy tax withholding obligations associated with the vesting of restricted shares issued to employees, pursuant to the provisions of our equity incentive plans.

Total Number of
Shares Purchased

Average Price
Paid Per Share

Total Number
of Shares
Purchased as
Part of Publically
Announced
Plans or Programs

Approximate
Dollar Value of
Shares that
May Yet Be
Purchased
Under Plans or
Programs

July 1 - July 31, 2017

—

$
—

—

$
185,249,408

August 1 - August 31, 2017

175,113

17.15

—

185,249,408

September 1 - September 30, 2017

—

—

—

185,249,408

Total

175,113

$
17.15

—

$
185,249,408

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

Not ~~applicable~~

applicable.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.OTHER INFORMATION

Rule 10b5-1 Trading Plans

During the three months ended September 30, 2023, none of our directors or executive officers adopted or terminated any contract, instruction, or written plan for the purchase or sale of our securities to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any non-Rule 10b5-1 trading arrangement.

Compensation Committee Chairman

On August 2, 2023, following the resignation of Bryan C. Cressey, the Company’s Board of Directors designated Daniel J. Thomas as chairman of the Compensation Committee.

Table of Contents

~~None.~~

ITEM 6.EXHIBITS

~~Number~~	~~Description~~
Number		Description
~~31.1~~ 10.1		Amendment No. 8, dated as of July 31, 2023, to the Credit Agreement, dated as of March 6, 2017, by and among Select Medical Holdings Corporation, Select Medical Corporation, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and the other lenders and issuing banks party thereto, as amended by Amendment No. 1, dated as of March 22, 2018, Amendment No. 2, dated as of October 26, 2018, Amendment No. 3, dated as of August 1, 2019, Amendment No. 4, dated as of December 10, 2019, Amendment No. 5, dated as of June 2, 2021, Amendment No. 6, dated as of February 21, 2023, and Amendment No. 7, dated as of May 31, 2023. (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (file No. 001-34465) filed on July 31, 2023).
10.2		Amendment No. 9, dated as of August 31, 2023, to the Credit Agreement, dated as of March 6, 2017, by and among Select Medical Holdings Corporation, Select Medical Corporation, JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent, and the other lenders and issuing banks party thereto, as amended by Amendment No. 1, dated as of March 22, 2018, Amendment No. 2, dated as of October 26, 2018, Amendment No. 3, dated as of August 1, 2019, Amendment No. 4, dated as of December 10, 2019, Amendment No. 5, dated as of June 2, 2021, Amendment No. 6, dated as of February 21, 2023, Amendment No. 7, dated as of May 31, 2023, and Amendment No. 8, dated as of July 31, 2023 (incorporated by reference to Exhibit 10.2 of the Current Report on Form 8-K (File No. 001-34465) filed on August 31, 2023).
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
~~31.2~~	Certification of Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
~~32.1~~	Certification of Chief Executive Officer, and Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
~~101~~ 101.SCH		~~The following financial information from~~Inline XBRL Taxonomy Extension Schema Document.
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover Page Interactive Data File - the ~~Registrant’s Quarterly Report on Form 10-Q for~~cover page interactive data file does not appear in the ~~quarter ended September 30, 2017 formatted in~~Interactive Data File because its XBRL ~~(eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for~~tags are embedded within the three and nine months ended September 30, 2016 and 2017, (ii) Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016, (iii) Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2016 and 2017, (iv) Condensed Consolidated Statements of Changes in Equity and Income for the nine months ended September 30, 2017 and (v) Notes to Condensed Consolidated Financial Statements. Inline XBRL document.

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the ~~Registrants have~~Registrant has duly caused this Report to be signed on ~~their~~its behalf by the undersigned, thereunto duly authorized.


			SELECT MEDICAL HOLDINGS CORPORATION


			By:			/s/ ~~Martin~~Michael F. ~~Jackson~~ Malatesta
						~~Martin~~Michael F. ~~Jackson~~ Malatesta
						Executive Vice President and Chief Financial Officer
						(Duly Authorized Officer)

			By:			/s/ ~~Scott A. Romberger~~ Christopher S. Weigl
						~~Scott A. Romberger~~ Christopher S. Weigl
						Senior Vice President, Controller & Chief Accounting Officer ~~and Controller~~
						(Principal Accounting Officer)

Dated: November 2, ~~2017~~

	~~SELECT MEDICAL HOLDINGS CORPORATION~~


	~~By:~~	~~/s/ Martin F. Jackson~~
		~~Martin F. Jackson~~
		~~Executive Vice President and Chief Financial Officer~~
		~~(Duly Authorized Officer)~~

	~~By:~~	~~/s/ Scott A. Romberger~~
		~~Scott A. Romberger~~
		~~Senior Vice President, Chief Accounting Officer and Controller~~
		~~(Principal Accounting Officer)~~

~~Dated: November 2, 2017~~

2023

	Select Medical Holdings Corporation				Select Medical Corporation
	December 31,		September 30,		December 31,			September 30,
	2016		2017		2016			2017

ASSETS
Current Assets:
Cash and cash equivalents	$	99,029	$	107,300	$	99,029		$	107,300
Accounts receivable, net of allowance for doubtful accounts of $63,787 and $70,574 at 2016 and 2017, respectively	573,752		716,426		573,752			716,426
Prepaid income taxes	12,423		—		12,423			—
Other current assets	77,699		80,324		77,699			80,324
Total Current Assets	762,903		904,050		762,903			904,050

Property and equipment, net	892,217		946,063		892,217			946,063
Goodwill	2,751,000		2,767,896		2,751,000			2,767,896
Identifiable intangible assets, net	340,562		331,036		340,562			331,036
Other assets	173,944		174,762		173,944			174,762

Total Assets	$	4,920,626	$	5,123,807	$	4,920,626		$	5,123,807

LIABILITIES AND EQUITY
Current Liabilities:
Overdrafts	$	39,362	$	18,923	$	39,362		$	18,923
Current portion of long-term debt and notes payable	13,656		37,560		13,656			37,560
Accounts payable	126,558		133,321		126,558			133,321
Accrued payroll	146,397		139,402		146,397			139,402
Accrued vacation	83,261		89,171		83,261			89,171
Accrued interest	22,325		30,998		22,325			30,998
Accrued other	140,076		143,443		140,076			143,443
Income taxes payable	—		6,718		—			6,718
Total Current Liabilities	571,635		599,536		571,635			599,536

Long-term debt, net of current portion	2,685,333		2,752,742		2,685,333			2,752,742
Non-current deferred tax liability	199,078		191,441		199,078			191,441
Other non-current liabilities	136,520		138,118		136,520			138,118

Total Liabilities	3,592,566		3,681,837		3,592,566			3,681,837

Commitments and contingencies (Note 8)

Redeemable non-controlling interests	422,159		621,515		422,159			621,515

Stockholders’ Equity:
Common stock of Holdings, $0.001 par value, 700,000,000 shares authorized, 132,596,758 and 133,884,963 shares issued and outstanding at 2016 and 2017, respectively	132		133		—			—
Common stock of Select, $0.01 par value, 100 shares issued and outstanding	—		—		0			0
Capital in excess of par	443,908		459,004		925,111			942,142
Retained earnings (accumulated deficit)	371,685		262,505		(109,386		)	(220,500		)
Total Select Medical Holdings Corporation and Select Medical Corporation Stockholders’ Equity	815,725		721,642		815,725			721,642
Non-controlling interests	90,176		98,813		90,176			98,813
Total Equity	905,901		820,455		905,901			820,455

Total Liabilities and Equity	$	4,920,626	$	5,123,807	$	4,920,626		$	5,123,807


	December 31, 2022		September 30, 2023
ASSETS
Current Assets:
Cash and cash equivalents	$	97,906	$	77,440
Accounts receivable	941,312		944,219
Prepaid income taxes	31,868		22,716
Current portion of interest rate cap contract	74,857		85,896
Other current assets	125,370		145,816
Total Current Assets	1,271,313		1,276,087
Operating lease right-of-use assets	1,169,740		1,180,907
Property and equipment, net	1,001,440		1,006,842
Goodwill	3,484,200		3,504,654
Identifiable intangible assets, net	351,662		336,639
Interest rate cap contract, net of current portion	45,200		—
Other assets	341,738		378,879
Total Assets	$	7,665,293	$	7,684,008
LIABILITIES AND EQUITY
Current Liabilities:
Overdrafts	$	31,961	$	29,994
Current operating lease liabilities	236,784		242,594
Current portion of long-term debt and notes payable	44,351		35,085
Accounts payable	186,729		183,086
Accrued payroll	209,789		210,088
Accrued vacation	150,695		154,655
Accrued interest	29,837		12,044
Accrued other	264,525		297,931



Income taxes payable	480		579
Total Current Liabilities	1,155,151		1,166,056
Non-current operating lease liabilities	1,008,394		1,019,185
Long-term debt, net of current portion	3,835,211		3,695,244
Non-current deferred tax liability	169,793		146,919
Other non-current liabilities	106,137		106,216
Total Liabilities	6,274,686		6,133,620
Commitments and contingencies (Note 13)
Redeemable non-controlling interests	34,043		26,999
Stockholders’ Equity:
Common stock, $0.001 par value, 700,000,000 shares authorized, 127,173,871 and 128,287,211 shares issued and outstanding at 2022 and 2023, respectively	127		128
Capital in excess of par	452,183		482,290
Retained earnings	581,010		722,665
Accumulated other comprehensive income	88,602		62,727
Total Stockholders’ Equity	1,121,922		1,267,810
Non-controlling interests	234,642		255,579
Total Equity	1,356,564		1,523,389
Total Liabilities and Equity	$	7,665,293	$	7,684,008

	Select Medical Holdings Corporation						Select Medical Corporation
	For the Three Months Ended September 30,						For the Three Months Ended September 30,
	2016			2017			2016			2017

Net operating revenues	$	1,053,795		$	1,097,166		$	1,053,795		$	1,097,166

Costs and expenses:
Cost of services	915,703			938,910			915,703			938,910
General and administrative	27,088			27,065			27,088			27,065
Bad debt expense	17,677			20,321			17,677			20,321
Depreciation and amortization	37,165			38,772			37,165			38,772
Total costs and expenses	997,633			1,025,068			997,633			1,025,068

Income from operations	56,162			72,098			56,162			72,098

Other income and expense:
Loss on early retirement of debt	(10,853		)	—			(10,853		)	—
Equity in earnings of unconsolidated subsidiaries	5,268			4,431			5,268			4,431
Non-operating loss	(1,028		)	—			(1,028		)	—
Interest expense	(44,482		)	(37,688		)	(44,482		)	(37,688		)

Income before income taxes	5,067			38,841			5,067			38,841

Income tax expense	1,075			14,017			1,075			14,017
Net income	3,992			24,824			3,992			24,824

Less: Net income (loss) attributable to non-controlling interests	(2,479		)	6,362			(2,479		)	6,362

Net income attributable to Select Medical Holdings Corporation and Select Medical Corporation	$	6,471		$	18,462		$	6,471		$	18,462

Income per common share:
Basic	$	0.05		$	0.14
Diluted	$	0.05		$	0.14

Weighted average shares outstanding:
Basic	127,848			129,142
Diluted	127,989			129,322


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2023		2022		2023
Revenue	$	1,567,794	$	1,665,694	$	4,752,082	$	5,005,202
Costs and expenses:
Cost of services, exclusive of depreciation and amortization	1,393,817		1,442,509		4,191,377		4,284,931
General and administrative	39,491		41,316		114,272		126,103
Depreciation and amortization	51,459		52,394		153,579		154,758
Total costs and expenses	1,484,767		1,536,219		4,459,228		4,565,792
Other operating income	8,440		485		23,565		1,211
Income from operations	91,467		129,960		316,419		440,621
Other income and expense:
Loss on early retirement of debt	—		(14,692)		—		(14,692)
Equity in earnings of unconsolidated subsidiaries	8,084		11,561		19,648		30,618


Interest expense	(45,204)		(50,271)		(121,770)		(147,839)
Income before income taxes	54,347		76,558		214,297		308,708
Income tax expense	16,221		15,742		53,983		70,775
Net income	38,126		60,816		160,314		237,933
Less: Net income attributable to non-controlling interests	10,960		12,636		28,824		40,711
Net income attributable to Select Medical Holdings Corporation	$	27,166	$	48,180	$	131,490	$	197,222
Earnings per common share (Note 12):
Basic and diluted	$	0.21	$	0.38	$	1.01	$	1.55

	Select Medical Holdings Corporation						Select Medical Corporation
	For the Nine Months Ended September 30,						For the Nine Months Ended September 30,
	2016			2017			2016			2017

Net operating revenues	$	3,239,756		$	3,329,202		$	3,239,756		$	3,329,202

Costs and expenses:
Cost of services	2,754,950			2,787,497			2,754,950			2,787,497
General and administrative	81,226			83,415			81,226			83,415
Bad debt expense	51,591			59,120			51,591			59,120
Depreciation and amortization	107,887			119,644			107,887			119,644
Total costs and expenses	2,995,654			3,049,676			2,995,654			3,049,676

Income from operations	244,102			279,526			244,102			279,526

Other income and expense:
Loss on early retirement of debt	(11,626		)	(19,719		)	(11,626		)	(19,719		)
Equity in earnings of unconsolidated subsidiaries	14,466			15,618			14,466			15,618
Non-operating gain (loss)	37,094			(49		)	37,094			(49		)
Interest expense	(127,662		)	(116,196		)	(127,662		)	(116,196		)

Income before income taxes	156,374			159,180			156,374			159,180

Income tax expense	51,585			59,593			51,585			59,593
Net income	104,789			99,587			104,789			99,587

Less: Net income attributable to non-controlling interests	9,550			23,200			9,550			23,200

Net income attributable to Select Medical Holdings Corporation and Select Medical Corporation	$	95,239		$	76,387		$	95,239		$	76,387

Income per common share:
Basic	$	0.72		$	0.57
Diluted	$	0.72		$	0.57

Weighted average shares outstanding:
Basic	127,659			128,745
Diluted	127,804			128,916

				Select Medical Holdings Corporation Stockholders
	Redeemable Non-controlling interests			Common Stock Issued		Common Stock Par Value		Capital in Excess of Par			Retained Earnings			Total Stockholders’ Equity			Non-controlling Interests			Total Equity
Balance at December 31, 2016	$	422,159		132,597		$	132	$	443,908		$	371,685		$	815,725		$	90,176		$	905,901
Net income attributable to Select Medical Holdings Corporation											76,387			76,387						76,387
Net income attributable to non-controlling interests	18,519													—			4,681			4,681
Issuance and vesting of restricted stock				1,323		1		13,445						13,446						13,446
Repurchase of common shares				(220	)	0		(1,934		)	(1,669		)	(3,603		)				(3,603		)
Exercise of stock options				185		0		1,634						1,634						1,634
Issuance of non-controlling interests								1,951						1,951			8,944			10,895
Purchase of non-controlling interests	(127		)								7			7						7
Distributions to non-controlling interests	(4,003		)											—			(5,153		)	(5,153		)
Redemption adjustment on non-controlling interests	184,294										(184,294		)	(184,294		)				(184,294		)
Other	673										389			389			165			554
Balance at September 30, 2017	$	621,515		133,885		$	133	$	459,004		$	262,505		$	721,642		$	98,813		$	820,455

	December 31, 2016
	As Reported		As Adjusted
	(in thousands)
Current deferred tax asset	$	45,165	$	—
Total current assets	808,068		762,903
Other assets	152,548		173,944
Total assets	4,944,395		4,920,626

Non-current deferred tax liability	222,847		199,078
Total liabilities	3,616,335		3,592,566
Total liabilities and equity	4,944,395		4,920,626

Cash and cash equivalents	$	12,340
Identifiable tangible assets, excluding cash and cash equivalents	87,832
Identifiable intangible assets	32,484
Goodwill	343,187
Total assets	475,843
Total liabilities	54,685
Acquired non-controlling interests	2,514
Net assets acquired	418,644
Less: Cash and cash equivalents acquired	(12,340		)
Net cash paid	$	406,304

	Nine Months Ended September 30, 2016
	(in thousands, except per share amounts)
Net revenue	$	3,293,286
Net income attributable to Holdings	93,418
Income per common share:
Basic	$	0.71
Diluted	$	0.71

	Specialty Hospitals			Outpatient Rehabilitation		Concentra		Total
	(in thousands)
Balance as of December 31, 2016	$	1,447,406		$	643,557	$	660,037	$	2,751,000
Acquired	797			1,768		14,505		17,070
Measurement period adjustment	(342		)	168		—		(174		)
Balance as of September 30, 2017	$	1,447,861		$	645,493	$	674,542	$	2,767,896

	December 31, 2016							September 30, 2017
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(in thousands)
Indefinite-lived assets:
Trademarks	$	166,698	$	—		$	166,698	$	166,698	$	—		$	166,698
Certificates of need	17,026		—			17,026		19,166		—			19,166
Accreditations	2,235		—			2,235		1,965		—			1,965
Finite-lived assets:
Customer relationships	142,198		(23,185		)	119,013		143,953		(34,482		)	109,471
Favorable leasehold interests	13,089		(2,317		)	10,772		13,295		(3,745		)	9,550
Non-compete agreements	26,655		(1,837		)	24,818		27,555		(3,369		)	24,186
Total identifiable intangible assets	$	367,901	$	(27,339	)	$	340,562	$	372,632	$	(41,596	)	$	331,036

Finite-lived liabilities:
Unfavorable leasehold interests	$	5,139	$	(1,410	)	$	3,729	$	5,343	$	(2,529	)	$	2,814

	Principal Outstanding		Unamortized Premium (Discount)			Unamortized Issuance Costs			Carrying Value		Fair Value
Select:
6.375% senior notes	$	710,000	$	835		$	(7,032	)	$	703,803	$	731,300
Credit facilities:
Revolving facility	320,000		—			—			320,000		294,400
Term loan	1,144,250		(12,962		)	(13,019		)	1,118,269		1,158,553
Other	35,184		—			—			35,184		35,184
Total Select debt	2,209,434		(12,127		)	(20,051		)	2,177,256		2,219,437

Concentra:
Credit facilities:
Term loan	619,175		(2,385		)	(11,268		)	605,522		620,917
Other	7,524		—			—			7,524		7,524
Total Concentra debt	626,699		(2,385		)	(11,268		)	613,046		628,441

Total debt	$	2,836,133	$	(14,512	)	$	(31,319	)	$	2,790,302	$	2,847,878

	2017		2018		2019		2020		2021		Thereafter		Total
Select:
6.375% senior notes	$	—	$	—	$	—	$	—	$	710,000	$	—	$	710,000
Credit facilities:
Revolving facility	—		—		—		—		—		320,000		320,000
Term loan	2,875		11,500		11,500		11,500		11,500		1,095,375		1,144,250
Other	17,828		5,437		11,827		68		14		10		35,184
Total Select debt	20,703		16,937		23,327		11,568		721,514		1,415,385		2,209,434

Concentra:
Credit facilities:
Term loan	—		—		—		3,016		6,520		609,639		619,175
Other	657		2,843		144		161		160		3,559			7,524
Total Concentra debt	657		2,843		144		3,177		6,680		613,198		626,699

Total debt	$	21,360	$	19,780	$	23,471	$	14,745	$	728,194	$	2,028,583	$	2,836,133

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2017			2016			2017
	(in thousands)
Net operating revenues:
Specialty hospitals	$	544,491		$	585,288		$	1,729,261		$	1,785,035
Outpatient rehabilitation(1)	250,710			250,527			745,720			764,450
Concentra	258,507			261,295			764,252			779,030
Other	87			56			523			687
Total Company	$	1,053,795		$	1,097,166		$	3,239,756		$	3,329,202

Adjusted EBITDA:
Specialty hospitals	$	48,264		$	69,454		$	217,759		$	256,291
Outpatient rehabilitation(1)	31,995			29,298			99,006			102,575
Concentra	40,888			40,003			118,080			125,656
Other	(23,070		)	(22,928		)	(66,696		)	(71,125		)
Total Company	$	98,077		$	115,827		$	368,149		$	413,397

Total assets:(2)
Specialty hospitals	$	2,469,060		$	2,748,761		$	2,469,060		$	2,748,761
Outpatient rehabilitation	955,359			945,765			955,359			945,765
Concentra	1,318,866			1,332,012			1,318,866			1,332,012
Other	73,992			97,269			73,992			97,269
Total Company	$	4,817,277		$	5,123,807		$	4,817,277		$	5,123,807

Purchases of property and equipment, net:
Specialty hospitals	$	24,378		$	37,376		$	79,366		$	106,424
Outpatient rehabilitation(1)	6,234			6,496			15,032			19,370
Concentra	2,720			5,369			10,647			21,656
Other	4,670			19,257			13,215			26,350
Total Company	$	38,002		$	68,498		$	118,260		$	173,800

	Three Months Ended September 30, 2016
	Specialty Hospitals			Outpatient Rehabilitation(1)			Concentra			Other			Total
	(in thousands)
Adjusted EBITDA	$	48,264		$	31,995		$	40,888		$	(23,070	)
Depreciation and amortization	(14,317		)	(6,159		)	(15,278		)	(1,411		)
Stock compensation expense	—			—			(193		)	(4,557		)
Income (loss) from operations	$	33,947		$	25,836		$	25,417		$	(29,038	)	$	56,162
Loss on early retirement of debt													(10,853		)
Equity in earnings of unconsolidated subsidiaries													5,268
Non-operating loss													(1,028		)
Interest expense													(44,482		)
Income before income taxes													$	5,067

	Three Months Ended September 30, 2017
	Specialty Hospitals			Outpatient Rehabilitation			Concentra			Other			Total
	(in thousands)
Adjusted EBITDA	$	69,454		$	29,298		$	40,003		$	(22,928	)
Depreciation and amortization	(15,437		)	(5,964		)	(15,014		)	(2,357		)
Stock compensation expense	—			—			(212		)	(4,745		)
Income (loss) from operations	$	54,017		$	23,334		$	24,777		$	(30,030	)	$	72,098
Equity in earnings of unconsolidated subsidiaries													4,431
Interest expense													(37,688		)
Income before income taxes													$	38,841

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2017		2016		2017
	(in thousands, except per share amounts)
Numerator:
Net income attributable to Select Medical Holdings Corporation	$	6,471	$	18,462	$	95,239	$	76,387
Less: Earnings allocated to unvested restricted stockholders	209		608		2,852		2,464
Net income available to common stockholders	$	6,262	$	17,854	$	92,387	$	73,923

Denominator:
Weighted average shares—basic	127,848		129,142		127,659		128,745
Effect of dilutive securities:
Stock options	141		180		145		171
Weighted average shares—diluted	127,989		129,322		127,804		128,916

Basic income per common share:	$	0.05	$	0.14	$	0.72	$	0.57
Diluted income per common share:	$	0.05	$	0.14	$	0.72	$	0.57

	Select (Parent Company Only)			Subsidiary Guarantors		Non-Guarantor Subsidiaries			Non-Guarantor Concentra		Consolidating and Eliminating Adjustments			Consolidated Select Medical Corporation
	(in thousands)
Assets
Current Assets:
Cash and cash equivalents	$	73		$	6,359	$	4,548		$	96,320	$	—		$	107,300
Accounts receivable, net	—			468,370		120,463			127,593		—			716,426
Intercompany receivables	—			1,488,527		36,784			—		(1,525,311		)(a)	—
Prepaid income taxes	2,882			—		—			—		(2,882		)(f)	—
Other current assets	10,937			30,142		16,814			22,431		—			80,324
Total Current Assets	13,892			1,993,398		178,609			246,344		(1,528,193		)	904,050

Property and equipment, net	50,736			646,672		75,315			173,340		—			946,063
Investment in affiliates	4,421,777			116,370		—			—		(4,538,147		)(b)(c)	—
Goodwill	—			2,093,354		—			674,542		—			2,767,896
Identifiable intangible assets, net	—			104,570		4,824			221,642		—			331,036
Other assets	42,852			101,285		36,285			16,144		(21,804		)(e)	174,762

Total Assets	$	4,529,257		$	5,055,649	$	295,033		$	1,332,012	$	(6,088,144	)	$	5,123,807

Liabilities and Equity
Current Liabilities:
Overdrafts	$	18,923		$	—	$	—		$	—	$	—		$	18,923
Current portion of long-term debt and notes payable	30,838			773		2,483			3,466		—			37,560
Accounts payable	13,066			82,662		24,196			13,397		—			133,321
Intercompany payables	1,488,527			36,784		—			—		(1,525,311		)(a)	—
Accrued payroll	11,186			86,257		3,931			38,028		—			139,402
Accrued vacation	3,848			55,949		12,040			17,334		—			89,171
Accrued interest	28,763			7		—			2,228		—			30,998
Accrued other	40,075			59,088		12,183			32,097		—			143,443
Income taxes payable	—			—		—			9,600		(2,882		)(f)	6,718
Total Current Liabilities	1,635,226			321,520		54,833			116,150		(1,528,193		)	599,536

Long-term debt, net of current portion	2,133,355			243		9,564			609,580		—			2,752,742
Non-current deferred tax liability	—			131,902		767			80,576		(21,804		)(e)	191,441
Other non-current liabilities	39,034			55,572		8,039			35,473		—			138,118

Total Liabilities	3,807,615			509,237		73,203			841,779		(1,549,997		)	3,681,837

Redeemable non-controlling interests	—			—		—			14,641		606,874		(d)	621,515

Stockholder’s Equity:
Common stock	0			—		—			—		—			0
Capital in excess of par	942,142			—		—			—		—			942,142
Retained earnings (accumulated deficit)	(220,500		)	1,328,453		(40,068		)	34,338		(1,322,723		)(c)(d)	(220,500		)
Subsidiary investment	—			3,217,959		261,898			437,568		(3,917,425		)(b)(d)	—
Total Select Medical Corporation Stockholder’s Equity	721,642			4,546,412		221,830			471,906		(5,240,148		)	721,642

Non-controlling interests	—			—		—			3,686		95,127		(d)	98,813
Total Equity	721,642			4,546,412		221,830			475,592		(5,145,021		)	820,455

Total Liabilities and Equity	$	4,529,257		$	5,055,649	$	295,033		$	1,332,012	$	(6,088,144	)	$	5,123,807

	Select (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Non-Guarantor Concentra			Consolidating and Eliminating Adjustments			Consolidated Select Medical Corporation
	(in thousands)

Net operating revenues	$	687		$	2,038,955		$	510,530		$	779,030		$	—		$	3,329,202

Costs and expenses:
Cost of services	1,843			1,713,091			434,130			638,433			—			2,787,497
General and administrative	83,291			124			—			—			—			83,415
Bad debt expense	—			32,456			10,941			15,723			—			59,120
Depreciation and amortization	5,503			57,471			10,104			46,566			—			119,644
Total costs and expenses	90,637			1,803,142			455,175			700,722			—			3,049,676

Income (loss) from operations	(89,950		)	235,813			55,355			78,308			—			279,526

Other income and expense:
Intercompany interest and royalty fees	24,760			(13,586		)	(11,174		)	—			—			—
Intercompany management fees	176,443			(147,117		)	(29,326		)	—			—			—
Loss on early retirement of debt	(19,719		)	—			—			—			—			(19,719		)
Equity in earnings of unconsolidated subsidiaries	—			15,555			63			—			—			15,618
Non-operating loss	—			(49		)	—			—			—			(49		)
Interest income (expense)	(93,725		)	269			(104		)	(22,636		)	—			(116,196		)

Income (loss) before income taxes	(2,191		)	90,885			14,814			55,672			—			159,180

Income tax expense (benefit)	(3,230		)	41,620			943			20,260			—			59,593
Equity in earnings of consolidated subsidiaries	75,348			10,174			—			—			(85,522		)(a)	—

Net income	76,387			59,439			13,871			35,412			(85,522		)	99,587

Less: Net income attributable to non-controlling interests	—			—			3,627			19,573			—			23,200

Net income attributable to Select Medical Corporation	$	76,387		$	59,439		$	10,244		$	15,839		$	(85,522	)	$	76,387

	2015			2016			2017
	Occupancy Percentage		Case Mix Index(1)	Occupancy Percentage		Case Mix Index(1)	Occupancy Percentage		Case Mix Index(1)
Three months ended:
March 31	71	%	1.22	71	%	1.24	68	%	1.28
June 30	70	%	1.21	67	%	1.27	66	%	1.28
September 30	70	%	1.18	61	%	1.26	65	%	1.27
December 31	70	%	1.21	63	%	1.26

	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publically Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under Plans or Programs
July 1 - July 31, 2017	—	$	—	—	$	185,249,408
August 1 - August 31, 2017	175,113	17.15		—	185,249,408
September 1 - September 30, 2017	—	—		—	185,249,408
Total	175,113	$	17.15	—	$	185,249,408