stockrowWhat it does
Encompass Health operates inpatient rehabilitation hospitals for people recovering from major illnesses or injuries. Its patients receive intensive therapy and nursing care while staying in a hospital, with the aim of regaining physical and cognitive abilities and becoming more independent. Conditions treated include strokes, hip fractures and neurological disorders.
A physician refers patients for the specific inpatient rehabilitation care they need, usually after an acute-care hospital stay. Treatment is directed by physician orders and delivered by nurses and physical, occupational and speech therapists. Case managers and other clinical staff monitor progress, document care and help plan discharge. The hospitals also use clinical protocols and technology in treatment.
At December 31, 2025, Encompass Health operated 173 inpatient rehabilitation hospitals in 39 states and Puerto Rico. Its hospitals had 11,465 licensed beds and recorded 263,299 discharges during 2025. The company is headquartered in Birmingham, Alabama, and Mark J. Tarr is president and chief executive officer.
Encompass Health also works with healthcare systems through joint ventures. More than a third of its inpatient rehabilitation hospitals operate as joint ventures with acute-care hospitals or systems. The company seeks to connect patient care across healthcare settings through those relationships and other provider and payer networks.
How it makes money
Encompass Health earns revenue by providing inpatient rehabilitation and related patient care. Inpatient rehabilitation accounted for 100.0% of its revenue in FY2025. Inpatient services generated $5.8 billion of revenue, while other revenue was $178.9 million.
FY2025 inpatient rehabilitation revenue was $5.9 billion; Q2 2026 revenue grew 9.6%.
The company receives payment principally from the federal government, managed care plans and private insurers. State programs and patients themselves contribute to a lesser degree. Government programs establish payment rates, while Encompass Health negotiates rates with non-governmental purchasers, including insurers, employers and managed care organizations.
Medicare payments depend on rules for inpatient rehabilitation facilities. The federal agency responsible for Medicare adopts annual changes to reimbursement rates, and Congress can also change payments through legislation. Encompass Health estimated that the 2027 inpatient rehabilitation facility rule would increase net revenue per discharge for its Medicare patients by approximately 2.3% beginning October 1, 2026, based on its patient mix at the time of the estimate.
The business earns revenue from patient stays rather than a subscription or other contracted recurring product. Its volumes depend on admissions and discharges, while revenue also depends on the payment received for care. Net operating revenue increased 10.5% in 2025, primarily because of volume growth and increased pricing. Management said that pricing in the first half of 2026 benefited predominantly from the medical complexity of patients and that there was no certainty this would continue in the second half.
| Product or service | Revenue, FY2025 | Share | Change on the year |
|---|---|---|---|
| Inpatient | $5.8 billion | 97.0% | 10.1% |
| Other | $178.9 million | 3.01% | 25.4% |
Customers and how it sells
The people receiving care are patients recovering from conditions that require facility-based rehabilitation, including significant physical or cognitive disabilities after an illness or injury. Most patients are 65 and older, although the hospitals treat people of all ages. The average age of Encompass Health’s Medicare patients is approximately 77.
Physicians and acute-care hospitals are important channels for reaching patients: 92% of the patients the company serves are admitted from acute-care hospitals following physician referrals. Encompass Health also develops relationships with healthcare systems, provider networks and payers to connect care across settings. More than a third of its hospitals are joint ventures with acute-care hospitals or systems.
Payment comes from several groups rather than necessarily from the patient receiving treatment. Encompass Health derives approximately 65% of net operating revenue from fee-for-service Medicare and approximately 16% from Medicare Advantage. It also receives payment from managed care plans, private insurers, state programs and patients. Depending on coverage, patients may be responsible for exclusions, deductibles, copayments or coinsurance.
At December 31, 2025, the hospital network covered 39 states and Puerto Rico, with concentrations in Florida and Texas. Encompass Health’s principal executive offices are in Birmingham, Alabama.
| Segment | Revenue, FY2025 | Share | Change on the year |
|---|---|---|---|
| Inpatient Rehabilitation | $5.9 billion | 100.0% | 10.5% |
Suppliers and costs
Encompass Health’s care model depends on clinical staff, including nurses and physical, occupational and speech therapists. Case managers and other clinical staff document and monitor patient progress. The company also incurs costs for medical, nursing, therapy and ancillary services needed to meet regulatory and accreditation standards.
Clinical staffing shortages can require more costly temporary personnel, called contract labor, or other premium-pay programs. The company recruits experienced clinicians and students, maintains a team for hiring staff at new hospitals, and offers training and development programs. Part-time and per-diem workers make up a large portion of its workforce.
Hospital development and bed additions require construction spending. Encompass Health uses prefabrication in these projects to reduce reliance on subcontractors and improve supply-chain efficiency. It also uses centralized administrative functions and data analytics across its hospitals.
For financing, the company identifies cash on hand, operating cash flow and borrowing under its revolving credit facility as its primary liquidity sources. As of December 31, 2025, approximately $824 million was available under that facility.
- Revenue$5.9B
- Selling, general and administrative−$3.6B
- Other operating costs−$1.3B
- Operating income$1.1B
Competitive position
Encompass Health’s hospitals compete primarily with rehabilitation units, most of which are inside acute-care hospitals. Privately held post-acute rehabilitation providers compete in selected geographic markets, while nursing homes compete for some patients who do not need intensive rehabilitation therapy. A public company also operates inpatient rehabilitation hospitals, but no competitor is named in the available descriptions.
Competition varies by local market and includes quality of care, treatment outcomes, relationships with payers and referral sources, and regulatory barriers to entry. An acute-care hospital with its own rehabilitation unit can compete for patients who are already in its hospital. Encompass Health receives 92% of its patients from acute-care hospitals.
Our reading: The hospital network and partnerships provide a meaningful competitive foundation because more than a third of its hospitals are joint ventures with acute-care hospitals or systems, but referral sources can also operate competing units.
Our reading: Clinical expertise and standardized practices can support differentiation in medically complex rehabilitation, although outcomes, payer relationships and local competition remain important to winning patients.
The company also uses centralized administration, data analytics and electronic medical record technologies across its network. It believes its clinical outcomes, cost-effectiveness, financial resources and use of technology differentiate it from competitors.
Growth opportunities
Encompass Health’s growth strategy includes opening inpatient rehabilitation hospitals and adding beds to existing ones. It also seeks to strengthen relationships with healthcare systems, provider networks and payers. The company identifies aging populations, opportunities to gain market share and the maturation of recently opened hospitals as potential sources of organic growth.
In 2025, Encompass Health expanded capacity by adding 177 new beds to existing hospitals, including a new remote inpatient rehabilitation hospital. Net operating revenue increased 10.5% over 2024, primarily from higher volume and pricing.
In the first half of 2026, the company opened 3 hospitals with a total of 139 beds and added 54 beds to existing hospitals. Management said it intended to open 5 more hospitals with a total of 250 beds and add 100 to 150 beds to existing hospitals over the balance of the year. Its announced pipeline of new hospital projects with opening dates beyond 2026 consisted of 13 hospitals with 606 beds.
Encompass Health expects population aging to increase long-term demand for its services. Following North Carolina’s repeal of its certificate-of-need law for inpatient rehabilitation, management identified 15 markets for initial priority and had 3 real estate parcels under contract. The company anticipated its next North Carolina hospital opening in late 2028 or early 2029.
- $4.0BFY2021
- $4.3BFY2022
- $4.8BFY2023
- $5.4BFY2024
- $5.9BFY2025
- $6.4BFY2026 guidance
Structural risks
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Reimbursement: Reductions or changes in government or third-party payments could adversely affect revenue and operating results. Medicare payment increases may also be less than increases in the company’s operating costs.
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Regulation and claims: Inpatient rehabilitation facilities face requirements covering licensing, certification, billing, patient eligibility and relationships with referral sources. Claims reviews can result in payment denials or recoupment of payments, and appeals can take several years.
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Staffing: Shortages of nurses and therapists in some markets can require greater use of more costly contract labor and premium pay. Encompass Health must recruit and retain clinical staff as it adds hospitals and beds.
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Competition and referrals: Acute-care hospitals with their own rehabilitation units compete with Encompass Health for patients, while most of the company’s patients come from acute-care hospitals. Payer and physician relationships also affect competition in local markets.
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Systems and data: The availability and security of information systems are critical to operations. Failures or unauthorized access to data could materially affect the business and financial results.
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Debt and financing: Additional debt or leverage could limit the company’s ability to borrow for working capital, expansion, acquisitions and debt service. Borrowings under its credit facility also expose it to interest-rate fluctuations.
Bottom line
Our reading
Encompass Health is a hospital operator focused on intensive rehabilitation after serious illness or injury. Its network, clinical capabilities and joint ventures support its expansion, while admissions depend heavily on acute-care referrals. The business also has substantial exposure to Medicare payment rules and clinical staffing costs, so growth in beds and patients must take place within those constraints.