Encompass Health's Q2 2025: Navigating Key Contradictions in Managed Care and Financial Health

Managed care pricing assumptions, bad debt expectations, occupancy rate and staffing levels, managed care contracting dynamics, and specialty drug expense trends are the key contradictions discussed in Encompass Health Corporation's latest 2025Q2 earnings call.



Revenue and Discharge Growth:
- Encompass Health Corporation reported a 12% increase in revenue for Q2 2025, with a 17.2% increase in adjusted EBITDA.
- Total discharges increased 7.2%, including a 4.7% increase in same-store discharges.
- The growth was driven by a broad-based increase in discharges across geographies, payers, and patient types, particularly neurological conditions and stroke cases, which grew by 12% and 6.7%, respectively.

Occupancy Rate and Capacity Expansion:
- Occupancy rates increased by 210 basis points year-over-year, reaching 76.6%.
- Encompass Health opened a new hospital in Fort Myers, Florida, and plans to open five additional hospitals and add beds to existing hospitals in the latter half of the year.
- The increases in occupancy and capacity expansion are aimed at meeting the growing demand, as the Medicare beneficiary population is expected to increase significantly.

Capital Expenditure and Cash Flow:
- The company increased its 2025 guidance for adjusted free cash flow to $705 million to $795 million.
- Capital expenditure for bed expansion and de novo projects was increased by $25 million and $5 million, respectively.
- The changes were driven by the ongoing demand for inpatient rehabilitation services and the benefit from additional bonus depreciation resulting from recent legislation.

Managed Care and Payer Mix:
- The managed care pricing assumption was increased, with the VA Community Care Network contributing significantly to this growth, up 18% of the overall managed care business.
- The increase was due to favorable pricing and a mid-teens growth rate in the VA Community Care Network contracts, which pay at the Medicare CMG rate.