What is the overall opportunity in North Carolina (15 markets identified) and will it impact the de novo target of 6-10 per year, potentially pushing it to the high end or above?

Doug Coltharp stated that 15 open hospitals would be good, and it would likely drive them to the high end of the 6-10 range starting in 2029. Pat Tuer added that small-format hospitals would provide further runway. “I think at a minimum, it would drive us probably beginning in 2029 towards the high end of that 6 to 10 range.”

What was your reaction to the OIG report on MA denial rates for IRF services, and what are the early learnings from the 'admit and appeal' pilot program?

Doug Coltharp noted MA denials remain a challenge, with a substantial disparity. The pilot program showed an 89% success rate (128/144 cases prevailed). Pat Tuer mentioned scaling certain diagnoses (like stroke) first. “Through the end of July, we had a total of 298 patients who had been admitted into our hospitals on that basis. 144 of those have been fully adjudicated. And of that 144, we have prevailed on 128, which is an 89% success rate.”

Do you have any numbers to share around turnover, employee satisfaction, or other metrics to gauge the impact of these investments?

Pat Tuer provided specific figures: nursing turnover at 19% (12-year low), therapy turnover at 7% (5-year low). He highlighted that 43% of eligible RNs participate in career ladders, with their turnover at only 5%. “So on an annualized basis through Q2, our nursing turnover sits around 19%. That represents a low of 12-plus years. On the therapy perspective, we're just above 7%. That's our lowest turnover on an annualized basis in 5 years.”

EHC

Encompass Health (EHC) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Health Care· Aug 6, 2026

Source: earnings call transcript

Executive summary

Encompass Health Q2 FY26 — Strong Growth and Raised Full-Year Guidance

Encompass Health delivered strong Q2 FY26 results, driven by robust discharge growth and increased patient acuity, leading to another full-year guidance raise. The company continues to invest in capacity expansion and workforce development, which is yielding favorable clinical staff retention and improved patient outcomes. While facing some headwinds from provider tax changes and increased ramp-up costs, strategic initiatives like the "admit and appeal" program for MA patients are showing promising early results.

Highlights

Revenue grew 9.6% in Q2 FY26.
Adjusted EBITDA increased 9.2% to $348 million in Q2 FY26.
Adjusted EPS increased 10.7% in Q2 FY26.
Full-year 2026 guidance for revenue, adjusted EBITDA, and adjusted EPS was raised.
Clinical staff turnover rates reached multi-year lows (nursing 19%, therapy 7%).

Concerns

Net provider tax impact decreased by $11.5 million year-over-year in Q2 FY26.
Net preopening and ramp-up costs increased $2.9 million year-over-year to $6.9 million in Q2 FY26.
Medicare Advantage preauthorization denials continue to be a challenge, adding administrative costs.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year 2026 Net Operating Revenue	$6.41 billion to $6.49 billion high materiality	FY26	High
Full-year 2026 Adjusted EBITDA	$1.365 billion to $1.395 billion high materiality	FY26	High
Full-year 2026 Adjusted EPS	$6.02 to $6.25 high materiality	FY26	High
Full-year 2026 Net Preopening and Ramp-up Costs	$18 million to $22 million medium materiality	FY26	High
Full-year 2026 SWB per FTE Growth	3.5% to 4% medium materiality	FY26	High
Full-year 2026 Net Provider Tax Impact to Adjusted EBITDA	approximately $10 million medium materiality	FY26	High
Medicare Pricing Assumption	approximately 2.3% increase in net revenue per discharge medium materiality	Q4 · FY26	High

EHC operating KPIs by quarter

EHC operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Mar 2026 Q1 FY26	This call Jun 2026 Q2 FY26	Change vs prior quarter
Discharge acute rate	8.6% Our discharge acute rate improved 30 basis points to 8.6%, and our discharge to SNF rate improved 20 basis points to 6.2%. Source: earnings call transcript	8.4% Discharge to acute rate was 8.4% and discharge to skilled nursing facilities was 6.1%. Source: earnings call transcript	-0.2 pt
Discharge to SNF rate	6.2% Our discharge acute rate improved 30 basis points to 8.6%, and our discharge to SNF rate improved 20 basis points to 6.2%. Source: earnings call transcript	6.1% Discharge to acute rate was 8.4% and discharge to skilled nursing facilities was 6.1%. Source: earnings call transcript	-0.1 pt
Annualized RN turnover	17.8% We believe our success in these programs contribute to the continuing improvement in our clinical staff turnover trends Q1 2016 annualized RN turnover was 17.8%, down from fiscal year '25 to 20.2% and annualized therapist turnover was 6.4%, down from last year's 7.8%. Source: earnings call transcript	~19% So on an annualized basis through Q2, our nursing turnover sits around 19%. Source: earnings call transcript	—
Annualized therapist turnover	6.4% We believe our success in these programs contribute to the continuing improvement in our clinical staff turnover trends Q1 2016 annualized RN turnover was 17.8%, down from fiscal year '25 to 20.2% and annualized therapist turnover was 6.4%, down from last year's 7.8%. Source: earnings call transcript	7%+ On the therapy perspective, we're just above 7%. Source: earnings call transcript	—
Contract labor FTEs as a percent of total FTEs	1.2% Contract labor FTEs as a percent of total FTEs was 1.2% in Q1, down 10 basis points from Q1 '25. Source: earnings call transcript	1.1% Contract labor FTEs as a percent of total FTEs was 1.1% and an improvement of 20 basis points from Q2 '25. Source: earnings call transcript	-0.1 pt
Average occupancy rate	78.7% Our Q1 average occupancy of 78.7% was essentially flat with our record high levels in Q1 of '25 and that was up 200 basis points from Q1 of '24 and up over 500 basis points from Q1 of '23. Source: earnings call transcript	77.4% To put a finer point on that, our Q2 occupancy of 77.4% was up 290 basis points over Q2 '25. Source: earnings call transcript	-1.3 pt

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Deals & partnerships

Piedmont Opened a new 40-bed hospital in Loganville, Georgia, as the eighth joint venture.

Our Loganville Hospital is our eighth joint venture with Piedmont.

Bondholders Issued $500 million of 5.875% senior notes due 2034 and redeemed $400 million of 4.5% senior notes due 2028. Issued $500 million; Redeemed $400 million Issued notes due 2034; Redeemed notes due 2028

During Q2, we issued $500 million of 5.875% senior notes due 2034 and used most of the proceeds from that issuance to redeem $400 million of our 4.5% senior notes due in 2028.

Risks & headwinds

Decrease in net provider tax impact Q2 FY26

$11.5 million year-over-year decrease in Q2 FY26

Mitigation:Management adjusted full-year guidance to reflect this.

Increased net preopening and ramp-up costs Q2 FY26

$2.9 million increase year-over-year to $6.9 million in Q2 FY26

Mitigation:Management expects full-year costs to be $18 million to $22 million, indicating these are planned investments for growth.

Medicare Advantage preauthorization denials Ongoing

Substantial disparity between MA plans and Medicare fee-for-service patients

Mitigation:Pilot 'admit and appeal' program showing 89% success rate; planning to scale this program, starting with specific diagnoses like stroke.

What to watch in Q3 FY26

Scaling of MA 'admit and appeal' program

coming quarters

Current 89% success rate in pilot (128/144 cases prevailed)

Target Broader rollout or scaling to more diagnoses/markets

Why it matters

This program addresses a significant headwind from MA denials, potentially improving revenue capture and reducing administrative costs.

I think you could see that we'll look to scale a certain part of this in the coming quarters and then by the end of the year, I think we'll be in a position to evaluate for a full broader rollout across the company.

Find out whether EHC delivers this. Inve re-checks your case every morning.

Q&A highlights

Can you bridge the raised guidance, specifically how EBITDA was raised despite lower Medicare pricing assumption and higher SWB per FTE growth?

Doug Coltharp explained favorability in Q2 from pricing (due to patient acuity) and EPOB (due to higher occupancy and career ladder participation leading to lower turnover and less orientation time for new hires).

“So we had some favorability in the second quarter and really for the first half in a couple of areas. One is pricing, which was driven predominantly by patient acuity.”

asked by Pito Chickering · answered by Douglas Coltharp

2 min read 6 chapters

Detailed narrative

Capacity Expansion and New Hospital Development

Encompass Health continues to aggressively expand its capacity, opening three new hospitals and adding 54 beds to existing facilities in the first half of 2026. The company plans to open five more hospitals and add 100-150 beds in the second half, maintaining a robust pipeline of 13 announced hospitals with 606 beds beyond 2026.

This strategy is supported by strong demand for inpatient rehabilitation services and high occupancy rates in existing facilities, with approximately 90% of planned bed additions targeting hospitals with over 90% occupancy.

North Carolina CON Repeal Opportunity

The repeal of North Carolina's Certificate of Need law for inpatient rehabilitation care, effective October 1, 2026, presents a significant growth opportunity. Encompass Health has identified 15 priority markets and has three real estate parcels under contract, with the first new hospital expected to open in late 2028 or early 2029.

The company plans to leverage a combination of traditional de novos and small-format hospitals to pursue a "hub-and-spoke" strategy in the state, aiming to push towards the upper end of its 6-10 annual de novo target.

Workforce Development and Retention

Investments in clinical staff professional growth and development programs, such as career ladders, are yielding positive results. Nursing turnover reached a 12-year low of 19%, and therapy turnover was at a 5-year low of 7%. Participation in career ladders is high (43% of eligible RNs), with significantly lower turnover rates (5%) for participating nurses, contributing to reduced premium labor spend and enhanced clinical capabilities.

These programs also support the ability to treat high-acuity, medically-complex patients.

Medicare Advantage Denials and Appeal Strategy

Medicare Advantage preauthorization denials remain a challenge, with a substantial disparity compared to Medicare fee-for-service patients. Encompass Health's "admit and appeal" pilot program, initiated in February across nine markets, has shown an 89% success rate (128 out of 144 fully adjudicated cases prevailed).

The company plans to scale this program, focusing initially on high-success-rate diagnoses like stroke, to address inappropriate care denials and the associated administrative burden on the healthcare system.

Technology and AI Initiatives

The company is actively investing in technology and AI, particularly through a partnership with Palantir. AI is being embedded in clinical workflows to aid patient journeys (e.g., prescreen narrative, automation of face-to-face notes, enhanced risk models) and administrative processes (e.g., monthly closing, exception scanning).

Future initiatives include an enhanced market analytics tool to optimize real estate strategy, especially for new market entries like North Carolina, and proactive scanning of medical records for potential risks.

Capital Allocation and Financial Strength

Encompass Health maintains a strong balance sheet with net leverage at 1.9x. The company increased its quarterly dividend to $0.21 per share and authorized an additional $1 billion for common stock repurchases. Capital expenditures are running at about 15% of revenue, primarily driven by capacity expansions.

This reflects a balanced approach to growth investments, shareholder returns, and debt management, with the capacity for increased share repurchase activity in the future.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.