Company: EHC
Filing Date: 2025-02-28
Form Type: 10-K
Source: 0000785161-25-000009
Chunk: 109

Company: Encompass Health Corp
Filing Date: 2025-02-28
Form: 10-K
Item: Item 1
Chunk 109
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 the wage index and labor-related share values, updates to outlier payments and updates to the case-mix group relative weights and average lengths of stay values. 

On July 31, 2024, CMS released its notice of final rulemaking for fiscal year 2025 IRF-PPS (the “2025 IRF Rule”). The 2025 IRF Rule implemented a net 3.0% market basket increase (market basket update of 3.5% reduced by a productivity adjustment of 0.5%) effective for discharges between October 1, 2024 and September 30, 2025. The 2025 IRF Rule also includes changes that impact our hospital-by-hospital base rate for Medicare reimbursement. Such changes include, but are not limited to, revisions to the wage index and labor-related share values, updates to outlier payments, and updates to the case-mix group relative weights and average lengths of stay values. Based on our analysis which utilizes, among other things, the acuity of our patients annualized over the twelve-month period ended June 30, 2024, our experience with outlier payments over that same time frame, and other factors, we believe the 2025 IRF Rule will result in a net increase to our Medicare payment rates of approximately 3.3% effective October 1, 2024.

Unlike our inpatient services, our outpatient services are primarily reimbursed under the Medicare Part B physician fee schedule. On November 1, 2024, CMS released its final notice of rulemaking for the payment policies under the physician fee schedule and other revisions to Part B policies for calendar year 2025. The updates to the fee schedule are not expected to be material to us.

For additional discussion of the Medicare payment rules and other regulatory and legislative initiatives affecting Medicare reimbursement that could impact our businesses, see Item 1A, Risk Factors, “Reimbursement Risks” and “Other Regulatory Risks” and Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, “Executive Overview—Key Challenges.”

Medicare Advantage, Managed Care and Other Discount Plans

We negotiate payment rates with certain large group purchasers of healthcare services, including Medicare Advantage plans, managed care plans, private insurance companies, and third-party administrators. Managed care contracts typically have terms between one and three years, although we have a number of managed care contracts that automatically renew each year 

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(with pre-defined rate increases) unless a party elects to terminate the contract