Evaluating Legal and Governance Risks in Health Care REITs: A Closer Look at Encompass Health Corporation

The healthcare real estate investment trust (REIT) sector has long balanced growth potential with regulatory complexity. However, the 2023–2025 period has intensified these dynamics, as evolving cybersecurity mandates, state-level legislative actions, and federal enforcement priorities reshape the risk landscape. For investors, understanding these trends is critical—particularly for companies like Encompass Health Corporation, which operates in a sector increasingly scrutinized for governance and compliance. While no direct securities class action lawsuits or governance weaknesses have been identified for Encompass Health, the broader industry context reveals systemic risks that warrant closer examination.

Regulatory Pressures and Compliance Challenges

Healthcare REITs face a perfect storm of regulatory demands. According to a 2025 Healthcare Compliance Outlook Report by Barnes & Thornburg, 56% of healthcare compliance professionals cite cybersecurity as their top concern, driven by new requirements under the HHS Office for Civil Rights (OCR) and the rapid integration of AI technologies Healthcare Compliance Teams Stretched Thin Due to Complex Regulations and Risks^[1]. These challenges are compounded by resource constraints: 53% of respondents report insufficient budgets, staffing, or technology to address compliance needs, a gap expected to widen in the next year Healthcare Compliance Teams Stretched Thin Due to Complex Regulations and Risks^[1].

For Encompass Health, which manages a portfolio of post-acute care facilities, cybersecurity vulnerabilities could expose sensitive patient data or disrupt operations. While the company has not disclosed specific incidents, the sector-wide trend of stretched compliance teams raises questions about its capacity to mitigate risks proactively. Additionally, the FDA's expanded oversight of foreign facilities and the introduction of the Commissioner's National Priority Voucher (CNPV) program highlight the need for agile regulatory strategies—a challenge for any entity reliant on complex supply chains or partnerships Life Science & Healthcare Private Capital Risk: Q2 2025 Update^[2].

State-Level Legislative Risks

The regulatory burden extends beyond federal mandates. State legislatures are increasingly targeting private equity and healthcare REITs, reflecting public concerns over profit-driven healthcare models. For example, Oregon's SB 951 prohibits management services organizations (MSOs) from controlling clinical operations, while Massachusetts's H.B. 5159 expands False Claims Act liability to investors who knowingly ignore violations Life Science & Healthcare Private Capital Risk: Q2 2025 Update^[2]. These laws, part of a broader pattern of heightened scrutiny, could expose healthcare REITs to litigation if their operational structures or investment strategies conflict with local regulations.

Encompass Health, which operates in multiple states, must navigate this patchwork of laws carefully. While no direct governance weaknesses have been identified, the lack of transparency around its compliance with state-specific mandates could become a liability. Investors should monitor whether the company's board or executive team has expertise in navigating these legislative shifts—a factor that could influence its ability to adapt without operational or legal setbacks.

Securities Class Action Exposure

Securities class actions often arise from material misstatements or omissions related to regulatory risks. The DOJ's recent $14.6 billion healthcare fraud bust underscores the federal government's commitment to enforcing anti-fraud measures Life Science & Healthcare Private Capital Risk: Q2 2025 Update^[2]. While Encompass Health has not faced such allegations, the sector's susceptibility to enforcement actions—particularly in areas like billing practices or data privacy—means that even minor oversights could trigger shareholder lawsuits.

A 2025 update from White & Case notes that private capital deals in healthcare are under increased scrutiny, with regulators focusing on conflicts of interest and transparency Life Science & Healthcare Private Capital Risk: Q2 2025 Update^[2]. For Encompass Health, this could translate to risks if its partnerships or acquisitions lack clear disclosures about compliance risks. The absence of direct legal proceedings does not eliminate exposure; rather, it highlights the importance of proactive governance to preemptively address vulnerabilities.