EHC

MKT CAP $11.9BP/E 19.6DIV YIELD 0.63%FCF YIELD 3.48%REV TTM $6.2B +9.5%NET INCOME $621M +18.8%NET DEBT $1.1B52W 93.83 – 127.87SEC XBRL · TTM TO Invalid Date

How EHC rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

Text kept

69%

of sentences unchanged

Added

123

new sentences

Dropped

130

sentences removed

Length

−407

words, now 20,717

New in FY2025

The nature and substance of state and federal healthcare laws are subject to change frequently, by means of both broad-based healthcare reform legislation, like the ACA, and targeted legislative and regulatory action.
In accordance with federal statutes, CMS makes an annual adjustment to Medicare reimbursement rates, commonly known as a “market basket update,” by provider type in an effort to compensate providers for rising operating costs.
The ACA requires the market basket updates for hospital providers to be reduced by a productivity adjustment on an annual basis.
For example, on August 2, 2011, President Obama signed into law the Budget Control Act of 2011, which provided for an automatic 2% reduction of Medicare program payments to reduce deficit spending.
Under current law, for each year through the first five months of fiscal year 2033, the reimbursement we receive from Medicare, after first taking into account all annual payment adjustments including the market basket update, will be reduced by sequestration unless it is repealed or modified before then.
O n July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (“OBBBA”).
The OBBBA contains a range of healthcare-related provisions impacting coverage, financing, and provider reimbursement in state Medicaid programs.
Most of these provisions take effect in 2027 or later and likely require additional federal and state regulatory action to implement.
Concerns held by federal policymakers about the federal deficit, national debt levels, or healthcare spending specifically, including solvency of the Medicare trust fund, could result in enactment of further federal spending reductions, including by means of significant staffing reductions at HHS, further entitlement reform legislation affecting the Medicare and Medicaid programs, and further reductions to provider payments.
The IMPACT Act directs HHS, in consultation with healthcare stakeholders, to collect standardized data for post-acute quality and outcome measures.
Although the IMPACT Act did not specifically call for the implementation of a new post-acute payment system, this act laid the foundation for possible future post-acute payment policies in which Medicare payments are driven primarily by patients’ medical conditions and other clinical factors rather than the costs of the setting where the care is provided.
CMS has made changes to existing current post-acute payment systems to improve comparability of patient assessment and clinical characteristic data across settings, which could make it easier to develop payment system reforms for post-acute providers in the future.
For example, in 2019, CMS implemented new patient assessment measures for the inpatient rehabilitation facility prospective payment system (the “IRF-PPS”) as discussed below.
Each year, the Medicare Payment Advisory Commission (“MedPAC”), an independent agency, advises Congress on issues affecting Medicare and makes payment policy recommendations to Congress for a variety of Medicare payment systems including, among others, the IRF-PPS.
For example, at its January 2026 meeting, MedPAC approved recommending to Congress, among other things, legislative changes to reduce by 7% the base payment rate under IRF-PPS.
In a June 2023 report mandated by the IMPACT Act, MedPAC reviewed the considerations associated with Congress designing and adopting a unified payment system for all Medicare post-acute care (a “PAC-PPS”) in lieu of separate systems for inpatient rehabilitation facilities (“IRFs”), skilled nursing facilities, long-term acute-care hospitals, and home health agencies.
A PAC-PPS would reimburse providers for care based primarily on patients’ medical conditions and other clinical factors rather than the costs associated with care settings.
MedPAC found a PAC-PPS to be feasible and desirable but also suggested policymakers may want to consider other “smaller scale site-neutral policies” given the considerable resources required to develop and implement a PAC-PPS.
MedPAC previously estimated, although we cannot verify the methodology or the accuracy of that estimate, a PAC-PPS would result in a 15% reduction in IRF reimbursements and shift aggregate reimbursements from for-profit and freestanding IRFs to non-profit and hospital-based IRFs.
However, given the uncertainty in the funding of Medicare and Medicaid spending in the future, there will almost certainly be new proposals for healthcare reforms and other changes to the laws, regulations, or the operations of governmental agencies that will affect our government reimbursement or business.
We receive state directed and supplemental payments in connection with several state Medicaid programs.
In 2025, those payments totaled approximately $148 million.
We also pay provider taxes to fund, in part, state Medicaid programs, and in 2025 those payments totaled approximately $127 million.
In May 2024, CMS issued a final rule related to Medicaid managed care programs that addresses state directed payment programs and imposes new requirements for these programs.
The various elements of the rule take effect between its issuance and early 2028.
Ultimately, this rule could result in significant changes to state directed and supplemental payment programs from which we receive payments.
However, a federal district court recently vacated portions of this rule following a legal challenge by the state of Texas.
CMS appealed the decision, but the court enjoined enforcement of this rule while the appeal is pending.
The OBBBA also contains provisions limiting states’ ability to assess provider taxes to increase federal matching Medicaid funds and make directed payments to providers.
It is possible that additional rulemaking could result in significant restructurings of existing state Medicaid programs, including provider tax and related directed and supplemental payment programs.
State authorities design the structures and operations of these programs to promote access to acute-care hospitals for Medicaid patients by supplementing acute-care reimbursement.
Historically, we are not aware of any IRFs playing a significant role in the design given the limited number of IRF Medicaid patients, so we are uncertain what attention state authorities will give to the effects of additional rulemaking on IRFs.
We are unable to estimate the financial impact that structural modifications and other program changes, if any, may have on our Medicaid provider tax expenses or directed and supplemental payments.
We cannot be certain that changes to state directed and supplemental payment programs will directly correspond to changes in the related provider taxes.
CMS periodically assesses the compliance of these programs, and CMS’s determination that a state’s program fails to comply may result in a decrease in state directed and supplemental payments and recoupment of prior payments under that state’s noncompliant program.
In any given year, the net effect of statutory and regulatory changes may result in a decreases in our reimbursement rates and amounts, and those decreases may occur at times when our expenses are increasing.
For example, in some recent years, our wage and benefit costs increased at a rate in excess of our aggregate Medicare reimbursement rate increases.
Similar changes in our revenues and expenses could result in a material adverse effect on our business, financial position, results of operations, and cash flows.
For additional discussion of how we are reimbursed by Medicare and Medicaid, see Item 1, Business , “Regulatory and Reimbursement Challenges” and “Sources of Revenues.” In addition, there are increasing pressures from managed care, including Medicare Advantage, and other third-party payors to control healthcare costs and to reduce or limit increases in reimbursement rates for medical services.
As of December 31, 2025, none of our hospitals have progressed beyond the third round of reviews, so it is unclear how the review process after TPE would proceed.

and 83 more.

Gone since FY2024

The nature and substance of state and federal healthcare laws are subject to change, by means of both broad-based healthcare reform legislation, like the ACA, and targeted legislative and regulatory action.
Any future legislative and regulatory changes may impact the provisions of the ACA discussed below or other laws or regulations that either currently affect, or may in the future affect, our business.
For Medicare providers like us, these laws include reductions in CMS’s annual adjustments to Medicare reimbursement rates, commonly known as a “market basket update.” In accordance with Medicare laws and statutes, CMS makes market basket updates by provider type in an effort to compensate providers for rising operating costs.
The ACA required reductions, the last of which ended in 2019, in the annual market basket updates for hospital providers ranging from 10 to 75 basis points.
In addition, the ACA requires the market basket updates for hospital providers to be reduced by a productivity adjustment on an annual basis.
For example, on August 2, 2011, President Obama signed into law the Budget Control Act of 2011, which provided for an automatic 2% reduction of Medicare program payments.
Under current law, for each year through mid-fiscal year 2032, the reimbursement we receive from Medicare, after first taking into account all annual payment adjustments including the market basket update, will be reduced by sequestration unless it is repealed or modified before then.
Additionally, concerns held by federal policymakers about the federal deficit, national debt levels, or healthcare spending specifically, including solvency of the Medicare trust fund, could result in enactment of further federal spending reductions, including by means of significant staffing reductions at HHS, further entitlement reform legislation affecting the Medicare and Medicaid programs, and further reductions to provider payments.
The IMPACT Act directs HHS, in consultation with healthcare stakeholders, to implement standardized data collection processes for post-acute quality and outcome measures.
Although the IMPACT Act did not specifically call for the implementation of a new post-acute payment system, this act laid the foundation for possible future post-acute payment policies in which Medicare payments are driven primarily by patients’ medical conditions and other clinical factors rather than the setting where the care is provided.
CMS has made changes to existing current post-acute payment systems to improve comparability of patient assessment and clinical characteristic data across settings, which could make it easier to develop a unified payment system for post-acute providers in the future.
For example, in the last five years, CMS established new case-mix classification models for both home health and skilled nursing facilities, which rely on patient characteristics rather than the amount of therapy received to determine payments.
Another example is CMS’s implementation of the new patient assessment measures for IRFs discussed below.
Each year, the Medicare Payment Advisory Commission (“MedPAC”), an independent agency, advises Congress on issues affecting Medicare and makes payment policy recommendations to Congress for a variety of Medicare payment systems including, among others, the inpatient rehabilitation facility prospective payment system (the “IRF-PPS”).
For example, at its January 2025 meeting, MedPAC approved recommending to Congress, among other things, legislative changes to reduce by 7% the base payment rate under IRF-PPS.
In a June 2018 report mandated by the IMPACT Act, MedPAC reiterated its recommendation that Congress adopt a unified payment system for all post-acute care (a “PAC-PPS”) in lieu of separate systems for inpatient rehabilitation facilities (“IRFs”), skilled nursing facilities, long-term acute-care hospitals, and home health agencies.
A PAC-PPS would reimburse providers for care based primarily on patients’ medical conditions and other clinical factors rather than the care settings.
MedPAC found a PAC-PPS to be feasible and desirable but also suggested many existing regulatory requirements, including, for IRFs, the 60% rule discussed below and the requirement for a minimum of three hours of therapy per day, should be waived or modified as part of implementing a PAC-PPS.
MedPAC previously estimated, although we cannot verify the methodology or the accuracy of that estimate, a PAC-PPS would result in a 15% reduction in IRF reimbursements.
As a precursor to a PAC-PPS, MedPAC discussed in November 2017 a potential recommendation to change the case-mix weights in each post-acute setting for 2019 and 2020 to a blend of the current setting specific weight and the proposed PAC-PPS weight, which MedPAC suggested would shift money from for-profit and freestanding IRFs to non-profit and hospital-based IRFs.
MedPAC has also called for aligning Medicare regulatory requirements across post-acute providers, although the agency has acknowledged it could take years to complete this effort.
MedPAC issued another report on the PAC-PPS in June 2023.
In that report, MedPAC concluded the design of a PAC-PPS is “relatively straight-forward” but noted “developing companion policies could take many years; implementing them would be complex and possibly controversial.” Additionally, MedPAC previously suggested that Medicare should ultimately move from fee-for-service reimbursement to more integrated payment models.
Since taking office in January 2025, President Trump has taken a number of executive actions, including those associated with recommendations of the Department of Government Efficiency, intended to reduce federal spending, including Medicare and Medicaid.
Those initiatives, reductions, or actions would be in addition to many ordinary course reimbursement rate changes that CMS adopts each year as part of the market basket update rulemaking process for various provider categories.
While we do not expect the drive toward integrated payment models, value-based purchasing, and unified post-acute payment systems in Medicare reimbursement to subside, there will almost certainly be new or alternative healthcare reforms in the future which may change these initiatives and other healthcare laws and regulations.
We cannot predict the nature or timing of any changes to the laws, regulations, or the operations of governmental agencies that either currently affect, or may in the future affect, our government reimbursement or business.
Similarly, we may experience material increases in our operating costs.
For example, in 2022 and 2023, our wage and benefit costs increased at a rate in excess of our aggregate Medicare reimbursement rate increases.
In any given year, the net effect of statutory and regulatory changes may result in a decrease in our reimbursement rate, and that decrease may occur at a time when our expenses are increasing.
As a result, there could be a material adverse effect on our business, financial position, results of operations, and cash flows.
For additional discussion of how we are reimbursed by Medicare, see Item 1, Business , “Regulatory and Reimbursement Challenges” and “Sources of Revenues—Medicare Reimbursement.” In addition, there are increasing pressures from managed care, including Medicare Advantage, and other third-party payors to control healthcare costs and to reduce or limit increases in reimbursement rates for medical services.
As of December 31, 2024, none of our hospitals have progressed beyond the third round of reviews, so it is unclear how the review process after TPE would proceed.
One type of audit contractor, the Recovery Audit Contractors (“RACs”), receive claims data directly from MACs on a monthly or quarterly basis and are authorized to review previously paid claims.
CMS has also established other types of contractors, including the Uniform Program Integrity Contractors (“UPICs”) and the Supplemental Medical Review Contractor (“SMRC”).
During the first quarter of 2023, the SMRC initiated a review of a subset of claims from March 2020 through December 2020 totaling approximately $21 million.
We have received initial results for the claims under review and, as of December 31, 2024, approximately 89% of these have been approved with $0.1 million still under appeal.
In recent years, this protracted appeals process led to a significant backlog of appeals of denials, which a federal judge ultimately ordered HHS to resolve by the end of 2022.
By December 31, 2022, substantially all of our backlog awaiting ALJ hearing had been resolved.
However, there can be no assurance significant backlogs will not develop in the future in the event the rate of new claims denials exceeds the rate at which those claims are resolved in the appeal process.

and 90 more.

Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

Watch EHC. Know when insiders buy.

One email the day a filing lands. Free.