UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the Quarterly Period Ended March 31, ~~2022~~2023


☐			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

SELECT MEDICAL HOLDINGS CORPORATION

(Exact name of Registrant as specified in its Charter)


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

(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 Registrant (1) 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 Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant 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 filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging Growth Company	☐

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. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, ~~2022,~~2023, Select Medical Holdings Corporation had outstanding ~~130,627,340~~127,126,909 shares of common stock.

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 Group Holdings Parent, LLC (“Concentra Group Holdings Parent”) and its subsidiaries, including Concentra Inc. References to the “Company,” “we,” “us,” and “our” refer collectively to Holdings, Select, and 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

	Notes to condensed consolidated financial statements	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3835

ITEM 4.	CONTROLS AND PROCEDURES	3835

PART II	OTHER INFORMATION	3936

ITEM 1.	LEGAL PROCEEDINGS	3936

ITEM 1A.	RISK FACTORS	3936

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3936

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	3936

ITEM 4.	MINE SAFETY DISCLOSURES	3936

ITEM 5.	OTHER INFORMATION	3936

ITEM 6.	EXHIBITS	4037

SIGNATURES

Table of Contents

PART I: 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)


		December 31, 2021		March 31, 2022			December 31, 2022		March 31, 2023
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	74,310	$	130,881	Cash and cash equivalents	$	97,906	$	83,703
Accounts receivable	Accounts receivable	889,303		941,434		Accounts receivable	941,312		997,274
Prepaid income taxes	Prepaid income taxes	55,620		40,761		Prepaid income taxes	31,868		16,893
Current portion of interest rate cap contract						Current portion of interest rate cap contract	74,857		72,127
Other current assets	Other current assets	120,206		137,775		Other current assets	125,370		143,736
Total Current Assets	Total Current Assets	1,139,439		1,250,851		Total Current Assets	1,271,313		1,313,733
Operating lease right-of-use assets	Operating lease right-of-use assets	1,078,754		1,102,710		Operating lease right-of-use assets	1,169,740		1,186,534
Property and equipment, net	Property and equipment, net	961,467		952,926		Property and equipment, net	1,001,440		987,283
Goodwill	Goodwill	3,448,912		3,465,456		Goodwill	3,484,200		3,484,594
Identifiable intangible assets, net	Identifiable intangible assets, net	374,879		368,850		Identifiable intangible assets, net	351,662		346,606
Interest rate cap contract, net of current portion						Interest rate cap contract, net of current portion	45,200		26,994
Other assets	Other assets	356,720		395,151		Other assets	341,738		353,992
Total Assets	Total Assets	$	7,360,171	$	7,535,944	Total Assets	$	7,665,293	$	7,699,736
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Overdrafts	Overdrafts	$	42,353	$	34,745	Overdrafts	$	31,961	$	31,237
Current operating lease liabilities	Current operating lease liabilities	229,334		234,420		Current operating lease liabilities	236,784		239,713
Current portion of long-term debt and notes payable	Current portion of long-term debt and notes payable	17,572		24,513		Current portion of long-term debt and notes payable	44,351		113,894
Accounts payable	Accounts payable	233,844		238,150		Accounts payable	186,729		174,101
Accrued payroll	Accrued payroll	247,292		242,749		Accrued payroll	209,789		171,815
Accrued vacation	Accrued vacation	144,048		148,114		Accrued vacation	150,695		156,433
Accrued interest	Accrued interest	29,002		9,932		Accrued interest	29,837		10,241
Accrued other	Accrued other	244,312		232,297		Accrued other	264,525		274,654
Government advances		83,790		20,862
Unearned government assistance		93		194

Income taxes payable	Income taxes payable	1,437		3,175		Income taxes payable	480		13,618
Total Current Liabilities	Total Current Liabilities	1,273,077		1,189,151		Total Current Liabilities	1,155,151		1,185,706
Non-current operating lease liabilities	Non-current operating lease liabilities	916,540		938,423		Non-current operating lease liabilities	1,008,394		1,024,676
Long-term debt, net of current portion	Long-term debt, net of current portion	3,556,385		3,738,299		Long-term debt, net of current portion	3,835,211		3,766,838
Non-current deferred tax liability	Non-current deferred tax liability	142,792		156,407		Non-current deferred tax liability	169,793		163,024
Other non-current liabilities	Other non-current liabilities	106,442		105,098		Other non-current liabilities	106,137		106,652
Total Liabilities	Total Liabilities	5,995,236		6,127,378		Total Liabilities	6,274,686		6,246,896
Commitments and contingencies (Note 14)		0		0
Commitments and contingencies (Note 13)						Commitments and contingencies (Note 13)
Redeemable non-controlling interests	Redeemable non-controlling interests	39,033		41,670		Redeemable non-controlling interests	34,043		34,399
Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Common stock, $0.001 par value, 700,000,000 shares authorized, 133,884,817 and 131,769,303 shares issued and outstanding at 2021 and 2022, respectively		134		132
Common stock, $0.001 par value, 700,000,000 shares authorized, 127,173,871 and 127,176,279 shares issued and outstanding at 2022 and 2023, respectively						Common stock, $0.001 par value, 700,000,000 shares authorized, 127,173,871 and 127,176,279 shares issued and outstanding at 2022 and 2023, respectively	127		127
Capital in excess of par	Capital in excess of par	504,314		489,794		Capital in excess of par	452,183		462,185
Retained earnings	Retained earnings	593,251		596,079		Retained earnings	581,010		635,483
Accumulated other comprehensive income	Accumulated other comprehensive income	12,282		52,135		Accumulated other comprehensive income	88,602		72,654
Total Stockholders’ Equity	Total Stockholders’ Equity	1,109,981		1,138,140		Total Stockholders’ Equity	1,121,922		1,170,449
Non-controlling interests	Non-controlling interests	215,921		228,756		Non-controlling interests	234,642		247,992
Total Equity	Total Equity	1,325,902		1,366,896		Total Equity	1,356,564		1,418,441
Total Liabilities and Equity	Total Liabilities and Equity	$	7,360,171	$	7,535,944	Total Liabilities and Equity	$	7,665,293	$	7,699,736

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)


		For the Three Months Ended March 31,						For the Three Months Ended March 31,
			2021		2022				2022		2023
Revenue	Revenue		$	1,546,463	$	1,599,547	Revenue		$	1,599,547	$	1,664,980
Costs and expenses:	Costs and expenses:						Costs and expenses:
Cost of services, exclusive of depreciation and amortization	Cost of services, exclusive of depreciation and amortization		1,293,449		1,407,010		Cost of services, exclusive of depreciation and amortization		1,407,010		1,418,819
General and administrative	General and administrative		35,403		37,513		General and administrative		37,513		42,279
Depreciation and amortization	Depreciation and amortization		49,620		51,039		Depreciation and amortization		51,039		52,425
Total costs and expenses	Total costs and expenses		1,378,472		1,495,562		Total costs and expenses		1,495,562		1,513,523
Other operating income			34,021		—

Income from operations	Income from operations		202,012		103,985		Income from operations		103,985		151,457
Other income and expense:	Other income and expense:						Other income and expense:

Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries		9,919		5,397		Equity in earnings of unconsolidated subsidiaries		5,397		8,556

Interest income			4,749		—

Interest expense	Interest expense		(34,402)		(35,514)		Interest expense		(35,514)		(48,571)
Income before income taxes	Income before income taxes		182,278		73,868		Income before income taxes		73,868		111,442
Income tax expense	Income tax expense		45,064		17,942		Income tax expense		17,942		26,185
Net income	Net income		137,214		55,926		Net income		55,926		85,257
Less: Net income attributable to non-controlling interests	Less: Net income attributable to non-controlling interests		26,668		6,809		Less: Net income attributable to non-controlling interests		6,809		14,452
Net income attributable to Select Medical Holdings Corporation	Net income attributable to Select Medical Holdings Corporation		$	110,546	$	49,117	Net income attributable to Select Medical Holdings Corporation		$	49,117	$	70,805
Earnings per common share (Note 13):
Earnings per common share (Note 12):							Earnings per common share (Note 12):
Basic and diluted	Basic and diluted		$	0.82	$	0.37	Basic and diluted		$	0.37	$	0.56

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

Table of Contents

Select Medical Holdings Corporation

Condensed Consolidated Statements of Comprehensive Income

(unaudited)

(in thousands)


		For the Three Months Ended March 31,						For the Three Months Ended March 31,
			2021		2022				2022		2023
Net income	Net income		$	137,214	$	55,926	Net income		$	55,926	$	85,257
Other comprehensive income, net of tax:
Gain on interest rate cap cash flow hedge			8,151		39,814
Other comprehensive income (loss), net of tax:							Other comprehensive income (loss), net of tax:
Gain (loss) on interest rate cap contract							Gain (loss) on interest rate cap contract		39,814		(2,696)
Reclassification adjustment for losses (gains) included in net income	Reclassification adjustment for losses (gains) included in net income		—		39		Reclassification adjustment for losses (gains) included in net income		39		(13,252)
Net change, net of tax benefit (expense) of $(2,834) and $(13,284)			8,151		39,853
Net change, net of tax benefit (expense) of $(13,284) and $5,175							Net change, net of tax benefit (expense) of $(13,284) and $5,175		39,853		(15,948)

Comprehensive income	Comprehensive income		145,365		95,779		Comprehensive income		95,779		69,309
Less: Comprehensive income attributable to non-controlling interests	Less: Comprehensive income attributable to non-controlling interests		26,668		6,809		Less: Comprehensive income attributable to non-controlling interests		6,809		14,452
Comprehensive income attributable to Select Medical Holdings Corporation	Comprehensive income attributable to Select Medical Holdings Corporation		$	118,697	$	88,970	Comprehensive income attributable to Select Medical Holdings Corporation		$	88,970	$	54,857

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)


		For the Three Months Ended March 31, 2022																For the Three Months Ended March 31, 2023

			Total Stockholders’ Equity																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			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
Balance at December 31, 2022																	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	Net income attributable to Select Medical Holdings Corporation						49,117				49,117				49,117		Net income attributable to Select Medical Holdings Corporation						70,805				70,805				70,805
Net income attributable to non-controlling interests	Net income attributable to non-controlling interests										—		4,891		4,891		Net income attributable to non-controlling interests										—		12,811		12,811
Cash dividends declared for common stockholders ($0.125 per share)	Cash dividends declared for common stockholders ($0.125 per share)						(16,691)				(16,691)				(16,691)		Cash dividends declared for common stockholders ($0.125 per share)						(15,897)				(15,897)				(15,897)
Issuance of restricted stock	Issuance of restricted stock	13	0		0						—				—		Issuance of restricted stock	3	0		0						—				—

Vesting of restricted stock	Vesting of restricted stock				8,288						8,288				8,288		Vesting of restricted stock				10,003						10,003				10,003
Repurchase of common shares		(2,128)	(2)		(23,459)		(28,215)				(51,676)				(51,676)

Issuance of non-controlling interests	Issuance of non-controlling interests				651						651		4,578		5,229		Issuance of non-controlling interests										—		2,731		2,731
Non-controlling interests acquired in business combination, measurement period adjustment											—		12,463		12,463
Non-controlling interests acquired in business combination																	Non-controlling interests acquired in business combination										—		3,877		3,877
Distributions to and purchases of non-controlling interests	Distributions to and purchases of non-controlling interests										—		(9,097)		(9,097)		Distributions to and purchases of non-controlling interests										—		(6,069)		(6,069)
Redemption value adjustment on non-controlling interests	Redemption value adjustment on non-controlling interests						(1,381)				(1,381)				(1,381)		Redemption value adjustment on non-controlling interests						(436)				(436)				(436)
Other comprehensive income	Other comprehensive income								39,853		39,853				39,853		Other comprehensive income								(15,948)		(15,948)				(15,948)
Other	Other				0		(2)				(2)		0		(2)		Other				(1)		1				—				—

Balance at March 31, 2022		131,769	$	132	$	489,794	$	596,079	$	52,135	$	1,138,140	$	228,756	$	1,366,896
Balance at March 31, 2023																	Balance at March 31, 2023	127,176	$	127	$	462,185	$	635,483	$	72,654	$	1,170,449	$	247,992	$	1,418,441


		For the Three Months Ended March 31, 2021																For the Three Months Ended March 31, 2022

			Total Stockholders’ Equity																Total Stockholders’ Equity
		Common Stock Issued	Common Stock Par Value		Capital in Excess of Par		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity		Non-controlling Interests		Total 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, 2020		134,850	$	135	$	509,128	$	553,244	$	(2,027)	$	1,060,480	$	192,493	$	1,252,973
Balance at December 31, 2021																	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	Net income attributable to Select Medical Holdings Corporation						110,546				110,546				110,546		Net income attributable to Select Medical Holdings Corporation						49,117				49,117				49,117
Net income attributable to non-controlling interests	Net income attributable to non-controlling interests										—		17,042		17,042		Net income attributable to non-controlling interests										—		4,891		4,891
Cash dividends declared for common stockholders ($0.125 per share)																	Cash dividends declared for common stockholders ($0.125 per share)						(16,691)				(16,691)				(16,691)
Issuance of restricted stock	Issuance of restricted stock	2	0		0						—				—		Issuance of restricted stock	13	0		0						—				—
Forfeitures of unvested restricted stock		(14)	0		0						—				—

Vesting of restricted stock	Vesting of restricted stock				6,173						6,173				6,173		Vesting of restricted stock				8,288						8,288				8,288

Non-controlling interests acquired in business combination											—		8,193		8,193
Repurchase of common shares																	Repurchase of common shares	(2,128)	(2)		(23,459)		(28,215)				(51,676)				(51,676)
Issuance of non-controlling interests																	Issuance of non-controlling interests				651						651		4,578		5,229
Non-controlling interests acquired in business combination, measurement period adjustment																	Non-controlling interests acquired in business combination, measurement period adjustment										—		12,463		12,463
Distributions to and purchases of non-controlling interests	Distributions to and purchases of non-controlling interests				(787)						(787)		(13,458)		(14,245)		Distributions to and purchases of non-controlling interests										—		(9,097)		(9,097)
Redemption value adjustment on non-controlling interests	Redemption value adjustment on non-controlling interests						(38,405)				(38,405)				(38,405)		Redemption value adjustment on non-controlling interests						(1,381)				(1,381)				(1,381)
Other comprehensive income	Other comprehensive income								8,151		8,151				8,151		Other comprehensive income								39,853		39,853				39,853
Other	Other				(178)		(4)				(182)		371		189		Other						(2)				(2)				(2)
Balance at March 31, 2021		134,838	$	135	$	514,336	$	625,381	$	6,124	$	1,145,976	$	204,641	$	1,350,617
Balance at March 31, 2022																	Balance at March 31, 2022	131,769	$	132	$	489,794	$	596,079	$	52,135	$	1,138,140	$	228,756	$	1,366,896

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 Three Months Ended March 31,					For the Three Months Ended March 31,
		2021		2022			2022		2023
Operating activities	Operating activities					Operating activities
Net income	Net income	$	137,214	$	55,926	Net income	$	55,926	$	85,257
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Distributions from unconsolidated subsidiaries	Distributions from unconsolidated subsidiaries	11,633		7,486		Distributions from unconsolidated subsidiaries	7,486		2,566
Depreciation and amortization	Depreciation and amortization	49,620		51,039		Depreciation and amortization	51,039		52,425
Provision for expected credit losses	Provision for expected credit losses	67		94		Provision for expected credit losses	94		429
Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries	(9,919)		(5,397)		Equity in earnings of unconsolidated subsidiaries	(5,397)		(8,556)

Loss (gain) on sale or disposal of assets		72		(23)
Gain on sale or disposal of assets						Gain on sale or disposal of assets	(23)		(7)
Stock compensation expense	Stock compensation expense	6,709		8,823		Stock compensation expense	8,823		10,181
Amortization of debt discount, premium and issuance costs	Amortization of debt discount, premium and issuance costs	543		558		Amortization of debt discount, premium and issuance costs	558		565
Deferred income taxes	Deferred income taxes	(897)		420		Deferred income taxes	420		(2,601)
Changes in operating assets and liabilities, net of effects of business combinations:	Changes in operating assets and liabilities, net of effects of business combinations:					Changes in operating assets and liabilities, net of effects of business combinations:
Accounts receivable	Accounts receivable	(60,142)		(52,225)		Accounts receivable	(52,225)		(55,397)
Other current assets	Other current assets	(4,425)		(1,819)		Other current assets	(1,819)		(11,742)
Other assets	Other assets	961		2,686		Other assets	2,686		3,659
Accounts payable	Accounts payable	23,460		16,074		Accounts payable	16,074		(4,564)
Accrued expenses	Accrued expenses	21,167		(31,076)		Accrued expenses	(14,377)		(20,775)
Government advances	Government advances	—		(62,928)		Government advances	(62,928)		—
Unearned government assistance		19,207		101

Income taxes		44,618		16,598

Net cash provided by operating activities	Net cash provided by operating activities	239,888		6,337		Net cash provided by operating activities	6,337		51,440
Investing activities	Investing activities					Investing activities
Business combinations, net of cash acquired	Business combinations, net of cash acquired	(6,314)		(5,186)		Business combinations, net of cash acquired	(5,186)		(397)
Purchases of property and equipment		(39,719)		(46,845)
Purchases of property, equipment, and other assets						Purchases of property, equipment, and other assets	(46,845)		(58,885)
Investment in businesses	Investment in businesses	(6,571)		(3,337)		Investment in businesses	(3,337)		(9,800)
Proceeds from sale of assets	Proceeds from sale of assets	19		37		Proceeds from sale of assets	37		20
Net cash used in investing activities	Net cash used in investing activities	(52,585)		(55,331)		Net cash used in investing activities	(55,331)		(69,062)
Financing activities	Financing activities					Financing activities
Borrowings on revolving facilities	Borrowings on revolving facilities	—		280,000		Borrowings on revolving facilities	280,000		225,000
Payments on revolving facilities	Payments on revolving facilities	—		(100,000)		Payments on revolving facilities	(100,000)		(210,000)

Borrowings of other debt	Borrowings of other debt	8,915		15,794		Borrowings of other debt	15,794		21,448
Principal payments on other debt	Principal payments on other debt	(9,342)		(9,188)		Principal payments on other debt	(9,188)		(11,170)
Dividends paid to common stockholders	Dividends paid to common stockholders	—		(16,691)		Dividends paid to common stockholders	(16,691)		(15,897)
Repurchase of common stock	Repurchase of common stock	—		(51,676)		Repurchase of common stock	(51,676)		—

Decrease in overdrafts	Decrease in overdrafts	—		(7,608)		Decrease in overdrafts	(7,608)		(724)
Proceeds from issuance of non-controlling interests	Proceeds from issuance of non-controlling interests	—		5,229		Proceeds from issuance of non-controlling interests	5,229		2,731
Distributions to and purchases of non-controlling interests	Distributions to and purchases of non-controlling interests	(13,663)		(10,295)		Distributions to and purchases of non-controlling interests	(10,295)		(7,969)

Net cash provided by (used in) financing activities		(14,090)		105,565
Net increase in cash and cash equivalents		173,213		56,571
Net cash provided by financing activities						Net cash provided by financing activities	105,565		3,419
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	56,571		(14,203)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	577,061		74,310		Cash and cash equivalents at beginning of period	74,310		97,906
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	750,274	$	130,881	Cash and cash equivalents at end of period	$	130,881	$	83,703
Supplemental Information
Cash paid for interest		$	52,470	$	53,517
Supplemental information						Supplemental information
Cash paid for interest, excluding amounts received of $17,828 under the interest rate cap contract for the three months ended March 31, 2023						Cash paid for interest, excluding amounts received of $17,828 under the interest rate cap contract for the three months ended March 31, 2023	$	53,517	$	84,531
Cash paid for taxes	Cash paid for taxes	1,343		923		Cash paid for taxes	923		336

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

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SELECT MEDICAL HOLDINGS 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, Select, and Select’s subsidiaries are collectively referred to as the “Company.” The unaudited condensed consolidated financial statements of the Company as of March 31, ~~2022,~~2023, and for the three month periods ended March 31, ~~2021~~2022 and ~~2022,~~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 months ended March 31, ~~2022,~~2023, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, ~~2022.~~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, ~~2021,~~2022, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February ~~24, 2022.~~23, 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.

Recently Adopted Accounting Guidance

Reference Rate Reform

In December 2022, FASB issued ASU 2022-06, Reference Rate Reform (Topic 848), Deferral of the Sunset Date of Topic 848, which extended the relief provided under Topic 848 to contract modifications made and hedging relationships entered into on or before December 31, 2024. The FASB had previously issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting in March 2020, which provided temporary relief from some of the existing accounting rules governing contract modifications when the modification is related to the replacement of the London Interbank Offered Rate (“LIBOR”) or other reference rates discontinued as a result of reference rate reform.

For eligible contract modifications, the update generally allows an entity to account for and present modifications as an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. That is, the modified contract is accounted for as a continuation of the existing contract. For cash flow hedging relationships affected by reference rate reform, Topic 848 provides expedients that allow an entity to (i) change the reference rate of either the forecasted transaction or hedging instrument without requiring dedesignation of the hedging relationship; (ii) assert that changes to the hedged forecasted transaction will not impact whether it remains probable of occurring; and (iii) for the purposes of assessment of hedge effectiveness assume that the reference rate will not be replaced for the remainder of the hedging relationship if both the hedged forecasted transaction and hedging instrument are expected to be impacted by reference rate reform.

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In March 2021, the Financial Conduct Authority announced that the intended cessation date of the one-, three-, six-, and 12-month tenors of USD LIBOR is June 30, 2023. Borrowings under the Company’s credit agreement bear interest, at the election of Select, based on LIBOR or an alternate base rate. The Company currently elects for its term loan borrowings to bear interest at a rate that is indexed to one-month LIBOR. Provisions within the credit agreement provide the Company with the ability to agree with JPMorgan Chase Bank, N.A., as administrative agent to the lenders, to replace LIBOR with a different reference rate in the event that LIBOR ceases to exist. The Company has not yet agreed upon a different reference rate with JPMorgan Chase Bank, N.A.

For the Company’s cash flow hedge, which mitigates the Company’s exposure to increases in the one-month LIBOR rate above 1.0% on $2.0 billion of principal outstanding under the term loan, the Company has elected to assert that the hedged forecasted transaction remains probable of occurring, regardless of a modification or expected modification that may replace one-month LIBOR with a different reference rate. The Company intends to modify the cash flow hedge’s contractual terms related to the replacement of the reference rate, as necessary, to align with the reference rate specified for the Company’s term loan. For the purpose of the assessment of hedge effectiveness, the Company assumes that the reference rate will not be replaced for the remainder of the hedging relationship, as outlined by Topic 848. The Company’s cash flow hedge is described further in Note 8 – Interest Rate Cap.

These updates have not had, and the Company does not expect them to have in future periods, a material impact on the Company's consolidated financial statements.

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, liabilities, revenues, and expenses. Actual results could differ from those estimates.

3. Credit Risk Concentrations

Financial instruments that potentially subject the 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 service area of 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 ~~15%~~19% and 20% of the Company’s accounts receivable is due from Medicare at ~~both~~ December 31, ~~2021~~2022 and March 31, ~~2022.~~2023, respectively.

4. Redeemable Non-Controlling Interests

The ownership interests held by outside parties in subsidiaries, which include limited liability companies and limited partnerships, controlled by the Company are classified as non-controlling interests. Some of the Company’s non-controlling ownership interests consist of outside parties that have certain redemption rights that, if exercised, require the Company to purchase the parties’ ownership interests. These interests are classified and reported as redeemable non-controlling interests and have been adjusted to their approximate redemption values, after the attribution of net income or loss.

~~Table of Contents~~

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


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2022			2022		2023
		(in thousands)					(in thousands)
Balance as of January 1	Balance as of January 1	$	398,171	$	39,033	Balance as of January 1	$	39,033	$	34,043
Net income attributable to redeemable non-controlling interests	Net income attributable to redeemable non-controlling interests	9,626		1,918		Net income attributable to redeemable non-controlling interests	1,918		1,641

Distributions to and purchases of redeemable non-controlling interests		(614)		(1,198)
Distributions to redeemable non-controlling interests						Distributions to redeemable non-controlling interests	(1,198)		(1,900)

Redemption value adjustment on redeemable non-controlling interests	Redemption value adjustment on redeemable non-controlling interests	38,405		1,381		Redemption value adjustment on redeemable non-controlling interests	1,381		436
Other	Other	343		536		Other	536		179
Balance as of March 31	Balance as of March 31	$	445,931	$	41,670	Balance as of March 31	$	41,670	$	34,399

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5. Variable Interest Entities

Certain states prohibit the “corporate practice of medicine,” which restricts the Company from owning medical practices which directly employ physicians or therapists and from exercising control over medical decisions by ~~physicians.~~physicians and therapists. In these states, the 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 Company to direct the transfer of ownership of the medical ~~practices to new licensed physicians at any time.~~practices. Based on the provisions of the management agreements, the medical practices are variable interest entities for which the Company is the primary beneficiary.

As of December 31, ~~2021~~2022, and March 31, ~~2022,~~2023, the total assets of the Company’s variable interest entities were ~~$225.1~~$232.1 million and ~~$242.0~~$254.1 million, respectively, and are principally comprised of accounts receivable. As of December 31, ~~2021~~2022, and March 31, ~~2022,~~2023, the total liabilities of the Company’s variable interest entities were ~~$74.8~~$78.8 million and ~~$79.1~~$82.2 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 of ~~$150.3~~$158.3 million and ~~$163.4~~$178.4 million as of December 31, ~~2021~~2022, and March 31, ~~2022,~~2023, respectively. These intercompany balances are eliminated in consolidation.

6. Leases

The Company has operating and finance leases for its facilities. The Company leases its corporate office space from related parties.

The Company’s total lease cost is as follows:

Three Months Ended March 31, 2021 Three Months Ended March 31, 2022
Unrelated Parties Related Parties Total Unrelated Parties Related Parties Total
(in thousands)
Operating lease cost $ 70,114 $ 1,799 $ 71,913 $ 73,962 $ 1,809 $ 75,771
Finance lease cost:
Amortization of right-of-use assets 35 — 35 347 — 347
Interest on lease liabilities 251 — 251 340 — 340
Short-term lease cost — — — 35 — 35
Variable lease cost 13,009 3 13,012 13,655 39 13,694
Sublease income (2,234) — (2,234) (1,966) — (1,966)
Total lease cost $ 81,175 $ 1,802 $ 82,977 $ 86,373 $ 1,848 $ 88,221


	Three Months Ended March 31, 2022						Three Months Ended March 31, 2023
	Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
	(in thousands)
Operating lease cost	$	73,962	$	1,809	$	75,771	$	76,632	$	1,834	$	78,466
Finance lease cost:
Amortization of right-of-use assets	347		—		347		394		—		394
Interest on lease liabilities	340		—		340		320		—		320
Short-term lease cost	35		—		35		—		—		—
Variable lease cost	13,655		39		13,694		15,761		84		15,845
Sublease income	(1,966)		—		(1,966)		(1,678)		—		(1,678)
Total lease cost	$	86,373	$	1,848	$	88,221	$	91,429	$	1,918	$	93,347

910

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~~Supplemental cash flow information related to leases is as follows:~~

Three Months Ended March 31,
2021 2022
(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases $ 72,437 $ 77,689
Operating cash flows for finance leases 251 340
Financing cash flows for finance leases 58 344
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases $ 79,987 $ 88,636
Finance leases 138 —

~~Supplemental balance sheet information related to leases is as follows:~~

December 31, 2021 March 31, 2022
Unrelated Parties Related Parties Total Unrelated Parties Related Parties Total
(in thousands)
Operating Leases
Operating lease right-of-use assets $ 1,052,603 $ 26,151 $ 1,078,754 $ 1,077,980 $ 24,730 $ 1,102,710
Current operating lease liabilities $ 222,865 $ 6,469 $ 229,334 $ 228,598 $ 5,822 $ 234,420
Non-current operating lease liabilities 894,104 22,436 916,540 916,887 21,536 938,423
Total operating lease liabilities $ 1,116,969 $ 28,905 $ 1,145,874 $ 1,145,485 $ 27,358 $ 1,172,843

December 31, 2021 March 31, 2022
Unrelated Parties Related Parties Total Unrelated Parties Related Parties Total
(in thousands)
Finance Leases
Property and equipment, net $ 8,505 $ — $ 8,505 $ 8,158 $ — $ 8,158
Current portion of long-term debt and notes payable $ 1,404 $ — $ 1,404 $ 1,436 $ — $ 1,436
Long-term debt, net of current portion 16,679 — 16,679 16,303 — 16,303
Total finance lease liabilities $ 18,083 $ — $ 18,083 $ 17,739 $ — $ 17,739

~~The weighted average remaining lease terms~~Long-Term Debt and ~~discount rates are as follows:~~

December 31, 2021 March 31, 2022
Weighted average remaining lease term (in years):
Operating leases 7.8 7.6
Finance leases 24.7 24.8
Weighted average discount rate:
Operating leases 5.6 % 5.6 %
Finance leases 7.4 % 7.4 %

Notes Payable

~~Table of Contents~~

As of March 31, ~~2022,~~2023, the Company’s long-term debt and notes payable are as follows:


	Principal Outstanding		Unamortized Premium (Discount)		Unamortized Issuance Costs		Carrying Value		Fair Value
	(in thousands)
6.250% senior notes	$	1,225,000	$	20,065	$	(10,206)	$	1,234,859	$	1,188,250
Credit facilities:
Revolving facility	460,000		—		—		460,000		458,275
Term loan	2,103,437		(3,881)		(4,230)		2,095,326		2,095,549
Other debt, including finance leases	90,664		—		(117)		90,547		90,547
Total debt	$	3,879,101	$	16,184	$	(14,553)	$	3,880,732	$	3,832,621

Principal maturities of ~~lease liabilities~~the Company’s long-term debt and notes payable are approximately as follows:

Operating Leases Finance Leases
(in thousands)
2022 (remainder of year) $ 222,152 $ 2,040
2023 259,672 2,747
2024 219,375 2,384
2025 175,699 2,101
2026 145,837 2,126
Thereafter 495,998 28,181
Total undiscounted cash flows 1,518,733 39,579
Less: Imputed interest 345,890 21,840
Total discounted lease liabilities $ 1,172,843 $ 17,739


	2023		2024		2025		2026		2027		Thereafter		Total
	(in thousands)
6.250% senior notes	$	—	$	—	$	—	$	1,225,000	$	—	$	—	$	1,225,000
Credit facilities:
Revolving facility	—		84,923		375,077		—		—		—		460,000
Term loan	4,757		11,150		2,087,530		—		—		—		2,103,437
Other debt, including finance leases	19,928		56,356		1,408		1,308		823		10,841		90,664
Total debt	$	24,685	$	152,429	$	2,464,015	$	1,226,308	$	823	$	10,841	$	3,879,101

7.~~Intangible Assets~~

~~Goodwill~~

~~The following table shows changes in the carrying amounts~~As of ~~goodwill by reporting unit for the three months ended March 31, 2022:~~

Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Total
(in thousands)
Balance as of December 31, 2021 $ 1,131,440 $ 442,155 $ 654,125 $ 1,221,192 $ 3,448,912
Acquisition of businesses — — 409 2,884 3,293
Measurement period adjustment 13,251 — — — 13,251
Balance as of March 31, 2022 $ 1,144,691 $ 442,155 $ 654,534 $ 1,224,076 $ 3,465,456

~~Identifiable Intangible Assets~~

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

December 31, 2021 March 31, 2022
Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount
(in thousands)
Indefinite-lived intangible assets:
Trademarks $ 166,698 $ — $ 166,698 $ 166,698 $ — $ 166,698
Certificates of need 21,478 — 21,478 21,625 — 21,625
Accreditations 1,874 — 1,874 1,874 — 1,874
Finite-lived intangible assets:
Trademarks 5,000 (5,000) — 5,000 (5,000) —
Customer relationships 304,289 (141,111) 163,178 305,839 (148,283) 157,556
Non-compete agreements 36,746 (15,095) 21,651 37,087 (15,990) 21,097
Total identifiable intangible assets $ 536,085 $ (161,206) $ 374,879 $ 538,123 $ (169,273) $ 368,850

~~The Company’s accreditations and trademarks have renewal terms and the costs to renew these intangible assets are expensed as incurred. At March~~December 31, 2022, the ~~accreditations~~Company’s long-term debt and ~~trademarks have a weighted average time until next renewal~~notes payable are as 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 February 21, 2023, Select entered into Amendment No. 6 to its senior secured credit agreement (the “Select credit agreement”). Amendment No. 6 extended the maturity date on $530.0 million of ~~1.5 years and 7.5 years, respectively.~~

~~The~~the total borrowing capacity of $650.0 million under its revolving credit facility (the “Select revolving facility”) to March 6, 2025; however, in the event the Company’s ~~finite-lived intangible assets amortize over their estimated useful lives. Amortization expense was $7.1 million and $7.6 million~~term loan is not refinanced by January 3, 2025, the maturity date for ~~the three months ended March 31, 2021 and 2022, respectively.~~those revolving borrowings will be January 3, 2025.

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8.~~Long-Term Debt and Notes Payable~~

~~As of March 31, 2022, the Company’s long-term debt and notes payable were as follows:~~

Principal
Outstanding Unamortized Premium (Discount) Unamortized
Issuance Costs Carrying Value Fair Value
(in thousands)
6.250% senior notes $ 1,225,000 $ 26,131 $ (13,212) $ 1,237,919 $ 1,262,118
Credit facilities:
Revolving facility 340,000 — — 340,000 338,725
Term loan 2,103,437 (5,890) (6,421) 2,091,126 2,079,773
Other debt, including finance leases 93,961 — (194) 93,767 93,767
Total debt $ 3,762,398 $ 20,241 $ (19,827) $ 3,762,812 $ 3,774,383

~~Principal maturities of the Company’s long-term debt and notes payable were approximately as follows:~~

2022 2023 2024 2025 2026 Thereafter Total
(in thousands)
6.250% senior notes $ — $ — $ — $ — $ 1,225,000 $ — $ 1,225,000
Credit facilities:
Revolving facility — — 340,000 — — — 340,000
Term loan — 4,757 11,150 2,087,530 — — 2,103,437
Other debt, including finance leases 22,143 31,064 26,081 1,824 1,286 11,563 93,961
Total debt $ 22,143 $ 35,821 $ 377,231 $ 2,089,354 $ 1,226,286 $ 11,563 $ 3,762,398

~~As of December 31, 2021, the Company’s long-term debt and notes payable were as follows:~~

Principal
Outstanding Unamortized Premium (Discount) Unamortized
Issuance Costs Carrying Value Fair Value
(in thousands)
6.250% senior notes $ 1,225,000 $ 27,635 $ (13,951) $ 1,238,684 $ 1,297,104
Credit facilities:
Revolving facility 160,000 — — 160,000 159,400
Term loan 2,103,437 (6,386) (6,961) 2,090,090 2,087,661
Other debt, including finance leases 85,398 — (215) 85,183 85,183
Total debt $ 3,573,835 $ 21,249 $ (21,127) $ 3,573,957 $ 3,629,348

9. Interest Rate Cap

The Company is subject to market risk exposure arising from changes in interest rates on its term loan, which bears interest at a rate that is indexed to one-month LIBOR. 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 one-month LIBOR rate 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 ~~became~~is effective ~~March 31, 2021 for the monthly periods from and including April 30, 2021~~ through September 30, 2024. The Company will pay a monthly premium for the interest rate cap over the term of 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 hedge and is highly effective at offsetting the changes in cash outflows when one-month LIBOR exceeds 1.0%. Changes in the fair value of the interest rate cap, net of tax, are recognized in other comprehensive income and are reclassified out of accumulated other comprehensive income and into interest expense when the hedged interest obligations affect earnings.

~~Table of Contents~~

The following table outlines the changes in accumulated other comprehensive income (loss), net of tax, during the periods presented:


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2022			2022		2023
		(in thousands)					(in thousands)
Balance as of January 1	Balance as of January 1	$	(2,027)	$	12,282	Balance as of January 1	$	12,282	$	88,602
Gain on interest rate cap cash flow hedge		8,151		39,814
Gain (loss) on interest rate cap cash flow hedge						Gain (loss) on interest rate cap cash flow hedge	39,814		(2,696)
Amounts reclassified from accumulated other comprehensive income	Amounts reclassified from accumulated other comprehensive income	—		39		Amounts reclassified from accumulated other comprehensive income	39		(13,252)
Balance as of March 31	Balance as of March 31	$	6,124	$	52,135	Balance as of March 31	$	52,135	$	72,654

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


	Three Months Ended March 31,
Statement of Operations		2022		2023
		(in thousands)
Gains (losses) included in interest expense		$	(51)	$	17,552
Income tax benefit (expense)		12		(4,300)
Amounts reclassified from accumulated other comprehensive income		$	(39)	$	13,252

The Company expects that approximately ~~$16.9~~$71.1 million of estimated pre-tax gains will be reclassified from accumulated other comprehensive income into interest expense within the next twelve months.

Refer to Note 109 – Fair Value of Financial Instruments for information on the fair value of the Company’s interest rate cap contract and its balance sheet classification.

~~10.~~

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9. Fair Value of Financial Instruments

Financial instruments which are measured at fair value, or for which a fair value is disclosed, are classified in the fair value hierarchy, as outlined below, on the basis of the observability of the inputs used in the fair value measurement:

•Level 1 – inputs are based upon quoted prices for identical instruments in active markets.

•Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not 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 value of the 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, 2021

March 31, 2022

Financial Instrument

Balance Sheet Classification

Level

December 31, 2022

March 31, 2023

Asset:

(in thousands)

Asset:

(in thousands)

Interest rate cap contract, current portion

Other current assets

Level 2

—

15,745

Interest rate cap contract, current portion

Current portion of interest rate cap contract

Level 2

74,857

72,127

Interest rate cap contract, non-current portion

Other assets

Level 2

18,055

55,523

Interest rate cap contract, non-current portion

Interest rate cap contract, net of current portion

Level 2

45,200

26,994

Liability:

Interest rate cap contract, current portion

Accrued other

Level 2

330

—

The Company does not measure its indebtedness at fair value in its condensed consolidated balance sheets. The fair value of the credit facilities is based on quoted market prices for this debt in the syndicated loan market. The fair value of the senior notes is based on quoted market prices. The carrying value of the Company’s other debt, as disclosed in Note 87 – Long-Term Debt and Notes Payable, approximates fair value.


			December 31, 2021				March 31, 2022						December 31, 2022				March 31, 2023
Financial Instrument	Financial Instrument	Level	Carrying Value		Fair Value		Carrying Value		Fair Value		Financial Instrument	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
			(in thousands)										(in thousands)
6.250% senior notes	6.250% senior notes	Level 2	$	1,238,684	$	1,297,104	$	1,237,919	$	1,262,118	6.250% senior notes	Level 2	$	1,235,607	$	1,163,689	$	1,234,859	$	1,188,250
Credit facilities:	Credit facilities:										Credit facilities:
Revolving facility	Revolving facility	Level 2	160,000		159,400		340,000		338,725		Revolving facility	Level 2	445,000		443,331		460,000		458,275
Term loan	Term loan	Level 2	2,090,090		2,087,661		2,091,126		2,079,773		Term loan	Level 2	2,094,290		2,056,110		2,095,326		2,095,549

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.

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~~11.~~10. Segment Information

The Company’s reportable segments consist of the critical illness recovery hospital segment, rehabilitation hospital segment, outpatient rehabilitation segment, and Concentra segment. Other activities include the Company’s corporate shared services, certain investments, and employee leasing services with non-consolidating subsidiaries.

The Company evaluates the performance of 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, 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 March 31,
2021 2022
(in thousands)
Revenue:
Critical illness recovery hospital $ 594,872 $ 601,755
Rehabilitation hospital 207,804 220,634
Outpatient rehabilitation 251,961 271,940
Concentra 422,840 423,423
Other 68,986 81,795
Total Company $ 1,546,463 $ 1,599,547
Adjusted EBITDA:
Critical illness recovery hospital $ 113,272 $ 35,967
Rehabilitation hospital 50,534 42,379
Outpatient rehabilitation 26,329 26,596
Concentra 82,015 89,469
Other(1)
(13,809) (30,564)
Total Company $ 258,341 $ 163,847
Total assets:
Critical illness recovery hospital $ 2,233,067 $ 2,367,490
Rehabilitation hospital 1,188,387 1,187,118
Outpatient rehabilitation 1,321,268 1,350,374
Concentra 2,468,157 2,339,940
Other 709,902 291,022
Total Company $ 7,920,781 $ 7,535,944
Purchases of property and equipment:
Critical illness recovery hospital $ 14,385 $ 19,569
Rehabilitation hospital 665 6,274
Outpatient rehabilitation 7,335 9,414
Concentra 12,680 10,240
Other 4,654 1,348
Total Company $ 39,719 $ 46,845
~~_______________________________________________________________________________~~

(1) For the three months ended March 31, 2021, Adjusted EBITDA included other operating income of $16.1 million related to the recognition of payments received under the Provider Relief Fund for health care related expenses and loss of revenue attributable to the coronavirus disease 2019 (“COVID-19”).


	Three Months Ended March 31,
		2022		2023
		(in thousands)
Revenue:
Critical illness recovery hospital		$	601,755	$	593,926
Rehabilitation hospital		220,634		231,462
Outpatient rehabilitation		271,940		295,903
Concentra		423,423		456,298
Other		81,795		87,391
Total Company		$	1,599,547	$	1,664,980
Adjusted EBITDA:
Critical illness recovery hospital		$	35,967	$	76,773
Rehabilitation hospital		42,379		47,216
Outpatient rehabilitation		26,596		30,199
Concentra		89,469		93,748
Other		(30,564)		(33,873)
Total Company		$	163,847	$	214,063
Total assets:
Critical illness recovery hospital		$	2,367,490	$	2,507,265
Rehabilitation hospital		1,187,118		1,203,069
Outpatient rehabilitation		1,350,374		1,397,823
Concentra		2,339,940		2,300,632
Other		291,022		290,947
Total Company		$	7,535,944	$	7,699,736
Purchases of property, equipment, and other assets:
Critical illness recovery hospital		$	19,569	$	23,658
Rehabilitation hospital		6,274		8,582
Outpatient rehabilitation		9,414		9,932
Concentra		10,240		14,400
Other		1,348		2,313
Total Company		$	46,845	$	58,885

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

Three Months Ended March 31, 2021
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Adjusted EBITDA $ 113,272 $ 50,534 $ 26,329 $ 82,015 $ (13,809)
Depreciation and amortization (13,050) (7,060) (7,191) (19,898) (2,421)
Stock compensation expense — — — (536) (6,173)
Income (loss) from operations $ 100,222 $ 43,474 $ 19,138 $ 61,581 $ (22,403) $ 202,012
Equity in earnings of unconsolidated subsidiaries 9,919
Interest income 4,749
Interest expense (34,402)
Income before income taxes $ 182,278


	Three Months Ended March 31, 2022
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Adjusted EBITDA	$	35,967	$	42,379	$	26,596	$	89,469	$	(30,564)
Depreciation and amortization	(14,618)		(6,802)		(8,029)		(18,812)		(2,778)
Stock compensation expense	—		—		—		(535)		(8,288)
Income (loss) from operations	$	21,349	$	35,577	$	18,567	$	70,122	$	(41,630)	$	103,985

Equity in earnings of unconsolidated subsidiaries											5,397


Interest expense											(35,514)
Income before income taxes											$	73,868


	Three Months Ended March 31, 2023
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Adjusted EBITDA	$	76,773	$	47,216	$	30,199	$	93,748	$	(33,873)
Depreciation and amortization	(16,637)		(6,888)		(8,457)		(18,310)		(2,133)
Stock compensation expense	—		—		—		(178)		(10,003)
Income (loss) from operations	$	60,136	$	40,328	$	21,742	$	75,260	$	(46,009)	$	151,457

Equity in earnings of unconsolidated subsidiaries											8,556


Interest expense											(48,571)
Income before income taxes											$	111,442

~~12.~~

11. Revenue from Contracts with Customers

The following tables disaggregate the Company’s revenue for the three months ended March 31, ~~2021~~2022 and ~~2022:~~

Three Months Ended March 31, 2021
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Patient service revenue:
Medicare $ 232,140 $ 102,375 $ 36,291 $ 230 $ — $ 371,036
Non-Medicare 361,152 95,342 200,819 420,654 — 1,077,967
Total patient services revenues 593,292 197,717 237,110 420,884 — 1,449,003
Other revenue 1,580 10,087 14,851 1,956 68,986 97,460
Total revenue $ 594,872 $ 207,804 $ 251,961 $ 422,840 $ 68,986 $ 1,546,463
2023:


	Three Months Ended March 31, 2022
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Patient service revenue:
Medicare	$	218,987	$	103,021	$	41,904	$	177	$	—	$	364,089
Non-Medicare	380,986		107,142		214,113		422,046		—		1,124,287
Total patient services revenues	599,973		210,163		256,017		422,223		—		1,488,376
Other revenue	1,782		10,471		15,923		1,200		81,795		111,171
Total revenue	$	601,755	$	220,634	$	271,940	$	423,423	$	81,795	$	1,599,547


	Three Months Ended March 31, 2023
	Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
	(in thousands)
Patient service revenue:
Medicare	$	229,383	$	110,055	$	45,801	$	243	$	—	$	385,482
Non-Medicare	363,305		109,925		231,985		454,598		—		1,159,813
Total patient services revenues	592,688		219,980		277,786		454,841		—		1,545,295
Other revenue	1,238		11,482		18,117		1,457		87,391		119,685
Total revenue	$	593,926	$	231,462	$	295,903	$	456,298	$	87,391	$	1,664,980

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~~13.~~12. Earnings per Share

The Company’s capital structure includes common stock and unvested restricted stock awards. To compute earnings per share (“EPS”), the Company applies the two-class method because the Company’s unvested restricted stock awards are participating securities which are entitled to participate equally with the Company’s common stock in undistributed earnings. Application of the Company’s two-class method is 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 must be paid for the current period for each class of stock. There were no contractual dividends paid for the three months ended March 31, ~~2021~~2022 and ~~2022.~~2023.

(ii)The remaining undistributed net income of the Company is then equally allocated to its common stock 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 the two-class method.

The following table sets forth the net income attributable to the Company, its common shares outstanding, and its participating securities outstanding.


		Basic and Diluted EPS						Basic and Diluted EPS
		Three Months Ended March 31,						Three Months Ended March 31,
			2021		2022					2022		2023
			(in thousands)						(in thousands)
Net income	Net income		$	137,214	$	55,926	Net income			$	55,926	$	85,257
Less: net income attributable to non-controlling interests	Less: net income attributable to non-controlling interests		26,668		6,809		Less: net income attributable to non-controlling interests			6,809		14,452
Net income attributable to the Company	Net income attributable to the Company		110,546		49,117		Net income attributable to the Company			49,117		70,805
Less: Distributed and undistributed income attributable to participating securities	Less: Distributed and undistributed income attributable to participating securities		3,698		1,643		Less: Distributed and undistributed income attributable to participating securities			1,643		2,573
Distributed and undistributed income attributable to common shares	Distributed and undistributed income attributable to common shares		$	106,848	$	47,474	Distributed and undistributed income attributable to common shares			$	47,474	$	68,232

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


		Three Months Ended March 31,											Three Months Ended March 31,
		2021					2022						2022					2023
		Net Income Allocation		Shares(1)	Basic and Diluted EPS		Net Income Allocation		Shares(1)	Basic and Diluted EPS			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)											(in thousands, except for per share amounts)
Common shares	Common shares	$	106,848	130,329	$	0.82	$	47,474	129,010	$	0.37	Common shares	$	47,474	129,010	$	0.37	$	68,232	122,553	$	0.56
Participating securities	Participating securities	3,698		4,511	$	0.82	1,643		4,464	$	0.37	Participating securities	1,643		4,464	$	0.37	2,573		4,622	$	0.56
Total Company	Total Company	$	110,546				$	49,117				Total Company	$	49,117				$	70,805

_______________________________________________________________________________

(1) Represents the weighted average share count outstanding during the period.

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~~14.~~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 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 $37.0 million for professional malpractice liability insurance and $40.0 million for general liability 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 for most joint ventures. 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 additional types of liability insurance covering claims which, due to their nature or amount, are not covered by or not fully covered by the Company’s 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.

Oklahoma City Subpoena. On August 24, 2020, the Company and Select Specialty Hospital – Oklahoma City, Inc. (“SSH–Oklahoma City”) received Civil Investigative Demands (“CIDs”) from the U.S. Attorney’s Office for the Western District of Oklahoma seeking responses to interrogatories and the production of various documents principally relating to the documentation, billing and reviews of medical services furnished to patients at SSH-Oklahoma City. The Company ~~does not know whether~~understands that the ~~subpoena has been issued in connection with~~investigation 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 is fully cooperating with this investigation. At this time, the Company is unable to predict the timing and outcome of this matter.

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~~New Jersey Litigation.~~ In December 2020, the United States District Court for the District of New Jersey unsealed a qui tam complaint in the United States of America and State of New Jersey ex rel. Keith A. DiLello, Sr. v. Hackensack Meridian Health, Jersey Shore University Medical Center, Ocean Medical Center, Seaview Orthopaedics, Shrewsbury Surgery Center, Kessler Rehabilitation, Dr. Halambros Demetriades, Dr. Theodore Kutzan, Dr. Adam Myers, Dr. Hoan-Vu Nguyen, Dr. Frederick De Paola, ABC Corporations 1-10, and John/Jane Does 1-10, Case 3:20-cv-02949-FLW-ZNQ. The complaint was filed under seal in March 2020 and was unsealed after the United States and the State of New Jersey declined to intervene in the case. In the complaint, the plaintiff-relator, an automobile accident victim and former patient of the defendant providers, alleges that they routinely billed both personal injury protection (“PIP”) carriers and CMS. He alleges that they violated federal and state law by billing CMS when other insurance is available and failing to return payment to CMS after payment was made by the PIP carriers. In March 2021, defendant Kessler Rehabilitation waived service of process of the complaint. In April 2022, the Court granted defendant Kessler Rehabilitation’s motion to dismiss the complaint, dismissing all counts without prejudice. The Court also gave the plaintiff-relator leave to amend his complaint, within 30 days of the Court’s order, to cure the deficiencies outlined in the Court’s opinion. 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.

Physical Therapy ~~Billing~~Billing. . On October 7, 2021, the Company received a ~~one-page~~ letter from a Trial Attorney at the U.S. Department of Justice, Civil Division, Commercial Litigation Branch, Fraud Section (“DOJ”)~~. The letter stated~~ stating that the DOJ, in conjunction with the U.S. Department of Health and Human Services (“HHS”), is investigating the Company in connection with potential 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 offor physical therapy ~~services.~~services, and indicated that 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 outpatient 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 ~~is producing~~continues to produce data and other documents ~~and data in response to such letter~~requested by the DOJ and is fully cooperating ~~with~~on this investigation. At this time, the Company is unable to predict the timing and outcome of this matter.

~~15.~~14. Subsequent Event

On May ~~5, 2022,~~3, 2023, the Company’s ~~board~~Board of ~~directors~~Directors declared a cash dividend of $0.125 per share. The dividend will be payable on or about ~~June 1, 2022~~May 31, 2023, to stockholders of record as of the close of business on May ~~19, 2022.~~18, 2023.

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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:

•~~developments related~~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 ~~duration~~prolonged disruption to the global financial markets, increased operational costs due to recessionary pressures and ~~severity of the pandemic,~~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 and/or new payment policies may result in a reduction in revenue, an increase in costs, and a reduction in profitability;

•the failure of our Medicare-certified long term care hospitals or inpatient rehabilitation facilities to maintain their Medicare certifications may cause our revenue and profitability to decline;

•the failure of our Medicare-certified long term care hospitals and inpatient rehabilitation facilitiesoperated as “hospitals within hospitals” to qualify as hospitals separate from their host hospitals may cause our revenue and profitability to decline;

•a government investigation or assertion that we have violated applicable regulations may result in sanctions or reputational harm and increased costs;

•acquisitions or joint ventures may prove difficult or unsuccessful, use significant resources, or expose us to unforeseen liabilities;

•our plans and expectations related to our acquisitions and our ability to realize anticipated synergies;

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

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

•~~shortages in qualified nurses, therapists, physicians, or other licensed providers, or the inability to attract or retain healthcare professionals due to the heightened risk~~Table of ~~infection related to the COVID-19 pandemic, could increase our operating costs significantly or limit our ability to staff our facilities;~~Contents

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

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

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

•a security breach of our or our third-party vendors’ information technology systems may subject us to potential legal and reputational harm and may result in a violation of the Health Insurance Portability and Accountability Act of 1996 or the Health Information Technology for Economic and Clinical Health Act; and

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•other factors discussed from time to time in our filings with the SEC, including factors discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021, 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.

Overview

We began operations in 1997 and, based on number of facilities, are one of the largest operators of critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers in the United States. As of March 31, ~~2022,~~2023, we had operations in 46 states and the District of Columbia. We operated 105 critical illness recovery hospitals in 28 states, 3032 rehabilitation hospitals in 12 states, ~~and 1,901~~1,936 outpatient rehabilitation clinics in 3839 states and the District of ~~Columbia. Concentra operated 518~~Columbia, 539 occupational health centers in 41 states, ~~as of March 31, 2022. Concentra also provides contract services~~and 140 onsite clinics at employer worksites.

Our reportable segments include the critical illness recovery hospital segment, the rehabilitation hospital segment, the outpatient rehabilitation segment, and the Concentra segment. We had revenue of ~~$1,599.5~~$1,665.0 million for the three months ended March 31, ~~2022.~~2023. Of this total, we earned approximately ~~38%~~36% of our revenue from our critical illness recovery hospital segment, approximately 14% from our rehabilitation hospital segment, approximately ~~17%~~18% from our outpatient rehabilitation segment, and approximately ~~26%~~27% from our Concentra segment. Our critical illness recovery hospital segment consists of hospitals designed to serve the needs of patients recovering from critical illnesses, often with complex medical needs, and our rehabilitation hospital segment consists of hospitals designed to serve patients that require intensive physical rehabilitation care. Patients are typically admitted to our critical illness recovery hospitals and rehabilitation hospitals from general acute care hospitals. Our outpatient rehabilitation segment consists of clinics that provide physical, occupational, and speech rehabilitation services. Our Concentra segment consists of occupational health centers that provide workers’ compensation injury care, physical therapy, and consumer health services as well as onsite clinics located at employer worksites that deliver occupational medicine services.

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Non-GAAP Measure

We believe that the presentation of Adjusted EBITDA, as defined below, is important to investors because Adjusted EBITDA is commonly used as an analytical indicator of performance by investors within the healthcare industry. Adjusted EBITDA is used by management to evaluate financial performance and determine resource allocation for each of our segments. Adjusted EBITDA is not a measure of financial performance under GAAP. Items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Adjusted EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, income from operations, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because Adjusted EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying definitions, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies.

We define Adjusted EBITDA as earnings excluding interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, gain (loss) on sale of businesses, and equity in earnings (losses) of unconsolidated subsidiaries. We will refer to Adjusted EBITDA throughout the remainder of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following table reconciles net income and income from operations to Adjusted EBITDA and should be referenced when we discuss Adjusted EBITDA:

Three Months Ended March 31,
2021 2022
(in thousands)
Net income $ 137,214 $ 55,926
Income tax expense 45,064 17,942
Interest expense 34,402 35,514
Interest income (4,749) —
Equity in earnings of unconsolidated subsidiaries (9,919) (5,397)
Income from operations 202,012 103,985
Stock compensation expense:
Included in general and administrative 5,460 6,949
Included in cost of services 1,249 1,874
Depreciation and amortization 49,620 51,039
Adjusted EBITDA $ 258,341 $ 163,847

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~~Effects of the COVID-19 Pandemic on our Results of Operations~~

We have provided revenue and certain operating statistics below for each of our segments for the three months ended March 31, 2022 and 2021, as well as the comparable pre-COVID-19 pandemic period in 2019. We believe this additional data provides insight into how each segment has performed in comparison to the year prior to the widespread emergence of COVID-19 in the United States. The effects of the COVID-19 pandemic, including the duration and extent of disruption on our operations, continues to create uncertainties about our future operating results and financial condition. Please refer to the risk factors in Item 1A and the section titled “~~Effects of the COVID-19 Pandemic on our Results of Operations” in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 for further discussion.~~

Critical Illness Recovery Hospital
Revenue Patient Days Occupancy Rate
Number of Hospitals(1)
2019 2021 2022 2019 2021 2022 2019 2021 2022 2019 2021 2022
(in thousands)
Three Months Ended March 31 $ 457,534 $ 594,872 $ 601,755 258,129 293,118 289,217 71 % 75 % 71 % 96 99 105

Rehabilitation Hospital
Revenue Patient Days Occupancy Rate
Number of Hospitals(1)
2019 2021 2022 2019 2021 2022 2019 2021 2022 2019 2021 2022
(in thousands)
Three Months Ended March 31 $ 154,558 $ 207,804 $ 220,634 82,816 102,439 103,802 76 % 84 % 84 % 18 20 20

Outpatient Rehabilitation
Revenue Visits
Working Days(2)
2019 2021 2022 2019 2021 2022 2019 2021 2022
(in thousands)
Three Months Ended March 31 $ 246,905 $ 251,961 $ 271,940 2,054,483 2,100,154 2,310,086 63 63 64

Concentra
Revenue Visits
Working Days(2)
2019 2021 2022 2019 2021 2022 2019 2021 2022
(in thousands)
Three Months Ended March 31 $ 396,321 $ 422,840 $ 423,423 2,911,607 2,795,574 3,116,898 63 63 64
~~_______________________________________________________________________________~~

(1) Represents the number of hospitals included in our consolidated financial results at the end of each period presented and does not include the managed hospitals in which we have a minority ownership interest.

~~(2) Represents the number of days in which normal business operations were conducted during the periods presented.~~

~~Please refer to “Summary Financial Results” and “Results of Operations” for further discussion of our segment performance measures for the three months ended March 31, 2021 and 2022. Please refer to “Operating Statistic~~s” for further discussion regarding the uses and calculations of the metrics provided above, as well as the operating statistics data for each segment for the three months ended March 31, 2021 and 2022.


	Three Months Ended March 31,
			2022		2023
		(in thousands)
Net income			$	55,926	$	85,257
Income tax expense			17,942		26,185
Interest expense			35,514		48,571


Equity in earnings of unconsolidated subsidiaries			(5,397)		(8,556)

Income from operations			103,985		151,457
Stock compensation expense:
Included in general and administrative			6,949		8,405
Included in cost of services			1,874		1,776
Depreciation and amortization			51,039		52,425
Adjusted EBITDA			$	163,847	$	214,063

Other Significant Events

Dividend ~~Payments~~Payment

On February ~~17, 2022, the Company’s board~~16, 2023, our Board of ~~directors~~Directors declared a cash dividend of $0.125 per share. ~~The dividend,~~On March 15, 2023, cash dividends totaling ~~$16.7~~$15.9 million ~~was paid~~were paid.

Financing Transaction

On February 21, 2023, Select entered into Amendment No. 6 to the Select credit agreement. Amendment No. 6 extended the maturity date on ~~March 16, 2022 to stockholders of record as~~$530.0 million of the ~~close~~total borrowing capacity of ~~business on~~$650.0 million under the Select revolving facility to March ~~4, 2022.~~6, 2025; however, in the event the Company’s term loan is not refinanced by January 3, 2025, the maturity date for those revolving borrowings will be January 3, 2025.

2221

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Summary Financial Results

Three Months Ended March 31, ~~2022~~2023

The following tables reconcile our segment performance measures to our consolidated operating results:


		Three Months Ended March 31, 2022																		Three Months Ended March 31, 2023
		Critical Illness Recovery Hospital			Rehabilitation Hospital			Outpatient Rehabilitation			Concentra			Other		Total				Critical Illness Recovery Hospital			Rehabilitation Hospital			Outpatient Rehabilitation			Concentra			Other		Total
		(in thousands)																		(in thousands)
Revenue	Revenue	$	601,755		$	220,634		$	271,940		$	423,423		$	81,795	$	1,599,547		Revenue	$	593,926		$	231,462		$	295,903		$	456,298		$	87,391	$	1,664,980
Operating expenses	Operating expenses	(565,788)			(178,255)			(245,344)			(334,489)			(120,647)		(1,444,523)			Operating expenses	(517,153)			(184,246)			(265,704)			(362,728)			(131,267)		(1,461,098)
Depreciation and amortization	Depreciation and amortization	(14,618)			(6,802)			(8,029)			(18,812)			(2,778)		(51,039)			Depreciation and amortization	(16,637)			(6,888)			(8,457)			(18,310)			(2,133)		(52,425)

Income (loss) from operations	Income (loss) from operations	$	21,349		$	35,577		$	18,567		$	70,122		$	(41,630)	$	103,985		Income (loss) from operations	$	60,136		$	40,328		$	21,742		$	75,260		$	(46,009)	$	151,457
Depreciation and amortization	Depreciation and amortization	14,618			6,802			8,029			18,812			2,778		51,039			Depreciation and amortization	16,637			6,888			8,457			18,310			2,133		52,425
Stock compensation expense	Stock compensation expense	—			—			—			535			8,288		8,823			Stock compensation expense	—			—			—			178			10,003		10,181
Adjusted EBITDA	Adjusted EBITDA	$	35,967		$	42,379		$	26,596		$	89,469		$	(30,564)	$	163,847		Adjusted EBITDA	$	76,773		$	47,216		$	30,199		$	93,748		$	(33,873)	$	214,063
Adjusted EBITDA margin	Adjusted EBITDA margin	6.0		%	19.2		%	9.8		%	21.1		%	N/M		10.2		%	Adjusted EBITDA margin	12.9		%	20.4		%	10.2		%	20.5		%	N/M		12.9		%


		Three Months Ended March 31, 2021																		Three Months Ended March 31, 2022
		Critical Illness Recovery Hospital			Rehabilitation Hospital			Outpatient Rehabilitation			Concentra			Other		Total				Critical Illness Recovery Hospital			Rehabilitation Hospital			Outpatient Rehabilitation			Concentra			Other		Total
		(in thousands)																		(in thousands)
Revenue	Revenue	$	594,872		$	207,804		$	251,961		$	422,840		$	68,986	$	1,546,463		Revenue	$	601,755		$	220,634		$	271,940		$	423,423		$	81,795	$	1,599,547
Operating expenses	Operating expenses	(499,487)			(157,270)			(225,632)			(341,361)			(105,102)		(1,328,852)			Operating expenses	(565,788)			(178,255)			(245,344)			(334,489)			(120,647)		(1,444,523)
Depreciation and amortization	Depreciation and amortization	(13,050)			(7,060)			(7,191)			(19,898)			(2,421)		(49,620)			Depreciation and amortization	(14,618)			(6,802)			(8,029)			(18,812)			(2,778)		(51,039)
Other operating income		17,887			—			—			—			16,134		34,021

Income (loss) from operations	Income (loss) from operations	$	100,222		$	43,474		$	19,138		$	61,581		$	(22,403)	$	202,012		Income (loss) from operations	$	21,349		$	35,577		$	18,567		$	70,122		$	(41,630)	$	103,985
Depreciation and amortization	Depreciation and amortization	13,050			7,060			7,191			19,898			2,421		49,620			Depreciation and amortization	14,618			6,802			8,029			18,812			2,778		51,039
Stock compensation expense	Stock compensation expense	—			—			—			536			6,173		6,709			Stock compensation expense	—			—			—			535			8,288		8,823
Adjusted EBITDA	Adjusted EBITDA	$	113,272		$	50,534		$	26,329		$	82,015		$	(13,809)	$	258,341		Adjusted EBITDA	$	35,967		$	42,379		$	26,596		$	89,469		$	(30,564)	$	163,847
Adjusted EBITDA margin	Adjusted EBITDA margin	19.0		%	24.3		%	10.4		%	19.4		%	N/M		16.7		%	Adjusted EBITDA margin	6.0		%	19.2		%	9.8		%	21.1		%	N/M		10.2		%

Net income was $85.3 million for the three months ended March 31, 2023, compared to $55.9 million for the three months ended March 31, ~~2022, compared to $137.2 million for the three months ended March 31, 2021.~~2022.

The following table summarizes the changes in our segment performance measures for the three months ended March 31, ~~2022,~~2023, compared to the three months ended March 31, ~~2021:~~2022:


		Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total			Critical Illness Recovery Hospital		Rehabilitation Hospital		Outpatient Rehabilitation		Concentra		Other		Total
Change in revenue	Change in revenue	1.2	%	6.2	%	7.9	%	0.1	%	18.6	%	3.4	%	Change in revenue	(1.3)	%	4.9	%	8.8	%	7.8	%	6.8	%	4.1	%
Change in income from operations	Change in income from operations	(78.7)	%	(18.2)	%	(3.0)	%	13.9	%	N/M		(48.5)	%	Change in income from operations	181.7	%	13.4	%	17.1	%	7.3	%	N/M		45.7	%
Change in Adjusted EBITDA	Change in Adjusted EBITDA	(68.2)	%	(16.1)	%	1.0	%	9.1	%	N/M		(36.6)	%	Change in Adjusted EBITDA	113.5	%	11.4	%	13.5	%	4.8	%	N/M		30.6	%

_______________________________________________________________________________

N/M — Not meaningful.

2322

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Regulatory Changes

Our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, filed with the SEC on February ~~24, 2022,~~23, 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. Revenue generated directly from the Medicare program represented approximately 23% of our revenue for ~~both~~ the three months ended March 31, ~~2022~~2023, and for the year ended December 31, ~~2021.~~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 ~~effective~~and it is now scheduled to end on ~~April 26, 2020, July 25, 2020, October 23, 2020, January 21, 2021, April 21, 2021, July 20, 2021, October 18, 2021, January 16, 2022, and April 16, 2022. On~~May 11, 2023. The COVID-19 national emergency that was declared by President Trump on March 13, 2020, ~~President Trump declared~~which is separate from the public health emergency, ended on April 10, 2023 when H.R.J. Res. 7 was signed into law.

As a ~~national emergency due to~~result of the COVID-19 ~~pandemic and~~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 excuse health care providers or suppliers from specific program requirements. ~~The following blanket waivers, while~~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 ~~effect, may impact our results of operations:~~

i.~~Inpatient rehabilitation facilities (“IRFs”), IRF units, and hospitals and units applying to be classified as IRFs, can exclude patients admitted solely to respond~~response to the ~~emergency from~~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 ~~calculation~~waiver of the ~~“60 percent rule” thresholds~~IRF 60% Rule and the waiver of Medicare statutory requirements regarding site neutral payments to ~~receive payment as an IRF.~~

~~ii.Long-term~~long-term care hospitals (“LTCHs”), are scheduled to end when the public health emergency expires 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. ~~Hospitals seeking LTCH classification can exclude patient stays from~~As a result, even when the ~~greater-than-25-day average length of stay requirement where the patient was admitted or discharged to meet the demands of the COVID-19~~ public health ~~emergency.~~

~~iii.Medicare expanded the types of health care professionals who can furnish telehealth services~~emergency ends on May 11, 2023, LTCHs with cost reporting periods that started prior to include all those who are eligible to bill Medicare for their professional services. This allows health care professionals who were previously ineligible to furnish and bill for Medicare telehealth services, including physical therapists, occupational therapists, speech language pathologists, and others, to receive payment for Medicare telehealth services.

~~iv.Medicare~~May 11, 2023 will ~~not require out-of-state physician and non-physician practitioners~~continue to be ~~licensed in~~exempt for the ~~state where they are providing services when they are licensed in another state, subject to certain conditions and state or local licensure requirements.~~

v.~~Many requirements under the hospital conditions~~remainder of ~~participation (“CoPs”) are waived during the emergency period to give hospitals more flexibility in treating COVID-19 patients.~~

~~vi.~~Hospitals can operate temporary expansion locations without meeting the provider-based entity requirements or certain requirements in the physical environment CoP for hospitals during the emergency. This waiver also allows hospitals to change the status of their current provider-based department locations to meet patient needs as part of the state or local pandemic plan.

~~vii.The HHS Secretary waived sanctions under the physician self-referral law (i.e., Stark law) for certain types of remuneration and referral arrangements~~ that are related to a COVID-19 purpose. The Office of the Inspector General (“OIG”) will also exercise enforcement discretion to not impose administrative sanctions under the federal anti-kickback statute for many payments covered by the Stark law waivers.

~~Table of Contents~~

Pursuant to the Coronavirus Preparedness and Response Supplemental Appropriations Act, Public Law 116-123, CMS has waived Medicare telehealth payment requirements during the emergency so that beneficiaries in all areas of the country (not just rural areas) can receive telehealth services, including in their homes, beginning on March 6, 2020. CMS issued additional waivers to permit more than 160 additional services to be furnished by telehealth, allow physicians to monitor patient services remotely, and fulfill face-to-face requirements in IRFs.cost reporting year.

In addition, ~~to these agency actions,~~ the ~~CARES~~Coronavirus Aid, Relief, and Economic Security (“CARES”) Act ~~was enacted on March 27, 2020. It provides additional waivers, reimbursement, grants~~ and ~~other funds to assist health care providers during the COVID-19 public health emergency. Some of the CARES Act provisions that may impact our operations include:~~

i.$100 billion in appropriations for the Public Health and Social Services Emergency Fund to be used for preventing, preparing, and responding to COVID-19 and for reimbursing “eligible health care providers for health care related expenses or lost revenues that are attributable to coronavirus.” The Paycheck Protection Program and Health Care Enhancement Act, Public Law 116-139, added $75 billion to this fund. The Consolidated Appropriations Act, 2021, added another $3 billion to this fund. HHS began distributing these funds to providers in April 2020. HHS initially allocated funds for a general distribution to providers that received Medicare fee-for-service payments in 2019. Later general distributions required providers to submit an application to HHS. Other funding was allocated for targeted distributions for specific provider types. Recipients of payments must 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. Any funds that a provider does not apply towards expenses or lost revenue attributable to COVID-19 must be returned to HHS within 30 calendar days after the end of the applicable reporting period. All recipients of funds are subject to audit by HHS, the HHS OIG, or the Pandemic Response Accountability Committee. Audits may include examination of the accuracy of the data providers submitted to HHS in their applications for payments.

~~ii.~~Expansion of the Accelerated and Advance Payment Program to advance three months of payments to Medicare providers. CMS has the ability to recoup the advanced payments through future Medicare claims. Section 2501 of the Continuing Appropriations Act, 2021 and Other Extensions Act, Public Law 116-159, modified the terms of repayment so that a provider can request no recoupment for one year after the advanced payment was issued, followed by a 25% offset the next 11 months, and a 50% offset the last 6 months. Any amounts that remain unpaid after 29 months will be subject to a 4% interest rate (instead of 10.25%). CMS began recouping advance payments on March 30, 2021, but the actual date for each provider is based on the first anniversary of when the provider received the first payment. CMS publishes repayment data every six months, beginning June 28, 2021.

~~iii.Temporary suspension of~~legislation temporarily suspended the 2% cut to Medicare payments due to sequestration ~~so that, for the period of~~from May 1, 2020 to December 31, 2020, the Medicare program would be exempt from any sequestration order. The Consolidated Appropriations Act, 2021, extended this temporary suspension of the 2% sequestration cut through March 31, 2021. The Medicare sequester relief bill, which became Public Law 117-7, extended the temporary suspension of the sequestration cut again, through December 31, 2021. To pay for the continued suspension of the sequestration cuts through December 31, 2021, Congress increased the sequestration cut that will apply in fiscal year 2030. The Protecting Medicare and American Farmers from Sequester Cuts Act, signed into law by President Biden on December 10, 2021, further extended the suspension of the sequestration cut through March 31, 2022 and ~~reduces~~reduced the sequestration ~~cut~~adjustment from 2% to 1% from April 1 ~~2022~~ through June 30, 2022. The full 2% ~~sequestration cut will resume~~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. ~~The same legislation defers~~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 ~~to the FY 2023 PAYGO scorecard.~~was deferred by Congress until 2025.

~~iv.Two waivers of Medicare statutory requirements regarding site neutral payment to LTCHs.~~ The ~~first waives the LTCH discharge payment percentage requirement (i.e., 50% rule)~~CARES Act and related legislation also provided more than $178 billion in appropriations for the ~~cost reporting period(s)~~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 ~~include~~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 ~~emergency period. The second waives application~~use of the ~~site neutral payment rate so that all LTCH cases admitted during~~funds via an online portal by specific deadlines established by HHS based on the ~~emergency period will be paid the LTCH-PPS standard federal rate.~~

v.~~Waiver~~date of the ~~IRF 3-hour rule so that IRF services provided during~~payment. All recipients of funds are subject to audit by HHS, the ~~public health emergency period do not need to meet~~HHS OIG, or the ~~coverage requirement that patients receive at least 3 hours of therapy a day or 15 hours of therapy per week.~~

~~vi.Broader waiver authority for HHS under section 1135~~Pandemic Response Accountability Committee. Audits may include examination of the ~~Social Security Act~~accuracy of the data providers submitted to ~~issue~~HHS in their applications for payments. Additional distributions are not expected and as a result, the Company does not expect to recognize additional ~~telehealth waivers.~~income associated with these funds in the future.

2523

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Medicare Reimbursement of LTCH Services

The following is a summary of significant regulatory changes to the Medicare prospective payment system for our critical illness recovery hospitals, which are certified by Medicare as LTCHs, which have affected our results of operations, as well as the policies and payment rates that may affect our future results of operations. Medicare payments to our critical illness recovery hospitals are made in accordance with the long-term care hospital prospective payment system (“LTCH-PPS”).

~~Fiscal Year 2021.~~ On September 18, 2020, CMS published the final rule updating policies and payment rates for the LTCH-PPS for fiscal year 2021 (affecting discharges and cost reporting periods beginning on or after October 1, 2020 through September 30, 2021). Certain errors in the final rule were corrected in a document published December 7, 2020. The standard federal rate was set at $43,755, an increase from the standard federal rate applicable during fiscal year 2020 of $42,678. The update to the standard federal rate for fiscal year 2021 included a market basket increase of 2.3% with no productivity adjustment. The standard federal rate also included an area wage budget neutrality factor of 1.0016837. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS was set at $27,195, an increase from the fixed-loss amount in the 2020 fiscal year of $26,778. The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate was set at $29,064, an increase from the fixed-loss amount in the 2020 fiscal year of $26,552.

Fiscal Year 2022. On August 13, 2021, CMS published the final rule updating policies and payment rates for the LTCH-PPS for fiscal year 2022 (affecting discharges and cost reporting periods beginning on or after October 1, 2021, through September 30, 2022). The standard federal rate was set at $44,714, an increase from the standard federal rate applicable during fiscal year 2021 of $43,755. The update to the standard federal rate for fiscal year 2022 included a market basket increase of 2.6%, less a productivity adjustment of 0.7%. The standard federal rate also included an area wage budget neutrality factor of 1.002848. As a result of the CARES Act, all LTCH cases are paid at the standard federal rate during the public health emergency. If the public health emergency ends during fiscal year 2022, then CMS will return to using the site-neutral payment rate for reimbursement of cases that do not meet the LTCH patient criteria. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS was set at $33,015, an increase from the fixed-loss amount in the 2021 fiscal year of $27,195. The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate was set at $30,988, an increase from the fixed-loss amount in the 2021 fiscal year of $29,064.

Fiscal Year 2023. On ~~April 18,~~August 10, 2022, CMS ~~released a display copy of~~published the ~~proposed~~final rule ~~to update~~updating policies and payment rates for the LTCH-PPS for fiscal year 2023 (affecting discharges and cost reporting periods beginning on or after October 1, 2022, through September 30, 2023). ~~CMS is expected to issue~~Certain errors in the final rule were corrected in ~~August~~documents published November 4, 2022, ~~or shortly thereafter.~~and December 13, 2022. The ~~proposed~~ standard federal rate for fiscal year 2023 is ~~$45,953,~~$46,433, an increase from the standard federal rate applicable during fiscal year 2022 of $44,714. The ~~proposed~~ update to the standard federal rate for fiscal year 2023 includes a market basket increase of ~~3.1%~~4.1%, less a productivity adjustment of ~~0.4%~~0.3%. The ~~proposed~~ standard federal rate also includes an area wage budget neutrality factor of ~~1.000691.~~1.0004304. As a result of the CARES Act, all LTCH cases are paid at the standard federal rate during the public health emergency. IfOnce the public health emergency ends, ~~before or during fiscal year~~which is expected to occur on May 11, 2023, ~~then~~ CMS will return to using the site-neutral payment rate for reimbursement of cases that do not meet the LTCH patient criteria. The ~~proposed~~ fixed-loss amount for high cost outlier cases paid under LTCH-PPS is ~~$44,182,~~$38,518, an increase from the fixed-loss amount in the 2022 fiscal year of $33,015. The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate is $38,788, an increase from the fixed-loss amount in the 2022 fiscal year of $30,988.

Fiscal Year 2024. On April 10, 2023, CMS released a display copy of the proposed rule to update policies and payment rates for the LTCH-PPS for fiscal year 2024 (affecting discharges and cost reporting periods beginning on or after October 1, 2023 through September 30, 2024). CMS is expected to issue the final rule in August or shortly thereafter. The proposed standard federal rate for fiscal year 2024 is $47,948, an increase from the standard federal rate applicable during fiscal year 2023 of $46,433. The proposed update to the standard federal rate for fiscal year 2024 includes a market basket increase of 3.1%, less a productivity adjustment of 0.2%. The proposed standard federal rate also includes an area wage budget neutrality factor of 1.0035335. The proposed fixed-loss amount for high cost outlier cases paid under LTCH-PPS is $94,378, an increase from the fixed-loss amount in the 2023 fiscal year of $38,518. The proposed fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate is ~~$43,214,~~$40,732, an increase from the fixed-loss amount in the ~~2022~~2023 fiscal year of ~~$30,988.~~$38,788.

Medicare Reimbursement of IRF Services

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

~~Fiscal Year 2021.~~ On August 10, 2020, CMS published the final rule updating policies and payment rates for the IRF-PPS for fiscal year 2021 (affecting discharges and cost reporting periods beginning on or after October 1, 2020 through September 30, 2021). The standard payment conversion factor for discharges for fiscal year 2021 was set at $16,856, an increase from the standard payment conversion factor applicable during fiscal year 2020 of $16,489. The update to the standard payment conversion factor for fiscal year 2021 included a market basket increase of 2.4% with no productivity adjustment. CMS decreased the outlier threshold amount for fiscal year 2021 to $7,906 from $9,300 established in the final rule for fiscal year 2020.

~~Table of Contents~~

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

Fiscal Year 2023. On ~~April 6,~~August 1, 2022, CMS published ~~a proposed~~the final rule ~~to update~~updating policies and payment rates for the IRF-PPS for fiscal year 2023 (affecting discharges and cost reporting periods beginning on or after October 1, 2022, through September 30, 2023). The standard payment conversion factor for discharges for fiscal year 2023 ~~if adopted, would be~~was set at ~~$17,698,~~$17,878, an increase from the standard payment conversion factor applicable during fiscal year 2022 of $17,240. The update to the standard payment conversion factor for fiscal year 2023 included a market basket increase of 4.2%, less a productivity adjustment of 0.3%. CMS increased the outlier threshold amount for fiscal year 2023 to $12,526 from $9,491 established in the final rule for fiscal year 2022.

Table of Contents

Fiscal Year 2024. On April 7, 2023, CMS published a proposed rule to update policies and payment rates for the IRF-PPS for fiscal year 2024 (affecting discharges and cost reporting periods beginning on or after October 1, 2023 through September 30, 2024). The standard payment conversion factor for discharges for fiscal year 2024 would be set at $18,471, an increase from the standard payment conversion factor applicable during fiscal year 2022 of $17,878. The update to the standard payment conversion factor for fiscal year 2024, if adopted, would include a market basket increase of 3.2%, less a productivity adjustment of ~~0.4%~~0.2%. CMS proposed to ~~increase~~decrease the outlier threshold amount for fiscal year ~~2023~~2024 to ~~$13,038~~$9,690 from ~~$9,491~~$12,526 established in the final rule for fiscal year ~~2022.~~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~~Our Annual Report on the Medicare physician fee schedule. For services provided in 2017 through 2019, a 0.5% update was applied each year to the fee schedule payment rates, subject to an adjustment beginning in 2019 under the Merit-Based Incentive Payment System (“MIPS”). In 2019, CMS added physical and occupational therapists to the list of MIPS eligible clinicians. For these therapists in private practice, payments under the fee schedule are subject to adjustment in a later year based on their performance in MIPS according to established performance standards. Calendar year 2021 is the first year that payments are adjusted, based upon t~~he therapist’s performance under MIPS in 2019.~~ ~~Providers in facility-based outpatient therapy settings are excluded from MIPS eligibility and therefore not subject to this payment adjustment.~~ For services provided in 2020 through 2025, a 0.0% percent update will be applied each year to the fee schedule payment rates, subject to adjustments under MIPS and the alternative payment models (“APMs”). In 2026 and subsequent years, eligible professionals participating in APMs who meet certain criteria would receive annual updates of 0.75%, while all other professionals would receive annual updates of 0.25%.

Each year from 2019 through 2024 eligible clinicians who receive a significant share of their revenues through an advanced APM (such as accountable care organizations or bundled payment arrangements) that involves risk of financial losses and a quality measurement component will receive a 5% bonus. The bonus payment for APM participation is intended to encourage participation and testing of new APMs and to promote the alignment of incentives across payors.

In the 2020 Medicare physician fee schedule final rule, CMS revised coding, documentation guidelines, and increased the valuation for evaluation and management (“E/M”) office visit codes, beginning in 2021. Because the Medicare physician fee schedule is budget-neutral, any revaluation of E/M services that will increase spending by more than $20 million requires a budget neutrality adjustment. To increase valuesForm 10-K for the ~~E/M codes while maintaining budget neutrality under the fee schedule, CMS cut the values~~year ended December 31, 2022 contains a detailed discussion of ~~other codes to make up the difference, beginning in 2021.~~

~~In the 2021~~ Medicare ~~physician fee schedule final rule, CMS increased the values for the E/M office visit codes and cuts to other specialty codes to maintain budget neutrality. As a result, therapy services provided in~~reimbursement regulations that affect our outpatient rehabilitation ~~clinics received an estimated 3.6% decrease~~clinic operations in ~~payment from Medicare~~Part I — Business — Government Regulations and in ~~calendar year 2021. The Consolidated Appropriations Act, 2021, provided relief in the form~~Part II — Management’s Discussion and Analysis of ~~a one-time 3.75% increase in payments in calendar year 2021 for therapy services~~Financial Condition and ~~other services paid under the physician fee schedule.~~

~~In the calendar year 2022 physician fee schedule final rule, CMS announced that Medicare payments for the therapy specialty are expected~~Results of Operations — Regulatory Changes. There have been no significant updates to decrease 1% in 2022. After CMS issued the final rule, Congress passed the Protecting Medicare and American Farmers from Sequester Cuts Act, which provided in Section 3 a one-time 3% increase in payments in calendar year 2022 to offset most of the 3.75% cut to payments for therapy services and other services paid under the physician fee schedule. In the final rule, CMS also adopted its plan to transition the MIPS program to MIPS Value Pathways (“MVPs”). CMS will begin the transition to MVPs in 2023 with an initial set of MVPs in which reporting is voluntary. Beginning in 2026, multispecialty groups must form subgroups to report MVPs. CMS plans to develop more MVPs from 2024 to 2027 and is considering that MVP reporting would become mandatory in 2028. Each MVP would include population health claims-based measures and require clinicians to report on the Promoting Interoperability performance category measures. In addition, MVP participants would select certain quality measures and improvement activities and then report data for such measures and activities.

~~Table of Contents~~

these regulations subsequently.

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

InOur Annual Report on Form 10-K for the year ended December 31, 2022 contains a detailed discussion of Medicare ~~physician fee schedule final rule for calendar year 2019, CMS established two new modifiers (CQ and CO) to identify~~regulations concerning services ~~furnished in whole or in part~~provided by physical therapy assistants ~~(“PTAs”) or~~and occupational therapy assistants ~~(“OTAs”). These modifiers were mandated by the Bipartisan Budget Act~~in Part I — Business — Government Regulations and in Part II — Management’s Discussion and Analysis of 2018, which requires that claims for outpatient therapy services furnished in whole or part by therapy assistants on or after January 1, 2020 include the appropriate modifier. In the final 2020 Medicare physician fee schedule rule, CMS clarified that when the physical therapist is involved for the entire durationFinancial Condition and Results of the service and the PTA provides skilled therapy alongside the physical therapist, the CQ modifier is not required. Also, when the same service (code) is furnished separately by the physical therapist and PTA, CMS will apply the de minimis standardOperations — Regulatory Changes. There have been no significant updates to each 15-minute unit of codes, not on the total physical therapist and PTA time of the service, allowing the separate reporting, on two different claim lines, of the number of units to which the new modifiers apply and the number of units to which the modifiers do not apply. In the calendar year 2022 physician fee schedule final rule, CMS implemented the final part of the requirements in the Bipartisan Budget Act of 2018 regarding PTA and OTA services. For dates of service on and after January 1, 2022, CMS will pay for physical therapy and occupational therapy services provided by PTAs and OTAs at 85% of the otherwise applicable Part B payment amount. CMS also modified the de minimis standard for calendar year 2022. Specifically, CMS will allow a timed service to be billed without the CQ or CO modifier when a PTA or OTA participates in providing care, but the physical therapist or occupational therapist meets the Medicare billing requirements without including the PTA’s or OTA’s minutes. This occurs when the physical therapist or occupational therapist provides more minutes than the 15-minute midpoint.

these regulations subsequently.

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Operating Statistics

The following table sets forth operating statistics for each of our ~~reportable~~ segments for the periods presented. The operating statistics reflect data for the period of time we managed these operations. Our operating statistics include metrics we believe provide relevant insight about the number of facilities we operate, volume of services we provide to our patients, and average payment rates for services we provide. These metrics are utilized by management to monitor trends and performance in our businesses and therefore may be important to investors because management may assess our performance based in part on such metrics. Other healthcare providers may present similar statistics, and these statistics are susceptible to varying definitions. Our statistics as presented may not be comparable to other similarly titled statistics of other companies.


		Three Months Ended March 31,								Three Months Ended March 31,
			2021			2022					2022			2023
Critical illness recovery hospital data:	Critical illness recovery hospital data:								Critical illness recovery hospital data:
Number of consolidated hospitals—start of period(1)	Number of consolidated hospitals—start of period(1)		99			104			Number of consolidated hospitals—start of period(1)		104			103
Number of hospitals acquired	Number of hospitals acquired		—			—			Number of hospitals acquired		—			—
Number of hospital start-ups	Number of hospital start-ups		—			1			Number of hospital start-ups		1			2
Number of hospitals closed/sold	Number of hospitals closed/sold		—			—			Number of hospitals closed/sold		—			—
Number of consolidated hospitals—end of period(1)	Number of consolidated hospitals—end of period(1)		99			105			Number of consolidated hospitals—end of period(1)		105			105

Available licensed beds(3)	Available licensed beds(3)		4,380			4,524			Available licensed beds(3)		4,524			4,440
Admissions(3)(4)	Admissions(3)(4)		9,859			9,457			Admissions(3)(4)		9,457			9,438
Patient days(3)(5)	Patient days(3)(5)		293,118			289,217			Patient days(3)(5)		289,217			286,746
Average length of stay (days)(3)(6)	Average length of stay (days)(3)(6)		30			30			Average length of stay (days)(3)(6)		30			30
Revenue per patient day(3)(7)	Revenue per patient day(3)(7)		$	2,024		$	2,075		Revenue per patient day(3)(7)		$	2,075		$	2,058
Occupancy rate(3)(8)	Occupancy rate(3)(8)		75		%	71		%	Occupancy rate(3)(8)		71		%	72		%
Percent patient days—Medicare(3)(9)	Percent patient days—Medicare(3)(9)		40		%	37		%	Percent patient days—Medicare(3)(9)		37		%	39		%
Rehabilitation hospital data:	Rehabilitation hospital data:								Rehabilitation hospital data:
Number of consolidated hospitals—start of period(1)	Number of consolidated hospitals—start of period(1)		19			20			Number of consolidated hospitals—start of period(1)		20			20
Number of hospitals acquired	Number of hospitals acquired		1			—			Number of hospitals acquired		—			—
Number of hospital start-ups	Number of hospital start-ups		—			—			Number of hospital start-ups		—			—
Number of hospitals closed/sold	Number of hospitals closed/sold		—			—			Number of hospitals closed/sold		—			—
Number of consolidated hospitals—end of period(1)	Number of consolidated hospitals—end of period(1)		20			20			Number of consolidated hospitals—end of period(1)		20			20
Number of unconsolidated hospitals managed—end of period(2)	Number of unconsolidated hospitals managed—end of period(2)		10			10			Number of unconsolidated hospitals managed—end of period(2)		10			12
Total number of hospitals (all)—end of period	Total number of hospitals (all)—end of period		30			30			Total number of hospitals (all)—end of period		30			32
Available licensed beds(3)	Available licensed beds(3)		1,361			1,391			Available licensed beds(3)		1,391			1,413
Admissions(3)(4)	Admissions(3)(4)		7,131			7,182			Admissions(3)(4)		7,182			7,620
Patient days(3)(5)	Patient days(3)(5)		102,439			103,802			Patient days(3)(5)		103,802			107,910
Average length of stay (days)(3)(6)	Average length of stay (days)(3)(6)		15			15			Average length of stay (days)(3)(6)		15			14
Revenue per patient day(3)(7)	Revenue per patient day(3)(7)		$	1,853		$	1,943		Revenue per patient day(3)(7)		$	1,943		$	1,969
Occupancy rate(3)(8)	Occupancy rate(3)(8)		84		%	84		%	Occupancy rate(3)(8)		84		%	86		%
Percent patient days—Medicare(3)(9)	Percent patient days—Medicare(3)(9)		49		%	47		%	Percent patient days—Medicare(3)(9)		47		%	49		%
Outpatient rehabilitation data:	Outpatient rehabilitation data:								Outpatient rehabilitation data:
Number of consolidated clinics—start of period	Number of consolidated clinics—start of period		1,503			1,572			Number of consolidated clinics—start of period		1,572			1,622
Number of clinics acquired	Number of clinics acquired		8			2			Number of clinics acquired		2			9
Number of clinic start-ups	Number of clinic start-ups		10			12			Number of clinic start-ups		12			12
Number of clinics closed/sold	Number of clinics closed/sold		(4)			(2)			Number of clinics closed/sold		(2)			(11)
Number of consolidated clinics—end of period	Number of consolidated clinics—end of period		1,517			1,584			Number of consolidated clinics—end of period		1,584			1,632
Number of unconsolidated clinics managed—end of period	Number of unconsolidated clinics managed—end of period		292			317			Number of unconsolidated clinics managed—end of period		317			304
Total number of clinics (all)—end of period	Total number of clinics (all)—end of period		1,809			1,901			Total number of clinics (all)—end of period		1,901			1,936
Number of visits(3)(10)	Number of visits(3)(10)		2,100,154			2,310,086			Number of visits(3)(10)		2,310,086			2,636,770
Revenue per visit(3)(11)	Revenue per visit(3)(11)		$	104		$	102		Revenue per visit(3)(11)		$	102		$	101

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		Three Months Ended March 31,						Three Months Ended March 31,
			2021		2022				2022		2023
Concentra data:	Concentra data:						Concentra data:
Number of consolidated centers—start of period	Number of consolidated centers—start of period		517		518		Number of consolidated centers—start of period		518		540
Number of centers acquired	Number of centers acquired		3		1		Number of centers acquired		1		—
Number of center start-ups	Number of center start-ups		—		—		Number of center start-ups		—		—
Number of centers closed/sold	Number of centers closed/sold		(1)		(1)		Number of centers closed/sold		(1)		(1)
Number of consolidated centers—end of period	Number of consolidated centers—end of period		519		518		Number of consolidated centers—end of period		518		539
Number of onsite clinics operated—end of period	Number of onsite clinics operated—end of period		133		140		Number of onsite clinics operated—end of period		140		140

Number of visits(3)(10)	Number of visits(3)(10)		2,795,574		3,116,898		Number of visits(3)(10)		3,116,898		3,217,945
Revenue per visit(3)(11)	Revenue per visit(3)(11)		$	125	$	125	Revenue per visit(3)(11)		$	125	$	133

(1)Represents the number of hospitals included in our consolidated financial results at the end of 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 locations managed by the Company. 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 patient service revenues, excluding revenues from certain other ancillary and outpatient services provided at our hospitals, by the total number of patient days.

(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 patient service revenue, excluding revenues from certain other ancillary services, by the total number of visits. For purposes of this computation for our Concentra segment, patient service revenue does not include onsite ~~clinics.~~clinics or revenues generated from COVID-19 screening and testing services.

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Results of Operations

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


		Three Months Ended March 31,						Three Months Ended March 31,
			2021		2022				2022		2023
Revenue	Revenue		100.0	%	100.0	%	Revenue		100.0	%	100.0	%
Costs and expenses:	Costs and expenses:						Costs and expenses:
Cost of services, exclusive of depreciation and amortization(1)	Cost of services, exclusive of depreciation and amortization(1)		83.6		88.0		Cost of services, exclusive of depreciation and amortization(1)		88.0		85.2
General and administrative	General and administrative		2.3		2.3		General and administrative		2.3		2.5
Depreciation and amortization	Depreciation and amortization		3.2		3.2		Depreciation and amortization		3.2		3.2
Total costs and expenses	Total costs and expenses		89.1		93.5		Total costs and expenses		93.5		90.9
Other operating income			2.2		—

Income from operations	Income from operations		13.1		6.5		Income from operations		6.5		9.1

Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries		0.6		0.3		Equity in earnings of unconsolidated subsidiaries		0.3		0.5

Interest income			0.3		—

Interest expense	Interest expense		(2.2)		(2.2)		Interest expense		(2.2)		(2.9)
Income before income taxes	Income before income taxes		11.8		4.6		Income before income taxes		4.6		6.7
Income tax expense	Income tax expense		2.9		1.1		Income tax expense		1.1		1.6
Net income	Net income		8.9		3.5		Net income		3.5		5.1
Net income attributable to non-controlling interests	Net income attributable to non-controlling interests		1.8		0.4		Net income attributable to non-controlling interests		0.4		0.8
Net income attributable to Select Medical Holdings Corporation	Net income attributable to Select Medical Holdings Corporation		7.1	%	3.1	%	Net income attributable to Select Medical Holdings Corporation		3.1	%	4.3	%

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

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


		Three Months Ended March 31,								Three Months Ended March 31,
			2021			2022			% Change				2022			2023			% Change
			(in thousands, except percentages)									(in thousands, except percentages)
Revenue:	Revenue:										Revenue:
Critical illness recovery hospital	Critical illness recovery hospital		$	594,872		$	601,755		1.2	%	Critical illness recovery hospital		$	601,755		$	593,926		(1.3)	%
Rehabilitation hospital	Rehabilitation hospital		207,804			220,634			6.2		Rehabilitation hospital		220,634			231,462			4.9
Outpatient rehabilitation	Outpatient rehabilitation		251,961			271,940			7.9		Outpatient rehabilitation		271,940			295,903			8.8
Concentra	Concentra		422,840			423,423			0.1		Concentra		423,423			456,298			7.8
Other(1)	Other(1)		68,986			81,795			18.6		Other(1)		81,795			87,391			6.8
Total Company	Total Company		$	1,546,463		$	1,599,547		3.4	%	Total Company		$	1,599,547		$	1,664,980		4.1	%
Income (loss) from operations:	Income (loss) from operations:										Income (loss) from operations:
Critical illness recovery hospital(2)			$	100,222		$	21,349		(78.7)	%
Critical illness recovery hospital											Critical illness recovery hospital		$	21,349		$	60,136		181.7	%
Rehabilitation hospital	Rehabilitation hospital		43,474			35,577			(18.2)		Rehabilitation hospital		35,577			40,328			13.4
Outpatient rehabilitation	Outpatient rehabilitation		19,138			18,567			(3.0)		Outpatient rehabilitation		18,567			21,742			17.1
Concentra	Concentra		61,581			70,122			13.9		Concentra		70,122			75,260			7.3
Other(1)(2)			(22,403)			(41,630)			N/M
Other(1)											Other(1)		(41,630)			(46,009)			N/M
Total Company	Total Company		$	202,012		$	103,985		(48.5)	%	Total Company		$	103,985		$	151,457		45.7	%
Adjusted EBITDA:	Adjusted EBITDA:										Adjusted EBITDA:
Critical illness recovery hospital(2)			$	113,272		$	35,967		(68.2)	%
Critical illness recovery hospital											Critical illness recovery hospital		$	35,967		$	76,773		113.5	%
Rehabilitation hospital	Rehabilitation hospital		50,534			42,379			(16.1)		Rehabilitation hospital		42,379			47,216			11.4
Outpatient rehabilitation	Outpatient rehabilitation		26,329			26,596			1.0		Outpatient rehabilitation		26,596			30,199			13.5
Concentra	Concentra		82,015			89,469			9.1		Concentra		89,469			93,748			4.8
Other(1)(2)			(13,809)			(30,564)			N/M
Other(1)											Other(1)		(30,564)			(33,873)			N/M
Total Company	Total Company		$	258,341		$	163,847		(36.6)	%	Total Company		$	163,847		$	214,063		30.6	%
Adjusted EBITDA margins:	Adjusted EBITDA margins:										Adjusted EBITDA margins:
Critical illness recovery hospital(2)			19.0		%	6.0		%
Critical illness recovery hospital											Critical illness recovery hospital		6.0		%	12.9		%
Rehabilitation hospital	Rehabilitation hospital		24.3			19.2					Rehabilitation hospital		19.2			20.4
Outpatient rehabilitation	Outpatient rehabilitation		10.4			9.8					Outpatient rehabilitation		9.8			10.2
Concentra	Concentra		19.4			21.1					Concentra		21.1			20.5
Other(1)(2)			N/M			N/M
Other(1)											Other(1)		N/M			N/M
Total Company	Total Company		16.7		%	10.2		%			Total Company		10.2		%	12.9		%
Total assets:	Total assets:										Total assets:
Critical illness recovery hospital	Critical illness recovery hospital		$	2,233,067		$	2,367,490				Critical illness recovery hospital		$	2,367,490		$	2,507,265
Rehabilitation hospital	Rehabilitation hospital		1,188,387			1,187,118					Rehabilitation hospital		1,187,118			1,203,069
Outpatient rehabilitation	Outpatient rehabilitation		1,321,268			1,350,374					Outpatient rehabilitation		1,350,374			1,397,823
Concentra	Concentra		2,468,157			2,339,940					Concentra		2,339,940			2,300,632
Other(1)	Other(1)		709,902			291,022					Other(1)		291,022			290,947
Total Company	Total Company		$	7,920,781		$	7,535,944				Total Company		$	7,535,944		$	7,699,736
Purchases of property and equipment:
Purchases of property, equipment, and other assets:											Purchases of property, equipment, and other assets:
Critical illness recovery hospital	Critical illness recovery hospital		$	14,385		$	19,569				Critical illness recovery hospital		$	19,569		$	23,658
Rehabilitation hospital	Rehabilitation hospital		665			6,274					Rehabilitation hospital		6,274			8,582
Outpatient rehabilitation	Outpatient rehabilitation		7,335			9,414					Outpatient rehabilitation		9,414			9,932
Concentra	Concentra		12,680			10,240					Concentra		10,240			14,400
Other(1)	Other(1)		4,654			1,348					Other(1)		1,348			2,313
Total Company	Total Company		$	39,719		$	46,845				Total Company		$	46,845		$	58,885

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

(2) During the three months ended March 31, 2021, we recognized other operating income of $34.0 million. The impact of this income on the operating results of our critical illness recovery hospital segment and other activities is outlined within the table presented under “~~Summary Financial Results” for the three months ended March 31, 2021.~~

N/M — Not meaningful.

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Three Months Ended March 31, ~~2022,~~2023, Compared to Three Months Ended March 31, ~~2021~~2022

InFor the ~~following,~~three months ended March 31, 2023, we ~~discuss our results~~had revenue of ~~operations related to revenue, operating expenses, other operating income, Adjusted EBITDA, depreciation~~$1,665.0 million and ~~amortization,~~ income from operations ~~equity in earnings~~ of ~~unconsolidated subsidiaries, interest,~~$151.5 million, as compared to revenue of $1,599.5 million and income ~~taxes, and net income attributable to non-controlling interests.~~

~~Please refer to “Effects~~from operations of ~~the COVID-19 Pandemic on our Results of Operations” above for further discussion.~~

~~Revenue~~

~~Our revenue increased 3.4% to $1,599.5~~$104.0 million for the three months ended March 31, ~~2022,~~2022. For the three months ended March 31, 2023, Adjusted EBITDA was $214.1 million, with an Adjusted EBITDA margin of 12.9%, as compared to ~~$1,546.5~~Adjusted EBITDA of $163.8 million and an Adjusted EBITDA margin of 10.2% for the three months ended March 31, 2022.

The most significant contributor to the improvement in our financial performance for the three months ended March 31, 2023, compared to the three months ended March 31, 2022, was a decrease in labor costs in our critical illness recovery hospital segment as the investments made in the recruitment, hiring, and retention of full-time staff in 2022 resulted in a significant decrease in contract labor utilization. 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 March 31, 2023, is indicative of a more stabilized labor environment.

Revenue

Critical Illness Recovery Hospital Segment. Revenue was $593.9 million for the three months ended March 31, ~~2021.~~

~~Critical Illness Recovery Hospital Segment.~~ ~~Revenue increased 1.2%~~2023, compared to $601.8 million for the three months ended March 31, ~~2022, compared to $594.9 million~~2022. Our patient days were 286,746 for the three months ended March 31, ~~2021. The increase in revenue was due~~2023, compared to ~~an increase in revenue per patient day during~~289,217 days for the three months ended March 31, ~~2022, as compared to~~2022. Occupancy in our critical illness recovery hospitals was 72% and 71% for the three months ended March 31, ~~2021.~~2023 and 2022, respectively. Revenue per patient day ~~increased 2.5%~~was $2,058 for the three months ended March 31, 2023, compared to $2,075 for the three months ended March 31, ~~2022, compared to $2,024 for the three months ended March 31, 2021. We experienced increases in both our non-Medicare and~~2022. Our Medicare revenue per patient day decreased during the three months ended March 31, ~~2022, compared~~2023 primarily due to the three months ended March 31, 2021. Our patient days were 289,217 for the three months ended March 31, 2022, compared to 293,118 days for the three months ended March 31, 2021. Our patient days for the three months ended March 31, 2021 benefited from an increase in referrals from general acute care hospit~~als, which was due in part to an increase in volume in the intensive care units in those hospitals as a result~~reinstatement of the COVID-19 pandemic. As COVID-19 cases which require hospitalization decline, the patient volume experienced in intensive care units has also declined. This adversely impacted the level of referrals we received during the three months ended March 31, 2022. Occupan~~cy in our critical illness recovery hospitals was 71%, 75%, and 71% for the three months ended March 31, 2022, 2021, and 2019, respectively.~~2.0% cut to Medicare payments due to sequestration.

Rehabilitation Hospital Segment. Revenue increased ~~6.2%~~4.9% to $231.5 million for the three months ended March 31, 2023, compared to $220.6 million for the three months ended March 31, ~~2022, compared~~2022. The increase in revenue was principally due to ~~$207.8 million~~an increase in patient days. Our patient days increased 4.0% to 107,910 days for the three months ended March 31, ~~2021. The increase in revenue resulted principally due~~2023, compared to ~~an increase in revenue per patient day during~~103,802 days for the three months ended March 31, ~~2022, compared to~~2022. Occupancy in our rehabilitation hospitals was 86% and 84% for the three months ended March 31, ~~2021.~~2023 and 2022, respectively. Our revenue per patient day increased ~~4.9%~~1.3% to $1,969 for the three months ended March 31, 2023, compared to $1,943 for the three months ended March 31, ~~2022, compared to $1,853 for the three months ended March 31, 2021.~~2022. We experienced increases in both our Medicare and non-Medicare revenue per patient day during the three months ended March 31, ~~2022,~~2023, compared to the three months ended March 31, 2021. Our patient days increased 1.3% to 103,802 days for the three months ended March 31, 2022, compared to 102,439 days for the three months ended March 31, 2021. Occupancy in our rehabilitation hospitals was 84%, 84%, and 76% for the three months ended March 31, 2022, 2021, and 2019, respectively.2022.

Outpatient Rehabilitation Segment. Revenue increased ~~7.9%~~8.8% to $295.9 million for the three months ended March 31, 2023, compared to $271.9 million for the three months ended March 31, ~~2022, compared to $252.0 million for the three months ended March 31, 2021.~~2022. The increase in revenue was ~~due~~primarily attributable to ~~an increase in~~patient visits, which increased ~~10.0%~~14.1% to ~~2,310,086 for the three months ended March 31, 2022, compared to 2,100,154 and 2,054,483~~2,636,770 visits for the three months ended March 31, ~~2021 and 2019, respectively. The increase in~~2023, compared to 2,310,086 visits ~~was attributable to outpatient rehabilitation clinics which commenced operations since March 31, 2021, as well as improvement in volume in our clinics which operated during both~~for the three months ended March 31, ~~2022 and 2021.~~2022. Our ~~patient~~revenue per visit ~~volume was adversely impacted by the ongoing effects of the COVID-19 pandemic during~~decreased to $101 for the three months ended March 31, ~~2021. Our revenue per visit was~~2023, compared to $102 for the three months ended March 31, 2022, ~~compared~~primarily due to ~~$104~~a decrease in Medicare reimbursement rates along with the impact of the reinstatement of the 2.0% cut to Medicare payments due to sequestration.

Concentra Segment. Revenue increased 7.8% to $456.3 million for the three months ended March 31, ~~2021. The decrease in revenue per visit was primarily due to a decrease in the reimbursement rates received under the Medicare physician fee schedule, as described further under “Regulatory Changes.” Additionally, we experienced a greater proportion of Medicare visits during the three months ended March 31, 2022. These visits yield lower per visit rates.~~

~~Concentra Segment.~~ ~~Revenue increased~~2023, compared to $423.4 million for the three months ended March 31, ~~2022, compared~~2022. The increase in revenue was due to ~~$422.8 million~~increases in both revenue per visit and patient visits. Our revenue per visit increased 6.4% to $133 for the three months ended March 31, ~~2021. The increase in revenue was primarily attributable~~2023, compared to ~~an increase in visits, which increased 11.5% to 3,116,898~~$125 for the three months ended March 31, ~~2022, compared~~2022. Our patient visits increased 3.2% to ~~2,795,574 and 2,911,607~~3,217,945 for the three months ended March 31, 2023, compared to 3,116,898 visits for the three months ended March 31, ~~2021 and 2019, respectively. This increase was offset partially by a decline in the revenue generated from our~~2022. COVID-19 screening and testing ~~services. These~~ services ~~contributed~~did not contribute to the Concentra segment’s revenue for the three months ended March 31, 2023, compared to $9.1 million of revenue from these services during the three months ended March 31, 2022, compared to $51.7 million during the three months ended March 31, 2021. Our revenue per visit was $125 for both the three months ended March 31, 2022 and 2021. We experienced increases in the reimbursement rates for our employer services and workers’ compensation visits during the three months ended March 31, 2022. ~~The increases in our reimbursement rates were offset, however, by a greater percentage of employer services visits, which yield lower per visit rates.~~

~~Table of Contents~~

Operating Expenses

Our operating expenses consist principally of cost of services and general and administrative expenses. Our operating expenses were $1,461.1 million, or 87.7% of revenue, for the three months ended March 31, 2023, compared to $1,444.5 million, or 90.3% of revenue, for the three months ended March 31, ~~2022, compared to $1,328.9 million, or 85.9% of revenue, for the three months ended March 31, 2021.~~2022. Our cost of services, a major component of which is labor expense, was $1,418.8 million, or 85.2% of revenue, for the three months ended March 31, 2023, compared to $1,407.0 million, or 88.0% of revenue, for the three months ended March 31, 2022 ~~compared to $1,293.4 million, or 83.6% of revenue, for the three months ended March 31, 2021.~~. The ~~increase~~decrease in our operating expenses relative to our revenue was principally ~~due~~attributable to ~~increased~~the decreased labor costs within our critical illness recovery hospital ~~and rehabilitation hospital segments,~~segment, as ~~discussed~~explained further ~~below under~~within the “Adjusted ~~EBITDA.~~EBITDA” discussion. General and administrative expenses were $42.3 million, or 2.5% of revenue, for the three months ended March 31, 2023, compared to $37.5 million, or 2.3% of revenue, for the three months ended March 31, ~~2022, compared to $35.4 million, or 2.3%~~2022.

Table of ~~revenue, for the three months ended March 31, 2021.~~Contents

~~Other Operating Income~~

For the three months ended March 31, 2021, we had other operating income of $34.0 million. Of this amount, $16.1 million related to the recognition of payments received under the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund, for health care related expenses and lost revenues attributable to COVID-19. This income is included within the operating results of our other activities. The remaining $17.9 million is related to the outcome of litigation with CMS. This income is included within the operating results of our critical illness recovery hospital segment.

Adjusted EBITDA

Critical Illness Recovery Hospital Segment. Adjusted EBITDA ~~was~~increased 113.5% to $76.8 million for the three months ended March 31, 2023, compared to $36.0 million for the three months ended March 31, ~~2022, compared to $113.3 million for the three months ended March 31, 2021.~~2022. Our Adjusted EBITDA margin for the critical illness recovery hospital segment was 12.9% for the three months ended March 31, 2023, compared to 6.0% for the three months ended March 31, ~~2022, compared to 19.0% for the three months ended March 31, 2021. Our~~2022. The increases in our Adjusted EBITDA and Adjusted EBITDA margin ~~for the three months ended March 31, 2022 were adversely affected by the incurrence of additional labor costs. Constrained staffing due to a shortage of healthcare workers, which has le~~d to increases in incentive and bonus pay for our employees, and greater dependence on contract clinical workers have contributed to the increased labor costs. Our use of contract clinical workers has increased by approximately 26.0% during the three months ended March 31, ~~2022,~~2023, as compared to the three months ended March 31, ~~2021. For~~2022, were principally due to lower labor costs resulting from our efforts in 2022 to hire additional full-time nursing staff, improve retention among our employees, and decrease our reliance on contract labor, and lower contract labor rates due to reduced demand in the marketplace. Our total contract labor costs decreased by approximately 76.0% during the three months ended March 31, 2022, our contracted clinical labor represented approximately 27.0% of our workforce, compared to approximately 21.0% for the three months ended March 31, 2021. Additionally, the cost of contract clinical labor has risen significantly due to the demand for healthcare professionals. These costs were approximately 23.0% higher during the three months ended March 31, 2022,2023, as compared to the three months ended March 31, ~~2021. During~~2022, which was driven by a 53.1% decrease in the ~~three months ended March 31, 2021, our Adjusted EBITDA~~utilization of contract registered nurses and ~~Adjusted EBITDA margin also benefited from~~a 42.0% decrease in the ~~recognition of $17.9 million of other operating income, as described further above under “Other Operating Income.~~”rate per hour for contract registered nurses.

Rehabilitation Hospital Segment. Adjusted EBITDA ~~was~~increased 11.4% to $47.2 million for the three months ended March 31, 2023, compared to $42.4 million for the three months ended March 31, ~~2022, compared to $50.5 million for the three months ended March 31, 2021.~~2022. Our Adjusted EBITDA margin for the rehabilitation hospital segment was 20.4% for the three months ended March 31, 2023, compared to 19.2% for the three months ended March 31, ~~2022, compared to 24.3%~~2022. The increase in Adjusted EBITDA for the three months ended March 31, ~~2021. Our Adjusted EBITDA and Adjusted EBITDA margin for~~2023, as compared to the three months ended March 31, 2022, ~~were adversely affected~~was primarily attributable to an increase in revenue, which was partially offset by ~~the incurrence of~~ additional labor costs. Constrained staffing due to a shortage of healthcare workers, which has led to increases in incentive and bonus pay for our employees, and greater dependence on contract clinical workers have contributed tocosts associated with the ~~increased labor costs. Additionally, the cost of contract clinical labor has risen significantly due to the demand for healthcare professionals. The~~ increase in ~~contracted clinical labor usage and labor rates occurred predominantly within our hospitals operating in California and New Jersey.~~patient days.

Outpatient Rehabilitation Segment. Adjusted EBITDA increased ~~1.0%~~13.5% to $30.2 million for the three months ended March 31, 2023, compared to $26.6 million for the three months ended March 31, ~~2022, compared to $26.3 million for the three months ended March 31, 2021.~~2022. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 10.2% for the three months ended March 31, 2023, compared to 9.8% for the three months ended March 31, ~~2022,~~2022. The increase in our Adjusted EBITDA was primarily due to an increase in patient visits, partially offset by increases in labor costs for the three months ended March 31, 2023, as compared to ~~10.4%~~the three months ended March 31, 2022.

Concentra Segment. Adjusted EBITDA increased 4.8% to $93.7 million for the three months ended March 31, ~~2021. The increase in Adjusted EBITDA was principally driven by an increase in patient visit volume during~~2023, compared to $89.5 million for the three months ended March 31, 2022. Our Adjusted EBITDA ~~and Adjusted EBITDA~~ margin for the Concentra segment was 20.5% for the three months ended March 31, ~~2022 were adversely affected by disruptions in our workforce which were caused by the COVID-19 Omicron variant.~~

~~Concentra Segment.~~ ~~Adjusted EBITDA increased 9.1% to $89.5 million for the three months ended March 31, 2022,~~2023, compared to ~~$82.0 million for the three months ended March 31, 2021. Our Adjusted EBITDA margin for the Concentra segment was~~ 21.1% for the three months ended March 31, ~~2022, compared~~2022. The increase in Adjusted EBITDA was primarily due to ~~19.4%~~an increase in revenue, partially offset by increases in labor costs for the three months ended March 31, ~~2021. The increases in Adjusted EBITDA and Adjusted EBITDA margin were primarily attributable~~2023, as compared to ~~an increase in patient visits in our centers during~~ the three months ended March 31, 2022.

~~Table of Contents~~

Depreciation and Amortization

Depreciation and amortization expense was $52.4 million for the three months ended March 31, 2023, compared to $51.0 million for the three months ended March 31, ~~2022, compared to $49.6 million for the three months ended March 31, 2021.~~2022.

Income from Operations

For the three months ended March 31, ~~2022,~~2023, we had income from operations of ~~$104.0~~$151.5 million, compared to ~~$202.0~~$104.0 million for the three months ended March 31, ~~2021.~~2022. The ~~increase~~decline in labor costs experienced within our critical illness recovery hospital ~~and rehabilitation hospital segments~~segment was the primary cause of the ~~decrease~~increase in income from operations, as discussed above under “Adjusted ~~EBITDA.” Additionally, we recognized other operating income of $34.0 million during the three months ended March 31, 2021, as described further under “Other Operating Income~~EBITDA.”

Equity in Earnings of Unconsolidated Subsidiaries

For the three months ended March 31, ~~2022,~~2023, we had equity in earnings of unconsolidated subsidiaries of ~~$5.4~~$8.6 million, compared to ~~$9.9~~$5.4 million for the three months ended March 31, ~~2021.~~2022. The ~~decrease~~increase in equity in earnings is principally due ~~in part~~ to ~~an increase in labor costs incurred by~~ the improved operating performance of our rehabilitation businesses in which we are a minority owner. ~~Additionally, certain~~

Interest

Our term loan is subject to an interest rate cap, which limits the one-month LIBOR rate to 1.0% on $2.0 billion of ~~these rehabilitation businesses recognized income~~principal outstanding under the term loan. The one-month LIBOR rate was 4.86% at March 31, 2023, compared to 0.45% at March 31, 2022. Accordingly, the interest rate cap mitigated our exposure to increases in one-month LIBOR in excess of 1.0% during the three months ended March 31, 2023. Interest expense was $48.6 million for the three months ended March 31, ~~2021 for the payments they received under the Provider Relief Fund for health care related expenses and lost revenues attributable~~2023, compared to ~~COVID-19.~~

~~Interest~~

~~Interest expense was~~ $35.5 million for the three months ended March 31, ~~2022, compared to $34.4 million for the three months ended March 31, 2021.~~2022. The increase in interest expense was caused by the borrowings we made under our revolving facility, ~~during~~as well an increase in the one-month LIBOR rate, as described further above.

Table of Contents

Income Taxes

We recorded income tax expense of $26.2 million for the three months ended March 31, ~~2022.~~

~~For the three months ended March 31, 2021, we recognized interest income~~2023, which represented an effective tax rate of ~~$4.7 million. The interest income is related to the outcome of litigation with CMS.~~

~~Income Taxes~~

23.5%. We recorded income tax expense of $17.9 million for the three months ended March 31, 2022, which represented an effective tax rate of 24.3%. ~~We recorded~~

The reduction in our effective tax rate resulted principally from an increase in our income before income taxes generated from our less than wholly owned subsidiaries taxed as partnerships. For these subsidiaries, we only incur income tax expense on our share of ~~$45.1 million~~the earnings, however the full earnings of these subsidiaries are reflected in income before income taxes on the Condensed Consolidated Statement of Operations. The downward effect of the untaxed income allocated to non-controlling interests on the effective tax rate was 3.5% for the three months ended March 31, ~~2021, which represented an effective tax rate of 24.7%.~~2023, compared to 2.5% for the three months ended March 31, 2022.

Net Income Attributable to Non-Controlling Interests

Net income attributable to non-controlling interests was $14.5 million for the three months ended March 31, 2023, compared to $6.8 million for the three months ended March 31, ~~2022, compared to $26.7 million for the three months ended March 31, 2021.~~2022. The ~~decrease~~increase in net income attributable to non-controlling interests was principally due ~~to a decrease~~an increase in the net income of our less than wholly owned ~~critical illness recovery hospitals and rehabilitation hospitals.~~subsidiaries. Many of these ~~hospitals were impacted by increases in~~subsidiaries benefited from lower labor costs during the three months ended March 31, ~~2022,~~2023, as compared to the three months ended March 31, 2021. The decline in net income attributable to non-controlling interests was also due to a change in our ownership interest of Concentra Group Holdings Parent. Since March 31, 2021, we have acquired additional outstanding membership interests of Concentra Group Holdings Parent.2022.

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Liquidity and Capital Resources

Cash Flows for the Three Months Ended March 31, ~~2022~~2023 and Three Months Ended March 31, ~~2021~~2022

In the following, we discuss cash flows from operating activities, investing activities, and financing activities.


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2022			2022		2023
		(in thousands)					(in thousands)
Cash flows provided by operating activities	Cash flows provided by operating activities	$	239,888	$	6,337	Cash flows provided by operating activities	$	6,337	$	51,440
Cash flows used in investing activities	Cash flows used in investing activities	(52,585)		(55,331)		Cash flows used in investing activities	(55,331)		(69,062)
Cash flows provided by (used in) financing activities		(14,090)		105,565
Net increase in cash and cash equivalents		173,213		56,571
Cash flows provided by financing activities						Cash flows provided by financing activities	105,565		3,419
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	56,571		(14,203)
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	577,061		74,310		Cash and cash equivalents at beginning of period	74,310		97,906
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	750,274	$	130,881	Cash and cash equivalents at end of period	$	130,881	$	83,703

Operating activities provided $51.4 million of cash flows for the three months ended March 31, 2023, compared to $6.3 million of cash flows for the three months ended March 31, ~~2022, compared to $239.9 million of cash flows for the three months ended March 31, 2021.~~2022. The ~~decrease in~~ cash flows from operating activities ~~was primarily due to our financial performance~~ during the three months ended March 31, ~~2022. We also repaid~~2022 included the repayment of $62.9 million of Medicare advance ~~payments received under the Accelerated and Advance Payment Program during the three months ended~~payments. The remaining change in cash flows provided by operating activities year over year is attributable to routine changes in net working capital, partially offset by an increase in net income.

Our days sales outstanding was 54 days at March 31, 2023, compared to 55 days at December 31, 2022. ~~CMS began recouping these payments in April 2021.~~

Our days sales outstanding was 53 days at March 31, 2022, compared to 52 days at December 31, 2021. Our days sales outstanding ~~was 56 days at both March 31, 2021 and December 31, 2020. Our days sales outstanding~~ will fluctuate based upon variability in our collection cycles and patient volumes.

Investing activities used $69.1 million of cash flows for the three months ended March 31, 2023. The principal uses of cash were $58.9 million for purchases of property, equipment, and other assets, and $10.2 million for investments in and acquisitions of businesses. Investing activities used $55.3 million of cash flows for the three months ended March 31, 2022. The principal uses of cash were $46.8 million for purchases of property and equipment and $8.5 million for investments in and acquisitions of businesses. ~~Investing~~

Financing activities ~~used $52.6~~provided $3.4 million of cash flows for the three months ended March 31, ~~2021.~~2023. The principal source of cash was net borrowings under our revolving facility of $15.0 million and net borrowings on our other debt of $10.3 million. The principal uses of cash were ~~$39.7~~$15.9 million of dividend payments to common stockholders and $8.0 million for distributions to and purchases of ~~property and equipment and $12.9 million for investments in and acquisitions of businesses.~~

non-controlling interests. Financing activities provided $105.6 million of cash flows for the three months ended March 31, 2022. The principal source of cash was net borrowings under our revolving facility of $180.0 million. The principal uses of cash were $51.7 million ~~of cash~~ for repurchases of common stock, $16.7 million of dividend payments to common stockholders and $10.3 million for distributions to and purchases of non-controlling interests. Financing activities used $14.1 million of cash flows for the three months ended March 31, 2021. The principal use of cash was $13.7 million for distributions to and purchases of non-controlling interests.

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Capital Resources

Working capital. We had net working capital of ~~$61.7~~$128.0 million at March 31, ~~2022,~~2023, compared to ~~a net working capital deficit of $133.6~~$116.2 million at December 31, ~~2021.~~2022. The increase in working capital was primarily due to ~~increases~~an increase in accounts receivable and a decrease in our ~~cash and cash equivalents and accounts receivable, as well as a reduction~~accrued expenses. This was partially offset by an increase in the current portion of our ~~liability related to the payments we received under the Accelerated and Advance Payment Program.~~long-term debt.

Credit facilities. On February 21, 2023, Select entered into Amendment No. 6 to the Select credit agreement. Amendment No. 6 extended the maturity date on $530.0 million of the total borrowing capacity of $650.0 million under the Select revolving facility to March 6, 2025; however, in the event the Company’s term loan is not refinanced by January 3, 2025, the maturity date for those revolving borrowings will be January 3, 2025.

At March 31, ~~2022,~~2023, Select had outstanding borrowings under its credit facilities consisting of a $2,103.4 million term loan (excluding unamortized original issue discounts and debt issuance costs of ~~$12.3~~$8.1 million) and borrowings of ~~$340.0~~$460.0 million under ~~our~~its revolving facility. At March 31, ~~2022,~~2023, Select had ~~$252.8~~$133.8 million of availability under its revolving facility after giving effect to ~~$57.2~~$56.2 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 $1.0 billion worth of shares of its common stock. The common stock repurchase program will remain in effect until December 31, 2023, 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 its revolving facility. ~~During~~Holdings did not repurchase shares during the three months ended March 31, ~~2022, Holdings repurchased 2,128,494 shares at a cost of approximately $51.7 million, or $24.28 per share, which includes transaction costs.~~2023. Since the inception of the program through March 31, ~~2022,~~2023, Holdings has repurchased ~~42,480,122~~48,234,823 shares at a cost of approximately ~~$466.9~~$600.3 million, or ~~$10.99~~$12.45 per share, which includes transaction costs. 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

~~The duration and extent of the impact from the COVID-19 pandemic on our operations and liquidity depends on future developments that cannot be accurately predicted at this time; however, we~~We believe our internally generated cash flows and borrowing capacity under our revolving facility will allow us to finance our operations in both the short and long term. As of March 31, ~~2022,~~2023, we had cash and cash equivalents of ~~$130.9~~$83.7 million and ~~$252.8~~$133.8 million of availability under the revolving facility after giving effect to ~~$340.0~~$460.0 million of outstanding borrowings and ~~$57.2~~$56.2 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.

Dividend

On May ~~5, 2022,~~3, 2023, our ~~board~~Board of ~~directors~~Directors declared a cash dividend of $0.125 per share. The dividend will be payable on or about ~~June 1, 2022~~May 31, 2023 to stockholders of record as of the close of business on May ~~19, 2022.~~18, 2023.

There is no assurance that future dividends will be declared. The declaration and payment of dividends in the future are at the discretion of our ~~board~~Board of ~~directors~~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~~Board of ~~directors~~Directors may deem to be relevant.

~~Recent Accounting Pronouncements~~Effects of Inflation

~~There were no new accounting standards issued since December 31, 2021, which will~~The healthcare industry is 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 marketplace. We have ~~a material effect on~~recently experienced higher labor costs related to the ~~financial statements upon adoption.~~current inflationary environment and competitive labor market. In addition, suppliers have passed along rising costs to us in the form of higher prices. We cannot predict our ability to pass along cost increases to our customers.

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Recent Accounting Pronouncements

Refer to Note 2 – Accounting Policies of the notes to our condensed consolidated financial statements included herein for information regarding recent accounting 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 our credit facilities, which ~~generally~~ bear interest rates that are indexed against LIBOR.

In order to mitigate our exposure to rising interest rates, we entered into an interest rate cap transaction to limit our ~~1-month~~one-month LIBOR rate to 1.0% on $2.0 billion of principal outstanding under our term loan. The agreement applies to interest payments through September 30, 2024. As of March 31, ~~2022,~~2023, the ~~1-month~~one-month LIBOR rate was ~~0.45%~~4.86%. AAs of March 31, 2023, $103.4 million of our term loan borrowings are subject to variable interest rates.

As of March 31, 2023, each 0.25% ~~change~~increase in market interest rates ~~would~~will impact the annual interest expense on our variable rate debt by $6.1 million until 1-month LIBOR exceeds 1.0%, at which time the impact of increases in 1-month LIBOR on the interest expense incurred on our term loan borrowings will be mitigated in part by the interest rate cap, as described further in Note 9 – Interest Rate Cap of the notes to our condensed consolidated financial statements included herein.$1.4 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 March 31, ~~2022,~~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 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 first quarter ended March 31, ~~2022,~~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.

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PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Refer to the “Litigation” section contained within Note 1413 – Commitments and Contingencies of the notes to our condensed consolidated financial statements included herein.

ITEM 1A. RISK FACTORS

~~The~~There have been no material changes from our risk ~~factor~~factors set forth in ~~this report updates, and should be read together with, the risk factors discussed in Item 1A of~~ our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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

Purchases of Equity Securities by the Issuer

Holdings’ ~~board~~Board of ~~directors~~Directors authorized a common stock repurchase program to repurchase up to $1.0 billion worth of shares of its common stock. The program will remain in effect until December 31, 2023, 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.

~~The following table provides information regarding repurchases of our common stock during~~During the three months ended March 31, ~~2022.~~

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
January 1 - January 31, 2022 — $ — — $ 584,796,612
February 1 - February 28, 2022 — — — 584,796,612
March 1 - March 31, 2022 2,128,494 24.28 2,128,494 533,120,670
Total 2,128,494 $ 24.28 2,128,494 $ 533,120,670
2023, Holdings did not repurchase shares under the authorized common stock repurchase program. The common stock repurchase program has an available capacity of $399.7 million as of March 31, 2023.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


Number						Description
10.1						Amendment No 6, dated as of February 21, 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, and Amendment No. 5, dated as of June 2, 2021 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (file No. 001-34465) filed on February 22, 202 3 ).
10.2						Offer Letter, by and between Select Medical Corporation and Christopher S. Weigl, dated April 22, 2022 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K (file No. 001-34465), filed on March 1, 2023).
31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.SCH						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 cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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SIGNATURES

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


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

Dated: May ~~5, 2022~~4, 2023

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	December 31, 2021		March 31, 2022
Weighted average remaining lease term (in years):
Operating leases	7.8		7.6
Finance leases	24.7		24.8
Weighted average discount rate:
Operating leases	5.6	%	5.6	%
Finance leases	7.4	%	7.4	%


	December 31, 2021						March 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(in thousands)
Indefinite-lived intangible assets:
Trademarks	$	166,698	$	—	$	166,698	$	166,698	$	—	$	166,698
Certificates of need	21,478		—		21,478		21,625		—		21,625
Accreditations	1,874		—		1,874		1,874		—		1,874
Finite-lived intangible assets:
Trademarks	5,000		(5,000)		—		5,000		(5,000)		—
Customer relationships	304,289		(141,111)		163,178		305,839		(148,283)		157,556
Non-compete agreements	36,746		(15,095)		21,651		37,087		(15,990)		21,097
Total identifiable intangible assets	$	536,085	$	(161,206)	$	374,879	$	538,123	$	(169,273)	$	368,850


	Critical Illness Recovery Hospital

	Revenue						Patient Days			Occupancy Rate				Number of Hospitals(1)
	2019		2021		2022			2019	2021		2022	2019			2021		2022		2019	2021	2022
	(in thousands)



Three Months Ended March 31	$	457,534	$	594,872	$	601,755		258,129	293,118		289,217	71	%		75	%	71	%	96	99	105


	Outpatient Rehabilitation

	Revenue						Visits			Working Days(2)
	2019		2021		2022			2019	2021		2022	2019	2021	2022
	(in thousands)



Three Months Ended March 31	$	246,905	$	251,961	$	271,940		2,054,483	2,100,154		2,310,086	63	63	64


	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
January 1 - January 31, 2022	—	$	—	—	$	584,796,612
February 1 - February 28, 2022	—	—		—	584,796,612
March 1 - March 31, 2022	2,128,494	24.28		2,128,494	533,120,670
Total	2,128,494	$	24.28	2,128,494	$	533,120,670