UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): September 7, 2007
REHABCARE GROUP, INC.
(Exact name of Company as specified in its charter)
| Delaware | 0-19294 | 51-0265872 |
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| (State or other jurisdiction | (Commission | (I.R.S. Employer |
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| of incorporation) | File Number) | Identification No.) | ||||||||
| 7733 Forsyth Boulevard |
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| Suite 2300 |
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| St. Louis, Missouri | 63105 |
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(Address of principal executive offices) | (Zip Code) | |||||||
(314) 863-7422
(Company's telephone number, including area code)
Not applicable
(Former name or former address if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Company under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 7.01 | Regulation FD Disclosure |
Beginning on September 7, 2007, RehabCare executives will make presentations at investor conferences to analysts and in other forums using the slides as included in this Form 8-K as Exhibit 99. Presentations will be made using these slides, or modifications thereof, in connection with other presentations in the foreseeable future.
Information contained in this presentation is an overview and intended to be considered in the context of RehabCare's SEC filings and all other publicly disclosed information. We undertake no duty or obligation to update or revise this information. However, we may update the presentation periodically in a Form 8-K filing.
Forward-looking statements have been provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from forecasted results. These risks and uncertainties may include but are not limited to, our ability to consummate acquisitions and other partnering relationships at reasonable valuations; our ability to integrate acquisitions and partnering relationships within the expected timeframes and to achieve the revenue, cost savings and earnings levels from such acquisitions and relationships at or above the levels projected; our ability to comply with the terms of our borrowing agreements; changes in governmental reimbursement rates and other regulations or policies affecting reimbursement for the services provided by us to clients and/or patients; the operational, administrative and financial effect of our compliance with other governmental regulations and applicable licensing and certification requirements; our ability to attract new client relationships or to retain and grow existing client relationships through expansion of our service offerings and the development of alternative product offerings; the future financial results of any unconsolidated affiliates; our ability to attract and the additional costs of attracting and retaining administrative, operational and professional employees; shortages of qualified therapists and other healthcare personnel; significant increases in health, workers compensation and professional and general liability costs; litigation risks of our past and future business, including our ability to predict the ultimate costs and liabilities or the disruption of our operations; competitive and regulatory effects on pricing and margins; our ability to effectively respond to fluctuations in our census levels and number of patient visits; the adequacy and effectiveness of our information systems; the proper functioning of our information systems; natural disasters and other unexpected events which could severely damage or interrupt our systems and operations; changes in federal and state income tax laws and regulations, the effectiveness of our tax planning strategies and the sustainability of our tax positions; and general and economic conditions, including efforts by governmental reimbursement programs, insurers, healthcare providers and others to contain healthcare costs.
Item 9.01 | Financial Statements and Exhibits. |
| (d) | Exhibits - See exhibit index |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Dated: September 7, 2007
| REHABCARE GROUP, INC. |
By: /s/ Jay W. Shreiner
Name: Jay W. Shreiner
Title: Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. | Description |
99 | Investor Relations Presentation in use beginning September 7, 2007. |
Exhibit 99
Investor Presentation
Second Quarter, 2007
0
RehabCare’s vision is to provide a clinically integrated continuum of
post-acute care resulting in people regaining their lives. That means
linking together our resources and clinical expertise in our various
settings to create a coordinated system that supports patients in their
transition from an acute episode to home.
Our Strategic Vision
1
What We Do
Skilled Nursing Facility-Based Rehabilitation Programs
1,110 programs - 7.5 million patient visits annually
Hospital-Based Rehabilitation Programs - 161 Total Units
Acute Rehabilitation Units
110 programs - 43,000 discharges annually
Subacute/Transitional Care Units
16 units - 134,000 patient days annually
Outpatient Rehabilitation Programs
35 units - 1.0 million visits annually
Freestanding Hospitals
7 Inpatient Rehabilitation Hospitals*
276 Beds - Over 4,600 discharges annually
3 Long-Term Acute Care Hospitals
186 Beds - Over 1,500 discharges annually
Other Healthcare Services
Phase 2 - consulting services for acute care hospitals
Polaris Group - consulting services for long-term care facilities
VTA Management Services - therapist staffing for healthcare facilities and
schools in New York
*One minority owned
2
Where We Are
Nearly 1,300 locations servicing approximately 22,000 patient visits each day
Skilled-based
Freestanding
Other Healthcare Services
Hospital-based
87 Strategic Continuum Markets
3
Medicare Reimbursement for
Post-Acute Services
Medicare reimbursement for post-acute services:
Totaled $42 billion in 2005, an increase of 68% since 1999
Projected $97 billion by 2014
Represents 13% of Medicare’s total spending
CMS contains costs by its PPS adjustments and regulations
HH & SNF PPS
IRF PPS
4
Our Revenues Follow Patient Care
Trends
From the May 2007 Moran
Report comparing the four
quarters ending Q1:2007 to
the four quarters ending
Q1:2004:
Moran facilities declined
23.5%
RehabCare facilities
decreased 6.6%
Since Q3/03, RUG assessments
nationally increased 21%
Rehab RUG assessments in that period
increased 34%
During the same period, the number of
skilled facilities nationally remained
relatively stable
The number of rehabilitation
assessments outpaced the overall
increase in total assessments
5
Hospital-Based
Rehabilitation Programs
(HRS Division)
$41.8M
SNF-Based
Rehabilitation Programs
(Contract Therapy Division)
$100.3M
2Q/07
Total Revenue $181.1 million
Other Healthcare
Services
$12.0M*
7%
23%
55%
Freestanding
Hospitals
(IRFs and LTACHs)
$27.0M
15%
Our Revenue Trends
Hospital-Based
Rehabilitation Programs
(HRS Division)
$48.0M
SNF-Based
Rehabilitation Programs
(Contract Therapy Division)
$57.6M
2Q/05
Total Revenue $108.4 million
Other Healthcare
Services
$2.8M*
3%
53%
44%
*Net of intercompany eliminations
6
Skilled Nursing Facility-Based
Rehabilitation
Largest Medicare post acute reimbursement setting
Growing care setting, in part due to 75% Rule
Lower operating margins require scale for better economies and
improved profitability
Acquisition of Symphony
Adds critical mass for selective markets; entry into other
markets
Adds significant therapist resources and client
relationships
Realized annualized cost savings of $12.3 million
Upside opportunity exists by closing 6.5 percentage
point productivity gap between legacy and RehabWorks’
businesses
7
Hospital-Based Rehabilitation
Provides 3-5 year contractual relationships with host
hospitals and health systems with existing market
share and flow of patients
Remains highest margin business with cash flows to
fund other businesses
Expect 3-5% historical growth to return after full
implementation of 75% Rule
8
Freestanding Hospitals
Provides anchor operations in continuum markets
Continues strategy of working with host hospitals and
health systems with existing market share and flow of
patients
Establishes ownership position stabilizing long-term
operations
Provides a vehicle for expansion of bed capacity
Enhances control over quality and competency in
clinical and medical matters
Expect this business unit to more than double its
revenue over the next several years
9
Freestanding Hospitals
Joint Venture Strategy
Definitive Agreements – Previously Announced
Austin -
Phase 1 - 20-bed IRF – opened August 21, 2007
Phase 2 - replace 20-bed IRF with 36-bed IRF and 40-
bed LTACH – projected open 2009
North Kansas City – 35-bed LTACH – open early 2008
St. Louis - 35-bed IRF – open late 2008
North Smithfield, Rhode Island – 41-bed IRF – subject to
approval of Rhode Island Attorney General
Other Development Projects
Howard Regional – 26-bed LTACH – open in 2008
Peoria – 50-bed LTACH – open early 2009
In addition to these 7, there are several letters of intent and
additional opportunities under review
10
2Q/07 Versus 1Q/07
Contract Therapy
HRS
Freestanding Hospitals
Other
Total
Net Earnings
Consolidated Earnings Per Share
$100.3
41.8
27.0
12.0
$181.1
Q2/07
Q1/07
Q2/07
Q1/07
Revenues
Operating Earnings
(Dollars in millions, except per share data)
$102.8
43.3
26.0
11.9
$184.0
$1.1
5.4
(3.1)(1)
0.8
$4.2(1)
$1.7(1)
$0.09(1)
$(2.2)
5.2
1.9
0.6
$5.5
$2.0
$0.12
(1)
Includes a pretax intangible asset impairment charge in Q2 2007 of $4.9 million ($2.9 million after tax),
or $0.17 per diluted share after tax
11
Sources
Cash flows from operations - $9.8 million
Uses
Capital expenditures $3.0 million:
Development of JV
Addition of high observation unit in LTACH
Information systems
Paid down $4.5 million in long-term debt
Debt Outstanding
$109.0 million total debt at 6/30/07 of which $102.5
million related to the $175 million revolving credit
facility
Reduced total debt by $24.3 million from a peak of
$133.3 million at 9/30/06
Q/2 2007 Sources and Uses Of Capital
12
Inpatient Rehabilitation Facilities - 75% Rule
Limits the type and number of rehabilitation patients cared for in an acute hospital
setting
Transitions to 65% and 75% in July 2007 and 2008, respectively
Co-morbidity exception scheduled to expire on 7/1/08
In the current 65% compliance period, HRS division operating at average 63.7%
compliance; Freestanding division operating at average 59% compliance; all
expected to be fully compliant at end of their respective compliance periods
LTACH - 25% Rule
Restricts HIH LTACHs to less than 25% of their admissions from host acute care
hospital
Final rule issued on 5/1/07 by CMS covers all LTACHs with phase-in over three
years for cost report years starting 7/1/07; mitigation strategies expected to
substantially eliminate the estimated operational impact
Skilled Nursing Facilities - Part B
Physician Fee Schedule 9.9% decrease beginning January 2008
Therapy caps autoexception expires on 12/31/07. Congressional action required
for change/extension
2008 Market Basket Payment Changes
IRFs - 3.2% increase
LTACHs - 3.2% increase less estimated coding practices adjustment of 2.5%
SNFs - 3.3% increase
CMS Medicare Reimbursement Initiatives
Impacting Rehabilitation Services
13
CHAMP Act (Children’s Health and
Medicare Protection Act)
Passed House – Going to Conference in Senate
Inpatient Rehabilitation Facilities – 75% Rule
Permanently freeze threshold at 60% beginning July 1, 2007
Extend use of co-morbidities set to expire July 2008
Reduce payment rates for hip and knee replacements and hip fractures
1% market basket increase versus scheduled 3.2% increase
LTACH – 25% Rule
Create specific patient and facility admission criteria
Impose 4 year moratorium on new development (no impact to current
pipeline)
Prevent 25% Rule from affecting grandfathered LTACHs, such as Louisiana
Specialty
Limit short stay outlier policy
Freeze payment rates for 2008 versus 3.2% increase less estimated coding
practices adjustment of 2.5%
Skilled Nursing Facilities
Physician Fee Schedule
Part B – 0.5% increase in reimbursement versus 9.9% scheduled reduction
beginning January 2008
Therapy cap auto-exception policy
Two year extension of exceptions process for Part B
Require HHS to conduct study on a refined payment plan
Freeze payment rates for SNFs versus 3.3% increase
14
Expectations for the Future
Contract Therapy Division
Recovery to 4.5 - 5.5% operating margins during 2008
HRS Division
Modest declines in units and same store discharges until
75% Rule is either implemented or clarified legislatively
Freestanding Hospitals Division
EBITDA margins before corporate SG&A allocations at
mature facilities of 17–19%
One rehab hospital opened in Q3/07, one rehab hospital
under review by Rhode Island Attorney General and one
LTACH projected to open in early 2008
Other Healthcare Services
Continued growth in revenue and earnings
15
Safe Harbor
Forward-looking statements have been provided pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from forecasted results. These risks and uncertainties may include but are not limited to, our ability to consummate acquisitions and other partnering relationships at reasonable valuations; our ability to integrate acquisitions and partnering relationships within the expected timeframes and to achieve the revenue, cost savings and earnings levels from such acquisitions and relationships at or above the levels projected; our ability to comply with the terms of our borrowing agreements; changes in governmental reimbursement rates and other regulations or policies affecting reimbursement for the services provided by us to clients and/or patients; the operational, administrative and financial effect of our compliance with other governmental regulations and applicable licensing and certification requirements; our ability to attract new client relationships or to retain and grow existing client relationships through expansion of our service offerings and the development of alternative product offerings; the future financial results of any unconsolidated affiliates; our ability to attract and the additional costs of attracting and retaining administrative, operational and professional employees; shortages of qualified therapists and other healthcare personnel; significant increases in health, workers compensation and professional and general liability costs; litigation risks of our past and future business, including our ability to predict the ultimate costs and liabilities or the disruption of our operations; competitive and regulatory effects on pricing and margins; our ability to effectively respond to fluctuations in our census levels and number of patient visits; the adequacy and effectiveness of our information systems; the proper functioning of our information systems; natural disasters and other unexpected events which could severely damage or interrupt our systems and operations; changes in federal and state income tax laws and regulations, the effectiveness of our tax planning strategies and the sustainability of our tax positions; and general and economic conditions, including efforts by governmental reimbursement programs, insurers, healthcare providers and others to contain healthcare costs.
16
Investor Presentation
Second Quarter, 2007
17