Encompass Health (EHC) Q3 2026 Earnings Report

The call was strongly positive overall. The company reported broad-based revenue, EBITDA, EPS, cash flow, volume, acuity, staffing, and capacity growth, raised 2026 guidance again, and highlighted favorable demand, clinical outcomes, development opportunities, and capital flexibility. The main challenges were higher bad debt from a one-time system conversion, lower Medicaid supplemental payment contributions, pending Florida CMS approval, elevated pre-opening costs, Medicare Advantage discharge pressure, capacity constraints, and administrative uncertainty around RCD expansion. Management characterized several of these issues as one-time, temporary, or manageable, while the number and strength of the highlighted achievements significantly outweighed the stated challenges.

For 2026, Encompass Health now expects net operating revenue of $6.45 billion to $6.5 billion, adjusted EBITDA of $1.395 billion to $1.415 billion and adjusted earnings per share of $6.23 to $6.37; it expects bad debt expense as a percent of revenue in Q4 to normalize in the recent historical range of 2% to 2.5%, 2026 net contribution to adjusted EBITDA from net provider taxes to be approximately $3 million, and net preopening and ramp-up costs of $20 million to $24 million. Over the balance of the year, it intends to open 2 more hospitals with a total of 100 beds and add up to 45 beds to existing hospitals, while it expects to add 150 to 200 beds to existing hospitals in 2027 and projects 2027 pre-opening and ramp-up costs of plus or minus $20 million. Managed care pricing guidance is 3.5% to 4%, the 2023 to 2027 total discharge growth target is 6% to 8%, and the company guides to 6 to 10 hospitals a year, with the potential in the outer years to be above that range; one small format hospital is expected to open in late '27, with the company expecting to ramp that pipeline up in 2028 and 2029.