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| Operator: | Good morning, everyone, and welcome to HealthSouth’s conference call. At this time, I would like to inform all participants that their lines will be in a listen-only mode. After the speakers' remarks, there will be a question-and-answer period. If you would like to ask a question during this time, please press star, one your telephone keypad. You will be limited to one question and one follow-up question. |

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| Mary Ann Arico: | Thank you, Laurie, and good morning, everyone. Thank you for joining us today for the Health South conference call to discuss the definitive agreement to acquire Encompass Home Health and Hospice. |

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| Jay Grinney: | Great. Thank you, Mary Ann, and good morning to those joining this morning's call. |

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| Doug Coltharp: | Thank you, Jay, and good morning, everyone. Let me begin by saying that because Encompass is a private company and because the transaction is not yet closed, we are not able to provide detailed financial information on the company at this time. Post-closing, the HealthSouth home health business will be subject to segment reporting, and we will provide the same level of transparency and insight into our combined operations that are hallmarks of our investor relations program. Our acquisition of Encompass is expected to close at year end and remains subject to certain customary closing conditions, including Hart-Scott-Rodino approval. |

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| Operator: | At this time, I would like to remind everyone, if you'd like to ask a question, please press star, one on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue, press the pound key. Again, we ask that you please limit yourself to one question and one follow-up. |

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| Ann Hynes: | Good morning. |

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| Jay Grinney: | Good morning, Ann. |

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| Ann Hynes: | So I just wanted to dig into the $75 million EBITDA estimate. Does that include synergies, or does it not include synergies? |

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| Doug Coltharp: | As Jay mentioned in his comments, we're not anticipating a great deal of synergies. There will be some modest synergies related to the integration of our home health business into Encompass, but this is not a cost savings type of play. We believe that we have acquired a company that has a highly scalable management team and infrastructure, and our intent is to use it as another growth vehicle. |

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| Ann Hynes: | All right. And then can we just talk about the reimbursement of home health? I know that you guys have been talking about getting into this business for a while, but the reimbursement risk has really kept you at bay. Can you just talk about the outlook over the next few years for us? |

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| Jay Grinney: | Yeah, if you look at what the net pricing adjustment is expected to be in 2015, it's about minus 0.7 percent, and then it's about a 1.2 percent reduction in '16 and '17. And so our view on this is as follows. |

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| Operator: | Your next question comes from the line of John Ransom of Raymond James. |

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| John Ransom: | Hi, good morning. |

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| Jay Grinney: | Morning, John. |

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| John Ransom: | Could you talk about their IT business and whether or not that's coming with the transaction or not? |

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| Jay Grinney: | So the IT business that you're referring to is Homecare Homebase. That was a separate company that was sold last year. It is utilized by Encompass. |

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| John Ransom: | OK. |

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| Doug Coltharp: | It was sold to the Hearst Company, and Encompass has a long-term contract for the continued utilization of that. |

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| John Ransom: | Now, looking at their EBITDA next year and looking at trailing 12-month revenue, it looks like their EBITDA margin's over 20 percent. I know the trailing is not the right number, but could we get a sense of '15 revenue versus what the trailing is, if there are any timing differences? And then, secondly, how do we explain the fact that margins are basically double what the industry’s are? |

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| Doug Coltharp: | Well, you've hit on the key point, John, which is you have an apple and an orange there. The revenue number that we've given was an LTM number at the end of October. And there's been significant acquisition activity during the course of 2014, including for this company a relatively large acquisition in the state of Florida that's not fully reflected in that number. |

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| John Ransom: | And then I'll drop after this. What's the mix of that revenue -- Medicare, commercial, Medicaid? |

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| Doug Coltharp: | It looks a lot like our core business. Medicare is the largest piece of it at about 80 percent. |

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| John Ransom: | OK, thank you. |

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| Jay Grinney: | Yep. |

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| Operator: | Our next question comes from the line of Matthew Gilmore of Robert W. Baird. |

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| Matthew Gilmore: | Hey, good morning. Thanks for taking the question. Jay, if you think about the medium-term EBITDA growth targets for HealthSouth of 4 percent to 8 percent, how does Encompass fit into that equation? And I assume this would enhance the growth model with M&A, but just curious how you're thinking about those ranges with Encompass. Or should we just sort of stay tuned until you give guidance? |

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| Jay Grinney: | Yeah, I think it's better to stay tuned until we provide the 2015 guidance. But certainly as we look at Encompass and we look at what they've been able to accomplish over the last couple years, we are very encouraged by our belief and their confidence that they can continue to grow EBITDA. |

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| Matthew Gilmore: | OK, and then just as a quick follow-up to the IT platform question that John raised. Can you describe some of the tools that they have and maybe how that IT platform compares to what a traditional homecare business operates under? |

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| Jay Grinney: | Yeah, and if you go to page nine of the supplemental slides, you'll see the description of the Homecare Homebase IT platform, which was developed by April Anthony and the team there at Encompass. And as you can see, it really is a fully integrated platform with both clinical, sales, compliance, and operations components. |

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| Matthew Gilmore: | OK, great, thanks very much. |

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| Jay Grinney: | Yep. |

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| Operator: | Your next question comes from the line of Frank Morgan of RBC Capital Markets. |

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| Frank Morgan: | Good morning, Jay. |

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| Jay Grinney: | Good morning. |

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| Frank Morgan: | In the slide deck -- I think it was on page six -- you talked about 4 percent of your HealthSouth discharges go to HealthSouth home health agencies today. Looking at the overlap of the two companies, I'm just curious. Have you thought about what would be the potential in terms of the actual patient volumes and maybe perhaps some revenue synergy targets you will have over the next several years of picking up incremental share in those overlap markets? |

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| Jay Grinney: | Yeah, I think it's probably too early to nail that down. We do think it's significant, and we think it's significant for a couple of reasons. First, just the magnitude -- We do discharge quite a few patients to home care providers. And so that is an inherent opportunity, as I mentioned, in my comments. Immediately available will be the 21,000 or so that we discharged in those overlap markets. |

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| Frank Morgan: | OK, one more. In terms of the capital that you expect to deploy to keep the growth in that side of the business, do you have any numbers in mind in terms of dollar amount that you would look to fund on their acquisition strategy going forward? |

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| Jay Grinney: | On the capital required, we think that it will be substantially funded through the cash flow of Encompass. I mean, they have been able to do that consistently on a historic basis. If we think that there are additional opportunities, we'll be able to fund that. But it's certainly well within our free cash flow generating abilities to fund this and to continue to fund as aggressively as we have in the past the growth of our inpatient rehabilitation platform. |

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| Doug Coltharp: | Frank, the current mix of the business is about 90 percent home health and about 10 percent hospice. Encompass was very, very deliberate with its move into the hospice space. They really wanted to make sure that they had vetted the model thoroughly to ensure that there was a reasonable margin that could be sustained in that business. They believed that they have proved that out. So we would expect over time to see the hospice business grow faster than home health, but not in a way that is going to materially alter the mix of the business. |

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| Frank Morgan: | Thanks. |

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| Operator: | Your next question comes from the line of Gary Lieberman of Wells Fargo. |

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| Gary Lieberman: | Good morning. Thanks for taking the question. |

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| Jay Grinney: | Good morning, Gary. |

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| Gary Lieberman: | Hi, how are you? |

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| Jay Grinney: | Good. |

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| Gary Lieberman: | Just going back to the questions on the margins -- that was helpful commentary about the rate of recent acquisitions. Is there any reason to believe that the margins would be dramatically different from the home health companies that are out there? Or, should it be within kind of that range at 10 percent? |

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| Doug Coltharp: | You know, I think as we've cited in our materials, Encompass is a best-of-class operator, both with regard to quality of outcomes and also its cost efficiencies, which are two characteristics that they share with our core IRF business. So that -- you know, I think what you're going to see is an industry-leading margin. |

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| Gary Lieberman: | OK. And then could you talk a little bit about how the equity that's going to get rolled into the home health entity by the management team? |

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| Doug Coltharp: | Yeah, it's going to work very much like you would see in a PE-sponsored deal, which is they're going to do a tax-free rollover of a portion of the equity that they have in the existing business, which is owned by Cressy and Company. That will be an equity interest in a subsidiary of HealthSouth. And then their liquidity vehicle for that will be a series of put options. We'll have a reciprocal call option. And the value of that equity at such time an option is exercised is subject to a fair-market value determination. |

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| Gary Lieberman: | OK. And will there be certain benchmarks, I guess, associated with how that works? |

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| Doug Coltharp: | I'm sorry, Gary, I didn't catch the question. |

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| Gary Lieberman: | Will there be certain benchmarks, I guess, for management in terms of meeting EBITDA goals and such? |

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| Doug Coltharp: | On the equity roll, it's going to be just subject to a fair-market value determination, which is basically a market multiple times the EBITDA of that business. I mentioned in my comments that there are other forms of compensation tied to the performance of that subsidiary, and all of those will have very specific performance benchmarks. |

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| Gary Lieberman: | OK, great. Thanks very much. |

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| Operator: | Your next question comes from the line of Darren Lehrich of Deutsche Bank. |

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| (Dana Nenton): | Hi, good morning. It's (Dana Nenton) in for Darren. As it relates to the growth opportunity with Encompass, you know, how do you plan to expand the Encompass |

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| Jay Grinney: | So they have an existing pipeline that is very robust. I think that the opportunity for us, then, going forward is to identify the non-overlap markets and to pursue acquisitions in those markets. In talking with the team there at Encompass, they already had identified certain markets where we are today and they want to enter into those markets as potential targets. |

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| (Dana Nenton): | OK, great, thank you. |

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| Operator: | Your next question comes from the line of (Chad Vanacor) of Stifel. |

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| (Chad Vanacor): | Good morning. |

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| Jay Grinney: | Morning. |

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| (Chad Vanacor): | So staying with the theme of how you plan to expand, do you think it's more likely you'll look for larger portfolios or expand by tuck-ins? |

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| Jay Grinney: | You know, I don't want to rule anything out right now. We'll be looking at a broad range of growth opportunities. But, you know, I've said for quite some time that I felt that home health was a compelling opportunity for the company, not only the long-term strategic benefit of having a facility base, but in a home base provider. But there are, I believe, enough reasons why some of the smaller operators are just not going to be able to survive in the evolving delivery system. |

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| (Chad Vanacor): | OK, and then it looks like Encompass has a small pediatric business. Does that fit with your model? Do you want to keep growing that? Or would you look to dispose of that business? |

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| Jay Grinney: | No, no, no, we would definitely keep that. |

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| Doug Coltharp: | But it is likely to stay relatively small. |

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| (Chad Vanacor): | All right, thanks for your time. |

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| Operator: | Your next question comes from the line of (Rich Glass) of Deutsche Bank. |

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| Jay Grinney: | Hey, (Rich). |

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| (Rich Glass): | Well, you guys answered them all, but nice deal. |

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| Jay Grinney: | Great. |

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| Doug Coltharp: | Thank you. |

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| Jay Grinney: | Thank you, (Rich). |

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| Operator: | Once again, if you'd like to ask a question, please press star, one. Your next question comes from the line of Kevin Fischbeck of Bank of America Merrill Lynch. |

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| Jay Grinney: | Morning, Kevin. |

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| (Joanna Gajuk): | And good morning. Actually, this is (Joanna Gajuk) sitting in for Kevin. Thanks for taking the questions here. Just a follow-up on the reimbursement comment for home health specifically, which, you know, we agreed that (inaudible) visibility there, but, you know, how confident are you that, you know, we are at the end of the line for, you know, a cut for home health? Because, you know, based on the reading of the CMS regs |

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| Jay Grinney: | Yeah, if there are additional cuts that means there are going to be additional growth opportunities. I mean, the reality is that home health today has over 12,000 providers. Many of them have revenues less than $5 million. So it's an industry characterized by a lot of mom-and-pop operators. |

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| (Joanna Gajuk): | Thanks for the color. And just so I'll one more here, anything -- you know (inaudible) that spurred, you know, the decision to diversify now versus before, like any -- |

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| Jay Grinney: | Yeah, the decision. To be very clear, the decision to move now is 100 percent based on the fact that Encompass was being marketed for sale. That is absolutely the reason. I mean, could we have looked at other home care providers? But we identified Encompass probably four years ago as the best-of-class. |

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| (Joanna Gajuk): | Great, thanks for the color. |

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| Operator: | At this time, there are no further questions. I'll now return the call to Mary Ann Arico for any additional or closing remarks. |

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| Mary Ann Arico: | Thank you, Laurie. If you have additional questions, I will be available later today. Please call 205-969-6175. Thank you for your time. |

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| Jay Grinney: | Thanks, everyone. |

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| Operator: | Thank you for participating in HealthSouth's conference call. You may now disconnect. |