2017.

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cognitive impairments and maximize functional ability. We also provide services designed to prevent short term disabilities from becoming chronic conditions. Our rehabilitation services are provided by our professionals including licensed physical therapists, occupational therapists, and speech-language pathologists.

physician order. Currently, this population of patients is not significant. In our outpatient rehabilitation segment, for the year ended December 31, 2017, approximately 89%85% of our net operating revenues come from commercial payors, including healthcare insurers, managed care organizations and workers'workers’ compensation programs, contract management services, and private pay sources. We believe that our services are attractive to healthcare payors who are seeking to provide high-quality and cost-effective care to their enrollees. The balance of our reimbursement is derived from Medicare and other government sponsored programs.

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therapists by implementing a performance-based bonus program, a defined career path with the ability to be promoted from within, timely communication on company developments, and internal training programs. We also focus on empowering our employees by giving them a high degree of autonomy in determining local area strategy. We seek to identify therapists who are potential business leaders. This management approach reflects the unique nature of each local area in which we operate and the importance of encouraging our employees to assume responsibility for their clinic'sclinic’s financial and operational performance.

2017.

        Workers'

        In Concentra's occupational health services business, patient bookings

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approximately 15% of net operating revenues from our Concentra segment.2017. With these leading positions in the areas we serve, we believe that we are well-positioned to benefit from the rising demand for medical services due to an aging population in the United States, which will drive growth across our business lines.

segments.

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or therapist sharing medical fees with a referral source, but in some states these laws have been interpreted to extend to management agreements between physicians or therapists and business entities under some circumstances.

Workers'”

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often highly complex. In some states, payment for services covered by workers'workers’ compensation programs are subject to cost containment features, such as requirements that all workers'workers’ compensation injuries be treated through a managed care program, or the imposition of fee schedules or payment caps for services furnished to injured employees. Some state workers'workers’ compensation laws limit the ability of an employer to select the providers furnishing care to injured employees. Several states require that physicians furnishing non-emergency services to workers'workers’ compensation patients must register with the applicable state agency and undergo special continuing education and training. Workers'Workers’ compensation programs may also impose other requirements that affect the operations of our facilities furnishing outpatient services. Net operating revenues generated directly from workers'workers’ compensation programs represented approximately 17%18% of our net operating revenue from outpatient rehabilitation services, 1% of our net operating revenue from our specialty hospitalsLTCHs, 2% of our net operating revenue from our IRFs, and 52%53% of our net operating revenue from our Concentra segment for the year ended December 31, 2015.

2017.

2015, 30% for the year ended December 31, 2016, and 30% for the year ended December 31, 2017.

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for payment under Medicare reimbursement systems for LTCHs or IRFs, as applicable, that hospital will be paid under the system applicable to general acute care hospitals. For general acute care hospitals, Medicare payments for inpatient care are made under the inpatient prospective payment system, or "IPPS,"“IPPS,” under which a hospital receives a fixed payment amount per discharge (adjusted for area wage differences) using Medicare severity diagnosis-related groups, or "MS-DRGs."“MS-DRGs.” The general acute care hospital MS-DRG payment rate is based upon the national average cost of treating a Medicare patient'spatient’s condition, based on severity levels of illness, in that type of facility. Although the average length of stay varies for each MS-DRG, the average stay of all Medicare patients in a general acute care hospital is substantially less than the average length of stay in LTCHs and IRFs. Thus, the prospective payment system for general acute care hospitals creates an economic incentive for those hospitals to discharge medically complex Medicare patients to a post-acute care setting as soon as clinically possible. Effective October 1, 2005, CMS expanded its post-acute care transfer policy under which general acute care hospitals are paid on a per diem basis rather than the full MS-DRG rate if a patient is discharged early to certain post-acute care settings, including LTCHs and IRFs. When a patient is discharged from selected MS-DRGs to, among other providers, an LTCH or IRF, the general acute care hospital may be reimbursed below the full MS-DRG payment if the patient'spatient’s length of stay is less than the geometric mean length of stay for the MS-DRG.

        The

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based on the patient'spatient’s length of stay, the facility'sfacility’s costs, whether the patient was discharged and readmitted, and other factors.

        Each of our LTCHs has their own unique annual cost reporting period. As a result, For fiscal year 2018, the new payment limits will become effective for each of our LTCHsIPPS fixed-loss amount is set at different points in time over a twelve month period beginning on October 1, 2015. As of December 31, 2015, 16 of our LTCHs have cost reporting periods that began during$26,537 and the fourth quarter of 2015 and 37, 19 and 36 of our LTCHs have cost reporting periods commencing during the first quarter, second quarter and third quarters of 2016, respectively.

category was eliminated.

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providing inpatient services to Medicare beneficiaries with medically complex conditions that require a long hospital stay. In addition, by definition, LTCHs must meet certain facility criteria, including (1)including: (i) instituting a review process that screens patients for appropriateness of an admission and validates the patient criteria within 48 hours of each patient'spatient’s admission, evaluates regularly their patients for continuation of care and assesses the available discharge options, (2)options; (ii) having active physician involvement with patient care that includes a physician available on-site daily and additional consulting physicians on call,call; and (3)(iii) having an interdisciplinary team of healthcare professionals to prepare and carry out an individualized treatment plan for each patient.

        The SCHIP Extension Act,

Independent Payment Advisory Board

        The ACA established an independent board called the Independent Payment Advisory Board that is authorized to develop and submit proposals to the President and Congress to reduce Medicare spending to meet specified targets. The Independent Payment Advisory Board is precluded from submitting proposals that reduce Medicare payments prior to December 31, 2019 for providers, including LTCHs and IRFs, scheduled to receive a reduction in their payment updates in addition to the Medicare productivity adjustment (discussed above). The Independent Payment Advisory Board's proposals would go into effect automatically unless Congress enacts alternative legislation to achieve the required savings (with certain exceptions). The ACA authorized the Independent Payment Advisory Board to issue its first recommendations by January 2014 for implementation in 2015 if the Medicare per capita target growth rate is exceeded, but the CMS Office of the Actuary has determined that the Medicare spending target will not be triggered for 2015. To date, no Independent Payment Advisory Board members have been appointed, and there have been repeated legislative attempts to repeal the provision of the ACA authorizing the establishment of the Independent Payment Advisory Board.

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heightened scrutiny. These pronouncements can identify issues relating to LTCHs, IRFs, or outpatient rehabilitation services or providers. For example, the OIG stated in its 20142017 Work Plan that it would study (1) readmission patterns in LTCHsidentify the factors contributing to determine whether LTCHs are billing Medicare for higher paying new stays instead of interrupted stays and (2) the extent to which co-located LTCHs readmit patients from the providers with which they are co-located. The OIG issued a corresponding report in June of 2014 in which it recommended that CMS (1) review existing safeguards to determine whether additional action is needed to prevent inappropriate payments for interrupted stays, (2) conduct additional analysis to determine the extent to which financial incentives influence LTCHs' readmission decisions, (3) develop a system to enforce the 5-percent readmission threshold, (4) take appropriate action regarding LTCHs exhibiting certain readmission patterns, and (5) take appropriate action on inappropriate payments and overpayments to co-located LTCHs that exceed the 5-percent readmission threshold. Of these recommendations, CMS concurred with the OIG's recommendation that CMS (1) review existing safeguards to determine whether additional action is needed to prevent inappropriate payments for interrupted stays and (2) take appropriate action on inappropriate payments and overpayments to co-located LTCHs that exceed the 5-percent readmission threshold. In the OIG's 2015 and 2016 Work Plans, the OIG announced its intent to estimate the national incidence of adverse and temporary harm events for Medicare beneficiaries receiving post-acute care in IRFs and LTCHs. As partLTCHs for the purpose of this review, the OIG intends to identify factors contributing to these events, determinedetermining the extent to which the events were preventable, and estimate the associated costs to Medicare.preventable. In the 20162017 Work Plan, the OIG also indicated it would review IRF claims for compliance with (1) various aspects ofMedicare documentation and coverage requirements. Additionally, the 2017 Work Plan described the OIG’s plan to review IRF PPS, including documentation requiredadmissions to determine whether patients who participated in support of claims paid by Medicare, (2) Medicare outlier payments to hospitals and whether CMS performed necessary reconciliations in a timely manner to enable Medicare contractors to perform final settlement of the hospitals' associated cost reports, and (3) hospital compliance with the Medicare provider-based rules.intensive therapy caps were suitable candidates. Our IRFs and LTCHs may be required to provide information related to these reviews. We monitor government publications applicable to us to supplement and enhance our compliance efforts.

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charged with the responsibility for enforcing the provisions of these prohibitions will not assert that one or more of our arrangements are in violation of the provisions of such laws and regulations.

        Effective January 1, 2017, outpatient rehabilitation services operated as provider-based and located at an off-campus outpatient department of a hospital, will be paid under the Medicare physician fee schedule, rather than the hospital outpatient prospective payment system, unless services at that location were billed as a department of a hospital prior to November 2, 2015. The 169 outpatient rehabilitation clinics we operated as departments of our IRFs as of November 2, 2015 are grandfathered and will continue to be paid under the hospital outpatient prospective payment system.

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with payors, the cost of our compliance has not had a material adverse effect on our business, financial condition, or results of operations. We cannot estimate the cost of compliance with standards that have not been issued or finalized by the Department of Health and Human Services.

        The BCA of 2011, enacted on August 2, 2011, increased the federal debt ceiling in connection with deficit reductions over the next ten years. The BCA of 2011 requires automatic reductions in federal spending by approximately $1.2 trillion split evenly between domestic and defense spending. Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2% cap. On April 1, 2013 a 2% reduction to Medicare payments was implemented. The BBA of 2013 extended the automatic

after Medicare cost reports are filed for cost reporting periods that include October 1, 2018.

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LTCHs or HIHs fail to meet or maintain the standards for certification as LTCHs, they will receive payment under the general acute care hospitals IPPS which is generally lower than payment under the system applicable to LTCHs. Payments at rates applicable to general acute care hospitals would result in our LTCHs receiving significantly less Medicare reimbursement than they currently receive for their patient services.

         Implementation of additional patient or facility criteria for LTCHs that limit the population of patients eligible for our hospitals' services or change the basis on which we are paid could adversely affect our net operating revenue and profitability.

        The BBA of 2013 establishes new payment limits for Medicare patients who do not meet specified criteria. Specifically, for Medicare patients discharged in cost reporting periods beginning on or after October 1, 2015, LTCHs will be reimbursed under LTCH-PPS only if, immediately preceding the patient's LTCH admission, the patient was discharged from a general acute care hospital paid under IPPS and the patient's stay included at least three days in an intensive care unit (ICU) or coronary care unit (CCU) or the patient is assigned to an MS-LTC-DRG for cases receiving at least 96 hours of ventilator services in the LTCH. In addition, to be paid under LTCH-PPS the patient's discharge from the LTCH may not include a principal diagnosis relating to psychiatric or rehabilitation services. For any Medicare patient who does not meet the new criteria, the LTCH will be paid a "site-neutral" payment rate, which will be the lower of (1) the IPPS comparable per-diem payment rate including any outlier payments, or (2) 100 percent of the estimated costs for services. For cost reporting periods beginning on or after October 1, 2019, payment for all discharges from an LTCH may be subject to the site-neutral payment limitation unless the number of discharges for which payment is made under the LTCH-PPS payment rate is greater than 50% of the total number of discharges for the LTCH. The application of the new site-neutral payment rates under LTCH-PPS may reduce our operating revenues.

        CMS requested public comments in May of 2013 on adoption of a payment adjustment based on whether a particular case qualifies as chronically critically ill/medically complex ("CCI/MC"). CMS indicated that it was considering a change to the LTCH-PPS payment policies that would limit full LTCH-PPS payment to those patients meeting the definition of CCI/MC while they were in an IPPS hospital inpatient setting and subsequently directly admitted to an LTCH. Payment for non-CCI/MC patients would be made at an "IPPS comparable amount," that is, an amount comparable to what would have been paid under the IPPS calculated as a per diem rate with total payments capped at the full IPPS MS-DRG payment rate.

        It is unclear how the adoption of the BBA of 2013 will impact regulatory or legislative proposals to change the LTCH-PPS payment policies. We cannot predict whether Congress or CMS will adopt additional patient-level criteria in the future or, if adopted, how such criteria would affect our LTCHs. Implementation of additional patient or facility criteria that may limit the population of patients eligible for our LTCHs' services or change the basis on which we are paid could adversely affect our net operating revenues and profitability. See "Business—Government Regulations—Overview of U.S. and State Government Reimbursements—Long Term Acute Care Hospital Medicare Reimbursement."

        Effective October 1, 2015, CMS removed a number of diagnosis codes from the presumptive compliance list including diagnosis codes in the following categories: nonspecific diagnosis codes, arthritis diagnosis codes, unilateral upper extremity amputations diagnosis codes, amputation status codes, prosthetic fitting and adjustment codes, some congenital anomalies diagnosis codes and other miscellaneous diagnosis codes. According to CMS, these conditions do not demonstrate the need for intensive inpatient rehabilitation services in the absence of additional facts that would have to be pulled from a patient's medical record.

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penalties for HIPAA violations. Violations of HIPAA or HITECH could result in civil or criminal penalties.

         Future

         Competition may limit our ability to acquire hospitals, clinics and medical centers and adversely affect our growth.

        We have historically faced limited competition in acquiring specialty hospitals and outpatient rehabilitation clinics, but we may face heightened competition in the future. In addition, significant merger and acquisition activity has occurred in Concentra's industry. Our competitors may acquire or seek to acquire many

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over medical cost trends, and marketing expenses may be compromised and our net operating revenues and profitability may decline.

        Concentra's

         Changes in federal or state law limiting or prohibiting certain physician referrals may preclude physicians from investing in our hospitals or referring to hospitals in which they already own an interest.

        The Stark Law prohibits a physician who has a financial relationship with an entity from referring his or her Medicare or Medicaid patients to that entity for certain designated health services, including

         If Concentra is unable to implement and enhance its information systems in a manner that leverages its knowledge of the workers' compensation market and or more efficiently process and manage claims, results may be adversely affected.

        To leverage its knowledge of workplace injuries, treatment protocols, outcomes data and complex regulatory provisions related to the workers' compensation market, Concentra must continue to implement and enhance information systems that can analyze its data related to the workers' compensation industry. Concentra frequently upgrades existing operating systems and is updating other information systems upon which it relies. Concentra has detailed implementation schedules for these projects that require extensive involvement from its operational, technological and financial personnel. Delays or other problems Concentra might encounter in implementing these projects could adversely affect its ability to deliver streamlined patient care and outcome reporting to its customers.

        In addition, Concentra expects that a considerable amount of its future growth will depend on its ability to process and manage claims data more efficiently and to provide more meaningful healthcare information to customers and payors of healthcare. There can be no assurance that Concentra's current data processing capabilities will be adequate for its future growth, that it will be able to efficiently upgrade its systems to meet future demands, or that it will be able to develop, license or otherwise acquire software to address these market demands as well or as timely as its competitors.

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downturn, the number of employees with workers'workers’ compensation insurance substantially decreased. Although the number of covered employees has increased more in recent years as the employment rate has increased, adverse economic conditions can cause the number of covered employees to decline which can cause further declines in workers' compensation claims. There may also be a decrease in claims because more workers have access to health insurance since the enactment of the ACA and are less likely to file worker'sworkers’ compensation claims. In addition, because of the greater access to health insurance and the fact that the U.S.United States economy has continued to shift from a manufacturing-based to a service-based economy along with general improvements in workplace safety, workers are generally healthier and less prone to work injuries. Increases in employer-sponsored wellness and health promotion programs, spurred in part by the ACA, have led to fitter and healthier employees who may be less likely to injure themselves on the job. Concentra'sConcentra’s business model is based, in part, on its ability to expand its relative share of the market for the treatment and review of claims for workplace injuries and illnesses. If workplace injuries and illnesses decline at a greater rate than the increase in total employment, or if total employment declines at a greater rate than the increase in incident rates, the number of claims in the workers'workers’ compensation market will decrease and may adversely affect Concentra'sConcentra’s business.

         We may not receive payment from some

Similarly, if an SEM COC Put Right is exercised by Dignity Health, Select will be obligated to purchase all (but not less than all) of the equity interests of Dignity Health at a purchase price based on a valuation of Concentra Group Holdings Parent performed by an investment bank to be agreed between Select and one of WCAS or Dignity Health, which valuation will be based on certain precedent transactions using multiples of EBITDA and capped at an agreed upon multiple of EBITDA.

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volume-weighted average sales price of such shares for the period beginning ten trading days immediately preceding the first public announcement of the Put Right or the SEM COC Put Right being exercised and ending ten trading days immediately following such announcement. Because the value of the common stock issued to purchase the interests in Concentra Group Holdings Parent is, in part, determined by the sales price of our common stock following the announcement that the Put Right or the SEM COC Put Right is being exercised, which may cause the sales price of our common stock to decline, the amount of common stock we may have to issue to purchase the interests in Concentra Group Holdings Parent may increase, resulting in further dilution to our existing stockholders.

•

         Our”

        As of December 31, 2015, Select was required to maintain its leverage ratio (its ratio of total indebtedness to consolidated EBITDA for the prior four consecutive fiscal quarters) at less than 5.75 to 1.00. For the four consecutive fiscal quarters ended December 31, 2015, Select's leverage ratio was 4.78 to 1.00.

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restrictions on dividends or repatriation of distributions under applicable local law, monetary transfer restrictions, and foreign currency exchange regulations in the jurisdictions in which the subsidiaries operate or under arrangements with local partners. Furthermore, the ability of our subsidiaries to make such payments of interest, dividends, distributions, loans, or advances may be contested by taxing authorities in the relevant jurisdictions.

        We currently lease allLTCHs, seven of our IRFs, one of our outpatient rehabilitation clinics, and related offices, which, assix of December 31, 2015 included 896 leased outpatient rehabilitation clinicsour Concentra medical centers throughout the United States. We also lease the majority of our LTCH facilities except for the facilities described above. As of December 31, 2015, in2017, we leased 79 of our specialty hospitals we had 77 HIH leases and 16 free-standing building leases. AsLTCHs, 9 of December 31, 2015, inour IRFs, 1,446 of our outpatient rehabilitation clinics, 306 of our Concentra segment we owned six of our medical centers, and had 294 leased medical centers and 33 CBOC leases.

32 CBOCs throughout the United States.