Good morning and thank you for joining us today for Select Medical Holdings Corporation's Earnings Conference Call to discuss the Second Quarter 2020 Results and the company's business outlook. Speaking today are the company's Executive Chairman and Co-Founder, Robert Ortenzio; and the company's Executive Vice President and Chief Financial Officer, Martin Jackson. Management will give you an overview of the quarter, and then open the call for questions. Before we get started, we would like to remind you that this conference call may contain forward-looking statements regarding future events or the future financial performance of the company, including without limitation, statements regarding operating results, growth opportunities, and other statements that refer to Select Medical's plan, expectations, strategies, intentions, and beliefs. These forward-looking statements are based on the information available to management of Select Medical today and the company assumes no obligation to update these statements as circumstances change. At this time, I will turn the conference call over to Mr. Robert Ortenzio.

Thank you, operator. Good morning, everyone. Thanks for joining us for Select Medical's second quarter earnings conference call for 2020. Before outlining some of our operational metrics, I want to provide you with some summary comments regarding the effects of the COVID-19 pandemic on our operations. First, let me say how proud I am of the operational leadership and clinical excellence I have seen throughout our organization these last several months. In these unusual times, it is gratifying to see such a dedicated group of clinicians and support staff come together throughout our organization to provide the highest quality care while keeping our patients and staff safe. We continue to adapt, evolve, and innovate as we navigate through the pandemic. As I mentioned on our last earnings call, the effect of the pandemic began to impact our company in mid-March. I also mentioned we thought April would represent the low point for our business, and we would begin to see a rebound in the areas of our business hardest hit by these disruptions. This has proven to be the case, as illustrated in the monthly revenue and patient days and visits we have included in our 10-Q and earnings release. In our critical illness recovery hospitals, we have held steady during the second quarter on census and our occupancy in light of some of the challenges COVID presents; while our cost of care has increased, we have seen increased occupancy and revenues every month throughout the pandemic. In our rehabilitation hospitals, we had to temporarily restrict admissions in our New Jersey and Miami markets in April and early May due to COVID outbreaks in those regions. This had the effect of reduced volume and higher costs in those markets. We also incurred additional costs to care for our patients in other markets. Having said that, we saw a significant rebound in this business segment in June, as revenue increased over 24% for the month on the same period year-over-year basis. Our June occupancy rate of 78% is close to pre-COVID levels and exceeded last year's June occupancy of 73%. In our outpatient rehabilitation and Concentra segments, volumes continue to be our biggest challenge. As we mentioned last quarter, volumes have been negatively impacted by a number of issues in both segments, some of which have lessened as we've progressed throughout the second quarter. Our outpatient rehabilitation volumes and revenues were down year-over-year 48% and 44% respectively in the month of April and May, resulting in adjusted EBITDA losses in both of those months in our outpatient rehab segment. However, in June, we saw meaningful improvements as states began to ease restrictions and hospitals and surgery centers began performing elective surgeries again. Volume and revenue shortfalls in June compared to the prior year were 19.7% and 17.8% respectively, which was a significant improvement from April and May, and we experienced positive adjusted EBITDA in June. In our Concentra segment, volumes and revenues were down year-over-year 39% and 33% respectively in the month of April and May, but only down in June 12.4% and 6.4% as restrictions eased and employers started to increase their workforce. Overall, our net revenue for the second quarter was down 9.4% to $1.23 billion in the quarter. We experienced meaningful declines in both our outpatient and Concentra segments, which were partially offset by revenue growth in both our critical illness recovery and rehabilitation hospital segments. Net revenue in our critical illness recovery hospital segment in the second quarter increased 12.7% to $520 million, compared to $461 million in the same quarter last year. Patient days were up 5.3% compared to the same quarter last year, with close to 277,000 patient days. Net revenue per patient day increased 7.4% to $1,867 per patient day in the second quarter. Occupancy in our critical illness recovery hospital segment was 72% in the second quarter compared to 69% in the same quarter last year. Net revenue in our rehabilitation hospital segment in the second quarter increased 5.2% to $169 million compared to $160 million in the same quarter last year. Patient days declined 2.8% compared to the same quarter last year; however, net revenue per patient day increased 12% to $1,831 per day in the second quarter. The entire decline in patient days occurred in April, with both May and June showing improvement when compared to the same period last year. Occupancy in our hospitals was 71% in the second quarter, compared to 75% in the same quarter last year. Net revenue in our outpatient rehab segment in the second quarter decreased 36.2% to $167 million compared to $262 million in the same quarter last year. Patient visits declined 39.1% to 1.34 million visits in the second quarter. Our net revenue per visit was $106 in the second quarter compared to $102 in the same quarter last year. Net revenue declines were most significant during April, which was down 45.6% year-over-year, and May, which was down 43.3% year-over-year. June showed improvement from those trends with net revenues down 17.8% year-over-year. Volume trends follow the same lines as revenue for the same monthly periods when compared to the same month last year. Net revenue in our Concentra segment for the second quarter decreased 24.5% to $312 million compared to $413 million in the same quarter last year. For the occupational health centers, patient visits were down 30.7% to 2.15 million visits in the quarter. Net revenue per visit in the centers was $124 in the second quarter compared to $121 in the same quarter last year. Similar to outpatient, net revenue declined most significantly during April, which was down 34.9% year-over-year, and May, which was down 30.7% year-over-year, with June showing improvement from those trends with net revenue down only 6.4% year-over-year. Total company adjusted EBITDA for the second quarter was down 4% to $178.8 million, compared to $186.2 million in the same quarter last year. Our consolidated adjusted EBITDA margin was up at 14.5% for the second quarter compared to 13.7% for the same quarter last year. We recorded $55 million in other operating income in the second quarter related to payments received under the provider relief funds; $54.2 million was recorded with our other activities and $800,000 was recorded in the Concentra segments. The adjusted EBITDA results for our critical illness recovery hospitals, rehabilitation hospitals, and outpatient rehabilitation hospitals segments do not include any recognition of these funds. Their respective portions of these funds recognizing the second quarter were included in other operating income. Our critical illness recovery hospital segment adjusted EBITDA increased 39.9% to $89.7 million, compared to $64.1 million in the same quarter last year. The adjusted EBITDA margin for the segment was 17.3% in the second quarter compared to 13.9% in the same quarter last year. Adjusted EBITDA and margin growth were driven by our revenue growth, which was partially offset by higher operating expenses related to COVID. Our rehabilitation hospitals segment adjusted EBITDA was $27.6 million, compared to $30 million in the same quarter last year. The adjusted EBITDA margin for the rehabilitation hospital segment was 16.4% in the second quarter compared to 18.7% in the same quarter last year. The decline in adjusted EBITDA and margin are primarily driven by temporary admission restrictions in several of our hospitals in New Jersey and South Florida and higher operating expenses related to COVID. Our outpatient rehab segment had an adjusted EBITDA loss of $6.3 million in the second quarter compared to a $42.6 million adjusted EBITDA contribution in the same quarter last year. Adjusted EBITDA was adversely impacted by the significant decline in volume during the quarter. We did incur adjusted EBITDA losses in both April and May but had positive adjusted EBITDA in June as our volume shortfalls to the prior year improved. Our Concentra adjusted EBITDA was $41.5 million, compared to $76.1 million in the same quarter last year. Adjusted EBITDA margin was 13.3% in the second quarter, compared to 18.4% in the same quarter last year. Adjusted EBITDA was impacted by the significant decline in our volume during the quarter. We had adjusted EBITDA shortfalls to prior year results in both April and May, but adjusted EBITDA in June exceeded both April and May as well as June of last year. Earnings per fully diluted share increased over 18% to $0.39 for the second quarter compared to $0.33 for the same quarter last year. Adjusted earnings per fully diluted share was $0.38 per diluted share for the second quarter. Adjusted earnings per fully diluted share excludes the non-operating gain and its related tax effect in the second quarter of this year. I'll now turn the call over to Marty Jackson for some additional financial details before we open the call up for questions.

Thanks, Bob. Good morning, everyone. For the second quarter, our operating expenses, which include our cost of services and general and administrative expenses, were $1.12 billion, and 90.5% of net operating revenues. For the same quarter last year, operating expenses were $1.18 billion and 86.8% of net operating revenue. Cost of services were $1.08 billion for the second quarter, which compares to $1.15 billion in the same quarter last year. As a percent of net revenue, cost of services was 87.8% for the second quarter, which compares to 84.5% in the same quarter last year. G&A expense was $33.5 million in the second quarter compared to $31.3 million in the same quarter last year. G&A as a percent of net revenue was 2.7% in the second quarter. This compares to 2.3% of net revenue for the same quarter last year. As Bob mentioned, total adjusted EBITDA was $178.8 million and the adjusted EBITDA margin was 14.5% for the second quarter, compared to total adjusted EBITDA of $186.2 million and an adjusted EBITDA margin of 13.7% in the same quarter last year. We recorded $55 million in other operating income in the second quarter related to payments received under the provider relief funds. I would like to reiterate that, with the exception of $800,000 of grant monies to Concentra, no grant monies were included in our segment reporting. Depreciation and amortization was $52.3 million in the second quarter, which compares to $55 million in the same quarter last year. We generated $8.3 million in equity and earnings of unconsolidated subsidiaries during the second quarter, compared to $7.4 million in the same quarter last year. We also had a non-operating gain of $300,000 in the second quarter this year. Interest expense was $37.4 million in the second quarter, which compares to $51.5 million in the same quarter last year. The decline was a result of a reduction in the variable interest rates, as well as the refinancing activity we did during the second half of last year. We recorded income tax expense of $23.3 million in the second quarter of this year, which represents an effective tax rate of 25.7%. This compares to the tax expense of $20.8 million and an effective tax rate of 25.8% in the same quarter last year. Net income attributable to non-controlling interests was $15.8 million in the second quarter, which compares to $15.2 million in the same quarter last year. Net income attributable to Select Medical Holdings was $51.7 million in the second quarter, and fully diluted earnings per share was $0.39 excluding the non-operating gain and its related tax effects. Our adjusted earnings per share was $0.38. At the end of the second quarter, we had $3.4 billion of debt outstanding and $510 million of cash on the balance sheet. Our debt balance at the end of the quarter included $2.1 billion in term loans, $1.2 billion in 6.25% senior notes, and $77 million of other miscellaneous debt. Operating activities provided $642 million of cash flow in the second quarter, which included $317 million in Medicare advances and $100 million in provider relief funds, $55 million of which was recognized in operating income. Also contributing to operating cash flow in the quarter was a reduction in our accounts receivable balance and increased accrued liabilities and taxes payable. Our accrued liability includes $33 million in deferred employer FICA tax allowed for under the CARES Act. Investing activities used $35.9 million of cash in the second quarter; the use of cash included $32 million in purchases of property and equipment and $5 million in acquisition investment activity; this was offset in part by $1.2 million in proceeds from the sale of businesses during the quarter. Financing activities used $169.5 million in cash in the second quarter; this includes $165 million in net repayments on revolving loans and $2.6 million in net repayments of other debt during the quarter. Our total available liquidity at the end of the second quarter was over $1 billion, which is evenly split between cash on hand and revolver availability. This concludes our prepared remarks, and at this time, we'd like to turn it back over to the operator to open up the call for questions.

Your first question comes from Frank Morgan with RBC Capital Markets.

Good morning. I appreciate all the detail and the color around the volume recovery. I'm curious, can you take that a step further maybe give us some early indications about how July is trending across those segments and any impact that you've seen perhaps in some of the flared-up markets around the country that we've heard about? That will be my first question.

Sure, Frank. This is Marty. What we can do is, we've got month-to-date numbers for July, and they continue to move in a positive trend. If we take a look at where we were in June for our outpatient business, it was close to 20% down. We're about 16% down in July, so obviously a bit of an improvement. Concentra is flat and about 12% down. Our critical illness recovery hospitals are up a bit. We were about 7% in June, and we're about 8% in July. Our habhs segment were about almost 6.5% up.

Got you. And while we're on the topic of CCUs and habhs, obviously, very strong pricing growth there of 7.4% and 12%. Can you provide any more color like what was the mix there? Was it with payer mix? Was it acuity in kind of attribution to the strong growth there?

Certainly on the critical illness recovery hospitals, Frank, what we saw was, and you've seen this, I mean, our case mix index typically runs in the 1.25 to 1.26 range. This past quarter, we've done about 1.3, and it was really just the acuity of the patients coming in the door.

Got you. And then, on the subject of the volumes, I guess the one where we're watching the recovery the most obviously is outpatient and Concentra there. And so good progress on the recovery there, but still below the early pre-COVID levels, but are there any seasonal considerations that we should consider either for the outpatient business or for Concentra when we think about the rest of the year as you continue to recover?

Typically on the outpatient rehab, the third quarter is typically a lower period. The numbers that I gave you for July, though, are adjusted for that because it's a same month, year-over-year basis.

Got you. And I guess my last one here is, just you called out startup losses in the habhs segment last year, in this quarter. What were those startup losses this year, if any?

Yes. There were no startup losses for the habhs this quarter.

Your next question comes from the line of Justin Bowers with Deutsche Bank.

Good morning, everyone. We really appreciate all the details you have been providing. I wanted to ask if, excluding tax, it seems like they are still performing well. Is the acuity also higher at this point?

Justin, yes. Typically, we're running in that 1.25 to 1.26 range. This quarter we ran into 1.3, and we continued to see higher acuity patients.

Okay. With the habhs, is the month-over-month acuity also similar? Do you think that will be sustainable for the rest of the year?

Justin, it is similar in the habhs, we are seeing increased acuity patient population in our habhs. Whether that continues through the rest of the year, I would hesitate to comment on that.

Okay. And then, just is there any kind of insight you can offer us with kind of the difference between the two outpatient businesses like Concentra obviously like they recovered a little more quickly than outpatient rehab and just trying to get a sense of what's really the difference between the two drivers there in terms of volume recovery?

Yes. This is Bob. When you look at Concentra, which is worker's comp, employer-driven and workplace injuries, as employment goes up and companies are working, when there are injuries, you can think about Concentra as a lot less discretionary. If there's an injury on the job on a workplace or construction site, those patients will tend to see those at our Concentra occupational health centers. On the outpatient rehab, these are oftentimes patients that are pre or post elective surgery. And while I think that most physicians would say they're not discretionary, you may have patients that are less confident coming into an outpatient location, may delay their therapy, or they may delay their elective surgeries. So while we think that ultimately that business will recover, I'll use the term it is a little more discretionary than a worker that is injured on a job site. So I think that's the best and easiest way to understand the difference.

Yes. Okay. That makes sense. Thanks, Bob. And then just one last one really strong cash flow during the quarter and just how are you guys thinking about that through the rest of the year? I know there's a few moving parts, but any directionality there will be helpful.

Yes. I think the cash flow has been strong; it will continue to be strong. When we take a look at our liquidity through the balance of the year, what we've assumed is that we will be paying back starting in September the advance payments from Medicare. And that's about, as we talked about that was $317 million. By the end of the year, our liquidity availability will be in the $900 million range. So it kind of gives you an idea; we're at a billion now, you're going to see a couple hundred million more come in.

That situation could change significantly if there are modifications to the policy regarding the repayment of the Medicare advance funds that have been under consideration. Therefore, if you're monitoring liquidity, it would be wise to keep an eye on any new regulations that may arise concerning this issue.

Your next question comes from the line of Bill Sutherland with The Benchmark Company.

Wanted to ask a little bit on outpatient rehab, maybe some color on how you've managed the labor force there and your utilization of telehealth hw much that's been used?

Yes, Bill. Let me start with telehealth first. We do have telehealth capabilities. We have had those. I think it's fair to say that the volume through February was very light on a telehealth visit per day or telerehab visit per day. I think we were less than 100 per day. At the height in April and May, I think we were in the 1,500 telerehab visits a day.

Okay. And it's coming down from there, obviously, as you can get people in.

Yes. It is coming down, but it's not approaching anything where we were before the pandemic started.

I'm sorry, it doesn't really have any impact on the cost structure, right, Marty?

It does not. I mean, when you think about the number of hours that the therapists are spending with patients at the same rate.

And as the issue with as far as the activity in the clinics, have to do with how many appointments you can actually schedule, given the issues with capacity and distancing and what not, is that or is it more of a demand and not enough elective surgeries and discharging?

Yes. It's more of a demand. Okay. So, and you're right, though, I think we had mentioned on the call, our last earnings call, we talked about historically 21% of our visits are associated with elective surgery. And then, still has not come back for reintegration yet.

And then, as far as the labor situation, Marty, did you have to furlough or term some people?

Yes. What we did, Bill, was we took a look at volumes going on in specific geographic locations, and in some cases consolidated some of the clinics. A number of our employees were able to take PTO, and to the extent that exhausted, we furloughed some people; most of those people have been brought back.

What are the main uncertainties that are preventing you from reinstating guidance for the second half?

It's a great question. It's mainly on the outpatient side and what's going on with the flare-ups as far as COVID is concerned.

Right. Okay. That makes sense. And Marty, do you happen to have one little detail question, the working days for the third quarter and fourth quarter?

Bill, what we can do is I'll get hold of you offline and we'll get you that information.

Your next question comes from the line of AJ Rice with Credit Suisse.

Thanks for the information. Let me ask a couple of question. One cleanup on the critical illness recovery items, admits were down or basically flat 0.1%. But patient days were up 5.3%. Is that just a function of the acuity metrics you're saying? Is there anything else going on there that's seemingly pushing, building up the patient day aspect, even if the admissions aren't?

Yes. You're absolutely right, AJ. Typically what will end up happening is as acuity goes up, your average length of stay goes up, which is going to increase your patient days.

Okay. All right. I know last time you talked about one of the strategies was to change some of the critical illness recovery facilities over to COVID-only type of patients. How much of that was done and what percentage of your LTAC that, I'm assuming it's still fairly small, but what percentage roughly has COVID-only patients these days?

There were a couple of hospitals where we did that in particular up in the Michigan area.

Early on in the hotspots in Detroit and a couple of other locations, but I would say that none are COVID-only at the current time and even at the height, AJ, it was less than 10%.

Okay. So today you would have an LTAC that might have COVID patients and non-COVID patients and that you have them together.

Yes. That's correct.

Okay. The CARES Act 55 million, we've had actually thought you might get more than that. Is there some, if you think you'll get a record that you just didn't record this quarter that you'll pick up in the back? I know we got this uncertainty around this next relief package. But putting that aside, is there some that you know that you're going to get in the back half of the year that you just haven't recorded yet?

Yes, AJ, we actually received $100 million of grant monies. And what you've got to do is you've got to detail and document either reduced revenues or increased expenses associated with COVID by tax identification number. What we've done is we've done that for the second quarter; you saw the $55 million. We anticipate that there will probably be another $15 million to $20 million throughout the balance of the year.

And then, so you got 100 and you've got 55 and you get 15, 20 more, so take you up to 75. Will the other 25 you just get back is that what will happen or what do you think?

Yes. That's what our thoughts are right now. There is some question as to how the government's going to treat that. But for the time being, we're assuming we're going to have to pay that back. That will not be until next year sometime though.

It's been a while since we've discussed a relevant center related to the economy. I understand that there is a sense of more economic sensitivity, as you've mentioned. Can you remind us if the industries that typically utilize your services are different from simply looking at the general unemployment rate? Could you share what you're observing in terms of the recovery in those industries? Additionally, while we consider the economy as a negative, I've heard that in your industry, during layoffs, people often go on disability, which can sometimes lead to a positive impact. It seems you are not experiencing that currently, but could you comment on this as well?

On that last point, AJ, we do not anticipate an increase in the use of workers' compensation benefits in response to layoffs in the Concentra area. Regarding the industries Concentra serves, it encompasses a broad spectrum of the U.S. economy. Notably, sectors like construction, warehousing, and airlines are included. However, some industries will experience greater challenges, impacting Concentra's business. For example, the hospitality sector is likely to be significantly affected during this time, along with parts of our business related to airlines. In contrast, fulfillment centers for companies like Amazon, UPS, and FedEx are expected to perform better. One key aspect of the Concentra platform is that it is the only national provider, operating through a network of over 500 locations. This allows us to recognize that certain areas will have stronger business performance, while others, particularly those concentrated in hospitality, may see reduced volumes. Our approach to understanding this situation is more regional or city-specific rather than viewing it purely on a national scale. Overall, as previously mentioned, this business is impacted by employment trends; higher unemployment generally leads to an increase in pre-employment physicals and a decrease in drug testing, which is another aspect of our business beyond just treating injured workers.

Okay. And then, well, that just begs the question to me, as you sort of sound like you've done some of this on the outpatient rehab side where you said, look, maybe the demand is sort of impaired a bit going forward, it's going to be different. It seems like there might be that same opportunity with Concentra to consolidate locations and say, look, this area supports this particular industry that's been pretty hard hit and it may not recover for quite a while. We have an opportunity to consolidate and take cost out that way. Is any of that bit done? Are you looking at that? Is there an opportunity do you think?

On the Concentra side, we do not believe that is the model. Most of our center consolidations from the merger with U.S. HealthWorks have been completed, and we do not see further consolidation opportunities with Concentra operations. These tend to be larger clinics, and we believe that employment will return. The outpatient side is different because it relies heavily on referrals from orthopedic surgeons for elective surgeries. We expect much of that business to bounce back. A postponed elective surgery does not equate to a lost opportunity for us; those surgeries will return. If all conditions remain stable and safe, patients undergoing elective surgeries will participate in outpatient rehab. Therefore, we anticipate regaining that business. Additionally, there appears to be more potential to consolidate outpatient centers since they are typically smaller, have lower lease payments, and there are many more of them. We have nearly 1,800 outpatient locations, some of which are small and clustered in markets for patient convenience, which is not the case in the Concentra segment.

Okay. Maybe one last thing I'll mention. There was a discussion about the reluctance to discharge patients to nursing homes; instead, they might be going elsewhere. Are you observing any effects in the critical illness recovery or the habhs segment regarding patients that may have otherwise gone to nursing homes? And to what extent are those patients going home, and have you heard anything about that being beneficial for your outpatient rehab efforts?

Well, we have heard a lot about, I mean, our census in the rehab hospital is strong. And as for those of you who have followed this industry for a long time, there has always been this debate about what they call the substitution issue. And simply stated that is that nursing homes, skilled nursing facilities can take care of many of the patients that are seen in rehab hospitals, and it's kind of an equivalent base at less cost. The company we have always pushed back vigorously against that, not only in our local markets but also with policymakers. And I would say that in the aftermath and in the continuing environment of the pandemic, I think that the difference between a rehabilitation hospital or an LTAC for that matter and a skilled nursing facility, those differences have become clearer than ever. I mean, both segments are important, but they serve and should serve really dramatically different patient populations. So, yes, I do think we see a lot about that. I would also have to comment that the substitution issue has been more hotly debated in recent years between skilled nursing facilities and home care, and less between skilled nursing facilities and rehab hospitals or LTACs. We still see some of that but in our view on a clinical side, a lot of that question has kind of been asked and answered.

Your next question comes from the line of Kevin Fischbeck with Bank of America.

Just wanted to clarify something, Marty, the volume numbers that you gave as far as July I think you gave volume numbers year-over-year for each of the segments, but I thought maybe I heard that you said with the earth number was up 6.5% versus June that versus year-over-year. Did I get that right? If so, what's the year-over-year number for that?

No. It was the 6.5% number I gave was up for July.

It's not July year-over-year, July, July.

That's correct.

Okay. And then, in June, it was up 24%, which just compounds as it anniversaries startups?

The 24% had to do with revenue; we're talking volume.

Okay. Fine. Perfect. And I guess, how many COVID patients were you treating in Q2 in the LTAC business?

I don't think we put that number out. We could probably get it for you. I don't have that off the top. Let me see if we have and we'll come back to you.

I guess one of the things that we struggle with, if we look at hospital volume broadly speaking, it looks like somewhere around 8% or 9% of occupancy is COVID volume. So kind of, "core volumes" are 8% or 9% below average. Is there a way to think about that for the LTAC, when you look at the volume that you have in the OpEx and given that you're seeing year-over-year? How do you think about core volumes versus COVID volumes, if we handle the country on COVID into next year, are you able to sustain these volumes? Are there going to be a headwind in the next year?

Yes. No, it's a relatively modest number with regards to COVID patients. I think we had somewhere in that 1,500 to 2,000 COVID patients was what we were looking at, so relatively modest.

And then, I guess one of the things that we see is that obviously this has caused serious disruption. You guys seem to manage through a lot of this well. How are your competitors managing through this? I mean, do you feel like there's share gains that are happening? Do you feel like referral sources are looking at you in different ways; is there going to be a positive at the other end of this or smaller players struggling and how do you think about the long-term implications of COVID?

Competitors in which segment? In all segments?

All of them. Yeah, I think go through all of them as you could.

Yes. Well, I think on the critical illness side, I think that it's not really shared gains from competitors. The way I think about it is as much as it is a strength in relationship with large tertiary acute care hospitals that have seen a lot of success in decompressing their ICUs with high acuity patients, COVID and non-COVID. So those relationships have been strengthened. So I think that there's, we'll see that opportunity, and I believe that will continue. And we have seen that in many markets, including, by the way, requests in some markets that perhaps for a development project for one of our critical illness recovery hospitals. On the inpatient rehab, it's hard for me to see that there be differences in shared gains. So I don't think there are. Outpatient rehab, I think it's difficult for us to have any visibility on competitors. I think it's a tough time to be an outpatient rehab-only company. Many of our competitors are private equity-backed companies that are outpatient rehab only and we see in some of our markets, those clinics are closed. Now they can reopen. If they don't reopen, that obviously could translate into some shared gains. So I really can't comment on that. When Concentra, I don't think we think about the competitive environment as much as we think about deepening the relationships that we have with our employer clients. So I think that Concentra has performed very well and used the pandemic as an opportunity to deepen those relationships. So hopefully, we'll continue to see the volumes grow there. But I don't think that we could point to other occupational medicine centers closing. There may be some in the markets, but when we're in 500 locations, it's hard to say that anything like that could in any way be meaningful.

Okay. And then, I guess the acuity number in the LTAC side trying to understand that a little bit better because it seems like something we've seen broadly speaking across all the sectors, but it seems to be attributed more to low acuity volume not coming in, leaving just higher acuity volume in place, but you guys have actually been growing occupancy and seeing higher acuity there. Is there a certain patient type that you're seeing a lot more and is this kind of a new normal? Or is there a reason to believe that this will come back to here that 1.26 acuity over time?

Yes. I mean, what we are seeing is more pulmonary patients, Kevin, so the case mix index for pulmonary patients is significantly higher than the regular standard critical illness recovery hospital patient, and that's why you're seeing case mix index go up. I think Bob had really mentioned a very important point, and that is the continued improved relationships with our referral sources. I think through this whole pandemic, what they've learned is that we can take care of a much higher acuity patient population. So our hopes are that that case mix index will continue to climb.

And this has been consistent with what we've been saying for quite some time even before the pandemic is that our challenge in education is that the referral sources, ICUs really have a confidence level that our profile of hospital, our clinical programs, our infection control, and safety, are really adequate to take care of highly acute patients. I think the other thing that I think is important to recognize is that the experts that we talk to in our markets and infectious disease doctors believe that even when there is a vaccine for COVID, this is not going to go away. We always think about our business in terms of flu season, where our business picks up. Even after there's a vaccine for COVID-19, we still think that this will not be stamped out entirely, and you're going to still see patients seeking out care for respiratory-type conditions; perhaps seasonally or perhaps not seasonally, you will still see a percentage of these patients. So I think that we will have the capacity and the clinical programs to take care of these respiratory-type patients for probably for years to come. I do think it, and I've said this before, that the pandemic has, I think, in many ways solidified that position, the value of the LTAC or our critical illness recovery hospitals and the continuum of care, even deeper than it was prior to.

Hey, Kevin. Yes, this is Marty. Are you going to be around later on today? I need to talk to you about some disconnects that we've found in some of your models and some of the information that you're getting out to the street. I'd like to talk to you about that.

Your next question comes from the line of Frank Morgan with RBC Capital Markets.

You surely touched on this in one of the answers when you talked about consolidating outpatient clinics. But if you look at what you've done to your cost structure, are there any real other kind of leverage points so as volume recovers, you can hold your cost structure down and get some leverage as you return the other way. Thanks.

Yes, Frank. Absolutely. I mean, right now, we take a look at the efficiency factor in the outpatient side, by our physical therapists and the amount of visits per day that they're seeing and that can stand to be increased quite a bit. So there is some real benefit to volume and scale.

Your next question comes from the line of Bill Sutherland with The Benchmark Company.

Yes. Actually, my follow-up was answered. But since I got you thinking about the M&A landscape, any color there as far as you know, what's happening to Bob's point about in outpatient rehab in particular, whether there are any opportunities in particular that are emerging in this whole deal?

Well, I think from a broader M&A perspective, I mean, I think we feel in the four business segments that we're in that we have a lot of great development opportunities. And that's really where we're going to allocate capital. So I've said that if you look at inpatient rehab or outpatient or critical illness recovery or even Concentra, there's probably not a significant acquisition in any of those segments. The way we think about M&A is really the acquisition of the remaining minority interests of Concentra. We probably won't have any push from the minority owners for 2020. And so there'll be probably a total cleanup at the end of 2021 that we'll do in early 2022, and we'll pick up the 33% plus or minus of Concentra that we don't own now. But our plan is to do that mainly out of cash flow and accumulated cash on the balance sheet. And that will, that's the other reason why we're really not that interested in other M&A activities. That's really the M&A that we are looking forward to.

I am showing no further questions at this time. I would now like to turn the conference back to Robert Ortenzio.

Yeah, we have no further comments. Thanks everybody for joining us.

Ladies and gentlemen, this concludes today's conference. Thank you for participating. Have a wonderful day. You may all disconnect.