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 ~~June 30, 2021~~March 31, 2022


☐			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 ~~July 31, 2021,~~April 30, 2022, Select Medical Holdings Corporation had outstanding ~~134,576,139~~130,627,340 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	87

	Notes to condensed consolidated financial statements	98

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2319

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5438

ITEM 4.	CONTROLS AND PROCEDURES	5438

PART II	OTHER INFORMATION	5539

ITEM 1.	LEGAL PROCEEDINGS	5539

ITEM 1A.	RISK FACTORS	5539

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5539

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	5539

ITEM 4.	MINE SAFETY DISCLOSURES	5539

ITEM 5.	OTHER INFORMATION	5539

ITEM 6.	EXHIBITS	5640

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, 2020		June 30, 2021			December 31, 2021		March 31, 2022
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	577,061	$	803,493	Cash and cash equivalents	$	74,310	$	130,881
Accounts receivable	Accounts receivable	896,763		931,179		Accounts receivable	889,303		941,434
Prepaid income taxes	Prepaid income taxes	5,686		5,417		Prepaid income taxes	55,620		40,761
Other current assets	Other current assets	114,490		128,081		Other current assets	120,206		137,775
Total Current Assets	Total Current Assets	1,594,000		1,868,170		Total Current Assets	1,139,439		1,250,851
Operating lease right-of-use assets	Operating lease right-of-use assets	1,032,217		1,053,331		Operating lease right-of-use assets	1,078,754		1,102,710
Property and equipment, net	Property and equipment, net	943,420		928,226		Property and equipment, net	961,467		952,926
Goodwill	Goodwill	3,379,014		3,391,040		Goodwill	3,448,912		3,465,456
Identifiable intangible assets, net	Identifiable intangible assets, net	387,541		380,302		Identifiable intangible assets, net	374,879		368,850
Other assets	Other assets	319,207		335,310		Other assets	356,720		395,151
Total Assets	Total Assets	$	7,655,399	$	7,956,379	Total Assets	$	7,360,171	$	7,535,944
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:

Overdrafts						Overdrafts	$	42,353	$	34,745
Current operating lease liabilities	Current operating lease liabilities	$	220,413	$	224,868	Current operating lease liabilities	229,334		234,420
Current portion of long-term debt and notes payable	Current portion of long-term debt and notes payable	12,621		11,608		Current portion of long-term debt and notes payable	17,572		24,513
Accounts payable	Accounts payable	177,087		187,736		Accounts payable	233,844		238,150
Accrued payroll	Accrued payroll	224,876		246,960		Accrued payroll	247,292		242,749
Accrued vacation	Accrued vacation	132,811		146,790		Accrued vacation	144,048		148,114
Accrued interest	Accrued interest	29,240		28,938		Accrued interest	29,002		9,932
Accrued other	Accrued other	228,948		256,095		Accrued other	244,312		232,297
Government advances (Note 15)		321,807		251,272
Unearned government assistance (Note 15)		82,607		4,099
Government advances						Government advances	83,790		20,862
Unearned government assistance						Unearned government assistance	93		194

Income taxes payable	Income taxes payable	7,956		50,662		Income taxes payable	1,437		3,175
Total Current Liabilities	Total Current Liabilities	1,438,366		1,409,028		Total Current Liabilities	1,273,077		1,189,151
Non-current operating lease liabilities	Non-current operating lease liabilities	875,367		893,478		Non-current operating lease liabilities	916,540		938,423
Long-term debt, net of current portion	Long-term debt, net of current portion	3,389,398		3,386,214		Long-term debt, net of current portion	3,556,385		3,738,299
Non-current deferred tax liability	Non-current deferred tax liability	132,421		123,559		Non-current deferred tax liability	142,792		156,407
Other non-current liabilities	Other non-current liabilities	168,703		172,656		Other non-current liabilities	106,442		105,098
Total Liabilities	Total Liabilities	6,004,255		5,984,935		Total Liabilities	5,995,236		6,127,378
Commitments and contingencies (Note 14)	Commitments and contingencies (Note 14)	0		0		Commitments and contingencies (Note 14)	0		0
Redeemable non-controlling interests	Redeemable non-controlling interests	398,171		521,552		Redeemable non-controlling interests	39,033		41,670
Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Common stock, $0.001 par value, 700,000,000 shares authorized, 134,850,735 and 135,005,369 shares issued and outstanding at 2020 and 2021, respectively		135		135
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						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
Capital in excess of par	Capital in excess of par	509,128		516,172		Capital in excess of par	504,314		489,794
Retained earnings	Retained earnings	553,244		713,191		Retained earnings	593,251		596,079
Accumulated other comprehensive income (loss)		(2,027)		4,727
Accumulated other comprehensive income						Accumulated other comprehensive income	12,282		52,135
Total Stockholders’ Equity	Total Stockholders’ Equity	1,060,480		1,234,225		Total Stockholders’ Equity	1,109,981		1,138,140
Non-controlling interests	Non-controlling interests	192,493		215,667		Non-controlling interests	215,921		228,756
Total Equity	Total Equity	1,252,973		1,449,892		Total Equity	1,325,902		1,366,896
Total Liabilities and Equity	Total Liabilities and Equity	$	7,655,399	$	7,956,379	Total Liabilities and Equity	$	7,360,171	$	7,535,944

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 June 30,				For the Six Months Ended June 30,					For the Three Months Ended March 31,
		2020		2021		2020		2021				2021		2022
Revenue	Revenue	$	1,232,718	$	1,564,020	$	2,647,350	$	3,110,483	Revenue		$	1,546,463	$	1,599,547
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	1,082,456		1,291,448		2,282,827		2,584,897		Cost of services, exclusive of depreciation and amortization		1,293,449		1,407,010
General and administrative	General and administrative	33,461		35,737		67,292		71,140		General and administrative		35,403		37,513
Depreciation and amortization	Depreciation and amortization	52,271		50,954		104,023		100,574		Depreciation and amortization		49,620		51,039
Total costs and expenses	Total costs and expenses	1,168,188		1,378,139		2,454,142		2,756,611		Total costs and expenses		1,378,472		1,495,562
Other operating income	Other operating income	54,988		98,087		54,988		132,108		Other operating income		34,021		—
Income from operations	Income from operations	119,518		283,968		248,196		485,980		Income from operations		202,012		103,985
Other income and expense:	Other income and expense:									Other income and expense:

Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries	8,324		11,809		10,912		21,728		Equity in earnings of unconsolidated subsidiaries		9,919		5,397
Gain on sale of businesses		346		0		7,547		0

Interest income	Interest income	0		0		0		4,749		Interest income		4,749		—
Interest expense	Interest expense	(37,366)		(33,888)		(83,473)		(68,290)		Interest expense		(34,402)		(35,514)
Income before income taxes	Income before income taxes	90,822		261,889		183,182		444,167		Income before income taxes		182,278		73,868
Income tax expense	Income tax expense	23,336		65,681		45,248		110,745		Income tax expense		45,064		17,942
Net income	Net income	67,486		196,208		137,934		333,422		Net income		137,214		55,926
Less: Net income attributable to non-controlling interests	Less: Net income attributable to non-controlling interests	15,836		31,314		33,159		57,982		Less: Net income attributable to non-controlling interests		26,668		6,809
Net income attributable to Select Medical Holdings Corporation	Net income attributable to Select Medical Holdings Corporation	$	51,650	$	164,894	$	104,775	$	275,440	Net income attributable to Select Medical Holdings Corporation		$	110,546	$	49,117
Earnings per common share (Note 13):	Earnings per common share (Note 13):									Earnings per common share (Note 13):
Basic and diluted	Basic and diluted	$	0.39	$	1.22	$	0.78	$	2.04	Basic and diluted		$	0.82	$	0.37

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 June 30,				For the Six Months Ended June 30,					For the Three Months Ended March 31,
		2020		2021		2020		2021				2021		2022
Net income	Net income	$	67,486	$	196,208	$	137,934	$	333,422	Net income		$	137,214	$	55,926
Other comprehensive income (loss), net of tax:
Gain (loss) on interest rate cap cash flow hedge		0		(1,403)		0		6,748
Reclassification adjustment for (gains) losses included in net income		0		6		0		6
Net change, net of tax benefit (expense) of $0, $486, $0, and $(2,348)		0		(1,397)		0		6,754
Other comprehensive income, net of tax:										Other comprehensive income, net of tax:
Gain on interest rate cap cash flow hedge										Gain on interest rate cap cash flow hedge		8,151		39,814
Reclassification adjustment for losses (gains) included in net income										Reclassification adjustment for losses (gains) included in net income		—		39
Net change, net of tax benefit (expense) of $(2,834) and $(13,284)										Net change, net of tax benefit (expense) of $(2,834) and $(13,284)		8,151		39,853

Comprehensive income	Comprehensive income	67,486		194,811		137,934		340,176		Comprehensive income		145,365		95,779
Less: Comprehensive income attributable to non-controlling interests	Less: Comprehensive income attributable to non-controlling interests	15,836		31,314		33,159		57,982		Less: Comprehensive income attributable to non-controlling interests		26,668		6,809
Comprehensive income attributable to Select Medical Holdings Corporation	Comprehensive income attributable to Select Medical Holdings Corporation	$	51,650	$	163,497	$	104,775	$	282,194	Comprehensive income attributable to Select Medical Holdings Corporation		$	118,697	$	88,970

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 Six Months Ended June 30, 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						—				0		Issuance of restricted stock	13	0		0						—				—
Forfeitures of unvested restricted stock		(14)	0		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				0		(2)				(2)		0		(2)
Balance at March 31, 2021		134,838	$	135	$	514,336	$	625,381	$	6,124	$	1,145,976	$	204,641	$	1,350,617
Net income attributable to Select Medical Holdings Corporation							164,894				164,894				164,894
Net income attributable to non-controlling interests											—		13,241		13,241
Dividends declared for common stockholders ($0.125 per share)							(16,876)				(16,876)				(16,876)
Issuance of restricted stock		211	0		0						—				0
Forfeitures of unvested restricted stock		(2)	0		0						—				0
Vesting of restricted stock					6,564						6,564				6,564
Repurchase of common shares		(42)	0		(707)		(903)				(1,610)				(1,610)
Issuance of non-controlling interests					(1,051)						(1,051)		6,739		5,688
Distributions to and purchases of non-controlling interests					(2,970)						(2,970)		(9,324)		(12,294)
Redemption value adjustment on non-controlling interests							(59,370)				(59,370)				(59,370)
Other comprehensive loss									(1,397)		(1,397)				(1,397)
Other					0		65				65		370		435
Balance at June 30, 2021		135,005	$	135	$	516,172	$	713,191	$	4,727	$	1,234,225	$	215,667	$	1,449,892

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


	For the Three Months Ended March 31, 2021

		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
Balance at December 31, 2020	134,850	$	135	$	509,128	$	553,244	$	(2,027)	$	1,060,480	$	192,493	$	1,252,973
Net income attributable to Select Medical Holdings Corporation						110,546				110,546				110,546
Net income attributable to non-controlling interests										—		17,042		17,042
Issuance of restricted stock	2	0		0						—				—
Forfeitures of unvested restricted stock	(14)	0		0						—				—
Vesting of restricted stock				6,173						6,173				6,173


Non-controlling interests acquired in business combination										—		8,193		8,193
Distributions to and purchases of non-controlling interests				(787)						(787)		(13,458)		(14,245)
Redemption value adjustment on non-controlling interests						(38,405)				(38,405)				(38,405)
Other comprehensive income								8,151		8,151				8,151
Other				(178)		(4)				(182)		371		189
Balance at March 31, 2021	134,838	$	135	$	514,336	$	625,381	$	6,124	$	1,145,976	$	204,641	$	1,350,617

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

~~Table of Contents~~

For the Six Months Ended June 30, 2020
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
Balance at December 31, 2019 134,328 $ 134 $ 491,038 $ 279,800 $ 0 $ 770,972 $ 158,063 $ 929,035
Net income attributable to Select Medical Holdings Corporation 53,125 53,125 53,125
Net income attributable to non-controlling interests — 10,067 10,067
Issuance of restricted stock 2 0 0 — 0
Forfeitures of unvested restricted stock (15) 0 0 — 0
Vesting of restricted stock 6,136 6,136 6,136
Repurchase of common shares (492) 0 (5,350) (3,341) (8,691) (8,691)
Issuance of non-controlling interests — 1,679 1,679
Distributions to and purchases of non-controlling interests (2,726) (2,726) (4,048) (6,774)
Redemption value adjustment on non-controlling interests (10,123) (10,123) (10,123)
Other (55) (55) 420 365
Balance at March 31, 2020 133,823 $ 134 $ 491,824 $ 316,680 $ 0 $ 808,638 $ 166,181 $ 974,819
Net income attributable to Select Medical Holdings Corporation 51,650 51,650 51,650
Net income attributable to non-controlling interests — 12,572 12,572
Issuance of restricted stock 200 0 0 — 0
Forfeitures of unvested restricted stock (7) 0 0 — 0
Vesting of restricted stock 6,262 6,262 6,262
Repurchase of common shares (46) 0 (441) (283) (724) (724)
Issuance of non-controlling interests 0 0 7 7
Distributions to and purchases of non-controlling interests (65) (65) (418) (483)
Redemption value adjustment on non-controlling interests 127,916 127,916 127,916
Other (795) 1 (794) 1,205 411
Balance at June 30, 2020 133,970 $ 134 $ 496,785 $ 495,964 $ 0 $ 992,883 $ 179,547 $ 1,172,430

~~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 Six Months Ended June 30,					For the Three Months Ended March 31,
		2020		2021			2021		2022
Operating activities	Operating activities					Operating activities
Net income	Net income	$	137,934	$	333,422	Net income	$	137,214	$	55,926
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	11,223		19,384		Distributions from unconsolidated subsidiaries	11,633		7,486
Depreciation and amortization	Depreciation and amortization	104,023		100,574		Depreciation and amortization	49,620		51,039
Provision for expected credit losses	Provision for expected credit losses	253		212		Provision for expected credit losses	67		94
Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries	(10,912)		(21,728)		Equity in earnings of unconsolidated subsidiaries	(9,919)		(5,397)

Loss (gain) on sale or disposal of assets and businesses		(7,881)		494
Loss (gain) on sale or disposal of assets						Loss (gain) on sale or disposal of assets	72		(23)
Stock compensation expense	Stock compensation expense	13,866		13,808		Stock compensation expense	6,709		8,823
Amortization of debt discount, premium and issuance costs	Amortization of debt discount, premium and issuance costs	1,093		1,095		Amortization of debt discount, premium and issuance costs	543		558
Deferred income taxes	Deferred income taxes	(3,416)		(8,323)		Deferred income taxes	(897)		420
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	13,179		(31,751)		Accounts receivable	(60,142)		(52,225)
Other current assets	Other current assets	713		(12,856)		Other current assets	(4,425)		(1,819)
Other assets	Other assets	11,504		(11,984)		Other assets	961		2,686
Accounts payable	Accounts payable	4,251		18,881		Accounts payable	23,460		16,074
Accrued expenses	Accrued expenses	4,028		71,034		Accrued expenses	21,167		(31,076)
Government advances	Government advances	316,992		(73,703)		Government advances	—		(62,928)
Unearned government assistance	Unearned government assistance	45,505		(78,509)		Unearned government assistance	19,207		101

Income taxes	Income taxes	43,743		42,976		Income taxes	44,618		16,598
Net cash provided by operating activities	Net cash provided by operating activities	686,098		363,026		Net cash provided by operating activities	239,888		6,337
Investing activities	Investing activities					Investing activities
Business combinations, net of cash acquired	Business combinations, net of cash acquired	(6,961)		(10,081)		Business combinations, net of cash acquired	(6,314)		(5,186)
Purchases of property and equipment	Purchases of property and equipment	(71,253)		(76,442)		Purchases of property and equipment	(39,719)		(46,845)
Investment in businesses	Investment in businesses	(14,749)		(11,185)		Investment in businesses	(6,571)		(3,337)
Proceeds from sale of assets and businesses		12,401		9,463
Proceeds from sale of assets						Proceeds from sale of assets	19		37
Net cash used in investing activities	Net cash used in investing activities	(80,562)		(88,245)		Net cash used in investing activities	(52,585)		(55,331)
Financing activities	Financing activities					Financing activities
Borrowings on revolving facilities	Borrowings on revolving facilities	470,000		0		Borrowings on revolving facilities	—		280,000
Payments on revolving facilities	Payments on revolving facilities	(470,000)		0		Payments on revolving facilities	—		(100,000)

Payments on term loans		(39,843)		0

Borrowings of other debt	Borrowings of other debt	31,487		8,915		Borrowings of other debt	8,915		15,794
Principal payments on other debt	Principal payments on other debt	(35,733)		(15,314)		Principal payments on other debt	(9,342)		(9,188)
Dividends paid to common stockholders	Dividends paid to common stockholders	0		(16,876)		Dividends paid to common stockholders	—		(16,691)
Repurchase of common stock	Repurchase of common stock	(9,415)		(1,610)		Repurchase of common stock	—		(51,676)

Decrease in overdrafts						Decrease in overdrafts	—		(7,608)
Proceeds from issuance of non-controlling interests	Proceeds from issuance of non-controlling interests	1,686		5,688		Proceeds from issuance of non-controlling interests	—		5,229
Distributions to and purchases of non-controlling interests	Distributions to and purchases of non-controlling interests	(13,660)		(29,152)		Distributions to and purchases of non-controlling interests	(13,663)		(10,295)
Purchase of membership interests of Concentra Group Holdings Parent		(366,203)		0
Net cash used in financing activities		(431,681)		(48,349)

Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	(14,090)		105,565
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	173,855		226,432		Net increase in cash and cash equivalents	173,213		56,571
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	335,882		577,061		Cash and cash equivalents at beginning of period	577,061		74,310
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	509,737	$	803,493	Cash and cash equivalents at end of period	$	750,274	$	130,881
Supplemental Information	Supplemental Information					Supplemental Information
Cash paid for interest	Cash paid for interest	$	86,124	$	66,955	Cash paid for interest	$	52,470	$	53,517
Cash paid for taxes	Cash paid for taxes	4,920		76,094		Cash paid for taxes	1,343		923

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, ~~and~~ Select, and ~~its~~Select’s subsidiaries are collectively referred to as the “Company.” The unaudited condensed consolidated financial statements of the Company as of ~~June 30, 2021,~~March 31, 2022, and for the three ~~and six~~ month periods ended ~~June 30, 2020~~March 31, 2021 and ~~2021,~~2022, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim reporting and the accounting principles generally accepted in the United States of America (“GAAP”). Accordingly, certain information and disclosures required by GAAP, which are normally included in the notes to the consolidated financial statements, have been condensed or omitted pursuant to those rules and regulations, although the Company believes the disclosure is adequate to make the information presented not misleading. In the opinion of management, such information contains all adjustments, which are normal and recurring in nature, necessary for a fair statement of the financial position, results of operations and cash flow for such periods. All significant intercompany transactions and balances have been eliminated.

The results of operations for the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, ~~2021.~~2022. 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, ~~2020,~~2021, contained in the Company’s Annual Report on Form 10-K filed with the SEC on February ~~25, 2021.~~24, 2022.

2. Accounting Policies

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.

~~Recent Accounting Pronouncements~~

~~Convertible Instruments and Contracts on an Entity’s Own Equity~~

~~In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06,~~ Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. As part of this update, convertible instruments are to be included in diluted earnings per share using the if-converted method, rather than the treasury stock method. Further, contracts which can be settled in cash or shares, excluding liability-classified share-based payment awards, are to be included in diluted earnings per share on an if-converted basis if the effect is dilutive, regardless of whether the entity or the counterparty can choose between cash and share settlement. The share-settlement presumption may not be rebutted based on past experience or a stated policy. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021. The Company plans to adopt this pronouncement as of January 1, 2022. The use of either the modified retrospective or fully retrospective method of transition is permitted.

Under the terms of the Amended and Restated Limited Liability Company Agreement of Concentra Group Holdings Parent, certain members of Concentra Group Holdings Parent have put rights that obligate the Company to purchase certain of such members’ equity interests in Concentra Group Holdings Parent when exercised. The Company can elect to pay the purchase price for those equity interests in cash or in shares of Holdings’ common stock. Under ASU 2020-06, the Company is no longer able to rebut the share-settlement presumption based on its past experience. Accordingly, if any of the put rights provided for under the Amended and Restated Limited Liability Company Agreement of Concentra Group Holdings Parent are outstanding upon adoption of ASU 2020-06, the shares which are potentially issuable will be included in diluted earnings per share, on an if-converted basis. At this time, the Company cannot reasonably estimate the impact that the adoption of ASU 2020-06 will have on its financial statements.

~~Table of Contents~~

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 ~~18% and~~ 15% of the Company’s accounts receivable is due from Medicare at both December 31, ~~2020,~~2021 and ~~June 30, 2021, respectively.~~March 31, 2022.

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.

~~The Company’s redeemable non-controlling interests are comprised primarily~~

Table of ~~the voting membership interests owned by outside members of Concentra Group Holdings Parent, each of which have put rights with respect to their interests in Concentra Group Holdings Parent.~~Contents

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


		Six Months Ended June 30,					Three Months Ended March 31,
		2020		2021			2021		2022
		(in thousands)					(in thousands)
Balance as of January 1	Balance as of January 1	$	974,541	$	398,171	Balance as of January 1	$	398,171	$	39,033
Net income attributable to redeemable non-controlling interests	Net income attributable to redeemable non-controlling interests	7,256		9,626		Net income attributable to redeemable non-controlling interests	9,626		1,918

Distributions to and purchases of redeemable non-controlling interests	Distributions to and purchases of redeemable non-controlling interests	(5,687)		(614)		Distributions to and purchases of redeemable non-controlling interests	(614)		(1,198)
Purchase of membership interests of Concentra Group Holdings Parent		(366,203)		0

Redemption value adjustment on redeemable non-controlling interests	Redemption value adjustment on redeemable non-controlling interests	10,123		38,405		Redemption value adjustment on redeemable non-controlling interests	38,405		1,381
Other	Other	347		343		Other	343		536
Balance as of March 31	Balance as of March 31	$	620,377	$	445,931	Balance as of March 31	$	445,931	$	41,670
Net income attributable to redeemable non-controlling interests		3,264		18,073
Distributions to and purchases of redeemable non-controlling interests		(30)		(1,987)
Redemption value adjustment on redeemable non-controlling interests		(127,916)		59,370
Other		292		165
Balance as of June 30		$	495,987	$	521,552

5. Variable Interest Entities

Certain states prohibit the “corporate practice of medicine,” which restricts the Company from owning medical practices which directly employ physicians and from exercising control over medical decisions by physicians. In these states, the Company enters into long-term management agreements with medical practices that are owned by licensed physicians, which, in turn, employ or contract with physicians 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. 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, ~~2020~~2021 and ~~June 30, 2021,~~March 31, 2022, the total assets of the Company’s variable interest entities were ~~$208.4~~$225.1 million and ~~$242.3~~$242.0 million, respectively, and are principally comprised of accounts receivable. As of December 31, ~~2020~~2021 and ~~June 30, 2021,~~March 31, 2022, the total liabilities of ~~these~~the Company’s variable interest entities were ~~$55.1~~$74.8 million and ~~$58.8~~$79.1 million, respectively, and are principally comprised of accounts payable and accrued expenses. ~~The Company’s~~These variable interest entities have obligations payable for services received under ~~the aforementioned~~their management agreements with the Company of ~~$151.8~~$150.3 million and ~~$182.1~~$163.4 million as of December 31, ~~2020~~2021 and ~~June 30, 2021, respectively; these~~March 31, 2022, respectively. These intercompany balances are eliminated in consolidation.

~~Table of Contents~~

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 ~~was~~is as follows:

Three Months Ended June 30, 2020 Three Months Ended June 30, 2021
Unrelated Parties Related Parties Total Unrelated Parties Related Parties Total
(in thousands)
Operating lease cost $ 69,367 $ 1,787 $ 71,154 $ 70,739 $ 1,798 $ 72,537
Finance lease cost:
Amortization of right-of-use assets 69 0 69 105 0 105
Interest on lease liabilities 231 0 231 254 0 254
Variable lease cost 11,780 112 11,892 13,086 141 13,227
Sublease income (2,621) 0 (2,621) (2,229) 0 (2,229)
Total lease cost $ 78,826 $ 1,899 $ 80,725 $ 81,955 $ 1,939 $ 83,894


		Six Months Ended June 30, 2020						Six Months Ended June 30, 2021							Three Months Ended March 31, 2021						Three Months Ended March 31, 2022
		Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total			Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
		(in thousands)													(in thousands)
Operating lease cost	Operating lease cost	$	139,159	$	3,520	$	142,679	$	140,853	$	3,597	$	144,450	Operating lease cost	$	70,114	$	1,799	$	71,913	$	73,962	$	1,809	$	75,771
Finance lease cost:	Finance lease cost:													Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	131		0		131		140		0		140		Amortization of right-of-use assets	35		—		35		347		—		347
Interest on lease liabilities	Interest on lease liabilities	487		0		487		505		0		505		Interest on lease liabilities	251		—		251		340		—		340

Short-term lease cost														Short-term lease cost	—		—		—		35		—		35
Variable lease cost	Variable lease cost	24,012		268		24,280		26,095		144		26,239		Variable lease cost	13,009		3		13,012		13,655		39		13,694
Sublease income	Sublease income	(5,176)		0		(5,176)		(4,463)		0		(4,463)		Sublease income	(2,234)		—		(2,234)		(1,966)		—		(1,966)
Total lease cost	Total lease cost	$	158,613	$	3,788	$	162,401	$	163,130	$	3,741	$	166,871	Total lease cost	$	81,175	$	1,802	$	82,977	$	86,373	$	1,848	$	88,221

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


		Six Months Ended June 30,					Three Months Ended March 31,
		2020		2021			2021		2022
		(in thousands)					(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases	Operating cash flows for operating leases	$	140,300	$	145,652	Operating cash flows for operating leases	$	72,437	$	77,689
Operating cash flows for finance leases	Operating cash flows for finance leases	487		505		Operating cash flows for finance leases	251		340
Financing cash flows for finance leases	Financing cash flows for finance leases	89		145		Financing cash flows for finance leases	58		344
Right-of-use assets obtained in exchange for lease liabilities:	Right-of-use assets obtained in exchange for lease liabilities:					Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	Operating leases	$	132,125	$	138,606	Operating leases	$	79,987	$	88,636
Finance leases	Finance leases	989		138		Finance leases	138		—

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


		December 31, 2020						June 30, 2021							December 31, 2021						March 31, 2022
		Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total			Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
		(in thousands)													(in thousands)
Operating Leases	Operating Leases													Operating Leases
Operating lease right-of-use assets	Operating lease right-of-use assets	$	1,002,151	$	30,066	$	1,032,217	$	1,026,058	$	27,273	$	1,053,331	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	Current operating lease liabilities	$	214,377	$	6,036	$	220,413	$	218,723	$	6,145	$	224,868	Current operating lease liabilities	$	222,865	$	6,469	$	229,334	$	228,598	$	5,822	$	234,420
Non-current operating lease liabilities	Non-current operating lease liabilities	848,215		27,152		875,367		869,421		24,057		893,478		Non-current operating lease liabilities	894,104		22,436		916,540		916,887		21,536		938,423
Total operating lease liabilities	Total operating lease liabilities	$	1,062,592	$	33,188	$	1,095,780	$	1,088,144	$	30,202	$	1,118,346	Total operating lease liabilities	$	1,116,969	$	28,905	$	1,145,874	$	1,145,485	$	27,358	$	1,172,843

~~Table of Contents~~


		December 31, 2020						June 30, 2021							December 31, 2021						March 31, 2022
		Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total			Unrelated Parties		Related Parties		Total		Unrelated Parties		Related Parties		Total
		(in thousands)													(in thousands)
Finance Leases	Finance Leases													Finance Leases

Property and equipment, net	Property and equipment, net	$	5,644	$	0	$	5,644	$	5,711	$	0	$	5,711	Property and equipment, net	$	8,505	$	—	$	8,505	$	8,158	$	—	$	8,158

Current portion of long-term debt and notes payable	Current portion of long-term debt and notes payable	$	663	$	0	$	663	$	638	$	0	$	638	Current portion of long-term debt and notes payable	$	1,404	$	—	$	1,404	$	1,436	$	—	$	1,436
Long-term debt, net of current portion	Long-term debt, net of current portion	13,491		0		13,491		13,509		0		13,509		Long-term debt, net of current portion	16,679		—		16,679		16,303		—		16,303
Total finance lease liabilities	Total finance lease liabilities	$	14,154	$	0	$	14,154	$	14,147	$	0	$	14,147	Total finance lease liabilities	$	18,083	$	—	$	18,083	$	17,739	$	—	$	17,739

The weighted average remaining lease terms and discount rates ~~were~~are as follows:


		December 31, 2020		June 30, 2021			December 31, 2021		March 31, 2022
Weighted average remaining lease term (in years):	Weighted average remaining lease term (in years):					Weighted average remaining lease term (in years):
Operating leases	Operating leases	7.8		7.8		Operating leases	7.8		7.6
Finance leases	Finance leases	31.2		30.6		Finance leases	24.7		24.8
Weighted average discount rate:	Weighted average discount rate:					Weighted average discount rate:
Operating leases	Operating leases	5.6	%	5.5	%	Operating leases	5.6	%	5.6	%
Finance leases	Finance leases	7.2	%	7.2	%	Finance leases	7.4	%	7.4	%

Table of Contents

As of ~~June 30, 2021,~~March 31, 2022, maturities of lease liabilities ~~were~~are approximately as follows:


		Operating Leases		Finance Leases			Operating Leases		Finance Leases
		(in thousands)					(in thousands)
2021 (remainder of year)		$	143,539	$	790
2022		258,011		1,699
2022 (remainder of year)						2022 (remainder of year)	$	222,152	$	2,040
2023	2023	211,514		1,710		2023	259,672		2,747
2024	2024	172,183		1,381		2024	219,375		2,384
2025	2025	138,429		1,205		2025	175,699		2,101
2026						2026	145,837		2,126
Thereafter	Thereafter	533,811		29,019		Thereafter	495,998		28,181
Total undiscounted cash flows	Total undiscounted cash flows	1,457,487		35,804		Total undiscounted cash flows	1,518,733		39,579
Less: Imputed interest	Less: Imputed interest	339,141		21,657		Less: Imputed interest	345,890		21,840
Total discounted lease liabilities	Total discounted lease liabilities	$	1,118,346	$	14,147	Total discounted lease liabilities	$	1,172,843	$	17,739

7. Intangible Assets

Goodwill

The following table shows changes in the carrying amounts of goodwill by reporting unit for the ~~six~~three months ended ~~June 30, 2021:~~March 31, 2022:

Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Total
(in thousands)
Balance as of December 31, 2020 $ 1,084,761 $ 432,753 $ 646,433 $ 1,215,067 $ 3,379,014
Acquisition of businesses 0 9,402 1,436 1,188 12,026
Balance as of June 30, 2021 $ 1,084,761 $ 442,155 $ 647,869 $ 1,216,255 $ 3,391,040

~~Table of Contents~~


	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, 2020						June 30, 2021							December 31, 2021						March 31, 2022
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
		(in thousands)													(in thousands)
Indefinite-lived intangible assets:	Indefinite-lived intangible assets:													Indefinite-lived intangible assets:
Trademarks	Trademarks	$	166,698	$	—	$	166,698	$	166,698	$	—	$	166,698	Trademarks	$	166,698	$	—	$	166,698	$	166,698	$	—	$	166,698
Certificates of need	Certificates of need	18,392		—		18,392		18,413		—		18,413		Certificates of need	21,478		—		21,478		21,625		—		21,625
Accreditations	Accreditations	1,874		—		1,874		1,874		—		1,874		Accreditations	1,874		—		1,874		1,874		—		1,874
Finite-lived intangible assets:	Finite-lived intangible assets:													Finite-lived intangible assets:
Trademarks	Trademarks	5,000		(5,000)		0		5,000		(5,000)		0		Trademarks	5,000		(5,000)		—		5,000		(5,000)		—
Customer relationships	Customer relationships	291,923		(113,346)		178,577		298,514		(126,843)		171,671		Customer relationships	304,289		(141,111)		163,178		305,839		(148,283)		157,556
Non-compete agreements	Non-compete agreements	33,771		(11,771)		22,000		35,011		(13,365)		21,646		Non-compete agreements	36,746		(15,095)		21,651		37,087		(15,990)		21,097
Total identifiable intangible assets	Total identifiable intangible assets	$	517,658	$	(130,117)	$	387,541	$	525,510	$	(145,208)	$	380,302	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 ~~June 30, 2021,~~March 31, 2022, the accreditations and trademarks have a weighted average time until next renewal of 1.5 years and ~~8.2~~7.5 years, respectively.

The Company’s finite-lived intangible assets amortize over their estimated useful lives. Amortization expense was ~~$6.9~~$7.1 million and ~~$7.3~~$7.6 million for the three months ended ~~June 30, 2020~~March 31, 2021 and ~~2021, respectively. Amortization expense was $13.8 million and $14.4 million for the six months ended June 30, 2020 and 2021,~~2022, respectively.

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8. Long-Term Debt and Notes Payable

As of ~~June 30, 2021,~~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)
Select 6.250% senior notes $ 1,225,000 $ 30,722 $ (15,463) $ 1,240,259 $ 1,304,625
Select credit facilities:
Select term loan 2,103,437 (7,398) (8,064) 2,087,975 2,077,144
Other debt, including finance leases 69,846 0 (258) 69,588 69,588
Total debt $ 3,398,283 $ 23,324 $ (23,785) $ 3,397,822 $ 3,451,357


	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:

2021 2022 2023 2024 2025 Thereafter Total
(in thousands)
Select 6.250% senior notes $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,225,000 $ 1,225,000
Select credit facilities:
Select term loan 0 0 4,757 11,150 2,087,530 0 2,103,437
Other debt, including finance leases 9,441 4,035 20,754 23,717 334 11,565 69,846
Total debt $ 9,441 $ 4,035 $ 25,511 $ 34,867 $ 2,087,864 $ 1,236,565 $ 3,398,283

~~Table of Contents~~


	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, ~~2020,~~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)
Select 6.250% senior notes $ 1,225,000 $ 33,773 $ (16,953) $ 1,241,820 $ 1,316,875
Select credit facilities:
Select term loan 2,103,437 (8,393) (9,149) 2,085,895 2,082,403
Other debt, including finance leases 74,606 0 (302) 74,304 74,304
Total debt $ 3,403,043 $ 25,380 $ (26,404) $ 3,402,019 $ 3,473,582

~~Select Credit Facilities~~

On June 2, 2021, Select entered into Amendment No. 5 to its senior secured credit agreement (the “Select credit agreement”) which, among other things, increased the aggregate commitments available under its revolving credit facility (the “Select revolving facility”) from $450.0 million to $650.0 million, including a $125.0 million sublimit for the issuance of standby letters of credit.

~~Concentra-JPM Revolving Facility~~

On June 2, 2021, Concentra Inc. terminated its obligations under its first lien credit agreement (the “Concentra-JPM first lien credit agreement”). The Concentra-JPM first lien credit agreement provided for commitments of $100.0 million under a revolving credit facility (the “Concentra-JPM revolving facility”), which was set to mature on March 1, 2022.


	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 ~~the Select~~its term loan, which bears interest at a ~~variable interest rate.~~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 ~~reference~~one-month LIBOR rate to 1.0% on $2.0 billion of principal outstanding under the ~~Select~~ term ~~loan.~~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 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.~~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 ~~the reference rate~~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 ~~(“AOCI”)~~ and into interest expense when the hedged interest obligations affect earnings.

Table of Contents

The following table outlines the changes in ~~AOCI:~~accumulated other comprehensive income, net of tax, during the periods presented:


		Six Months Ended June 30,					Three Months Ended March 31,
		2020		2021			2021		2022
		(in thousands)					(in thousands)
Balance as of January 1	Balance as of January 1	$	0	$	(2,027)	Balance as of January 1	$	(2,027)	$	12,282
Gain on interest rate cap cash flow hedge	Gain on interest rate cap cash flow hedge	0		8,151		Gain on interest rate cap cash flow hedge	8,151		39,814

Amounts reclassified from accumulated other comprehensive income						Amounts reclassified from accumulated other comprehensive income	—		39
Balance as of March 31	Balance as of March 31	$	0	$	6,124	Balance as of March 31	$	6,124	$	52,135
Loss on interest rate cap cash flow hedge		0		(1,403)
Amounts reclassified from AOCI		0		6
Balance as of June 30		$	0	$	4,727

The Company expects that approximately $16.9 million of estimated pre-tax ~~losses expected to~~gains will be reclassified from ~~AOCI~~accumulated other comprehensive income into interest expense within the next twelve ~~months are approximately $0.2 million.~~months.

Refer to Note 10 – Fair Value of Financial Instruments for information on the fair value of the Company’s interest rate cap contract and its balance sheet classification.

~~Table of Contents~~

10. 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, 2020

June 30, 2021

Financial Instrument

Balance Sheet Classification

Level

December 31, 2021

March 31, 2022

Asset:

(in thousands)

Asset:

(in thousands)

Interest rate cap contract, current portion

Other current assets

Level 2

—

15,745

Interest rate cap contract, non-current portion

Other assets

Level 2

8,776

Interest rate cap contract, non-current portion

Other assets

Level 2

18,055

55,523

Liability:

Interest rate cap contract, current portion

Accrued other

Level 2

1,339

1,948

Interest rate cap contract, current portion

Accrued other

Level 2

330

—

Interest rate cap contract, non-current portion

Other non-current liabilities

Level 2

1,392

The Company does not measure its indebtedness at fair value in its condensed consolidated balance sheets. The fair value of the ~~Select~~ 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 8 – Long-Term Debt and Notes Payable, approximates fair value.

December 31, 2020 June 30, 2021
Financial Instrument Level Carrying Value Fair Value Carrying Value Fair Value
(in thousands)
Select 6.250% senior notes Level 2 $ 1,241,820 $ 1,316,875 $ 1,240,259 $ 1,304,625
Select credit facilities:
Select term loan Level 2 2,085,895 2,082,403 2,087,975 2,077,144


		December 31, 2021				March 31, 2022
Financial Instrument	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
		(in thousands)
6.250% senior notes	Level 2	$	1,238,684	$	1,297,104	$	1,237,919	$	1,262,118
Credit facilities:
Revolving facility	Level 2	160,000		159,400		340,000		338,725
Term loan	Level 2	2,090,090		2,087,661		2,091,126		2,079,773

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. 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’s other activities also include other operating income 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”). Refer to Note 15 – CARES Act for further information.

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 June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2020		2021		2020		2021				2021		2022
		(in thousands)										(in thousands)
Revenue:	Revenue:									Revenue:
Critical illness recovery hospital	Critical illness recovery hospital	$	519,626	$	544,059	$	1,020,147	$	1,138,931	Critical illness recovery hospital		$	594,872	$	601,755
Rehabilitation hospital	Rehabilitation hospital	168,667		212,666		350,686		420,470		Rehabilitation hospital		207,804		220,634
Outpatient rehabilitation	Outpatient rehabilitation	167,138		280,409		422,387		532,370		Outpatient rehabilitation		251,961		271,940
Concentra	Concentra	312,338		456,372		710,873		879,212		Concentra		422,840		423,423
Other	Other	64,949		70,514		143,257		139,500		Other		68,986		81,795
Total Company	Total Company	$	1,232,718	$	1,564,020	$	2,647,350	$	3,110,483	Total Company		$	1,546,463	$	1,599,547
Adjusted EBITDA:	Adjusted EBITDA:									Adjusted EBITDA:
Critical illness recovery hospital	Critical illness recovery hospital	$	89,743	$	72,904	$	178,313	$	186,176	Critical illness recovery hospital		$	113,272	$	35,967
Rehabilitation hospital	Rehabilitation hospital	27,605		50,768		66,174		101,302		Rehabilitation hospital		50,534		42,379
Outpatient rehabilitation	Outpatient rehabilitation	(6,282)		45,633		20,840		71,962		Outpatient rehabilitation		26,329		26,596
Concentra	Concentra	41,497		137,060		102,963		219,075		Concentra		82,015		89,469
Other		26,189		35,656		(2,205)		21,847
Other(1)										Other(1)		(13,809)		(30,564)
Total Company	Total Company	$	178,752	$	342,021	$	366,085	$	600,362	Total Company		$	258,341	$	163,847
Total assets:	Total assets:									Total assets:
Critical illness recovery hospital	Critical illness recovery hospital	$	2,115,294	$	2,187,181	$	2,115,294	$	2,187,181	Critical illness recovery hospital		$	2,233,067	$	2,367,490
Rehabilitation hospital	Rehabilitation hospital	1,135,206		1,186,886		1,135,206		1,186,886		Rehabilitation hospital		1,188,387		1,187,118
Outpatient rehabilitation	Outpatient rehabilitation	1,267,308		1,333,661		1,267,308		1,333,661		Outpatient rehabilitation		1,321,268		1,350,374
Concentra	Concentra	2,351,974		2,518,369		2,351,974		2,518,369		Concentra		2,468,157		2,339,940
Other	Other	598,676		730,282		598,676		730,282		Other		709,902		291,022
Total Company	Total Company	$	7,468,458	$	7,956,379	$	7,468,458	$	7,956,379	Total Company		$	7,920,781	$	7,535,944
Purchases of property and equipment:	Purchases of property and equipment:									Purchases of property and equipment:
Critical illness recovery hospital	Critical illness recovery hospital	$	14,970	$	16,499	$	23,935	$	30,884	Critical illness recovery hospital		$	14,385	$	19,569
Rehabilitation hospital	Rehabilitation hospital	1,923		3,257		5,248		3,922		Rehabilitation hospital		665		6,274
Outpatient rehabilitation	Outpatient rehabilitation	6,593		7,448		14,977		14,783		Outpatient rehabilitation		7,335		9,414
Concentra	Concentra	6,820		7,591		22,406		20,271		Concentra		12,680		10,240
Other	Other	1,739		1,928		4,687		6,582		Other		4,654		1,348
Total Company	Total Company	$	32,045	$	36,723	$	71,253	$	76,442	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”).

1614

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


		Three Months Ended June 30, 2020													Three Months Ended March 31, 2021
		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)
Adjusted EBITDA	Adjusted EBITDA	$	89,743	$	27,605	$	(6,282)	$	41,497	$	26,189			Adjusted EBITDA	$	113,272	$	50,534	$	26,329	$	82,015	$	(13,809)
Depreciation and amortization	Depreciation and amortization	(13,892)		(6,907)		(7,194)		(21,857)		(2,421)				Depreciation and amortization	(13,050)		(7,060)		(7,191)		(19,898)		(2,421)
Stock compensation expense	Stock compensation expense	0		0		0		(701)		(6,262)				Stock compensation expense	—		—		—		(536)		(6,173)
Income (loss) from operations	Income (loss) from operations	$	75,851	$	20,698	$	(13,476)	$	18,939	$	17,506	$	119,518	Income (loss) from operations	$	100,222	$	43,474	$	19,138	$	61,581	$	(22,403)	$	202,012

Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries											8,324		Equity in earnings of unconsolidated subsidiaries											9,919
Gain on sale of businesses												346

Interest income														Interest income											4,749
Interest expense	Interest expense											(37,366)		Interest expense											(34,402)
Income before income taxes	Income before income taxes											$	90,822	Income before income taxes											$	182,278


		Three Months Ended June 30, 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)
Adjusted EBITDA	Adjusted EBITDA	$	72,904	$	50,768	$	45,633	$	137,060	$	35,656			Adjusted EBITDA	$	35,967	$	42,379	$	26,596	$	89,469	$	(30,564)
Depreciation and amortization	Depreciation and amortization	(12,936)		(6,939)		(7,345)		(21,230)		(2,504)				Depreciation and amortization	(14,618)		(6,802)		(8,029)		(18,812)		(2,778)
Stock compensation expense	Stock compensation expense	0		0		0		(535)		(6,564)				Stock compensation expense	—		—		—		(535)		(8,288)
Income (loss) from operations	Income (loss) from operations	$	59,968	$	43,829	$	38,288	$	115,295	$	26,588	$	283,968	Income (loss) from operations	$	21,349	$	35,577	$	18,567	$	70,122	$	(41,630)	$	103,985

Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries											11,809		Equity in earnings of unconsolidated subsidiaries											5,397

Interest expense	Interest expense											(33,888)		Interest expense											(35,514)
Income before income taxes	Income before income taxes											$	261,889	Income before income taxes											$	73,868

Six Months Ended June 30, 2020
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Adjusted EBITDA $ 178,313 $ 66,174 $ 20,840 $ 102,963 $ (2,205)
Depreciation and amortization (26,228) (13,794) (14,412) (44,744) (4,845)
Stock compensation expense 0 0 0 (1,468) (12,398)
Income (loss) from operations $ 152,085 $ 52,380 $ 6,428 $ 56,751 $ (19,448) $ 248,196
Equity in earnings of unconsolidated subsidiaries 10,912
Gain on sale of businesses 7,547
Interest expense (83,473)
Income before income taxes $ 183,182

Six Months Ended June 30, 2021
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Adjusted EBITDA $ 186,176 $ 101,302 $ 71,962 $ 219,075 $ 21,847
Depreciation and amortization (25,986) (13,999) (14,536) (41,128) (4,925)
Stock compensation expense 0 0 0 (1,071) (12,737)
Income (loss) from operations $ 160,190 $ 87,303 $ 57,426 $ 176,876 $ 4,185 $ 485,980
Equity in earnings of unconsolidated subsidiaries 21,728
Interest income 4,749
Interest expense (68,290)
Income before income taxes $ 444,167

~~Table of Contents~~

12. Revenue from Contracts with Customers

The following tables disaggregate the Company’s revenue for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2021:~~2022:


		Three Months Ended June 30, 2020													Three Months Ended March 31, 2021
		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)
Patient service revenue:	Patient service revenue:													Patient service revenue:
Medicare	Medicare	$	215,508	$	71,510	$	20,049	$	257	$	0	$	307,324	Medicare	$	232,140	$	102,375	$	36,291	$	230	$	—	$	371,036
Non-Medicare	Non-Medicare	301,065		87,697		135,103		309,467		0		833,332		Non-Medicare	361,152		95,342		200,819		420,654		—		1,077,967
Total patient services revenues	Total patient services revenues	516,573		159,207		155,152		309,724		0		1,140,656		Total patient services revenues	593,292		197,717		237,110		420,884		—		1,449,003
Other revenue	Other revenue	3,053		9,460		11,986		2,614		64,949		92,062		Other revenue	1,580		10,087		14,851		1,956		68,986		97,460
Total revenue	Total revenue	$	519,626	$	168,667	$	167,138	$	312,338	$	64,949	$	1,232,718	Total revenue	$	594,872	$	207,804	$	251,961	$	422,840	$	68,986	$	1,546,463

Three Months Ended June 30, 2021
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Patient service revenue:
Medicare $ 201,198 $ 103,865 $ 45,291 $ 295 $ 0 $ 350,649
Non-Medicare 340,929 98,443 217,893 454,125 0 1,111,390
Total patient services revenues 542,127 202,308 263,184 454,420 0 1,462,039
Other revenue 1,932 10,358 17,225 1,952 70,514 101,981
Total revenue $ 544,059 $ 212,666 $ 280,409 $ 456,372 $ 70,514 $ 1,564,020

Six Months Ended June 30, 2020
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Patient service revenue:
Medicare $ 457,017 $ 162,262 $ 60,881 $ 729 $ 0 $ 680,889
Non-Medicare 557,012 169,133 331,993 704,500 0 1,762,638
Total patient services revenues 1,014,029 331,395 392,874 705,229 0 2,443,527
Other revenue 6,118 19,291 29,513 5,644 143,257 203,823
Total revenue $ 1,020,147 $ 350,686 $ 422,387 $ 710,873 $ 143,257 $ 2,647,350


		Six Months Ended June 30, 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)
Patient service revenue:	Patient service revenue:													Patient service revenue:
Medicare	Medicare	$	433,338	$	206,240	$	81,582	$	525	$	0	$	721,685	Medicare	$	218,987	$	103,021	$	41,904	$	177	$	—	$	364,089
Non-Medicare	Non-Medicare	702,081		193,785		418,712		874,779		0		2,189,357		Non-Medicare	380,986		107,142		214,113		422,046		—		1,124,287
Total patient services revenues	Total patient services revenues	1,135,419		400,025		500,294		875,304		0		2,911,042		Total patient services revenues	599,973		210,163		256,017		422,223		—		1,488,376
Other revenue	Other revenue	3,512		20,445		32,076		3,908		139,500		199,441		Other revenue	1,782		10,471		15,923		1,200		81,795		111,171
Total revenue	Total revenue	$	1,138,931	$	420,470	$	532,370	$	879,212	$	139,500	$	3,110,483	Total revenue	$	601,755	$	220,634	$	271,940	$	423,423	$	81,795	$	1,599,547

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13. 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 0no contractual dividends paid for the three ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2021.~~2022.

(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					Basic and Diluted EPS
		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2020		2021		2020		2021				2021		2022
		(in thousands)										(in thousands)
Net income	Net income	$	67,486	$	196,208	$	137,934	$	333,422	Net income		$	137,214	$	55,926
Less: net income attributable to non-controlling interests	Less: net income attributable to non-controlling interests	15,836		31,314		33,159		57,982		Less: net income attributable to non-controlling interests		26,668		6,809
Net income attributable to the Company	Net income attributable to the Company	51,650		164,894		104,775		275,440		Net income attributable to the Company		110,546		49,117
Less: Distributed and undistributed income attributable to participating securities	Less: Distributed and undistributed income attributable to participating securities	1,778		5,560		3,596		9,250		Less: Distributed and undistributed income attributable to participating securities		3,698		1,643
Distributed and undistributed income attributable to common shares	Distributed and undistributed income attributable to common shares	$	49,872	$	159,334	$	101,179	$	266,190	Distributed and undistributed income attributable to common shares		$	106,848	$	47,474

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


		Three Months Ended June 30,											Three Months Ended March 31,
		2020					2021						2021					2022
		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	$	49,872	129,319	$	0.39	$	159,334	130,396	$	1.22	Common shares	$	106,848	130,329	$	0.82	$	47,474	129,010	$	0.37
Participating securities	Participating securities	1,778		4,610	0.39		5,560		4,550	1.22		Participating securities	3,698		4,511	$	0.82	1,643		4,464	$	0.37
Total Company	Total Company	$	51,650				$	164,894				Total Company	$	110,546				$	49,117

_______________________________________________________________________________

Six Months Ended June 30,
2020 2021
Net Income Allocation
Shares(1)
Basic and Diluted EPS Net Income Allocation
Shares(1)
Basic and Diluted EPS
(in thousands, except for per share amounts)
Common shares $ 101,179 129,479 $ 0.78 $ 266,190 130,362 $ 2.04
Participating securities 3,596 4,602 0.78 9,250 4,530 2.04
Total Company $ 104,775 $ 275,440

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

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14. 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 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. 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 ~~reviews its insurance program annually and may make adjustments to the amount of insurance coverage and self-insured retentions in future years. The Company~~ also maintains ~~umbrella~~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 ~~other~~professional and general liability insurance policies. These insurance policies also do not generally cover punitive damages and are subject to various deductibles and policy limits. The Company reviews its insurance program annually and may make adjustments to the amount of insurance coverage and self-insured retentions in future years. Significant legal actions, as well as the cost and possible lack of available insurance, could subject the Company to substantial uninsured liabilities. In the Company’s opinion, the outcome of these actions, individually or in the aggregate, will not have a material adverse effect on its financial position, results of operations, or cash flows.

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

~~Contract Therapy Subpoena.~~ In May 2017, the Company received a subpoena from the U.S. Attorney’s Office for the District of New Jersey seeking various documents principally relating to the Company’s contract therapy division, which contracted to furnish rehabilitation therapy services to residents of skilled nursing facilities (“SNFs”) and other providers. The Company operated its contract therapy division through a subsidiary until March 31, 2016, when the Company sold the stock of the subsidiary. The subpoena seeks documents that appear to be aimed at assessing whether therapy services were furnished and billed in compliance with Medicare SNF billing requirements, including whether therapy services were coded at inappropriate levels and whether excessive or unnecessary therapy was furnished to justify coding at higher paying levels. The U.S. Attorney’s Office indicated that the subpoena was issued in connection with a qui tam lawsuit. The Company produced documents in response to the subpoena and fully cooperated with this investigation. In July 2021, the Company entered into a settlement agreement with the United States government, the plaintiff-relator who filed the qui tam lawsuit, and the purchaser of the Company’s contract therapy division in March 2016. In satisfaction of its indemnity obligations under the purchase agreement signed in March 2016, the Company agreed to make payments related to the settlement that will not exceed the amount of a liability accrued, and a non-operating loss incurred, during the nine months ended September 30, 2020. Such payments, in the aggregate, are immaterial to the Company’s financial statements. In the settlement agreement, the government and the plaintiff-relator released the Company from liability for all conduct alleged in the complaint, and the Company admitted no liability or wrongdoing.

~~Table of Contents~~

Oklahoma City Subpoena. On August 24, 2020, the Company and Select Specialty Hospital – Oklahoma City, Inc. (“SSH–Oklahoma City”) received Civil Investigative Demands 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 the subpoena has been issued in connection with a qui tam lawsuit or in connection with possible civil, criminal or administrative proceedings by the government. The Company is producing documents in response to the subpoena and ~~intends to~~is fully ~~cooperate~~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.

~~Medicare Dual-Eligible Litigation~~

The Company’s critical illness recovery hospitals have pursued claims against CMS involving denied Medicare bad debt reimbursement for copayments and deductibles of dual-eligible Medicaid beneficiaries for cost reporting periods ending in 2005 through 2010. A U.S. District Court ruled in favor of the Company and ordered CMS to determine and pay the Medicare bad debt reimbursement plus interest and, in FebruaryPhysical Therapy Billing. On October 7, 2021, the Company received ~~reimbursement proceeds~~a one-page letter from a Trial Attorney at the U.S. Department of ~~$17.9 million plus accrued interest of $4.7 million. These amounts were recognized as other operating income and interest income, respectively, during~~Justice, Civil Division, Commercial Litigation Branch, Fraud Section (“DOJ”). The letter stated that the ~~six months ended June 30, 2021.~~

~~15. CARES Act~~

~~Provider Relief Funds~~

~~On March 27, 2020,~~DOJ, in conjunction with the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted. Since the enactment of the CARES Act, the Company’s consolidated subsidiaries have received approximately $208.4 million of payments from the Public Health and Social Services Emergency Fund, also referred to as the Provider Relief Fund. The Company is able to use payments received under the Provider Relief Fund for “health care related expenses or lost revenues that are attributable to coronavirus.” The Provider Relief Fund payments must first be applied against health care related expenses attributable to COVID-19. Provider Relief Fund payments not fully expended on healthcare related expenses attributable to COVID-19 are then applied to lost revenues. The provisions of the Provider Relief Fund payments permit a parent organization to allocate all or a portion of its general and targeted distributions among its subsidiaries which are eligible health care providers.

~~Since the CARES Act was enacted, the~~U.S. Department of Health and Human Services, (“HHS”) has issued a series of post-payment notices of reporting requirements and other guidance which, in some instances, have significantly altered the terms and conditions surrounding the Provider Relief Fund payments. Additionally, certain provisions and reporting requirements associated with the Provider Relief Fund payments were signed into law as part of the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (“CRRSA Act”) on December 27, 2020. On June 11, 2021, HHS released an updated post-payment notice of reporting requirements and new and modified responses to its Frequently Asked Questions regarding the Provider Relief Fund payments. Among other things, HHS updated the period of time in which recipients must use the Provider Relief Fund payments. Under the revised guidance, the deadlines for utilizing the payments are based on the date in which the payments were received, rather than requiring all payments be used by June 30, 2021. The deadlines to use the Provider Relief Fund payments are now as follows: (i) payments received between April 10, 2020 and June 30, 2020 must have been used by June 30, 2021, (ii) payments received between July 1, 2020 and December 31, 2020 must be used by December 31, 2021, (iii) payments received between January 1, 2021 and June 30, 2021 must be used by June 30, 2022, and (iv) payments received between July 1, 2021 and December 31, 2021 must be used by December 31, 2022.

~~Table of Contents~~

~~Under the Company’s accounting policy, payments are recognized as other operating income when it~~ is probable that it has complied with the terms and conditions of the payments. The Company evaluated its eligibility to utilize certain Provider Relief Fund payments and whether those payments were used in accordance with the terms and conditions set forth within the CRRSA Act and by HHS as of June 30, 2021. The Company’s assessment of uncertainties surrounding its ability to utilize certain of its Provider Relief Fund payments, including its ability to allocate general distributions among the Company’s subsidiaries, was updated for additional information obtained during the period. Based on this updated assessment, the Company believes it is probable that it has complied with the terms and conditions associated with the Provider Relief Fund payments as of June 30, 2021. During the three and six months ended June 30, 2021, the Company determined that it was eligible to recognize approximately $98.0 million and $114.1 million, respectively, of Provider Relief Fund payments as other operating income on the accompanying condensed consolidated statement of operations. The Company recognized $55.0 million of other operating income during both the three and six months ended June 30, 2020.

~~As of June 30, 2021, $4.1 million of Provider Relief Fund payments have not yet been utilized by~~investigating the Company in ~~accordance~~connection with potential violations of the ~~regulations promulgated by HHS and~~False Claims Act, 31 U.S.C. § 3729, et seq. The letter specified that the ~~CRRSA Act and are reported as unearned government assistance on the accompanying condensed consolidated balance sheet. Of this amount, $1.7 million will be repaid~~investigation relates to the ~~government because the payments could not be utilized by the deadlines specified by HHS.~~Company’s billing of physical therapy services. The ~~remaining Provider Relief Fund payments may need~~Company is producing documents and data in response to ~~be repaid to the extent they cannot be utilized in accordance~~such letter and is fully cooperating with the terms and conditions set forth within the CRRSA Act and by HHS. Further changes to the regulations surrounding the Provider Relief Fund payments or amended interpretations of existing guidance may change the Company’s assessment of whether it is probable that is has complied with the terms of conditions of the Provider Relief Fund payments. These changes may result inthis investigation. At this time, the Company ~~being~~is unable to ~~recognize additional Provider Relief Fund payments as other operating income or~~predict the ~~reversal~~timing and outcome of ~~amounts previously recognized.~~

~~Medicare Accelerated and Advance Payments Program~~

The Company’s consolidated subsidiaries received approximately $325.0 million of advance payments under CMS’s Accelerated and Advance Payment Program, which was temporarily expanded by the CARES Act. Repayment of the advance payments begins one year from the issuance date of the payment. After that first year, the Medicare program automatically recoups 25.0% of the Medicare payments otherwise owed to the provider or supplier for eleven months. At the end of the eleven-month period, recoupment increases to 50.0% for another six months. Any amounts that remain unpaid after 29 months are subject to a 4.0% interest rate.

The Company received the majority of its advance payments in April 2020. Accordingly, CMS began recouping a portion of the Medicare payments due to the Company beginning in April 2021. CMS recouped $73.7 million of Medicare payments during the three and six months ended June 30, 2021. The remaining amounts owed to CMS under the Accelerated and Advance Payment Program are reflected as government advances on the accompanying condensed consolidated balance sheets.this matter.

~~16.~~15. Subsequent Event

On ~~August 4, 2021,~~May 5, 2022, the Company’s board of directors declared a cash dividend of $0.125 per share. The dividend will be payable on or about ~~August 30, 2021~~June 1, 2022 to stockholders of record as of the close of business on ~~August 18, 2021.~~

May 19, 2022.

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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 to the COVID-19 pandemic including, but not limited to, the duration and severity of the pandemic, 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 facilities operated 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 of infection related to the COVID-19 pandemic, could increase our operating costs significantly or limit our ability to staff our facilities;

•competition may limit our ability to grow and result in a decrease in our 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, 2020 and in our Quarterly Report on Form 10-Q for the three months ended March~~ 31, 2021, as such risk factors may be updated from time to time in our periodic filings with the SEC.

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 ~~June 30, 2021,~~March 31, 2022, we had operations in 46 states and the District of Columbia. We operated 99105 critical illness recovery hospitals in 28 states, 30 rehabilitation hospitals in 12 states, and ~~1,833~~1,901 outpatient rehabilitation clinics in 38 states and the District of Columbia. Concentra ~~a joint venture subsidiary,~~ operated 518 occupational health centers in 41 states as of ~~June 30, 2021.~~March 31, 2022. Concentra also provides contract services 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 ~~$3,110.5~~$1,599.5 million for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. Of this total, we earned approximately ~~37%~~38% of our revenue from our critical illness recovery hospital segment, approximately 14% from our rehabilitation hospital segment, approximately 17% from our outpatient rehabilitation segment, and approximately ~~28%~~26% 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 ~~operating~~ 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 ~~below~~ reconciles net income and income from operations to Adjusted EBITDA and should be referenced when we discuss Adjusted EBITDA:

Three Months Ended June 30, Six Months Ended June 30,
2020 2021 2020 2021
(in thousands)
Net income $ 67,486 $ 196,208 $ 137,934 $ 333,422
Income tax expense 23,336 65,681 45,248 110,745
Interest expense 37,366 33,888 83,473 68,290
Interest income — — — (4,749)
Gain on sale of businesses (346) — (7,547) —
Equity in earnings of unconsolidated subsidiaries (8,324) (11,809) (10,912) (21,728)
Income from operations 119,518 283,968 248,196 485,980
Stock compensation expense:
Included in general and administrative 5,451 5,620 10,888 11,080
Included in cost of services 1,512 1,479 2,978 2,728
Depreciation and amortization 52,271 50,954 104,023 100,574
Adjusted EBITDA $ 178,752 $ 342,021 $ 366,085 $ 600,362


	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 ~~during the Three~~

We have provided revenue and ~~Six Months Ended June 30, 2020 and 2021~~

Beginning in March 2020, state governments placed significant restrictions on businesses and mandated closures of non-essential or non-life sustaining businesses, causing many employers to furlough their workforce and temporarily cease or significantly reduce their operations. State governments also implemented restrictions on travel and individual activities outside of the home, closed schools, and mandated other social distancing measures. At the same time, hospitals and other facilities began suspending elective surgeries. In an effort to ensure hospitals and health systems had the capacity to absorb and effectively manage surges of COVID-19 patients, a number of waivers and modifications of certain requirements under the Medicare, Medicaid and CHIP programs were authorized in March 2020, including certain regulations under the Medicare program which govern admissions into our critical illness recovery hospitals and rehabilitation hospitals. Specifically, our critical illness recovery hospitals which are certified as LTCHs became exempt from the greater-than-25-day average length of stay requirementoperating statistics below for all cost reporting periods that include the COVID-19 public health emergency period. Our rehabilitation hospitals which are certified as IRFs could exclude patients admitted solely to respond to the emergency from the calculation of the “60 percent rule” thresholds to receive payment as an IRF. The COVID-19 public health emergency period has been extended and is currently in effect through October 17, 2021.

~~The adverse effects of the COVID-19 pandemic, along with the actions of governmental authorities and those in the private sector to limit the spread of COVID-19, caused disruptions in~~ each of our ~~segments; these disruptions were most significant within our outpatient rehabilitation~~segments for the three months ended March 31, 2022 and ~~Concentra segments. By mid-March 2020, our outpatient rehabilitation clinics began experiencing significantly less patient visit volume due~~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 ~~declines in patient referrals from physicians, a reduction in workers’ compensation injury visits resulting from~~ the temporary closure of businesses, and the suspension of elective surgeries which would have required outpatient rehabilitation services. Our Concentra centers experienced similar declines in patient visit volume due to businesses furloughing their workforce and temporarily ceasing or significantly reducing their operations. Since March 2021, our outpatient rehabilitation clinics and Concentra centers have experienced patient visit volumes which approximate or exceed the levels experienced in the monthsyear prior to the widespread emergence of COVID-19 in the United States. Although they have experienced temporary disruptions in their core businesses as a result of the COVID-19 pandemic, our outpatient rehabilitation and Concentra segments have been able to expand their services to provide COVID-19 screening and testing.

Our critical illness recovery hospitals have played a critical role in caring for patients during the COVID-19 pandemic, and the relaxation of certain admission restrictions have contributed to volume increases in certain of our hospitals. The revenue of our critical illness recovery hospitals and rehabilitation hospitals has also benefited from the temporary suspension of the 2.0% cut to Medicare payments due to sequestration, which began May 1, 2020 following the enactment of the CARES Act, and has been extended through December 31, 2021. Certain of our rehabilitation hospitals experienced temporary declines in patient volume, beginning in March 2020, in areas more significantly impacted by the spread of COVID-19, and as a result of the suspension of elective surgeries at hospitals and other facilities, which consequently reduced the demand for inpatient rehabilitation services. Additionally, some of our rehabilitation hospitals temporarily restricted admissions as a result of the COVID-19 pandemic. Beginning at the onset of the COVID-19 pandemic, both our critical illness recovery hospitals and rehabilitation hospitals modified certain of their protocols in order to follow the guidelines and recommendations for patient treatment and for the protection of our patients and staff members. This has resulted in increased labor costs, including increased contracted labor usage, as well as additional costs resulting from the purchase of personal protective equipment.

~~The unpredictable~~ effects of the COVID-19 pandemic, including the duration and extent of disruption on our operations, ~~creates~~continues to create uncertainties about our future operating results and financial condition. ~~We have provided revenue and certain operating statistics below for each of our segments for each of the periods presented.~~ Please refer to ~~our~~the risk factors ~~previously reported~~ 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, ~~2020~~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

~~Table of Contents~~

Critical Illness Recovery Hospital
Revenue Patient Days Occupancy Rate
Number of Hospitals Owned(1)
2019 2020 2021 2019 2020 2021 2019 2020 2021 2019 2020 2021
(in thousands)
January $ 149,799 $ 163,238 $ 199,611 86,238 90,783 100,933 69% 69% 75% 96 100 99
February 145,586 165,375 190,703 80,806 87,844 92,036 71% 72% 75% 96 100 99
March 162,149 171,908 204,558 91,085 91,831 100,149 73% 70% 74% 96 100 99
Three Months Ended March 31 $ 457,534 $ 500,521 $ 594,872 258,129 270,458 293,118 71% 70% 75% 96 100 99
April $ 156,231 $ 171,445 $ 185,934 88,357 90,710 91,506 70% 71% 70% 99 100 99
May 156,422 178,223 183,471 89,350 95,191 93,708 69% 72% 70% 99 100 99
June 148,490 169,958 174,654 85,153 90,988 87,767 68% 71% 68% 99 100 99
Three Months Ended June 30 $ 461,143 $ 519,626 $ 544,059 262,860 276,889 272,981 69% 72% 69% 99 100 99
Six Months Ended June 30 $ 918,677 $ 1,020,147 $ 1,138,931 520,989 547,347 566,099 70% 71% 72% 99 100 99

Rehabilitation Hospital
Revenue Patient Days Occupancy Rate
Number of Hospitals Owned(1)
2019 2020 2021 2019 2020 2021 2019 2020 2021 2019 2020 2021
(in thousands)
January $ 50,615 $ 61,673 $ 68,297 27,434 32,111 34,404 74% 79% 82% 17 19 20
February 48,080 60,690 64,202 25,442 31,813 32,178 76% 84% 84% 17 19 20
March 55,863 59,656 75,305 29,940 30,644 35,857 78% 76% 85% 18 19 20
Three Months Ended March 31 $ 154,558 $ 182,019 $ 207,804 82,816 94,568 102,439 76% 79% 84% 18 19 20
April $ 51,991 $ 45,878 $ 70,295 28,266 23,553 34,861 76% 61% 85% 18 19 20
May 56,019 57,815 71,190 29,730 29,787 35,604 75% 73% 84% 19 19 20
June 52,364 64,974 71,181 28,529 30,741 34,483 73% 78% 84% 19 19 20
Three Months Ended June 30 $ 160,374 $ 168,667 $ 212,666 86,525 84,081 104,948 75% 71% 85% 19 19 20
Six Months Ended June 30 $ 314,932 $ 350,686 $ 420,470 169,341 178,649 207,387 76% 75% 84% 19 19 20

Outpatient Rehabilitation
Revenue Visits
Working Days(2)
2019 2020 2021 2019 2020 2021 2019 2020 2021
(in thousands)
January $ 83,185 $ 90,924 $ 76,763 687,007 757,171 625,964 22 22 20
February 78,573 88,239 77,063 658,610 739,061 641,942 20 20 20
March 85,147 76,086 98,135 708,866 626,433 832,248 21 22 23
Three Months Ended March 31 $ 246,905 $ 255,249 $ 251,961 2,054,483 2,122,665 2,100,154 63 64 63
April $ 90,230 $ 49,084 $ 95,251 762,914 386,108 810,314 22 22 22
May 90,272 51,186 89,030 759,829 409,703 758,773 22 20 20
June 81,389 66,868 96,128 680,762 546,456 835,774 20 22 22
Three Months Ended June 30 $ 261,891 $ 167,138 $ 280,409 2,203,505 1,342,267 2,404,861 64 64 64
Six Months Ended June 30 $ 508,796 $ 422,387 $ 532,370 4,257,988 3,464,932 4,505,015 127 128 127

~~Table of Contents~~

Concentra
Revenue Visits
Working Days(2)
2019 2020 2021 2019 2020 2021 2019 2020 2021
(in thousands)
January $ 133,507 $ 141,236 $ 127,103 985,598 1,032,069 867,793 22 22 20
February 126,309 133,690 132,349 919,065 965,741 869,910 20 20 20
March 136,505 123,609 163,388 1,006,944 879,585 1,057,871 21 22 23
Three Months Ended March 31 $ 396,321 $ 398,535 $ 422,840 2,911,607 2,877,395 2,795,574 63 64 63
April $ 140,050 $ 91,178 $ 152,143 1,040,543 610,555 999,622 22 22 22
May 143,183 99,228 142,228 1,073,763 674,629 956,250 22 20 20
June 130,218 121,932 162,001 988,783 865,896 1,074,206 20 22 22
Three Months Ended June 30 $ 413,451 $ 312,338 $ 456,372 3,103,089 2,151,080 3,030,078 64 64 64
Six Months Ended June 30 $ 809,772 $ 710,873 $ 879,212 6,014,696 5,028,475 5,825,652 127 128 127


	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 ~~owned~~included in our consolidated financial results at the end of each period ~~presented.~~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 ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2021.~~2022. Please refer to “Operating Statistics” 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 ~~and six~~ months ended ~~June 30, 2020~~March 31, 2021 and ~~2021.~~2022.

Other Significant Events

Dividend Payments

On ~~May 5, 2021, our~~February 17, 2022, the Company’s board of directors declared a cash dividend of $0.125 per share. The dividend, totaling ~~$16.9~~$16.7 million, was paid on ~~June 1, 2021~~March 16, 2022 to stockholders of record as of the close of business on ~~May 19, 2021.~~

~~Financing Transactions~~

On June 2, 2021, Select entered into Amendment No. 5 to the Select credit agreement which, among other things, increased the aggregate commitments available under the Select revolving facility from $450.0 million to $650.0 million, including a $125.0 million sublimit for the issuance of standby letters of credit.

On June 2, 2021, Concentra Inc. terminated its obligations under the Concentra-JPM first lien credit agreement. The Concentra-JPM first lien credit agreement provided for commitments of $100.0 million under the Concentra-JPM revolving facility, which was set to mature on March 1,4, 2022.

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Summary Financial Results

Three Months Ended ~~June 30, 2021~~

For the three months ended June 30, 2021, our revenue increased 26.9% to $1,564.0 million, compared to $1,232.7 million for the three months ended June 30, 2020. Income from operations increased 137.6% to $284.0 million for the three months ended June 30, 2021, compared to $119.5 million for the three months ended June 30, 2020. Income from operations included other operating income of $98.1 million and $55.0 million for the three months ended June 30, 2021 and 2020, respectively.

Net income increased 190.7% to $196.2 million for the three months ended June 30, 2021, compared to $67.5 million for the three months ended June 30, 2020. Net income included a pre-tax gain on sale of businesses of $0.3 million for the three months ended June 30, 2020.

Adjusted EBITDA increased 91.3% to $342.0 million for the three months ended June 30, 2021, compared to $178.8 million for the three months ended June 30, 2020. Our Adjusted EBITDA margin was 21.9% for the three months ended June 30, 2021, compared to 14.5% for the three months ended June 30, 2020.March 31, 2022

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


		Three Months Ended June 30, 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	$	544,059		$	212,666		$	280,409		$	456,372		$	70,514	$	1,564,020		Revenue	$	601,755		$	220,634		$	271,940		$	423,423		$	81,795	$	1,599,547
Operating expenses	Operating expenses	(471,155)			(161,898)			(234,776)			(352,163)			(107,193)		(1,327,185)			Operating expenses	(565,788)			(178,255)			(245,344)			(334,489)			(120,647)		(1,444,523)
Depreciation and amortization	Depreciation and amortization	(12,936)			(6,939)			(7,345)			(21,230)			(2,504)		(50,954)			Depreciation and amortization	(14,618)			(6,802)			(8,029)			(18,812)			(2,778)		(51,039)
Other operating income		—			—			—			32,316			65,771		98,087
Income from operations		$	59,968		$	43,829		$	38,288		$	115,295		$	26,588	$	283,968

Income (loss) from operations																			Income (loss) from operations	$	21,349		$	35,577		$	18,567		$	70,122		$	(41,630)	$	103,985
Depreciation and amortization	Depreciation and amortization	12,936			6,939			7,345			21,230			2,504		50,954			Depreciation and amortization	14,618			6,802			8,029			18,812			2,778		51,039
Stock compensation expense	Stock compensation expense	—			—			—			535			6,564		7,099			Stock compensation expense	—			—			—			535			8,288		8,823
Adjusted EBITDA	Adjusted EBITDA	$	72,904		$	50,768		$	45,633		$	137,060		$	35,656	$	342,021		Adjusted EBITDA	$	35,967		$	42,379		$	26,596		$	89,469		$	(30,564)	$	163,847
Adjusted EBITDA margin	Adjusted EBITDA margin	13.4		%	23.9		%	16.3		%	30.0		%	N/M		21.9		%	Adjusted EBITDA margin	6.0		%	19.2		%	9.8		%	21.1		%	N/M		10.2		%


		Three Months Ended June 30, 2020																		Three Months Ended March 31, 2021
		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	$	519,626		$	168,667		$	167,138		$	312,338		$	64,949	$	1,232,718		Revenue	$	594,872		$	207,804		$	251,961		$	422,840		$	68,986	$	1,546,463
Operating expenses	Operating expenses	(429,883)			(141,062)			(173,420)			(272,331)			(99,221)		(1,115,917)			Operating expenses	(499,487)			(157,270)			(225,632)			(341,361)			(105,102)		(1,328,852)
Depreciation and amortization	Depreciation and amortization	(13,892)			(6,907)			(7,194)			(21,857)			(2,421)		(52,271)			Depreciation and amortization	(13,050)			(7,060)			(7,191)			(19,898)			(2,421)		(49,620)
Other operating income	Other operating income	—			—			—			789			54,199		54,988			Other operating income	17,887			—			—			—			16,134		34,021
Income (loss) from operations	Income (loss) from operations	$	75,851		$	20,698		$	(13,476)		$	18,939		$	17,506	$	119,518		Income (loss) from operations	$	100,222		$	43,474		$	19,138		$	61,581		$	(22,403)	$	202,012
Depreciation and amortization	Depreciation and amortization	13,892			6,907			7,194			21,857			2,421		52,271			Depreciation and amortization	13,050			7,060			7,191			19,898			2,421		49,620
Stock compensation expense	Stock compensation expense	—			—			—			701			6,262		6,963			Stock compensation expense	—			—			—			536			6,173		6,709
Adjusted EBITDA	Adjusted EBITDA	$	89,743		$	27,605		$	(6,282)		$	41,497		$	26,189	$	178,752		Adjusted EBITDA	$	113,272		$	50,534		$	26,329		$	82,015		$	(13,809)	$	258,341
Adjusted EBITDA margin	Adjusted EBITDA margin	17.3		%	16.4		%	(3.8)		%	13.3		%	N/M		14.5		%	Adjusted EBITDA margin	19.0		%	24.3		%	10.4		%	19.4		%	N/M		16.7		%

~~Table of Contents~~

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

The following table summarizes the changes in our segment performance measures for the three months ended ~~June 30, 2021,~~March 31, 2022, compared to the three months ended ~~June 30, 2020:~~March 31, 2021:

Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
Change in revenue 4.7 % 26.1 % 67.8 % 46.1 % 8.6 % 26.9 %
Change in income from operations (20.9) % 111.8 % 384.1 % 508.8 % N/M 137.6 %
Change in Adjusted EBITDA (18.8) % 83.9 % 826.4 % 230.3 % N/M 91.3 %
~~_______________________________________________________________________________~~

~~N/M — Not meaningful.~~

~~Six Months Ended June 30, 2021~~

For the six months ended June 30, 2021, our revenue increased 17.5% to $3,110.5 million, compared to $2,647.4 million for the six months ended June 30, 2020. Income from operations increased 95.8% to $486.0 million for the six months ended June 30, 2021, compared to $248.2 million for the six months ended June 30, 2020. Income from operations included other operating income of $132.1 million and $55.0 million for the six months ended June 30, 2021 and 2020, respectively.

Net income increased 141.7% to $333.4 million for the six months ended June 30, 2021, compared to $137.9 million for the six months ended June 30, 2020. Net income included a pre-tax gain on sale of businesses of $7.5 million for the six months ended June 30, 2020.

Adjusted EBITDA increased 64.0% to $600.4 million for the six months ended June 30, 2021, compared to $366.1 million for the six months ended June 30, 2020. Our Adjusted EBITDA margin was 19.3% for the six months ended June 30, 2021, compared to 13.8% for the six months ended June 30, 2020.

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

Six Months Ended June 30, 2021
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Revenue $ 1,138,931 $ 420,470 $ 532,370 $ 879,212 $ 139,500 $ 3,110,483
Operating expenses (970,642) (319,168) (460,408) (693,524) (212,295) (2,656,037)
Depreciation and amortization (25,986) (13,999) (14,536) (41,128) (4,925) (100,574)
Other operating income 17,887 — — 32,316 81,905 132,108
Income from operations $ 160,190 $ 87,303 $ 57,426 $ 176,876 $ 4,185 $ 485,980
Depreciation and amortization 25,986 13,999 14,536 41,128 4,925 100,574
Stock compensation expense — — — 1,071 12,737 13,808
Adjusted EBITDA $ 186,176 $ 101,302 $ 71,962 $ 219,075 $ 21,847 $ 600,362
Adjusted EBITDA margin 16.3 % 24.1 % 13.5 % 24.9 % N/M 19.3 %

~~Table of Contents~~

Six Months Ended June 30, 2020
Critical Illness Recovery Hospital Rehabilitation Hospital Outpatient
Rehabilitation Concentra Other Total
(in thousands)
Revenue $ 1,020,147 $ 350,686 $ 422,387 $ 710,873 $ 143,257 $ 2,647,350
Operating expenses (841,834) (284,512) (401,547) (610,167) (212,059) (2,350,119)
Depreciation and amortization (26,228) (13,794) (14,412) (44,744) (4,845) (104,023)
Other operating income — — — 789 54,199 54,988
Income (loss) from operations $ 152,085 $ 52,380 $ 6,428 $ 56,751 $ (19,448) $ 248,196
Depreciation and amortization 26,228 13,794 14,412 44,744 4,845 104,023
Stock compensation expense — — — 1,468 12,398 13,866
Adjusted EBITDA $ 178,313 $ 66,174 $ 20,840 $ 102,963 $ (2,205) $ 366,085
Adjusted EBITDA margin 17.5 % 18.9 % 4.9 % 14.5 % N/M 13.8 %

~~The following table summarizes changes in segment performance measures for the six months ended June 30, 2021, compared to the six months ended June 30, 2020:~~


		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	11.6	%	19.9	%	26.0	%	23.7	%	(2.6)	%	17.5	%	Change in revenue	1.2	%	6.2	%	7.9	%	0.1	%	18.6	%	3.4	%
Change in income from operations	Change in income from operations	5.3	%	66.7	%	793.4	%	211.7	%	N/M		95.8	%	Change in income from operations	(78.7)	%	(18.2)	%	(3.0)	%	13.9	%	N/M		(48.5)	%
Change in Adjusted EBITDA	Change in Adjusted EBITDA	4.4	%	53.1	%	245.3	%	112.8	%	N/M		64.0	%	Change in Adjusted EBITDA	(68.2)	%	(16.1)	%	1.0	%	9.1	%	N/M		(36.6)	%

_______________________________________________________________________________

N/M — Not meaningful.

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Regulatory Changes

Our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the SEC on February ~~25, 2021,~~24, 2022, 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 ~~HHS~~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 ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022 and ~~25% of our revenue~~ for the year ended December 31, ~~2020.~~2021.

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 90-day periods effective on April 26, 2020, July 25, 2020, October 23, 2020, January 21, 2021, April 21, 2021, ~~and~~ July 20, ~~2021.~~2021, October 18, 2021, January 16, 2022, and April 16, 2022. On March 13, 2020, President Trump declared a national emergency due to the COVID-19 pandemic and the HHS Secretary authorized the waiver or modification of certain requirements under ~~the~~ 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 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 to the emergency from the calculation of the “60 percent rule” thresholds to receive payment as an IRF.

ii.Long-term care hospitals (“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 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 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 will not require out-of-state physician and non-physician practitioners to be licensed in 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 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.~~IRFs, LTCHs, and certain other providers did not need to submit quality data to Medicare for October 1, 2019 through June 30, 2020 to comply with the quality reporting programs.~~

~~viii.~~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.

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CMS also approved section 1135 waivers for 54 state Medicaid programs (including the District of Columbia, Puerto Rico, and other territories), 51 temporary changes to Medicaid or CHIP state plan amendments, 6 traditional changes to Medicaid state plan amendments, and section 1115 waivers for 12 state Medicaid demonstration projects addressing the COVID-19 public health emergency. CMS will consider specific waiver requests from providers and suppliers. We have submitted one or more specific waiver requests to make it easier for our operators or referral partners to treat COVID-19 patients, and we may submit others in the future.

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.

In addition to these agency actions, the 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 ~~has~~began distributing these funds to providers in April 2020. HHS initially allocated ~~three~~funds for a general ~~distributions from the fund for payments~~distribution to ~~Medicare providers. The Phase 1 General Distribution included $30 billion for health care~~ providers that received Medicare fee-for-service payments in 2019. ~~Another $20 billion~~Later general distributions required providers to submit an application to HHS. Other funding was allocated to Medicare providers in a manner that was intended to make the entire $50 billion Phase 1 General Distribution proportional to each provider’s share of 2018 net patient revenue. Payments from the additional $20 billion allocation were determined based on the lesser of a provider’s 2018 (or most recent complete tax year) gross receipts or the sum of incurred losses for March and April of 2020. HHS distributed $16 billion from the additional $20 billion allocation. The Phase 2 General Distribution allocated $18 billion for providers in state Medicaid/CHIP programs, Medicaid managed care plans, dentists, and certain Medicare providers who did not receive a Phase 1 General Distribution payment. HHS distributed $5.98 billion from the $18 billion Phase 2 allocation. The Phase 3 General Distribution was projected to include $20 billion for providers to apply for if they suffered financial losses or changes in operating expenses caused by COVID-19 or if they were previously ineligible for a general distribution. HHS made $24.5 billion in payments as part of the Phase 3 General Distribution. The remainder of the COVID-19 related appropriations to the Public Health and Social Services Emergency Fund is for targeted allocations to providers in high impact COVID-19 areas ($20.75 billion), rural providers (approximately $11.09 billion), skilled nursing facilities (approximately $5 billion), nursing home infection control (approximately $2.75 billion), safety net hospitals (approximately $13.07 billion), Indian Health Service and urban health centers ($520 million), children’s hospitals ($1.06 billion), and unspecified allocationsdistributions for providers treating uninsured COVID-19 patients. HHS also established a $2.25 billion incentive payment structure for skilled nursing facilities and nursing homes for keeping new COVID-19 infection and mortality rates among residents lower than the communities they serve. Starting on July 1, 2021, recipientsspecific provider types. Recipients of ~~these~~ payments must ~~begin reporting~~report data to HHS on the use of the funds via an online ~~portal. By September 30, 2021, recipients must report to~~portal by specific deadlines established by HHS based on the use of funds received from April 10, 2020 to June 30, 2020. The deadline to apply these initial payments towards eligible expenses and lost revenue attributable to COVID-19 was June 30, 2021. For payments received from July 1, 2020 to December 31, 2020, recipients must use the funds by December 31, 2021 and will report to HHS regarding the usedate of the funds during the period of January 1, 2022 to March 31, 2022. Next, any payments received from January 1, 2021 to June 30, 2021 must be used by June 30, 2022 and recipients must report to HHS regarding such payments from July 1, 2022 to September 30, 2022. Finally, if any provider receives payments during the period of July 1, 2021 to December 31, 2021, the provider must use the funds by December 31, 2022 and report to HHS on the use of these funds during the period of January 1, 2023 to March 31, 2023.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.

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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 the 2% cut to Medicare payments due to sequestration so that, for the period of May 1, 2020 to December 31, 2020, the Medicare program ~~will~~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 ~~sequester cuts~~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 the sequestration cut to 1% from April 1, 2022 through June 30, 2022. The full 2% sequestration cut will resume 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 an across-the-board 4% payment cut due to the American Rescue Plan from the FY 2022 Statutory Pay-As-You-Go (“PAYGO”) scorecard to the FY 2023 PAYGO scorecard.

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) for the cost reporting period(s) that include the emergency period. The second waives application of the site neutral payment rate so that all LTCH cases admitted during the emergency period will be paid the LTCH-PPS standard federal rate.

v.Waiver of the IRF 3-hour rule so that IRF services provided during the public health emergency period do not need to meet 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 of the Social Security Act to issue additional telehealth waivers.

The CARES Act also provides for a 20% increase in the payment weight for Medicare payments to hospitals paid under the inpatient hospital prospective payment system (“IPPS”) for treating COVID-19 patients. We are monitoring developments related to this provision, in case CMS provides a similar payment add-on for LTCHs and IRFs.

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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 2020~~. On August 16, 2019, CMS published the final rule updating policies and payment rates for the LTCH-PPS for fiscal year 2020 (affecting discharges and cost reporting periods beginning on or after October 1, 2019 through September 30, 2020). Certain errors in the final rule were corrected in a document published October 8, 2019. The standard federal rate was set at $42,678, an increase from the standard federal rate applicable during fiscal year 2019 of $41,559. The update to the standard federal rate for fiscal year 2020 included a market basket increase of 2.9%, less a productivity adjustment of 0.4%. The standard federal rate also included an area wage budget neutrality factor of 1.0020203 and a temporary, one-time budget neutrality adjustment of 0.999858 in connection with the elimination of the 25 Percent Rule. The fixed-loss amount for high cost outlier cases paid under LTCH-PPS was set at $26,778, a decrease from the fixed-loss amount in the 2019 fiscal year of $27,121. The fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate was set at $26,552, an increase from the fixed-loss amount in the 2019 fiscal year of $25,743. For LTCH discharges occurring in cost reporting periods beginning in fiscal year 2020, site neutral payment rate cases will begin to be paid fully on the site neutral payment rate, rather than the transitional blended rate. However, the CARES Act waives the site neutral payment rate for patients admitted during the COVID-19 emergency period and in response to the public health emergency, as discussed above.

~~Table of Contents~~

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 and a permanent, one-time budget neutrality adjustment of 1.000517 in connection with the elimination of the 25 Percent Rule. 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 2021, then CMS will return to using the site-neutral payment rate for reimbursement of cases that do not meet the LTCH patient criteria.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 2,13, 2021, CMS ~~released a display copy of~~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 ~~before or~~ 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, ~~a significant~~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, 2022, CMS released a display copy of the proposed rule to update 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 the final rule in August 2022 or shortly thereafter. The proposed standard federal rate for fiscal year 2023 is $45,953, 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%, less a productivity adjustment of 0.4%. The proposed standard federal rate also includes an area wage budget neutrality factor of 1.000691. 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 before or during fiscal year 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, an increase from the fixed-loss amount in the 2022 fiscal year of $33,015. The proposed fixed-loss amount for high cost outlier cases paid under the site-neutral payment rate is $43,214, an increase from the fixed-loss amount in the 2022 fiscal year of $30,988.

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 2020.~~ On August 8, 2019, CMS published the final rule updating policies and payment rates for the IRF-PPS for fiscal year 2020 (affecting discharges and cost reporting periods beginning on or after October 1, 2019 through September 30, 2020). The standard payment conversion factor for discharges for fiscal year 2020 was set at $16,489, an increase from the standard payment conversion factor applicable during fiscal year 2019 of $16,021. The update to the standard payment conversion factor for fiscal year 2020 included a market basket increase of 2.9%, less a productivity adjustment of 0.4%. CMS decreased the outlier threshold amount for fiscal year 2020 to $9,300 from $9,402 established in the final rule for fiscal year 2019.

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.

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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.

~~Table~~ On April 6, 2022, CMS published a proposed rule to update 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 set at $17,698, an increase from the standard payment conversion factor applicable during fiscal year 2022 of ~~Contents~~$17,240. The update to the standard payment conversion factor for fiscal year 2023, if adopted, would include a market basket increase of 3.2%, less a productivity adjustment of 0.4%. CMS proposed to increase the outlier threshold amount for fiscal year 2023 to $13,038 from $9,491 established in the final rule for fiscal year 2022.

Medicare Reimbursement of Outpatient Rehabilitation Clinic Services

Outpatient rehabilitation providers enroll in Medicare as a rehabilitation agency, a clinic, or a public health agency. The Medicare program reimburses outpatient rehabilitation providers based on the Medicare physician fee schedule. For services provided in 2017 through 2019, 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 the 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 ~~will require~~requires a budget neutrality adjustment. To increase values for the E/M codes while maintaining budget neutrality under the fee schedule, CMS cut the values 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 our outpatient rehabilitation clinics ~~will receive~~received an estimated 3.6% decrease in payment from Medicare in calendar year 2021. Legislation was introduced in Congress that, if enacted, would waive the budget neutrality requirement with respect to the E/M codes for 2021 in order to avoid or minimize cuts to physical and occupational therapy services and other code values. Separately, theThe Consolidated Appropriations Act, 2021, ~~provides~~provided relief in the form of a one-time 3.75% increase in payments in calendar year 2021 for therapy services and other services paid under the physician fee schedule. ~~This 3.75% increase will expire at the end of calendar year 2021.~~

In the calendar year 2022 physician fee schedule ~~proposed~~final rule, CMS announced that Medicare payments for the therapy specialty are expected 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 ~~proposes to~~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 ~~proposes~~plans to develop more MVPs from 2024 to 2027 soand is considering that MVP reporting would become mandatory in 2028. The first seven proposed MVPs for 2023 align with the following clinical topics: (1) Rheumatology; (2) Stroke Care and Prevention; (3) Heart Disease; (4) Chronic Disease Management; (5) Emergency Medicine; (6) Lower Extremity Joint Repair; and (7) Anesthesia. 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.

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

In the Medicare physician fee schedule final rule for calendar year 2019, CMS established two new modifiers (CQ and CO) to identify services furnished in whole or in part by physical therapy assistants (“PTAs”) or occupational therapy assistants (“OTAs”). These modifiers were mandated by the Bipartisan Budget Act 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. ~~CMS intends to use these modifiers to implement a payment differential that would reimburse services provided by PTAs and OTAs at 85% of the fee schedule rate beginning on January 1, 2022.~~ In the final 2020 Medicare physician fee schedule rule,, CMS clarified that when the physical therapist is involved for the entire duration 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 standard to each 15-minute unit of codes, not on the total physical therapist and PTA time of the service, allowing the separate reporting, on twotwo 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 ~~proposed~~final rule, CMS ~~proposes to implement~~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 ~~proposes to modify~~modified the de minimis standard for calendar year 2022. Specifically, CMS ~~is proposing to~~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.

~~IMPACT Act~~

In October 2014, President Obama signed into law the Improving Medicare Post-Acute Care Transformation Act of 2014 (the “IMPACT Act”). The IMPACT Act made a number of changes and additions to Medicare quality reporting for LTCHs, IRFs, skilled nursing facilities (“SNFs”), and home health agencies (“HHAs”). In addition, the IMPACT Act requires HHS and the Medicare Payment Advisory Commission (“MedPAC”) to develop a technical prototype for a unified post-acute care (“PAC”) prospective payment system (“PPS”) that could replace the four existing payment systems for LTCHs, IRFs, SNFs, and HHAs.

The IMPACT Act directed HHS to begin requiring providers to report certain standardized patient assessment data to CMS. HHS had to adopt this reporting requirement by October 1, 2018, for LTCHs, IRFs, and SNFs, and by January 1, 2019, for HHAs. The IMPACT Act also required CMS to adopt and implement new cross-setting quality measures addressing, at a minimum, the following quality domains: (1) functional status, cognitive function, and changes in function and cognitive function; (2) skin integrity and changes in skin integrity; (3) medication reconciliation; (4) incidence of major falls; and (5) providing for the transfer of health information and treatment preferences of the patient upon transition from a hospital or critical access hospital to another setting, including a PAC provider or the individual’s home, or upon transition from a PAC provider to another setting including a different PAC provider, hospital, critical access hospital, or the individual’s home. Next, the IMPACT Act required that by October 1, 2016, for SNFs, IRFs and LTCHs, and by January 1, 2017, for HHAs, CMS specify resource use and other measures for inclusion in the applicable reporting provisions. At a minimum, the resource use measures shall include the following resource use domains: (1) resource use measures, including total estimated Medicare spending per beneficiary; (2) discharge to community; and (3) measures to reflect all-condition risk-adjusted hospitalization rates of potentially preventable readmission rates. CMS began implementing the IMPACT Act’s data reporting requirements in the FY 2016 rulemakings for LTCHs, IRFs, SNFs, and HHAs.

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In addition to the new reporting requirements, the IMPACT Act outlined a process for the potential development of a unified PAC PPS. The IMPACT Act does not require CMS to adopt a unified PAC PPS, nor does it provide CMS with specific authority to implement a new payment system. However, the IMPACT Act does require HHS and MedPAC to submit a series of reports to Congress with recommendations and a technical prototype for a PAC PPS. These recommendations and prototypes could become the basis of future legislation that would create a unified PAC PPS to replace some or all of the existing Medicare payment systems for LTCHs, IRFs, SNFs, and HHAs. MedPAC submitted the first report to Congress in June 2016. The report included recommended features for a unified PAC payment system. The Secretary of HHS will submit the next report to Congress with recommendations and a technical prototype. The Secretary’s report is due no later than two years after CMS has collected two years of data on the quality measures required by the IMPACT Act. After the CMS report, MedPAC is to submit a second report to Congress with recommendations and a technical prototype for a new PAC payment system. The Secretary is expected to issue his report to Congress sometime in 2022. However, a bipartisan bill introduced in the House of Representatives in April 2021 would require the Secretary to first collect eight quarters of IMPACT Act data, including standardized patient assessment data, quality measure data, resource use and claims data, before submitting his report to Congress. The legislation would require that the eight quarters of data could not include any month in which the COVID-19 public health emergency, or a similar nationwide public health emergency, is ongoing. If enacted, the Secretary’s report would not be submitted before the later of January 1, 2024 or two years after the Secretary collects eight quarters of data.

~~Price Transparency~~

Starting January 1, 2021, new regulations went into effect requiring hospitals to provide clear and accessible pricing information online regarding the items and services they provide. First, a new regulation requires hospitals to provide a machine readable file containing the following standard charges for all items and services provided by the hospital: gross charges, discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges. Second, hospitals must provide a consumer-friendly display of standard charges for at least 300 “shoppable services” that consumers can schedule in advance. If a hospital does not offer 300 “shoppable services,” then the hospital must provide the consumer-friendly display of standard charges for all of the “shoppable services” that it does provide. For each “shoppable service,” hospitals must provide: discounted cash prices, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges. For hospitals that do not comply with these requirements, CMS may issue a warning notice, request a corrective action plan, and impose a civil monetary penalty that is publicized on the CMS website. These regulations were promulgated by the Trump administration and, on July 9, 2021, President Biden issued an Executive Order directing HHS to support the new price transparency regulations. On July 19, 2021, CMS issued a proposed rule to increase fines for hospitals that do not comply with the price transparency regulations of at least $300 per day, not to exceed $2,007,500 per hospital per year. CMS is asking for comments on alternative or additional criteria that could be used to scale a penalty, and its proposal that the machine-readable file of hospital charges is accessible to automated searches and direct downloads.

~~Surprise Billing~~

On July 13, 2021, HHS, the Department of the Treasury, the Department of Labor and the Office of Personnel Management published an interim final rule with comment period to implement certain provisions of the No Surprises Act, which was enacted as part of the Consolidated Appropriations Act, 2021. The interim final rule includes new regulations aimed at limiting surprise medical bills issued by health care providers to consumers. The HHS regulations adopted by this interim final rule are effective January 1, 2022 and apply to hospital emergency departments, freestanding emergency departments, health care providers and facilities, and providers of air ambulance services. The new regulations do not apply to patients covered by Medicare, Medicaid, Indian Health Services, Veterans Affairs health care, or TRICARE because these programs already prohibit balance billing.

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Starting January 1, 2022, the interim final rule’s new regulations will apply to patients with health insurance coverage from a group health plan (including a self-insured group health plan) or from an individual market health insurance issuer. First, if a plan provides coverage for emergency services, the interim final rule requires that emergency services must be covered: (1) without prior authorization; (2) regardless of whether the provider is an in-network provider or an in-network emergency facility; and (3) regardless of any other term or condition of the plan or coverage other than the exclusion or coordination of benefits, or a permitted affiliation or waiting period. Second, the interim final rule includes new limits on patient cost-sharing obligations for out-of-network services. Specifically, patient cost-sharing amounts for emergency services provided by out-of-network emergency facilities and out-of-network providers, and certain non-emergency services furnished by out-of-network providers at certain in-network facilities, must be calculated based on one of the following amounts: (1) an amount determined by an applicable All-Payer Model Agreement under section 1115A of the Social Security Act; (2) a specified state law if there is no such All-Payer Model Agreement; or (3) if neither of the above apply, the lesser amount of either the billed charge or the qualifying payment amount, which is generally the plan or issuer’s median contracted rate. Third, the interim final rule prohibits non-participating providers, health care facilities, and providers of air ambulance services from balance billing participants, beneficiaries, and enrollees in certain situations. Fourth, the interim final rule establishes that the total amount to be paid to an out-of-network provider or facility, including any cost-sharing, is based on: (1) an amount determined by an applicable All-Payer Model Agreement under section 1115A of the Social Security Act; (2) a specified state law if there is no such All-Payer Model Agreement; or (3) an amount agreed upon by the plan or issuer and the provider or facility if there is no such Agreement or state law. If none of these three circumstances apply, then the amount is determined by an independent dispute resolution (“IDR”) entity. Regulations regarding IDR entities and the IDR process will be issued in the future. Fifth, a new regulation requires providers and facilities to make publicly available and provide patients with a one-page notice regarding the requirements and prohibitions applicable to the provider or facility regarding balance billing, any applicable state balance billing prohibitions or limitations, and information on how to contact appropriate state and federal agencies if the patient believes the provider or facility has violated the requirements described in the notice. Finally, the interim final rule establishes a process for HHS to receive and resolve complaints regarding information that any health care provider, provider of air ambulance services, or health care facility may be failing to meet the requirements set forth in the interim final rule. Because these new regulations were adopted through an interim final rule with comment period, they may be modified after CMS reviews public comments.

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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 June 30,						Six Months Ended June 30,							Three Months Ended March 31,
		2020			2021			2020			2021					2021			2022
Critical illness recovery hospital data:	Critical illness recovery hospital data:													Critical illness recovery hospital data:
Number of hospitals owned—start of period		100			99			100			99
Number of consolidated hospitals—start of period														Number of consolidated hospitals—start of period		99			104
Number of hospitals acquired	Number of hospitals acquired	—			—			—			—			Number of hospitals acquired		—			—
Number of hospital start-ups	Number of hospital start-ups	—			—			—			—			Number of hospital start-ups		—			1
Number of hospitals closed/sold	Number of hospitals closed/sold	—			—			—			—			Number of hospitals closed/sold		—			—
Number of hospitals owned—end of period		100			99			100			99
Number of hospitals managed—end of period		1			—			1			—
Total number of hospitals (all)—end of period		101			99			101			99
Number of consolidated hospitals—end of period(1)														Number of consolidated hospitals—end of period(1)		99			105

Available licensed beds~~(1)~~(3)	Available licensed beds~~(1)~~(3)	4,308			4,322			4,308			4,322			Available licensed beds~~(1)~~(3)		4,380			4,524
Admissions~~(2)~~(4)	Admissions~~(2)~~(4)	9,167			9,026			18,700			18,885			Admissions~~(2)~~(4)		9,859			9,457
Patient days~~(3)~~(5)	Patient days~~(3)~~(5)	276,889			272,981			547,347			566,099			Patient days~~(3)~~(5)		293,118			289,217
Average length of stay (days)~~(4)~~(6)	Average length of stay (days)~~(4)~~(6)	30			29			30			30			Average length of stay (days)~~(4)~~(6)		30			30
Revenue per patient day~~(5)~~(7)	Revenue per patient day~~(5)~~(7)	$	1,867		$	1,986		$	1,853		$	2,006		Revenue per patient day~~(5)~~(7)		$	2,024		$	2,075
Occupancy rate~~(6)~~(8)	Occupancy rate~~(6)~~(8)	72		%	69		%	71		%	72		%	Occupancy rate~~(6)~~(8)		75		%	71		%
Percent patient days—Medicare~~(7)~~(9)	Percent patient days—Medicare~~(7)~~(9)	42		%	38		%	46		%	39		%	Percent patient days—Medicare~~(7)~~(9)		40		%	37		%
Rehabilitation hospital data:	Rehabilitation hospital data:													Rehabilitation hospital data:
Number of hospitals owned—start of period		19			20			19			19
Number of consolidated hospitals—start of period														Number of consolidated hospitals—start of period		19			20
Number of hospitals acquired	Number of hospitals acquired	—			—			—			1			Number of hospitals acquired		1			—
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 hospitals owned—end of period		19			20			19			20
Number of hospitals managed—end of period		10			10			10			10
Number of consolidated hospitals—end of period(1)														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
Total number of hospitals (all)—end of period	Total number of hospitals (all)—end of period	29			30			29			30			Total number of hospitals (all)—end of period		30			30
Available licensed beds~~(1)~~(3)	Available licensed beds~~(1)~~(3)	1,309			1,361			1,309			1,361			Available licensed beds~~(1)~~(3)		1,361			1,391
Admissions~~(2)~~(4)	Admissions~~(2)~~(4)	5,713			7,360			12,046			14,491			Admissions~~(2)~~(4)		7,131			7,182
Patient days~~(3)~~(5)	Patient days~~(3)~~(5)	84,081			104,948			178,649			207,387			Patient days~~(3)~~(5)		102,439			103,802
Average length of stay (days)~~(4)~~(6)	Average length of stay (days)~~(4)~~(6)	15			14			15			14			Average length of stay (days)~~(4)~~(6)		15			15
Revenue per patient day~~(5)~~(7)	Revenue per patient day~~(5)~~(7)	$	1,831		$	1,849		$	1,778		$	1,851		Revenue per patient day~~(5)~~(7)		$	1,853		$	1,943
Occupancy rate~~(6)~~(8)	Occupancy rate~~(6)~~(8)	71		%	85		%	75		%	84		%	Occupancy rate~~(6)~~(8)		84		%	84		%
Percent patient days—Medicare~~(7)~~(9)	Percent patient days—Medicare~~(7)~~(9)	43		%	49		%	48		%	49		%	Percent patient days—Medicare~~(7)~~(9)		49		%	47		%
Outpatient rehabilitation data:	Outpatient rehabilitation data:													Outpatient rehabilitation data:
Number of clinics owned—start of period		1,471			1,517			1,461			1,503
Number of consolidated clinics—start of period														Number of consolidated clinics—start of period		1,503			1,572
Number of clinics acquired	Number of clinics acquired	1			4			3			12			Number of clinics acquired		8			2
Number of clinic start-ups	Number of clinic start-ups	13			12			25			22			Number of clinic start-ups		10			12
Number of clinics closed/sold	Number of clinics closed/sold	(10)			(5)			(14)			(9)			Number of clinics closed/sold		(4)			(2)
Number of clinics owned—end of period		1,475			1,528			1,475			1,528
Number of clinics managed—end of period		282			305			282			305
Number of consolidated clinics—end of period														Number of consolidated clinics—end of period		1,517			1,584
Number of unconsolidated clinics managed—end of period														Number of unconsolidated clinics managed—end of period		292			317
Total number of clinics (all)—end of period	Total number of clinics (all)—end of period	1,757			1,833			1,757			1,833			Total number of clinics (all)—end of period		1,809			1,901
Number of visits(1)(8)		1,342,267			2,404,861			3,464,932			4,505,015
Revenue per visit(1)(9)		$	106		$	102		$	105		$	103
Number of visits(3)(10)														Number of visits(3)(10)		2,100,154			2,310,086
Revenue per visit(3)(11)														Revenue per visit(3)(11)		$	104		$	102

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		Three Months Ended June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2020		2021		2020		2021				2021		2022
Concentra data:	Concentra data:									Concentra data:
Number of centers owned—start of period		523		519		521		517
Number of consolidated centers—start of period										Number of consolidated centers—start of period		517		518
Number of centers acquired	Number of centers acquired	—		—		4		3		Number of centers acquired		3		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)		(3)		(2)		Number of centers closed/sold		(1)		(1)
Number of centers owned—end of period		522		518		522		518
Number of consolidated centers—end of period										Number of consolidated centers—end of period		519		518
Number of onsite clinics operated—end of period	Number of onsite clinics operated—end of period	129		131		129		131		Number of onsite clinics operated—end of period		133		140
Number of CBOCs owned—end of period		33		—		33		—
Number of visits(1)(8)		2,151,080		3,030,078		5,028,475		5,825,652
Revenue per visit(1)(9)		$	124	$	125	$	124	$	125

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

(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 ~~and community-based outpatient clinics (“CBOCs”)~~ are excluded.

~~(2)~~(4)Represents the number of patients admitted to our hospitals during the periods presented.

~~(3)~~(5)Each patient day represents one patient occupying one bed for one day during the periods presented.

~~(4)~~(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.

~~(5)~~(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.

~~(6)~~(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.

~~(7)~~(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.

~~(8)~~(10)Represents the number of visits in which patients were treated at our outpatient rehabilitation clinics and Concentra centers during the periods presented.

~~(9)~~(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 and CBOCs.~~clinics.

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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 June 30,				Six Months Ended June 30,					Three Months Ended March 31,
		2020		2021		2020		2021				2021		2022
Revenue	Revenue	100.0	%	100.0	%	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)	87.8		82.6		86.2		83.1		Cost of services, exclusive of depreciation and amortization(1)		83.6		88.0
General and administrative	General and administrative	2.7		2.3		2.5		2.3		General and administrative		2.3		2.3
Depreciation and amortization	Depreciation and amortization	4.3		3.2		4.0		3.2		Depreciation and amortization		3.2		3.2
Total costs and expenses	Total costs and expenses	94.8		88.1		92.7		88.6		Total costs and expenses		89.1		93.5
Other operating income	Other operating income	4.5		6.3		2.1		4.2		Other operating income		2.2		—
Income from operations	Income from operations	9.7		18.2		9.4		15.6		Income from operations		13.1		6.5

Equity in earnings of unconsolidated subsidiaries	Equity in earnings of unconsolidated subsidiaries	0.7		0.8		0.4		0.7		Equity in earnings of unconsolidated subsidiaries		0.6		0.3
Gain on sale of businesses		—		—		0.3		—

Interest income	Interest income	—		—		—		0.2		Interest income		0.3		—
Interest expense	Interest expense	(3.0)		(2.3)		(3.2)		(2.2)		Interest expense		(2.2)		(2.2)
Income before income taxes	Income before income taxes	7.4		16.7		6.9		14.3		Income before income taxes		11.8		4.6
Income tax expense	Income tax expense	1.9		4.2		1.7		3.6		Income tax expense		2.9		1.1
Net income	Net income	5.5		12.5		5.2		10.7		Net income		8.9		3.5
Net income attributable to non-controlling interests	Net income attributable to non-controlling interests	1.3		2.0		1.2		1.8		Net income attributable to non-controlling interests		1.8		0.4
Net income attributable to Select Medical Holdings Corporation	Net income attributable to Select Medical Holdings Corporation	4.2	%	10.5	%	4.0	%	8.9	%	Net income attributable to Select Medical Holdings Corporation		7.1	%	3.1	%

(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 June 30,								Six Months Ended June 30,									Three Months Ended March 31,
		2020			2021			% Change		2020			2021			% Change				2021			2022			% Change
		(in thousands, except percentages)																		(in thousands, except percentages)
Revenue:	Revenue:																	Revenue:
Critical illness recovery hospital	Critical illness recovery hospital	$	519,626		$	544,059		4.7	%	$	1,020,147		$	1,138,931		11.6	%	Critical illness recovery hospital		$	594,872		$	601,755		1.2	%
Rehabilitation hospital	Rehabilitation hospital	168,667			212,666			26.1		350,686			420,470			19.9		Rehabilitation hospital		207,804			220,634			6.2
Outpatient rehabilitation	Outpatient rehabilitation	167,138			280,409			67.8		422,387			532,370			26.0		Outpatient rehabilitation		251,961			271,940			7.9
Concentra	Concentra	312,338			456,372			46.1		710,873			879,212			23.7		Concentra		422,840			423,423			0.1
Other(1)	Other(1)	64,949			70,514			8.6		143,257			139,500			(2.6)		Other(1)		68,986			81,795			18.6
Total Company	Total Company	$	1,232,718		$	1,564,020		26.9	%	$	2,647,350		$	3,110,483		17.5	%	Total Company		$	1,546,463		$	1,599,547		3.4	%
Income (loss) from operations:	Income (loss) from operations:																	Income (loss) from operations:
Critical illness recovery hospital(2)	Critical illness recovery hospital(2)	$	75,851		$	59,968		(20.9)	%	$	152,085		$	160,190		5.3	%	Critical illness recovery hospital(2)		$	100,222		$	21,349		(78.7)	%
Rehabilitation hospital	Rehabilitation hospital	20,698			43,829			111.8		52,380			87,303			66.7		Rehabilitation hospital		43,474			35,577			(18.2)
Outpatient rehabilitation	Outpatient rehabilitation	(13,476)			38,288			384.1		6,428			57,426			793.4		Outpatient rehabilitation		19,138			18,567			(3.0)
Concentra(2)		18,939			115,295			508.8		56,751			176,876			211.7
Concentra																		Concentra		61,581			70,122			13.9
Other(1)(2)	Other(1)(2)	17,506			26,588			N/M		(19,448)			4,185			N/M		Other(1)(2)		(22,403)			(41,630)			N/M
Total Company	Total Company	$	119,518		$	283,968		137.6	%	$	248,196		$	485,980		95.8	%	Total Company		$	202,012		$	103,985		(48.5)	%
Adjusted EBITDA:	Adjusted EBITDA:																	Adjusted EBITDA:
Critical illness recovery hospital(2)	Critical illness recovery hospital(2)	$	89,743		$	72,904		(18.8)	%	$	178,313		$	186,176		4.4	%	Critical illness recovery hospital(2)		$	113,272		$	35,967		(68.2)	%
Rehabilitation hospital	Rehabilitation hospital	27,605			50,768			83.9		66,174			101,302			53.1		Rehabilitation hospital		50,534			42,379			(16.1)
Outpatient rehabilitation	Outpatient rehabilitation	(6,282)			45,633			826.4		20,840			71,962			245.3		Outpatient rehabilitation		26,329			26,596			1.0
Concentra(2)		41,497			137,060			230.3		102,963			219,075			112.8
Concentra																		Concentra		82,015			89,469			9.1
Other(1)(2)	Other(1)(2)	26,189			35,656			N/M		(2,205)			21,847			N/M		Other(1)(2)		(13,809)			(30,564)			N/M
Total Company	Total Company	$	178,752		$	342,021		91.3	%	$	366,085		$	600,362		64.0	%	Total Company		$	258,341		$	163,847		(36.6)	%
Adjusted EBITDA margins:	Adjusted EBITDA margins:																	Adjusted EBITDA margins:
Critical illness recovery hospital(2)	Critical illness recovery hospital(2)	17.3		%	13.4		%			17.5		%	16.3		%			Critical illness recovery hospital(2)		19.0		%	6.0		%
Rehabilitation hospital	Rehabilitation hospital	16.4			23.9					18.9			24.1					Rehabilitation hospital		24.3			19.2
Outpatient rehabilitation	Outpatient rehabilitation	(3.8)			16.3					4.9			13.5					Outpatient rehabilitation		10.4			9.8
Concentra(2)		13.3			30.0					14.5			24.9
Concentra																		Concentra		19.4			21.1
Other(1)(2)	Other(1)(2)	N/M			N/M					N/M			N/M					Other(1)(2)		N/M			N/M
Total Company	Total Company	14.5		%	21.9		%			13.8		%	19.3		%			Total Company		16.7		%	10.2		%
Total assets:	Total assets:																	Total assets:
Critical illness recovery hospital	Critical illness recovery hospital	$	2,115,294		$	2,187,181				$	2,115,294		$	2,187,181				Critical illness recovery hospital		$	2,233,067		$	2,367,490
Rehabilitation hospital	Rehabilitation hospital	1,135,206			1,186,886					1,135,206			1,186,886					Rehabilitation hospital		1,188,387			1,187,118
Outpatient rehabilitation	Outpatient rehabilitation	1,267,308			1,333,661					1,267,308			1,333,661					Outpatient rehabilitation		1,321,268			1,350,374
Concentra	Concentra	2,351,974			2,518,369					2,351,974			2,518,369					Concentra		2,468,157			2,339,940
Other(1)	Other(1)	598,676			730,282					598,676			730,282					Other(1)		709,902			291,022
Total Company	Total Company	$	7,468,458		$	7,956,379				$	7,468,458		$	7,956,379				Total Company		$	7,920,781		$	7,535,944
Purchases of property and equipment:	Purchases of property and equipment:																	Purchases of property and equipment:
Critical illness recovery hospital	Critical illness recovery hospital	$	14,970		$	16,499				$	23,935		$	30,884				Critical illness recovery hospital		$	14,385		$	19,569
Rehabilitation hospital	Rehabilitation hospital	1,923			3,257					5,248			3,922					Rehabilitation hospital		665			6,274
Outpatient rehabilitation	Outpatient rehabilitation	6,593			7,448					14,977			14,783					Outpatient rehabilitation		7,335			9,414
Concentra	Concentra	6,820			7,591					22,406			20,271					Concentra		12,680			10,240
Other(1)	Other(1)	1,739			1,928					4,687			6,582					Other(1)		4,654			1,348
Total Company	Total Company	$	32,045		$	36,723				$	71,253		$	76,442				Total Company		$	39,719		$	46,845

(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 ~~June 30,~~March 31, 2021, ~~and 2020,~~ we recognized other operating income of ~~$98.1 million and $55.0 million, respectively. During the six months ended June 30, 2021 and 2020, we recognized other operating income of $132.1 million and $55.0 million, respectively.~~$34.0 million. The impact of this income on the operating results of our critical illness recovery hospital segment ~~Concentra segment,~~ and other activities is outlined within the ~~tables~~table presented under “Summary Financial Results” for the three ~~and six~~ months ended ~~June 30, 2021 and 2020.~~March 31, 2021.

N/M — Not meaningful.

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Three Months Ended ~~June 30, 2021,~~March 31, 2022, Compared to Three Months Ended ~~June 30, 2020~~March 31, 2021

In the following, we discuss our results of operations related to revenue, operating expenses, other operating income, Adjusted EBITDA, depreciation and amortization, income from operations, equity in earnings of unconsolidated subsidiaries, ~~gain on sale of businesses, interest, income taxes, and net income attributable to non-controlling interests.~~

~~Please refer to “Effects of the COVID-19 Pandemic on our Results of Operation~~s ~~during the Three and Six Months Ended June 30, 2020 and 2021” above for further discussion.~~

~~Revenue~~

~~Our revenue increased 26.9% to $1,564.0 million for the three months ended June 30, 2021, compared to $1,232.7 million for the three months ended June 30, 2020.~~

~~Critical Illness Recovery Hospital Segment.~~ Revenue increased 4.7% to $544.1 million for the three months ended June 30, 2021, compared to $519.6 million for the three months ended June 30, 2020. The increase in revenue was due to an increase in revenue per patient day during the three months ended June 30, 2021, as compared to the three months ended June 30, 2020. Revenue per patient day increased 6.4% to $1,986 for the three months ended June 30, 2021, compared to $1,867 for the three months ended June 30, 2020. We experienced increases in both our non-Medicare and Medicare revenue per patient day during the three months ended June 30, 2021, as compared to the three months ended June 30, 2020. Occupancy in our critical illness recovery hospitals was 69% during the three months ended June 30, 2021, compared to 72% for the three months ended June 30, 2020. Our patient days were 272,981 for the three months ended June 30, 2021, 276,889 days for the three months ended June 30, 2020, and 262,860 days for the three months ended June 30, 2019. Our critical illness recovery hospitals experienced an increase in patient days during the three months ended June 30, 2020 which was due in part to the effects of the COVID-19 pandemic. Our patient days increased 3.9% to 272,981 days for the three months ended June 30, 2021, compared to 262,860 days for the three months ended June 30, 2019.

~~Rehabilitation Hospital Segment.~~ Revenue increased 26.1% to $212.7 million for the three months ended June 30, 2021, compared to $168.7 million for the three months ended June 30, 2020. The increase in revenue resulted primarily from an increase in patient volume during the three months ended June 30, 2021, compared to the three months ended June 30, 2020. Occupancy in our rehabilitation hospitals increased to 85% during the three months ended June 30, 2021, compared to 71% for the three months ended June 30, 2020. Our patient days increased 24.8% to 104,948 days for the three months ended June 30, 2021, compared to 84,081 days for the three months ended June 30, 2020. We experienced a 18.9% increase in patient days in our rehabilitation hospitals which operated during both the three months ended June 30, 2021 and 2020. Our patient volume during the three months ended June 30, 2020 was adversely affected within our rehabilitation hospitals in New Jersey and South Florida that temporarily restricted their admissions as a result of the COVID-19 pandemic. Certain of our rehabilitation hospitals also experienced lower patient volume due to the suspension of elective surgeries at hospitals and other facilities, which consequently reduced the demand for inpatient rehabilitation services during the three months ended June 30, 2020. Since June 30, 2020, we acquired controlling interests in two rehabilitation hospitals; we were previously a minority owner in each of these businesses. These hospitals contributed 6,528 patient days during the three months ended June 30, 2021. Our revenue per patient day increased 1.0% to $1,849 for the three months ended June 30, 2021, compared to $1,831 for the three months ended June 30, 2020.

~~Outpatient Rehabilitation Segment.~~ Revenue increased 67.8% to $280.4 million for the three months ended June 30, 2021, compared to $167.1 million for the three months ended June 30, 2020. The increase in revenue was attributable to an increase in visits, which increased 79.2% to 2,404,861 for the three months ended June 30, 2021, compared to 1,342,267 visits for the three months ended June 30, 2020. During the three months ended June 30, 2020, our outpatient rehabilitation clinics experienced significant declines in patient visit volume due to fewer patient referrals from physicians, a reduction in workers’ compensation injury visits due to the closure of businesses, the suspension of elective surgeries at hospitals and other facilities which resulted in less demand for outpatient rehabilitation services, and social distancing practices resulting from the COVID-19 pandemic. Our revenue per visit was $102 for the three months ended June 30, 2021, compared to $106 for the three months ended June 30, 2020. During the three months ended June 30, 2020, we experienced changes in our payor mix as our patient volume declined from the effects of the COVID-19 pandemic. These changes caused our revenue per visit to increase. As our patient volume increased during the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, our payor mix began to normalize and is now more closely aligned with the mix experienced during the months prior to the widespread emergence of COVID-19 in the United States.

~~Table of Contents~~

~~Concentra Segment.~~ Revenue increased 46.1% to $456.4 million for the three months ended June 30, 2021, compared to $312.3 million for the three months ended June 30, 2020. Our patient visits, which increased 40.9% to 3,030,078 for the three months ended June 30, 2021, compared to 2,151,080 visits for the three months ended June 30, 2020, contributed to the increase in revenue. During the three months ended June 30, 2020, our centers experienced significant declines in patient visit volume due to employers furloughing their workforce and temporarily ceasing or significantly reducing their operations. As a result of the COVID-19 pandemic, we generated revenue from COVID-19 screening and testing services. These services contributed $55.0 million of revenue during the three months ended June 30, 2021, compared to $6.2 million during the three months ended June 30, 2020. During the three months ended June 30, 2021, our revenue per visit increased to $125, compared to $124 for the three months ended June 30, 2020. We experienced a higher revenue per visit due to increases in the reimbursement rates payable pursuant to certain state fee schedules for workers’ compensation visits, as well as increases in our employer services rates during the three months ended June 30, 2021. The increase in revenue per visit was offset partially by a greater percentage of employer services visits, which yield lower per visit rates. Additionally, the revenue of the Concentra segment was impacted by the sale of its Department of Veterans Affairs community-based outpatient clinic business on September 1, 2020. This business contributed $22.0 million of revenue to the Concentra segment during the three months ended June 30, 2020.

~~Operating Expenses~~

Our operating expenses consist principally of cost of services and general and administrative expenses. Our operating expenses were $1,327.2 million, or 84.9% of revenue, for the three months ended June 30, 2021, compared to $1,115.9 million, or 90.5% of revenue, for the three months ended June 30, 2020. Our cost of services, a major component of which is labor expense, was $1,291.4 million, or 82.6% of revenue, for the three months ended June 30, 2021, compared to $1,082.5 million, or 87.8% of revenue, for the three months ended June 30, 2020. The decrease in our operating expenses relative to our revenue was principally due to the improved operating performances of our Concentra, outpatient rehabilitation, and rehabilitation hospital segments. This was driven primarily by an increase in patient volume, as described further within the “~~Revenue” and “Adjusted EBITDA~~” discussions. General and administrative expenses were $35.7 million, or 2.3% of revenue, for the three months ended June 30, 2021, compared to $33.5 million, or 2.7% of revenue, for the three months ended June 30, 2020.

~~Other Operating Income~~

Other operating income was $98.1 million for the three months ended June 30, 2021, compared to $55.0 million for the three months ended June 30, 2020. The other operating income is primarily related to the recognition of payments received under the Provider Relief Fund for health care related expenses and lost revenues attributable to COVID-19.

Other operating income of $65.8 million and $32.3 million is included within the operating results of our other activities and Concentra segment, respectively, for the three months ended June 30, 2021. Other operating income of $54.2 million and $0.8 million is included within the operating results of our other activities and Concentra segment, respectively, for the three months ended June 30, 2020.

~~Adjusted EBITDA~~

~~Critical Illness Recovery Hospital Segment.~~ Adjusted EBITDA was $72.9 million for the three months ended June 30, 2021, compared to $89.7 million for the three months ended June 30, 2020. Our Adjusted EBITDA margin for the critical illness recovery hospital segment was 13.4% for the three months ended June 30, 2021, compared to 17.3% for the three months ended June 30, 2020. The decreases in Adjusted EBITDA and Adjusted EBITDA margin for our critical illness recovery hospital segment were driven by a decline in patient volume, as discussed above under “~~Revenue,~~” and the incurrence of additional operating expenses as a result of the effects of the COVID-19 pandemic. We experienced an increase in these operating expenses during the three months ended June 30, 2021, as compared to the three months ended June 30, 2020. Our critical illness recovery hospitals have experienced increased usage of contract clinical labor during this time and the cost of this labor has risen significantly due to the demand for healthcare professionals. Additionally, our critical illness recovery hospitals have modified certain of their protocols which have resulted in increased costs, including adjusting staffing ratios and purchasing additional personal protective equipment, in order to follow the guidelines and recommendations for patient treatment and for the protection of both our patients and staff members.

~~Rehabilitation Hospital Segment.~~ Adjusted EBITDA increased 83.9% to $50.8 million for the three months ended June 30, 2021, compared to $27.6 million for the three months ended June 30, 2020. Our Adjusted EBITDA margin for the rehabilitation hospital segment was 23.9% for the three months ended June 30, 2021, compared to 16.4% for the three months ended June 30, 2020. The increases in Adjusted EBITDA and Adjusted EBITDA margin were primarily attributable to an increase in patient volume, as discussed further under “~~Revenue.~~”

~~Table of Contents~~

~~Outpatient Rehabilitation Segment.~~ Adjusted EBITDA increased to $45.6 million for the three months ended June 30, 2021, compared to Adjusted EBITDA losses of $6.3 million for the three months ended June 30, 2020. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 16.3% for the three months ended June 30, 2021, compared to (3.8)% for the three months ended June 30, 2020. The increases in Adjusted EBITDA and Adjusted EBITDA margin were driven by increases in patient visit volume. During the three months ended June 30, 2020, our outpatient rehabilitation clinics experienced significant declines in patient visit volume as a result of the effects of the COVID-19 pandemic, as described further above.

~~Concentra Segment.~~ Adjusted EBITDA increased to $137.1 million for the three months ended June 30, 2021, compared to $41.5 million for the three months ended June 30, 2020. Our Adjusted EBITDA margin for the Concentra segment was 30.0% for the three months ended June 30, 2021, compared to 13.3% for the three months ended June 30, 2020. The increase in patient visit volume contributed to the increases in Adjusted EBITDA and Adjusted EBITDA margin. As discussed further above, our Concentra segment experienced significant declines in patient visit volume as a result of the effects of the COVID-19 pandemic during the three months ended June 30, 2020. The increases in Adjusted EBITDA and Adjusted EBITDA margin were also due in part to the COVID-19 screening and testing services provided at our centers and various onsite clinics located at employer worksites, as discussed further under “~~Revenue.~~” We incur lower operating expenses associated with these services as compared to our core services. Our Concentra segment also recognized $32.3 million of other operating income during the three months ended June 30, 2021, as described further above under “~~Other Operating Income,” compared to $0.8 million for the three months ended June 30, 2020.~~

~~Depreciation and Amortization~~

~~Depreciation and amortization expense was $51.0 million for the three months ended June 30, 2021, compared to $52.3 million for the three months ended June 30, 2020.~~

~~Income from Operations~~

For the three months ended June 30, 2021, we had income from operations of $284.0 million, compared to $119.5 million for the three months ended June 30, 2020. The improved operating performance of our Concentra, outpatient rehabilitation, and rehabilitation hospital segments contributed to the increase in income from operations. We also recognized other operating income of $98.1 million during the three months ended June 30, 2021, as described further under “~~Other Operating Income,” compared to $55.0 million of other operating income for the three months ended June 30, 2020.~~

~~Equity in Earnings of Unconsolidated Subsidiaries~~

For the three months ended June 30, 2021, we had equity in earnings of unconsolidated subsidiaries of $11.8 million, compared to $8.3 million for the three months ended June 30, 2020. The increase in equity in earnings is principally due to the improved operating performance of our rehabilitation businesses in which we are a minority owner.

~~Gain on Sale of Businesses~~

During the three months ended June 30, 2020, we recognized a gain of $0.3 million. The gain was attributable to additional proceeds received from the sale of an outpatient rehabilitation business. The sale occurred during the first quarter ended March 31, 2020.

~~Interest~~

Interest expense was $33.9 million for the three months ended June 30, 2021, compared to $37.4 million for the three months ended June 30, 2020. The decrease in interest expense was principally due to a decline in variable interest rates.

~~Income Taxes~~

We recorded income tax expense of $65.7 million for the three months ended June 30, 2021, which represented an effective tax rate of 25.1%. We recorded income tax expense of $23.3 million for the three months ended June 30, 2020, which represented an effective tax rate of 25.7%.

~~Table of Contents~~

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

Net income attributable to non-controlling interests was $31.3 million for the three months ended June 30, 2021, compared to $15.8 million for the three months ended June 30, 2020. The increase in net income attributable to non-controlling interests was principally due to an increase in the net income of our Concentra segment during the three months ended June 30, 2021. This increase resulted from its improved operating performance and the recognition of $32.3 million of other operating income, as described further above, during the three months ended June 30, 2021.

~~Table of Contents~~

~~Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020~~

In the following, we discuss our results of operations related to revenue, operating expenses, other operating income, Adjusted EBITDA, depreciation and amortization, income from operations, equity in earnings of unconsolidated subsidiaries, gain on sale of businesses, interest, income taxes, and net income attributable to non-controlling interests.

Please refer to “Effects of the COVID-19 Pandemic on our Results of Operations ~~during the Three and Six Months Ended June 30, 2020 and 2021~~” above for further discussion.

Revenue

Our revenue increased ~~17.5%~~3.4% to ~~$3,110.5~~$1,599.5 million for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$2,647.4~~$1,546.5 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

Critical Illness Recovery Hospital Segment. Revenue increased ~~11.6%~~1.2% to ~~$1,138.9~~$601.8 million for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$1,020.1~~$594.9 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The increase in revenue was due to ~~increases~~an increase in ~~both~~ revenue per patient day ~~and patient volume~~ during the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, as compared to the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. Revenue per patient day increased ~~8.3%~~2.5% to ~~$2,006~~$2,075 for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$1,853~~$2,024 for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. We experienced increases in both our non-Medicare and Medicare revenue per patient day during the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. Our ~~critical illness recovery hospitals experienced~~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 ~~patient acuity during the six months ended June 30, 2021,~~referrals from general acute care hospitals, which ~~contributed~~was due in part to ~~the increase in Medicare revenue per patient day. We also experienced~~ an increase in ~~revenue per patient day~~volume in the intensive care units in those hospitals as a result of the ~~temporary suspension~~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 ~~2.0% cut to Medicare payments due to sequestration, which is described further under “~~three months ended March 31, 2022. Occupan~~Regulatory Changes.” Occupancy~~cy in our critical illness recovery hospitals ~~increased to 72% during the six months ended June 30, 2021, compared to~~was 71%, 75%, and 71% for the ~~six~~three months ended June 30, 2020. Our patient days increased 3.4% to 566,099 days for the six months ended June 30, 2021, compared to 547,347 days for the six months ended June 30, 2020. Since June 30, 2020, we reopened our Panama City hospital, which was temporarily closed in October 2018, and acquired a controlling interest in a hospital in which we were previously a minority owner. These hospitals contributed 17,547 patient days during the six months ended June 30, 2021. We also experienced a 1.0% increase in patient days in our critical illness recovery hospitals which operated during both the six months ended June 30,March 31, 2022, 2021, and 2020. The increase in patient days was due in part to our strengthened referral relationships with general acute care hospitals, as our hospitals continue to demonstrate their ability to care for high acuity patients. The effects of the COVID-19 pandemic and the relaxation of certain admission restrictions also contributed to the increase in volume during the six months ended June 30, 2021, as compared to the six months ended June 30, 2020.2019, respectively.

Rehabilitation Hospital Segment. Revenue increased ~~19.9%~~6.2% to ~~$420.5~~$220.6 million for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$350.7~~$207.8 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The increase in revenue ~~was~~resulted principally due to ~~increases~~an increase in ~~both patient volume and~~ revenue per patient day during the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to the ~~six~~three months ended June 30, 2020. Occupancy in our rehabilitation hospitals increased to 84% during the six months ended June 30, 2021, compared to 75% for the six months ended June 30, 2020. Our patient days increased 16.1% to 207,387 days for the six months ended June 30, 2021, compared to 178,649 days for the six months ended June 30, 2020. We experienced an increase of 12,851 patient days as a result of acquiring controlling interests in two rehabilitation hospitals since June 30, 2020; we were previously a minority owner in each of these businesses. We also experienced an 11.0% increase in patient days in our rehabilitation hospitals which operated during both the six months ended June 30, 2021 and 2020. Our patient volume during the six months ended June 30, 2020 was adversely affected within our rehabilitation hospitals in New Jersey and South Florida that temporarily restricted their admissions as a result of the COVID-19 pandemic. Certain of our rehabilitation hospitals also experienced lower patient volume due to the suspension of elective surgeries at hospitals and other facilities, which consequently reduced the demand for inpatient rehabilitation services during the six months ended June 30, 2020.March 31, 2021. Our revenue per patient day increased ~~4.1%~~4.9% to ~~$1,851~~$1,943 for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$1,778~~$1,853 for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. We experienced increases in both our Medicare and non-Medicare revenue per patient day during the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to the ~~six~~three months ended ~~June 30, 2020. The temporary suspension of~~March 31, 2021. Our patient days increased 1.3% to 103,802 days for the ~~2.0% cut~~three months ended March 31, 2022, compared to ~~Medicare payments due to sequestration, which is described further under “Regulatory Changes,” contributed to~~102,439 days for the ~~increase~~three months ended March 31, 2021. Occupancy in ~~revenue per patient day.~~our rehabilitation hospitals was 84%, 84%, and 76% for the three months ended March 31, 2022, 2021, and 2019, respectively.

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Outpatient Rehabilitation Segment. Revenue increased ~~26.0%~~7.9% to ~~$532.4~~$271.9 million for the ~~six~~three months ended ~~June 30, 2021, compared~~March 31, 2022, compared to ~~$422.4~~$252.0 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The increase in revenue was due to an increase in visits, which increased 10.0% to 2,310,086 for the three months ended March 31, 2022, compared to 2,100,154 and 2,054,483 visits for the three months ended March 31, 2021 and 2019, respectively. The increase in 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 the three months ended March 31, 2022 and 2021. Our patient visit volume was adversely impacted by the ongoing effects of the COVID-19 pandemic during the three months ended March 31, 2021. Our revenue per visit was $102 for the three months ended March 31, 2022, compared to $104 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 to $423.4 million for the three months ended March 31, 2022, compared to $422.8 million for the three months ended March 31, 2021. The increase in revenue was primarily attributable to an increase in visits, which increased ~~30.0%~~11.5% to ~~4,505,015~~3,116,898 for the ~~six~~three months ended ~~June 30, 2021, compared~~March 31, 2022, compared to ~~3,464,932~~2,795,574 and 2,911,607 visits for the ~~six~~three months ended June 30, 2020. During the six months ended June 30, 2020, our outpatient rehabilitation clinics experienced significant declines in patient visit volume due to fewer patient referrals from physicians,March 31, 2021 and 2019, respectively. This increase was offset partially by a reduction in workers’ compensation injury visits due to the closure of businesses, the suspension of elective surgeries at hospitals and other facilities which resulted in less demand for outpatient rehabilitation services, and social distancing practices resulting from the COVID-19 pandemic. Our revenue per visit was $103 for the six months ended June 30, 2021, compared to $105 for the six months ended June 30, 2020. During the six months ended June 30, 2020, we experienced changes in our payor mix as our patient volume declined from the effects of the COVID-19 pandemic. These changes caused our revenue per visit to increase. As our patient volume increased during the six months ended June 30, 2021, as compared to the six months ended June 30, 2020, our payor mix began to normalize and is now more closely aligned with the mix experienced during the months prior to the widespread emergence of COVID-19decline in the ~~United States.~~

~~Concentra Segment.~~ Revenue increased 23.7% to $879.2 million for the six months ended June 30, 2021, compared to $710.9 million for the six months ended June 30, 2020. Our patient visits, which increased 15.9% to 5,825,652 for the six months ended June 30, 2021, compared to 5,028,475 visits for the six months ended June 30, 2020, contributed to the increase in revenue. During the six months ended June 30, 2020,revenue generated from our centers experienced significant declines in patient visit volume due to employers furloughing their workforce and temporarily ceasing or significantly reducing their operations. As a result of the COVID-19 pandemic, we generated revenue from COVID-19 screening and testing services. These services contributed ~~$106.7~~$9.1 million of revenue during the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$6.2~~$51.7 million during the ~~six~~three months ended ~~June 30, 2020. During the six months ended June 30, 2021, our~~March 31, 2021. Our revenue per visit ~~increased to~~was $125 ~~compared to $124~~ for both the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2022 and 2021. We experienced ~~a higher revenue per visit due to~~ increases in the reimbursement rates ~~payable pursuant to certain state fee schedules~~ for our employer services and workers’ compensation visits ~~as well as~~during the three months ended March 31, 2022. The increases in our ~~employer services~~reimbursement rates ~~during the six months ended June 30, 2021. The increase in revenue per visit was~~were offset, ~~partially~~however, by a greater percentage of employer services visits, which yield lower per visit rates. ~~Additionally, the revenue~~

Table of the Concentra segment was impacted by the sale of its Department of Veterans Affairs community-based outpatient clinic business on September 1, 2020. This business contributed $43.5 million of revenue to the Concentra segment during the six months ended June 30, 2020.Contents

Operating Expenses

Our operating expenses consist principally of cost of services and general and administrative expenses. Our operating expenses were ~~$2,656.0~~$1,444.5 million, or ~~85.4%~~90.3% of revenue, for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$2,350.1~~$1,328.9 million, or ~~88.7%~~85.9% of revenue, for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. Our cost of services, a major component of which is labor expense, was ~~$2,584.9~~$1,407.0 million, or ~~83.1%~~88.0% of revenue, for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$2,282.8~~$1,293.4 million, or ~~86.2%~~83.6% of revenue, for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The ~~decrease~~increase in our operating expenses relative to our revenue was principally due to ~~the improved operating performances of~~increased labor costs within our ~~Concentra, outpatient rehabilitation,~~critical illness recovery hospital and rehabilitation hospital ~~segments. This was driven primarily by an increase in patient volume,~~segments, as ~~described~~discussed further ~~within the “Revenue” and~~below under “Adjusted ~~EBITDA~~EBITDA.” ~~discussions.~~ General and administrative expenses were ~~$71.1~~$37.5 million, or 2.3% of revenue, for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$67.3~~$35.4 million, or ~~2.5%~~2.3% of revenue, for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

Other Operating Income

~~Other operating income was $132.1 million for~~For the ~~six~~three months ended ~~June 30,~~March 31, 2021, ~~compared to $55.0 million for the six months ended June 30, 2020.~~

~~For the six months ended June 30, 2021, $114.1 million of~~we had other operating income isof $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 $36.0 million for the three months ended March 31, 2022, compared to $113.3 million for the three months ended March 31, 2021. Our Adjusted EBITDA margin for the critical illness recovery hospital segment was 6.0% for the three months ended March 31, 2022, compared to 19.0% for the three months ended March 31, 2021. 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 led 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, as compared to the three months ended March 31, 2021. For 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, as compared to the three months ended March 31, 2021. During the three months ended March 31, 2021, our Adjusted EBITDA and Adjusted EBITDA margin also benefited from the recognition of $17.9 million of other operating income, as described further above under “Other Operating Income.”

Rehabilitation Hospital Segment. Adjusted EBITDA was $42.4 million for the three months ended March 31, 2022, compared to $50.5 million for the three months ended March 31, 2021. Our Adjusted EBITDA margin for the rehabilitation hospital segment was 19.2% for the three months ended March 31, 2022, compared to 24.3% for the three months ended March 31, 2021. 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 led to increases in incentive and bonus pay for our employees, and greater dependence on contract clinical workers have contributed to 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.

Outpatient Rehabilitation Segment. Adjusted EBITDA increased 1.0% 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. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 9.8% for the three months ended March 31, 2022, compared to 10.4% for the three months ended March 31, 2021. The increase in Adjusted EBITDA was principally driven by an increase in patient visit volume during the three months ended March 31, 2022. Our Adjusted EBITDA and Adjusted EBITDA margin 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, 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 to 19.4% for the three months ended March 31, 2021. The increases in Adjusted EBITDA and Adjusted EBITDA margin were primarily attributable to an increase in patient visits in our centers during the three months ended March 31, 2022.

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Depreciation and Amortization

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

Income from Operations

For the three months ended March 31, 2022, we had income from operations of $104.0 million, compared to $202.0 million for the three months ended March 31, 2021. The increase in labor costs experienced within our critical illness recovery hospital and rehabilitation hospital segments was the primary cause of the decrease 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.”

Equity in Earnings of Unconsolidated Subsidiaries

For the three months ended March 31, 2022, we had equity in earnings of unconsolidated subsidiaries of $5.4 million, compared to $9.9 million for the three months ended March 31, 2021. The decrease in equity in earnings is due in part to an increase in labor costs incurred by the rehabilitation businesses in which we are a minority owner. Additionally, certain of these rehabilitation businesses recognized income during 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 to COVID-19. $81.9 million and $32.3 million of other operating income is included within the operating results of our other activities and Concentra segment, respectively. The remaining $17.9 million of other operating income is related to the outcome of litigation with CMS and is included in the operating results of our critical illness recovery hospital segment.

For the six months ended June 30, 2020, the other operating income of $55.0 million is related to the recognition of payments received under the Provider Relief Fund for health care related expenses and lost revenues attributable to COVID-19. $54.2 million and $0.8 million of other operating income is included within the operating results of our other activities and Concentra segment, respectively.

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~~Adjusted EBITDA~~

~~Critical Illness Recovery Hospital Segment.~~ Adjusted EBITDA increased 4.4% to $186.2 million for the six months ended June 30, 2021, compared to $178.3 million for the six months ended June 30, 2020. Our Adjusted EBITDA margin for the critical illness recovery hospital segment was 16.3% for the six months ended June 30, 2021, compared to 17.5% for the six months ended June 30, 2020. The increase in Adjusted EBITDA for our critical illness recovery hospital segment was primarily driven by the recognition of $17.9 million of other operating income during the six months ended June 30, 2021, as described further above under “~~Other Operating Income~~.” Our Adjusted EBITDA and Adjusted EBITDA margin were adversely affected by the incurrence of additional operating expenses as a result of the effects of the COVID-19 pandemic. We experienced an increase in these operating expenses during the six months ended June 30, 2021, as compared to the six months ended June 30, 2020. Our critical illness recovery hospitals have experienced increased usage of contract clinical labor during this time and the cost of this labor has risen significantly due to the demand for healthcare professionals. Additionally, our critical illness recovery hospitals have modified certain of their protocols which have resulted in increased costs, including adjusting staffing ratios and purchasing additional personal protective equipment, in order to follow the guidelines and recommendations for patient treatment and for the protection of both our patients and staff members.

~~Rehabilitation Hospital Segment.~~ Adjusted EBITDA increased 53.1% to $101.3 million for the six months ended June 30, 2021, compared to $66.2 million for the six months ended June 30, 2020. Our Adjusted EBITDA margin for the rehabilitation hospital segment was 24.1% for the six months ended June 30, 2021, compared to 18.9% for the six months ended June 30, 2020. The increases in Adjusted EBITDA and Adjusted EBITDA margin were primarily driven by increases in patient volume and revenue per patient day in our rehabilitation hospitals which operated during both the six months ended June 30, 2021 and 2020, as discussed further under “~~Revenue.” Our two newly acquired rehabilitation hospitals also contributed $4.6 million of Adjusted EBITDA during the six months ended June 30, 2021.~~

~~Outpatient Rehabilitation Segment.~~ Adjusted EBITDA increased to $72.0 million for the six months ended June 30, 2021, compared to $20.8 million for the six months ended June 30, 2020. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 13.5% for the six months ended June 30, 2021, compared to 4.9% for the six months ended June 30, 2020. The increases in Adjusted EBITDA and Adjusted EBITDA margin were driven by increases in patient visit volume. During the six months ended June 30, 2020, our outpatient rehabilitation clinics experienced significant declines in patient visit volume as a result of the effects of the COVID-19 pandemic, as described further above.

~~Concentra Segment.~~ Adjusted EBITDA increased to $219.1 million for the six months ended June 30, 2021, compared to $103.0 million for the six months ended June 30, 2020. Our Adjusted EBITDA margin for the Concentra segment was 24.9% for the six months ended June 30, 2021, compared to 14.5% for the six months ended June 30, 2020. The increase in patient visit volume contributed to the increases in Adjusted EBITDA and Adjusted EBITDA margin. As discussed further above, our Concentra segment experienced significant declines in patient visit volume as a result of the effects of the COVID-19 pandemic during the six months ended June 30, 2020. The increases in Adjusted EBITDA and Adjusted EBITDA margin were also due in part to the COVID-19 screening and testing services provided at our centers and various onsite clinics located at employer worksites, as discussed further under “~~Revenue.~~” We incur lower operating expenses associated with these services as compared to our core services. Our Concentra segment also recognized $32.3 million of other operating income during the six months ended June 30, 2021, as described further above under “~~Other Operating Income,” compared to $0.8 million for the six months ended June 30, 2020.~~

~~Depreciation and Amortization~~

~~Depreciation and amortization expense was $100.6 million for the six months ended June 30, 2021, compared to $104.0 million for the six months ended June 30, 2020.~~

~~Income from Operations~~

For the six months ended June 30, 2021, we had income from operations of $486.0 million, compared to $248.2 million for the six months ended June 30, 2020. The improved operating performance of our Concentra, outpatient rehabilitation, and rehabilitation hospital segments contributed to the increase in income from operations. We also recognized other operating income of $132.1 million during the six months ended June 30, 2021, as described further under “~~Other Operating Income,” compared to $55.0 million of other operating income for the six months ended June 30, 2020.~~

~~Equity in Earnings of Unconsolidated Subsidiaries~~

For the six months ended June 30, 2021, we had equity in earnings of unconsolidated subsidiaries of $21.7 million, compared to $10.9 million for the six months ended June 30, 2020. The increase in equity in earnings is principally due to the improved operating performance of our rehabilitation businesses in which we are a minority owner.

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~~Gain on Sale of Businesses~~

~~We recognized a gain of $7.5 million related to the sale of an outpatient rehabilitation business during the six months ended June 30, 2020.~~

Interest

Interest expense was ~~$68.3~~$35.5 million for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$83.5~~$34.4 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The ~~decrease~~increase in interest expense was ~~principally due to a decline in variable interest rates.~~caused by the borrowings we made under our revolving facility during the three months ended March 31, 2022.

For the ~~six~~three months ended ~~June 30,~~March 31, 2021, we recognized interest income of $4.7 million. The interest income is related to the outcome of litigation with CMS.

Income Taxes

We recorded income tax expense of ~~$110.7~~$17.9 million for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, which represented an effective tax rate of ~~24.9%~~24.3%. We recorded income tax expense of ~~$45.2~~$45.1 million for the ~~six~~three months ended ~~June 30, 2020,~~March 31, 2021, which represented an effective tax rate of 24.7%.

Net Income Attributable to Non-Controlling Interests

Net income attributable to non-controlling interests was ~~$58.0~~$6.8 million for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$33.2~~$26.7 million for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The ~~increase~~decrease in net income attributable to non-controlling interests was principally due to ~~an increase~~a decrease in the net income of our Concentra segment during the six months ended June 30, 2021. This increase resulted primarily from its improved operating performance and the recognition of $32.3 million of other operating income, as described further above, during the six months ended June 30, 2021. The increase in net income attributable to non-controlling interests also resulted from improvements in the operating performance of our less than wholly owned critical illness recovery hospitals and rehabilitation hospitals.

Many of these hospitals were impacted by increases in labor costs during the three months ended March 31, 2022, 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.

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Liquidity and Capital Resources

Cash Flows for the ~~Six~~Three Months Ended ~~June 30, 2021~~March 31, 2022 and ~~Six~~Three Months Ended ~~June 30, 2020~~March 31, 2021

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


		Six Months Ended June 30,					Three Months Ended March 31,
		2020		2021			2021		2022
		(in thousands)					(in thousands)
Cash flows provided by operating activities	Cash flows provided by operating activities	$	686,098	$	363,026	Cash flows provided by operating activities	$	239,888	$	6,337
Cash flows used in investing activities	Cash flows used in investing activities	(80,562)		(88,245)		Cash flows used in investing activities	(52,585)		(55,331)
Cash flows used in financing activities		(431,681)		(48,349)
Cash flows provided by (used in) financing activities						Cash flows provided by (used in) financing activities	(14,090)		105,565
Net increase in cash and cash equivalents	Net increase in cash and cash equivalents	173,855		226,432		Net increase in cash and cash equivalents	173,213		56,571
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	335,882		577,061		Cash and cash equivalents at beginning of period	577,061		74,310
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	509,737	$	803,493	Cash and cash equivalents at end of period	$	750,274	$	130,881

Operating activities provided ~~$363.0~~$6.3 million of cash flows for the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, compared to ~~$686.1~~$239.9 million of cash flows for the ~~six~~three months ended ~~June 30, 2020. During the six months ended June 30, 2020, we experienced an increase~~March 31, 2021. The decrease in cash flows ~~provided by~~from operating activities ~~as a result of receiving approximately $317.0~~was primarily due to our financial performance during the three months ended March 31, 2022. We also repaid $62.9 million of ~~advanced~~Medicare advance payments received under the Accelerated and Advance Payment Program ~~as well as approximately $100.5 million of payments under~~during the ~~Provider Relief Fund. During the six~~three months ended ~~June 30, 2021, we received an additional $35.8 million of~~March 31, 2022. CMS began recouping these payments ~~under the Provider Relief Fund. Refer to Note 15 – CARES Act of the notes to our condensed consolidated financial statements included herein for further information.~~in April 2021.

Our days sales outstanding was 5453 days at ~~June 30, 2021~~March 31, 2022, compared to 5652 days at December 31, ~~2020.~~2021. Our days sales outstanding was 5556 days at ~~June 30, 2020, compared to 51 days at~~both March 31, 2021 and December 31, ~~2019.~~2020. Our days sales outstanding will fluctuate based upon variability in our collection cycles and patient volumes.

Investing activities used ~~$88.2~~$55.3 million of cash flows for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. The principal uses of cash were ~~$76.4~~$46.8 million for purchases of property and equipment and ~~$21.3~~$8.5 million for investments in and acquisitions of businesses. ~~The cash outflows were offset in part by proceeds received from the sale of assets of $9.5 million.~~ Investing activities used ~~$80.6~~$52.6 million of cash flows for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The principal uses of cash were ~~$71.3~~$39.7 million for purchases of property and equipment and ~~$21.7~~$12.9 million for investments in and acquisitions of businesses. ~~The cash outflows were offset in part by proceeds received from the sale of assets and businesses of $12.4 million.~~

Financing activities ~~used $48.3~~provided $105.6 million of cash flows for the ~~six~~three months ended ~~June 30, 2021.~~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 ~~$29.2~~$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 and $16.9 million of dividend payments to common stockholders.~~interests. Financing activities used ~~$431.7~~$14.1 million of cash flows for the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. The principal use of cash was ~~$366.2~~$13.7 million for ~~the purchase~~distributions to and purchases of additional membership interests of Concentra Group Holdings Parent during the six months ended June 30, 2020. We also used $39.8 million of cash for the mandatory prepayment of term loans under the Select credit facilities.non-controlling interests.

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Capital Resources

Working capital. We had net working capital of ~~$459.1~~$61.7 million at ~~June 30, 2021,~~March 31, 2022, compared to ~~$155.6~~a net working capital deficit of $133.6 million at December 31, ~~2020.~~2021. The increase in working capital was primarily due to ~~an increase~~increases in our cash and cash equivalents and ~~decreases~~accounts receivable, as well as a reduction in our ~~liabilities~~liability related to the payments we received under the Accelerated and Advance Payment ~~Program and the Provider Relief Fund. Refer to Note 15 – CARES Act of the notes to our condensed consolidated financial statements included herein for further information.~~Program.

~~Select credit~~Credit facilities. On June 2, 2021, Select entered into Amendment No. 5 to the Select credit agreement which, among other things, increased the aggregate commitments available under the Select revolving facility from $450.0 million to $650.0 million, including a $125.0 million sublimit for the issuance of standby letters of credit.

At ~~June 30, 2021,~~March 31, 2022, Select had outstanding borrowings under ~~the Select~~its credit facilities consisting of a $2,103.4 million in term ~~loans~~loan (excluding unamortized original issue discounts and debt issuance costs of ~~$15.5~~$12.3 million) ~~(the “Select term loan”). Select did not have any~~and borrowings ~~outstanding~~of $340.0 million under ~~the Select~~our revolving facility. At ~~June 30, 2021,~~March 31, 2022, Select had ~~$594.6~~$252.8 million of availability under ~~the Select~~its revolving facility after giving effect to ~~$55.4~~$57.2 million of outstanding letters of credit.

~~Concentra credit facilities.~~ On June 2, 2021, Concentra Inc. terminated its obligations under the Concentra-JPM first lien credit agreement. The Concentra-JPM first lien credit agreement provided for commitments of $100.0 million under the Concentra-JPM revolving facility, which was set to mature on March 1, 2022.

Stock Repurchase Program. Holdings’ board of directors has authorized a common stock repurchase program to repurchase up to ~~$500.0 million~~$1.0 billion worth of shares of its common stock. The common stock repurchase program ~~has been extended until December 31, 2021, and~~ will remain in effect until ~~then,~~December 31, 2023, unless further extended or earlier terminated by the board of directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Holdings deems appropriate. Holdings funds this program with cash on hand and borrowings under ~~the Select~~its revolving facility. ~~Holdings did not repurchase shares during~~During the three months ended ~~June 30, 2021.~~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. Since the inception of the program through ~~June 30, 2021,~~March 31, 2022, Holdings has repurchased ~~38,580,908~~42,480,122 shares at a cost of approximately ~~$356.6~~$466.9 million, or ~~$9.24~~$10.99 per share, which includes transaction costs.

~~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 believe our internally generated cash flows and borrowing capacity under the Select revolving facility will allow us to finance our operations in both the short and long term. As of June 30, 2021, we had cash and cash equivalents of $803.5 million and availability of $594.6 million under the Select revolving facility after giving effect to $55.4 million of outstanding letters of credit.

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

Use 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 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, we had cash and cash equivalents of $130.9 million and $252.8 million of availability under the revolving facility after giving effect to $340.0 million of outstanding borrowings and $57.2 million of letters of credit.

Dividend

On ~~August 4, 2021,~~May 5, 2022, our board of directors declared a cash dividend of $0.125 per share. The dividend will be payable on or about ~~August 30, 2021~~June 1, 2022 to stockholders of record as of the close of business on ~~August 18, 2021.~~May 19, 2022.

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 of directors after taking into account various factors, including, but not limited to, our financial condition, operating results, available cash and current and anticipated cash needs, the terms of our indebtedness, and other factors our board of directors may deem to be relevant.

Recent Accounting Pronouncements

~~Refer to Note 2 – Accounting Policies of~~There were no new accounting standards issued since December 31, 2021, which will have a material effect on the ~~notes to our condensed consolidated~~ financial statements ~~included herein for information regarding recent accounting pronouncements.~~upon adoption.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to interest rate risk in connection with our variable rate long-term indebtedness. Our principal interest rate exposure relates to the loans outstanding under ~~the Select~~our credit facilities, which generally bear interest rates that are indexed against LIBOR.

At ~~June 30, 2021,~~March 31, 2022, Select had outstanding borrowings under ~~the Select~~its credit facilities consisting of ~~the~~a $2,103.4 million ~~Select~~ term loan (excluding unamortized original issue discounts and debt issuance costs of ~~$15.5~~$12.3 million)~~. At June 30, 2021, Select did not have any~~ and $340.0 million of borrowings ~~outstanding~~ under ~~the Select~~its revolving facility.

In order to mitigate our exposure to rising interest rates, we entered into an interest rate cap transaction to limit our 1-month LIBOR rate to 1.0% on $2.0 billion of principal outstanding under ~~the Select~~our term loan. The agreement ~~became effective on March 31, 2021 and~~ applies to interest payments ~~from and including April 30, 2021~~ through September 30, 2024. As of ~~June 30, 2021,~~March 31, 2022, the 1-month LIBOR rate was ~~0.10%~~0.45%. A 0.25% change in market interest rates would impact the interest expense on our variable rate debt by ~~$5.3~~$6.1 million until 1-month LIBOR exceeds 1.0%, at which time the impact of increases in 1-month LIBOR on ~~our~~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.

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 ~~June 30, 2021,~~March 31, 2022, 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 ~~second~~first quarter ended ~~June 30, 2021,~~March 31, 2022, 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 14 – Commitments and Contingencies of the notes to our condensed consolidated financial statements included herein.

ITEM 1A. RISK FACTORS

~~There have been no material changes from our~~The risk factor set forth in this report updates, and should be read together with, the risk factors ~~as previously reported~~discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2020 and our Quarterly Report on Form 10-Q for the three months ended March 31,~~ 2021.

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

Purchases of Equity Securities by the Issuer

Holdings’ board of directors ~~has~~ authorized a common stock repurchase program to repurchase up to ~~$500.0 million~~$1.0 billion worth of shares of its common stock. The program ~~which has been extended until December 31, 2021,~~ will remain in effect until ~~then~~December 31, 2023, unless further extended or earlier terminated by the board of 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 the three months ended ~~June 30, 2021.~~March 31, 2022.

Total Number of Shares Purchased(1)
Average Price Paid Per Share(1)
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
April 1 – April 30, 2021 — $ — — $ 143,394,863
May 1 – May 31, 2021 42,250 38.10 — 143,394,863
June 1 – June 30, 2021 — — — 143,394,863
Total 42,250 $ 38.10 — $ 143,394,863

(1) Represents common stock surrendered to us to satisfy tax withholding obligations associated with the vesting of restricted shares issued to employees, pursuant to the provisions of our equity incentive plans.


	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of 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

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. 5, dated June 2, 2021, to the Credit Agreement, dated 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 and Amendment No. 4, dated as of December 10, 2019 (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K, filed on June 4, 2021).
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
						Scott A. Romberger
						Senior Vice President, Chief Accounting Officer
						(Principal Accounting Officer)

Dated: ~~August~~May 5, ~~2021~~2022

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	For the Six Months Ended June 30, 2020

		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
Balance at December 31, 2019	134,328	$	134	$	491,038	$	279,800	$	0	$	770,972	$	158,063	$	929,035
Net income attributable to Select Medical Holdings Corporation						53,125				53,125				53,125
Net income attributable to non-controlling interests										—		10,067		10,067
Issuance of restricted stock	2	0		0						—				0
Forfeitures of unvested restricted stock	(15)	0		0						—				0
Vesting of restricted stock				6,136						6,136				6,136
Repurchase of common shares	(492)	0		(5,350)		(3,341)				(8,691)				(8,691)
Issuance of non-controlling interests										—		1,679		1,679
Distributions to and purchases of non-controlling interests						(2,726)				(2,726)		(4,048)		(6,774)
Redemption value adjustment on non-controlling interests						(10,123)				(10,123)				(10,123)
Other						(55)				(55)		420		365
Balance at March 31, 2020	133,823	$	134	$	491,824	$	316,680	$	0	$	808,638	$	166,181	$	974,819
Net income attributable to Select Medical Holdings Corporation						51,650				51,650				51,650
Net income attributable to non-controlling interests										—		12,572		12,572
Issuance of restricted stock	200	0		0						—				0
Forfeitures of unvested restricted stock	(7)	0		0						—				0
Vesting of restricted stock				6,262						6,262				6,262
Repurchase of common shares	(46)	0		(441)		(283)				(724)				(724)

Issuance of non-controlling interests				0						0		7		7
Distributions to and purchases of non-controlling interests				(65)						(65)		(418)		(483)
Redemption value adjustment on non-controlling interests						127,916				127,916				127,916
Other				(795)		1				(794)		1,205		411
Balance at June 30, 2020	133,970	$	134	$	496,785	$	495,964	$	0	$	992,883	$	179,547	$	1,172,430


	Total Number of Shares Purchased(1)	Average Price Paid Per Share(1)		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
April 1 – April 30, 2021	—	$	—	—	$	143,394,863
May 1 – May 31, 2021	42,250	38.10		—	143,394,863
June 1 – June 30, 2021	—	—		—	143,394,863
Total	42,250	$	38.10	—	$	143,394,863