Encompass Health Corporation, the nation’s largest owner and operator of inpatient rehabilitation hospitals, reported its fourth quarter and full-year 2025 results on February 5, 2026. The company delivered solid results in the rehabilitation services space with revenue growth in the mid-to-high single digits for the quarter and double-digit growth for the full year alongside adjusted EBITDA expansion and ongoing capacity additions. The 2026 guidance reflects expectations for continued growth but also accounts for industry challenges, including labor costs, regulatory adjustments and reimbursement dynamics.
The earnings reflect Encompass Health’s ability to manage operations in a post-acute sector that continues to face pressures from staffing expenses, payer mix changes and potential regulatory shifts while pursuing volume and pricing improvements.
Performance in Inpatient Rehabilitation Services:
Post-acute providers have dealt with persistent headwinds including elevated labor costs and evolving payer environments. Encompass Health reported discharge growth of around 5-6% in recent periods supported by added bed capacity. The company reported strong operational and clinical quality metrics, with a full-year discharge-to-community rate of 84.6% (with 8.6% discharge-to-acute and 6.1% to skilled nursing facilities). Management highlighted this rate, noting that the majority of patients return home or to community settings rather than to skilled nursing facilities.
Revenue and Profitability Trends:
For Q4:25 net operating revenue increased 9.9% year over year to approximately $1.54 billion, with adjusted EBITDA up 15.9% to $335.6 million. Full-year 2025 revenue rose 10.5% year over year to $5.94 billion, while adjusted EBITDA grew 14.9% to $1.27 billion. The company’s growth during the year was driven by several factors, including discharge increases, favorable patient mix and pricing gains. Expense controls also played a role, with reductions in premium labor spending of more than $21 million despite ongoing capacity builds.
Adjusted earnings per share rose year over year with adjusted free cash flow for 2025 at $818 million supporting investments and potential shareholder returns.
Capacity Expansion and Capital Approach:
The company added 517 beds in 2025 through developments, expansions and conversions to address demand for inpatient rehab. This has helped capture volume but comes with associated capital expenditures (around $736 million in 2025) and integration efforts.
Balance sheet management has kept leverage in check with room for further actions like share repurchases (potential $230-250 million capacity noted at midpoint guidance assumptions). A new small-format 24-bed hospital prototype is planned for 2027 in select markets.
2026 Outlook and Efficiency Efforts:
Encompass Health provided 2026 guidance of net operating revenue $6.365-$6.465 billion, adjusted EBITDA $1.340-$1.380 billion and adjusted EPS from continuing operations $5.81-$6.10. The outlook assumes ongoing discharge growth, pricing discipline and labor cost management but incorporates factors like regulatory adaptations and cost pressures.
CEO Mark Tarr noted that Q4 performance was very strong, capping a solid 2025 with revenue up 10.5% and adjusted EBITDA up 14.9%. He attributed the revenue growth to 6% discharge growth combined with pricing improvements that benefited from favorable patient mix and patient outcome quality. Tarr also emphasized that the company added significant capacity during the year while reducing premium labor spend even as it treated more patients.
CFO Doug Coltharp highlighted the full-year adjusted free cash flow of $818 million and noted that midpoint 2026 guidance assumptions imply leverage of about 1.83x with potential for additional buybacks in the $230–250 million range.
Future Considerations in Post-Acute Care:
Encompass Health operates in a segment influenced by aging demographics, chronic condition prevalence and preferences for specialized rehab settings. Its scale, clinical focus and geographic presence offer advantages in managing reimbursement changes and pursuing growth. However sustained performance will depend on navigating labor dynamics, regulatory developments and payer pressures while maintaining cost discipline and outcome quality in an evolving post-acute landscape.
