EHC Filings — Encompass Health Corporation - FilingSpy
EHC
Encompass Health Corporation
A network of inpatient rehabilitation hospitals helping people recover from strokes, brain injuries, and spinal cord injuries, Encompass Health is one of the nation's largest operators in the field, with hospitals in dozens of states. It began in Birmingham, Alabama in 1984 as Amcare, a small physical-therapy outfit started by Richard Scrushy and four co-founders, later renamed HealthSouth and then Encompass Health. Fun quirk: the founders first delivered therapy outside hospital walls, and its first center opened in Little Rock, Arkansas.
Encompass Health Q2 operating margin contracts 1.8 points sequentially to 16.4% as other operating expenses increase 19.2%.
The story paused this quarter. rose 9.6% to $1.6 billion and increased 10.8% to $1.54, but fell 9.4% from Q1 as a 19.2% rise in other operating expenses—driven by higher —offset labor cost improvements. The company's ability to sustain record margins now depends on whether these tax and development costs represent a new, sustained pressure.
Key takeaways
fell 9.4% sequentially to $261.6 million, even as rose 0.7%, because other operating expenses increased 19.2% from higher tied to Medicaid supplemental payments.
rose 9.6% to $1.6 billion, driven by a 5.6% increase in total discharges and a 3.9% rise in net patient revenue per discharge.
Same-store discharge growth slowed to 2.8% in Q2 2026, down from 4.7% in Q2 2025, with the balance of volume growth coming from newly opened hospitals.
Section summaries
Management's Discussion and Analysis
Q2 2026 net operating revenues rose 9.6% to $1.6B driven by volume growth and favorable pricing, with net income up 12.2%.
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Consolidated net operating revenues increased 9.6% in Q2 and 9.3% in H1 2026, driven by a 5.6% rise in discharges and a 3.9% increase in .
Salaries and benefits as a percentage of improved to 51.4% from 52.7% a year ago, reflecting lower contract labor, sign-on bonuses, and a decline in employees per occupied bed.
The company issued $500 million of 5.875% Senior Notes due 2034 and used the proceeds to redeem $400 million of 2028 Notes, recording a $3.2 million loss on .
Liquidity stood at $107.7 million in cash and $746 million available under the , with no significant debt maturities until 2028.
What changed
The Q1 2026 watch item on other operating expenses materialized: after rising 11.2% in Q1, they rose another 19.2% in Q2, confirming higher and development costs as a sustained cost pressure that eroded the record 18.2% down to 16.4%.
Same-store discharge growth decelerated to 2.8%, below the mid-4% range seen in FY2025, suggesting the post-pandemic volume recovery has largely lapped and future growth will depend more heavily on new hospital openings.
The company refinanced its nearest maturity, issuing $500 million in 2034 Notes to redeem $400 million of 2028 Notes, extending its runway with no significant maturities until 2028.
What to watch
Whether the 2.4% proposed Medicare rate increase for fiscal 2027 is finalized at that level and proves sufficient to offset wage growth and the now-sustained rise in other operating expenses.
The trajectory of same-store discharge growth, which slowed to 2.8% in Q2 2026, and whether it stabilizes near this level or continues to decelerate.
Whether the stabilizes near 16.4% or continues to contract as provider tax and development costs grow, and whether labor cost improvements can offset that pressure.
generation relative to the capital expenditure plan, and whether the company can fund its de novo hospital pipeline without further increasing , given rose 12.0% to $2.6 billion.
discharges grew 2.8% in Q2, while new hospitals opened in South Carolina, Pennsylvania, and Georgia contributed to volume growth.
Salaries and benefits as a percentage of improved to 51.4% from 52.7% due to lower contract labor, sign-on bonuses, and a decline in employees per occupied bed.
Other operating expenses rose 19.2% in Q2, primarily from higher provider taxes tied to increased Medicaid supplemental payments.
The company issued $500M of 5.875% Senior Notes due 2034 and used proceeds to redeem $400M of 2028 Notes, recording a $3.2M loss on early extinguishment.
Liquidity remains strong with $107.7M in cash, $746M available under the , and no significant debt maturities until 2028.
There have been no material changes from the risk factors disclosed in Part I, Item 1A, Risk Factors, of the 2025 Form 10-K. However, certain information in those risk factors has been updated by the discussion in the “Executive Overview—Key Challenges” section of Part I, Item 2…
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There have been no material changes from the risk factors disclosed in Part I, Item 1A, Risk Factors, of the 2025 Form 10-K. However, certain information in those risk factors has been updated by the discussion in the “Executive Overview—Key Challenges” section of Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this report, which section is incorporated by reference herein.
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