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DATE

Friday, August 1, 2025, at 9 a.m. ET

CALL PARTICIPANTS

  • Executive Chairman and Co-Founder — Robert Ortenzio
  • Chief Financial Officer — Michael Molotesta

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RISKS

  • Executive Chairman Ortenzio stated that the critical illness recovery hospital segment experienced a 22% year-over-year decline in adjusted EBITDA in Q2 2025, attributing this to recent regulatory changes, specifically the increase in the high-cost outlier threshold and the implementation of the 20% transmittal rule.
  • Revenue in the critical illness recovery hospital division declined 1% year-over-year in Q2 2025 due to regulatory headwinds, with Ortenzio noting that the reimbursement structure for higher-acuity patients remains "a challenging element of the reimbursement system."

TAKEAWAYS

  • Adjusted EBITDA: $125.4 million, up from $124.7 million in the prior year for Q2 2025.
  • Earnings per common share: $0.32 from continuing operations, an 88% increase compared to $0.17 in the prior year period for Q2 2025.
  • Inpatient rehab hospital revenue: Segment revenue rose 17% year-over-year to $313.8 million for Q2 2025.
  • Inpatient rehab hospital adjusted EBITDA: $71 million, representing nearly 15% year-over-year growth for Q2 2025.
  • Inpatient rehab hospital adjusted EBITDA margin: Declined slightly to 22.6% from 23.1% in the prior year for Q2 2025.
  • Inpatient rehab occupancy rate: 82% overall occupancy rate for Q2 2025, with same-store occupancy at 86%.
  • Outpatient rehabilitation division revenue: Increased 3.8% year-over-year, driven by a corresponding 3.8% increase in patient volume for Q2 2025.
  • Net revenue per visit (outpatient rehab): Stable at $100 per visit for Q2 2025.
  • Medicare rate impact (outpatient rehab): 3.2% reduction in Medicare physician fee schedule rates, resulting in a $3 million decrease in revenue for Q2 2025.
  • Outpatient rehabilitation adjusted EBITDA: Increased 6.1% year-over-year for Q2 2025; adjusted EBITDA margin increased to 9.3% from 9.1% compared to Q2 2024.
  • Critical illness recovery hospital revenue: Patient volume was stable and occupancy improved to 69% from 67% in the prior year.
  • Critical illness recovery hospital adjusted EBITDA: 22% year-over-year decline for Q2 2025; adjusted EBITDA margin dropped to 9.4% from 11.9% in the prior year.
  • Salary, wages, and benefits ratio (critical illness recovery hospitals): Increased to 58% of revenue for Q2 2025.
  • Debt outstanding: $1.9 billion in total debt outstanding at Q2 2025, with $1.04 billion in term loans, $150 million in revolving loans, $550 million in senior notes due 2032 as of June 30, 2025, and $33 million in other debt as of June 30, 2025.
  • Cash balance: $52.3 million in cash on the balance sheet as of Q2 2025.
  • Net leverage: 3.57x under the senior secured credit agreement as of Q2 2025.
  • Operating cash flow: $110.3 million generated from operating activities in Q2 2025.
  • Share repurchases: Over 5.7 million shares repurchased at an average price of $14.86, totaling $85.1 million in Q2 2025.
  • Cash dividend: $0.0625 per share cash dividend declared, payable on August 28, 2025.
  • 2025 outlook reaffirmed: Revenue guided to $5.3 billion–$5.5 billion, adjusted EBITDA $510 million–$530 million, and adjusted EPS $1.09–$1.19 for fiscal 2025.
  • Pipeline expansion: Management expects to add 382 rehab beds (294 consolidating, 88 non-consolidating) and 30 critical illness beds by end of 2027, with multiple hospital openings and expansions planned across key states.
  • Regulatory update: The Centers for Medicare & Medicaid Services (CMS) finalized LTACH rules for fiscal year 2026, increasing the standard federal rate by 2.9% and adjusting the high-cost outlier threshold upward by $1,188 to $78,936—both less punitive than initially proposed.

SUMMARY

Select Medical (SEM -0.23%) reported that eight of its rehabilitation hospitals were recognized among the nation's best, with ongoing expansion through new hospital openings and bed additions in core markets. The company highlighted significant capital allocation activities, including $85.1 million in share repurchases and a declared cash dividend, supported by $110.3 million in operating cash flow and $52.3 million in cash on the balance sheet. Management reaffirmed its full-year financial outlook, citing strong inpatient rehab demand and a robust development pipeline, while continuing to engage with regulators over policy reforms that may affect long-term segment profitability.

  • Ortenzio said, "we remain committed to delivering value to our shareholders," citing $85.1 million in share repurchases and the declaration of a cash dividend in Q2 2025.
  • Ortenzio described the finalized LTACH CMS rule for fiscal year 2026 as “welcome,” noting it delivered a 2.9% payment rate increase and a smaller-than-proposed high-cost outlier threshold adjustment, but maintained that fixed loss challenges persist.
  • Ortenzio stated that he anticipates ongoing improvement in outpatient rehab through the balance of the year and into 2026.
  • Ortenzio commented that the labor cost environment was improving, with full-time employee wage increases trending below 3% as of Q2 2025, and annual wage increases for full-time employees in the inpatient division also trending below 3% and normalizing relative to COVID-era levels.
  • Ortenzio said that supply-demand dynamics in critical illness recovery hospitals remain "very strong" due to demographic drivers and ICU demand, though reimbursement headwinds continue to challenge margins.

INDUSTRY GLOSSARY

  • LTACH: Long-Term Acute Care Hospital – a facility specializing in treating patients requiring extended hospital-level care, typically following intensive care unit stays.
  • High-cost outlier threshold: A CMS-defined benchmark above which hospitals receive extra reimbursement for unusually costly patient cases, subject to periodic regulatory adjustments.
  • 20% transmittal rule: A regulatory change affecting LTACH reimbursement, implementing a 20% adjustment on certain qualifying cases as communicated via CMS transmittal instead of formal rulemaking.
  • CMS: Centers for Medicare & Medicaid Services – the U.S. federal agency administering major health care programs including Medicare and Medicaid, responsible for rate-setting and regulations affecting hospital reimbursement.
  • Case mix index (CMI): A measure reflecting the diversity, clinical complexity, and resource needs of patient populations within a provider’s care setting.
  • CON law: Certificate of Need Law – state regulations requiring health care providers to obtain government approval before new or expanded facility construction.

Full Conference Call Transcript

Robert Ortenzio: Thank you, operator. Good morning, everyone. Welcome to Select Medical's earnings call for the second quarter 2025. I'd like to begin today's call by sharing that U.S. News and World Report recently released its list of the nation's best rehabilitation hospitals, and I'm pleased to report that eight of our hospitals, which operate across 15 locations, were recognized among the country's best. Kessler Institute for Rehabilitation at number four was once again ranked as one of the top five rehab hospitals in the nation, earning a spot on the list for the thirty-third consecutive year.

Our other ranked hospitals include Baylor Scott and White Institute for Rehabilitation, Dallas at number eight, Cleveland Clinic Rehab Hospital at number 20, California Rehab Institute at number 24, Banner Rehabilitation Hospital at number 26, and OhioHealth Rehabilitation Hospital at 31. This year also marked the first recognition for Baylor Scott and White Institute for Rehabilitation Hospitals at Frisco, at number 36, and Penn State Health Rehabilitation Hospital at number 47. These rankings underscore the strength and consistency of our services and reflect our ongoing commitment to delivering high-quality care to patients and the communities we serve. I'm also pleased to report that we have continued success in executing our development strategy this past quarter.

In our rehab division, we recently opened our second hospital with UPMC in Central Pennsylvania, adding a 12-bed acute rehab unit in Tallahassee, Florida, and expanding our acute rehab hospital in Pensacola, Florida with eight additional beds. In addition, we launched a 12-bed neurotransitional care unit with SSM Health in Missouri. Within our outpatient rehab division, we continue to expand our footprint and grew our clinic count by eight this past quarter. Looking ahead, we remain focused on advancing our development pipeline and growing our presence in key markets, particularly within the inpatient rehab division where we continue to see growing demand for our services.

We expect to add 382 rehab beds, of which 294 will be consolidating and 88 non-consolidating, and 30 critical illness beds between now and the end of 2027. This expansion will be achieved through a combination of new openings and bed additions in markets with strong volume and occupancy rates. In Q3, we plan to open a 45-bed hospital in Temple, Texas, and add a 30-bed critical illness recovery hospital in Memphis, Tennessee. Later this year, we plan to open our fourth Cleveland Clinic rehab hospital as well as a 32-bed acute rehab unit in Orlando, Florida, and complete a 10-bed expansion at one of our existing rehab hospitals.

We anticipate opening an additional three rehab hospitals during 2026, including our fourth in partnership with Banner Health in Tucson, Arizona, 58 beds, and a new freestanding 63-bed rehab hospital in Ozark, Missouri with Cox Health Systems, and a 60-bed rehab hospital branded as Atlantica Rehabilitation Hospital in New Jersey. We also intend to add another acute rehab unit and two neurotransitional units in 2026. And in 2027, we plan to open a 76-bed facility in Jersey City, which will operate under the Kessler brand and expand one of our existing hospitals. We expect to continue to fill our pipeline with additional growth opportunities as our inpatient rehab pipeline remains very strong with many opportunities currently under evaluation.

In parallel with our growth initiatives, we remain committed to delivering value to our shareholders. This quarter, we repurchased over 5,700,000 shares of our stock, at an average price per share of $14.86 under our board-authorized stock repurchase program, for a total purchase price of $85,100,000. In addition, our board of directors has also declared a cash dividend of 6.25¢ per share, payable on 08/28/2025 to stockholders of record as of close of business on 08/13/2025. Looking forward, we will continue to evaluate the most effective uses of capital to support strong operational performance and shareholder value, including investments for growth, debt reduction, additional share repurchases, and cash dividends. Turning to our second quarter financial results.

On a consolidated basis, our revenue grew nearly 5% to $1,300,000,000, and our adjusted EBITDA increased to $125,400,000 from $124,700,000 in the prior year. Earnings per common share from continuing operations rose 88% to $0.32 from $0.17 per share the same quarter prior year. I'd now like to highlight key financial results by segment. Starting with our inpatient rehab hospital division, which delivered another exceptional quarter. Revenue rose 17% year over year to $313,800,000, with adjusted EBITDA increasing nearly 15% to $71,000,000, and our adjusted EBITDA margin declining slightly to 22.6% from 23.1% in the prior year. Our occupancy rate was lower than the prior year at 82% and is reflective of the early-stage operations of our new hospitals.

Our same-store occupancy rate remained stable at 86%. In April, CMS issued their proposed rule, if adopted, would see an increase of 2.4% in the standard federal payment rate. We expect the final rule to be posted in early August. In our outpatient rehabilitation division, revenue increased 3.8%, which was driven by a corresponding 3.8% patient volume when compared to the prior year. Our net revenue per visit remained stable at $100, while we continue to see improvements in our commercial managed care rate, these improvements are offset by a 3.2% reduction in Medicare physician fee schedule rates. The reduction in Medicare rate caused a $3,000,000 decrease in our revenue during the quarter.

And adjusted EBITDA increased 6.1% year over year, with the division's adjusted EBITDA margin increasing to 9.3% from 9.1%. Before speaking to the performance of the critical illness recovery hospital division, I wanted to address the headwinds we are continuing to face with the LTACH reimbursement system. The goals of the 2013 LTACH criteria policy, which we supported, focused on caring for high-acuity patients, those with a minimum three-day ICU stay, with lower acuity patients being treated in lower-cost settings. Since the enactment of the criteria, the LTACH industry has seen a 56% reduction in Medicare spend.

The enactment of criteria and additional regulatory changes has resulted in the closure of over 100 LTACH hospitals, which represents a 24% closure rate. The high-cost outlier threshold target established more than twenty years ago at 8% preceded the implementation of LTACH criteria and was developed using a significantly different and less acute patient population than the industry is caring for today. This has resulted in a significant reduction in reimbursement for the higher acuity patients, and the high-cost outlier status has been further magnified by the twenty percent transmittal. We are committed to engaging in dialogue with regulators regarding potential short and long-term policy reforms.

We're hopeful these discussions will lead to positive changes that will enable us to continue to provide excellent care to high-acuity patients with complex medical needs. Moving on to the financial results for the critical illness recovery hospital division. Revenue was $601,100,000 this quarter, which is a decline of 1% from the same quarter last year. The decrease continues to reflect the impact of the increase in high-cost outlier threshold and the implementation of the 20% transmittal rule. Patient volumes remained relatively stable year over year, with our occupancy rate improved to 69% from 67% in the prior year.

Our salary, wages, and benefits revenue ratio rose slightly to 58%, and our adjusted EBITDA declined 22% year over year, which was primarily due to the regulatory changes I mentioned earlier. Our adjusted EBITDA margin was 9.4% for the quarter compared to 11.9% in the prior year. Yesterday afternoon, CMS issued the final LTACH rules for fiscal year 2026. These rules, which become effective October 1, include an increase in the standard federal rate of 2.9%, which is higher than the 2.7% which was within the proposed rule in April. The high-cost outlier threshold increased by $1,188, from $77,048 to $78,936, which is less than the $14,199 increase in the proposed rule.

The LTACH DRG relative weight and expected length of stays were also updated in the final rule. This concludes my remarks. And I'll now turn it over to Mike Malatesta for some additional financial details before we open the call up for questions.

Michael Molotesta: Thank you, Bob, and good morning, everyone. At the end of the quarter, we had $1,900,000,000 of debt outstanding, and $52,300,000 of cash on the balance sheet. Our debt balance at the end of the quarter included $1,040,000,000 in term loans, $150,000,000 in revolving loans, $550,000,000 in six and a quarter percent senior notes due to 2032, and $33,000,000 in other miscellaneous debt. We ended the quarter with net leverage for our senior secured credit agreement of 3.57. As of June 30, we had $319,100,000 of availability on our revolving loans. The interest rate on our term loan is SOFR plus 200 basis points and matures on 12/03/2031.

Interest expense was $30,000,000 in the second quarter compared to $28,000,000 in the same quarter prior year. For the second quarter, operating activities generated $110,300,000 of cash flow. Our days sales outstanding or DSO for continuing operations was sixty-two days at 06/30/2025 compared to sixty days at 06/30/2024 and fifty-eight days at 12/31/2024. Investing activities used $64,700,000 of cash in the second quarter for purchases of property and equipment. Financing activities used $46,500,000 of cash in the second quarter, including the $85,100,000 of shares repurchased under our stock repurchase program, $7,900,000 in dividends paid on our common stock, $12,000,000 in net distributions and purchases of noncontrolling interests, and a $2,600,000 payment on our term loan.

This was offset by $70,000,000 in net borrowings on our revolving line of credit. We are reaffirming our business outlook for 2025. We expect revenue to be in the range of $5,300,000,000 to $5,500,000,000, adjusted EBITDA to be in the range of $510,000,000 to $530,000,000, and adjusted earnings per common share to be in the range of $1.09 to $1.19. We are narrowing our expectation of capital expenditures, which we now project to be in the range of $180,000,000 to $200,000,000. This concludes our prepared remarks. And at this time, we would like to turn it back to the operator to open up the call for questions.

Operator: Thank you. Ladies and gentlemen, to ask a question at this time, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, simply press 11 again. Please stand by while we compile the candidate roster. Now, the first question coming from the line of Anne Hines with Mizuho. Your line is now open.

Anne Hines: Great. Thank you. I just want to talk about how the EBITDA per segment came in line versus your internal expectations? And specifically with the critical illness, I guess I expected an improvement in the year-over-year decline in EBITDA. Did that come in line or worsen your expectations? And also with guidance, can you talk about I know you reiterated your adjusted EBITDA guidance, but maybe any changes within that guidance would be great.

Robert Ortenzio: Hi, Anne. Critical illness came in for our internal expectations slightly lower. Then again, we continue to see inpatient rehab exceed our expectations. And then going forward, that's kind of built into our guidance. So overall, we're comfortable with our reaffirmed guidance. Alright.

Anne Hines: Okay. Then with inpatient rehab, I know there's a few states that might list the inpatient rehab. DON, hopefully, over the next year, North Carolina being a big one. What is your strategy going forward in those states that will have a more favorable CON environment for inpatient rehab?

Robert Ortenzio: Thanks. Yeah. As you point out, there are a few number of states that continue to have CON law. You recall that a year or so ago, Florida sunsetted theirs, which was really a big one, and you saw more growth. And we would expect the same thing to happen in North Carolina or other states that may remove their CON requirements. For us, it really won't change our strategy. We would spend more time in North Carolina, but we would continue to stay true to our joint venture strategy. So while, if you see a sunset, for example, in North Carolina, you wouldn't expect to see us go in, tie up land, and immediately start construction.

We would probably follow our model of engaging with some of the major systems in that state that would be interested in growing their post-acute network with rehab, potentially critical illness, and outpatient.

Operator: Thank you. Our next question coming from the line of Justin Bowers with Deutsche Bank. Your line is now open.

Justin Bowers: Hi, good morning, everyone. So in outpatient rehab, making some progress there, EBITDA up percent year over year. Can you talk about how you expect that business to evolve throughout the rest of the year? And then, you know, in the midterm where you think EBITDA margins can settle for that business?

Robert Ortenzio: Justin, we continue to expect outpatient to improve. And I think if we communicated before, that improvement will continue throughout the year. And our initiative with scheduling really should take off towards the end of the year and the early part of next year. And, you know, we should start approaching that 10% EBITDA margin because right now, we're slightly below. I think, you know, we saw slight improvement from 9.1% to 9.3% this last quarter. We should continue to see improvement. And, Justin, it's Bob. I continue to be very bullish on the prospects for our outpatient division on a go-forward basis. We have been working on implementing some really good system upgrades in that platform.

And, you know, with a platform that spans as many states as we're in with 2,000 plus clinics, you know, the incremental improvement that we can put over that platform through systems efficiencies can really drive performance, margin, and EBITDA growth. So I'm pretty bullish about our prospects there on a go-forward for the balance of this year and particularly into through 2026, even with the Medicare headwinds that we're seeing on the Medicare fee schedule.

Justin Bowers: Understood. And then with the outlier threshold, can you help us understand the impact there in 2Q or maybe throughout the year? And then some of those policy initiatives that you think could maybe, you know, impact the CMS' approach to this longer term?

Robert Ortenzio: Yeah. Well, I'll speak to the policy initiatives. As you know, the final rule for LTACHs just came out yesterday, and we saw an improvement, a slight improvement, an improvement nonetheless on the rate, and we saw a pretty significant improvement on the high-cost outlier threshold, which was telegraphed under the last administration to go to over $90,000. And in the final rule here, it's the 70,000. So, you know, I'm encouraged by the willingness of the current CMS administration to be open to the feedback of providers, and with us specifically. And we have submitted a number of comment letters and have worked to engage with CMS.

And the only thing that I can say is I have found them much more open and transparent to discussion than I had found through the Biden CMS. So, you know, they're open to dialogue. That's the, I mean, and that's for us, that's the best that we can hope for. Know what I mean? They're, you know, success in our policy initiatives is not guaranteed, never has been. But I'm encouraged by the fact that there is an easier path to dialogue. And, Justin, the impact on the quarter was around 60% of the impact it was in Q1.

So as we expected, we're still going to face these headwinds throughout the year, but it wouldn't be as significant as once to Q1 when we have higher volume and higher acuity.

Justin Bowers: Thank you. Appreciate it. I'll jump back in queue.

Operator: Thank you. Our next question coming from the line of Ben Hendrix with RBC Capital Markets.

Ben Hendrix: Great. Thank you very much. Just to touch a little more on that last point there, if we could just get your take on kind of how we should think about seasonality with LTAC margins, knowing that we did enter a lower acuity quarter, and we saw, you know, a sequential decrease in margin. You know, and then now that we've got kind of a more stable high outlier backdrop going forward, any way that we should just generally think about margin seasonality going forward under the current rule? Thanks.

Robert Ortenzio: Well, I don't think there's a change in when we say margin seasonality. I mean, Q1 is always going to be our strongest quarter, and it's the grade is, I mean, you know, last year, I think, in 2024, we're around 17% margin. We finished this year at over 13%. Q2, you start seeing weakening as the quarter progresses. Then Q3, that's normally our most challenging quarter. And we start seeing census grow through the back end of that quarter. And in Q4, we start seeing a ramp back up during the colder months. So while we're going to have margin suppression from 2024, the seasonality aspect is relatively the same.

Ben Hendrix: Great. Thank you. And then can you run us? How much start-up cost do you have included in guidance for the IRF segment through the back of the year? Thank you.

Robert Ortenzio: Probably slightly around or a little less than $10,000,000 for the back of the year. I think year over year, you know, for select specialty hospitals, we're pretty consistent from '25 through '24 around our per annum basis at $20,000,000 level.

Operator: Our next question coming from the line of Joanna Gashnik from Bank of America. Your line is now open.

Joanna Gashnik: Hey. This is Wakiniragata on for Joanna. So with Q1, you flagged the 20% rule impact. The rule was issued as a surprise to the industry, and there was some traction in Congress to pull back. What's been the progress on this, and what should we expect moving forward?

Robert Ortenzio: I'm not sure that I could agree that there was traction in Congress to pull back on the 20% transmittal if that's what your question was. I mean, the first part of your comment was, yes. The 20% transmittal came from what they call a subregulatory, and this was back in the last administration, kind of the outgoing CMS. That was not put through formal rulemaking, and it came through what they call a transmittal. So that was a surprise and a disappointment to many of us in the industry because it doesn't give you any opportunity to comment. Normally, it would be very difficult for Congress to fix that.

And there really has not, at least to this date, been much of a vehicle, even though you had the reconciliation that was what they call a pretty clean bill. So I think on that, you know, working with CMS is probably going to be the only path that we have on that. But, you know, that's now been in place for close to six months. So, you know, while we can always be hopeful, you know, hope is not a strategy. So we are where we are right now, and we've baked that transmittal impact into our guidance. And we'll continue to look at all avenues to try to affect policy.

But I just want to point out that 20% transmittal is just part of a bigger high-cost outlier challenge that the industry is facing, as I made in my comments, which is as the number of cases in the LTACH industry have overall gone down, and those cases tend to have much higher CMI case mix index and higher measure of acuity, the 8% outlier pool is going to continue to be a challenging element of the reimbursement system. Hope that answers your question without getting too far in the weeds.

Joanna Gashnik: No. Yeah. Definitely. Thank you. And then kind of changing it up. On the final LTAC reg, it only called for the 2% increase in outlier threshold. So it should be easier to manage than the 30% increase in a full year '25. So we're assuming better margins in the critical illness business in 04/2025.

Robert Ortenzio: Well, the reduction from the proposed 91,000 to 70,000 was certainly welcome, but I'm not sure I could agree with the characterization that it'll make it easier in 2025, 2026. That's still a challenging number on the fixed loss threshold. So, you know, we didn't bake into our guidance the proposed rule, nor do we ever provide, you know, bake into our guidance proposed rules. So while we're, you know, very happy that it's not as punitive as the proposed rule, it still represents a modest increase over where our current threshold limit is.

Joanna Gashnik: Got it. Thank you, guys.

Operator: Thank you. Our next question coming from the line of A.J. Rice with UBS. Your line is now open.

A.J. Rice: Hi, everybody. Just to make sure I understand sort of the dynamics in the critical access hospital LTAC business. So some of the less intense patients are dropping off and not getting referred to LTACs. Sounds like maybe there's some contraction of the people that are providing the business. Can you just talk about I know there's a lot of focus on the outlier changes, etcetera, and how that's affected the dynamics. But if you strip all that back, what is happening with the overall supply-demand picture in that business? Is there a meaningful reduction in capacity? Is there a steady flow of patients, at least the kind that you want? Is that even picked up?

Maybe it's you're one of the few outlets that's hanging in there. Any thoughts on that?

Robert Ortenzio: Let me take a shot at that, A.J. You tell me if I'm being responsive to your question. The supply-demand dynamics for the critical illness recovery hospitals are very strong. And we think it'll be even stronger. And that's driven by demographics, it's fueled by advances in medical technology, it's fueled by the need to decompress ICUs that are becoming increasingly crowded, particularly during those months where you see respiratory cases. So we are not short of demand for patient demand for our services.

We, of course, struggle with the same things everybody else struggles with, which as more and more Medicare patients go to Medicare Advantage, we still face what we consider inappropriate denials or preauthorization that delay or prevent admissions. That is not a new problem, and that is a problem that we manage. We still have, you know, over twenty-four percent, twenty-five percent of our patient population in our critical illness recovery hospital are Medicare Advantage, and thirty percent, probably Medicare fee for service. So we see that demand going forward unabated.

It's really our challenge has been the structure of the reimbursement system that for a company like ours that has one of the highest case mix indexes, we tend to see the higher acuity patients that are more likely to go through the fixed loss and end up in high-cost outlier status. So if that's responsive. If not, you could please ask a follow-up question.

A.J. Rice: No. That's sort of what I was looking for. Just generally speaking, again, we're talking about some of the top-level revenue-driven things. What's happening with some of your expenses? I know mainly labor, I guess. But across the different business lines, a number of providers are showing improvement there margin-wise, but what's your trend across your major business lines?

Robert Ortenzio: Hey, A.J. Our, at least on an employee rate perspective, we continue to see improvement. I think during coming out of COVID or in the heart of COVID, 3% and now even a little bit in our inpatient division, for full-time employees, we're experiencing five per annum increases. That's migrated down to below 3%. So, you know, from that aspect, it's improving. I don't think we have the headwinds or the challenges we had with agency and those elevated costs we had in 2022 and part of 2023.

We did have some slight deterioration in our critical illness labor margin this quarter year over year, but that was a function of really the pressures that we have on revenue with the high-cost outlier threshold. So that's where you saw that modest tick up of 1%.

A.J. Rice: Okay. That's great. Thanks so much.

Operator: Thank you. I'm showing no further questions in queue. I will now turn the call back over to Mr. Ortenzio for any closing remarks.

Robert Ortenzio: Great. Thank you, operator. Thanks, everybody, for joining us for the call. We look forward to updating you next quarter.

Operator: This concludes today's conference call. Thank you for your participation. And you may now disconnect.