10-K: Select Medical Reports Strong 2025 Income Amid Take-Private Bid

Select Medical Holdings Corporation reported a significant increase in income from continuing operations for 2025, alongside strategic executive promotions and ongoing evaluation of a take-private proposal.

Summary

• Revenue for the year ended December 31, 2025, was $5,452.8 million.
• Income from continuing operations, net of tax, increased to $214.5 million in 2025, up from $129.987 million in 2024 and $110.471 million in 2023.
• Adjusted EBITDA for 2025 was $493.2 million, a decrease from $510.4 million in 2024.
• The company operates 104 critical illness recovery hospitals, 38 rehabilitation hospitals, and 1,917 outpatient rehabilitation clinics across 39 states and the District of Columbia.
• The critical illness recovery hospital segment contributed approximately 45% of total revenue, rehabilitation hospitals 24%, and outpatient rehabilitation 24%.
• Executive Chairman Robert A. Ortenzio submitted a non-binding indication of interest on November 24, 2025, to acquire all outstanding shares for $16.00 to $16.20 per share, which is currently under review by an independent special committee of the Board of Directors.
• The tax-free distribution of Concentra Group Holdings Parent, Inc. shares was completed on November 25, 2024, with Concentra's results now presented as discontinued operations.

Sentiment

Score: 7

Explanation: StockSavvy.ai views this as moderately positive, driven by strong income growth and strategic segment performance, despite some declines in Adjusted EBITDA and ongoing regulatory and competitive pressures. The take-private proposal introduces both potential upside and uncertainty.

Positives

• Income from continuing operations, net of tax, significantly increased to $214.5 million in 2025 from $129.987 million in 2024.
• The Rehabilitation Hospital segment demonstrated strong growth, with revenue increasing 16.1% to $1,289.0 million and Adjusted EBITDA increasing 13.4% to $278.6 million in 2025.
• The Critical Illness Recovery Hospital segment saw its occupancy rate rise to 69% in 2025 from 68% in 2024, and revenue per patient day increased 2.4% to $2,230.
• Outpatient Rehabilitation segment patient visits increased 3.3% to 11,517,388 in 2025.
• General and administrative expenses decreased to $154.4 million in 2025 from $225.9 million in 2024, primarily due to lower stock compensation expense.
• Interest expense decreased to $117.9 million in 2025 from $128.6 million in 2024, driven by a reduction in the average debt balance.
• The effective tax rate decreased to 21.3% in 2025 from 25.6% in 2024, due to lower permanent differences and reduced executive compensation.
• An interest rate cap, effective March 31, 2025, limits the Term SOFR rate to 4.5% on $1.0 billion of term loan principal, mitigating exposure to rising interest rates.
• The company's leverage ratio was 3.67 to 1.00 as of December 31, 2025, well below the 7.00 to 1.00 covenant limit.
• Cash flows provided by operating activities remained strong at $346.5 million in 2025.
• The company has begun leveraging artificial intelligence to enhance operational and administrative functions, aiming for improved efficiency and decision-making.

Negatives

• Adjusted EBITDA decreased to $493.2 million in 2025 from $510.4 million in 2024, with the Adjusted EBITDA margin declining to 9.0% from 9.8%.
• The Critical Illness Recovery Hospital segment's Adjusted EBITDA decreased 12.0% to $265.4 million in 2025, with its margin declining to 10.7% from 12.3%, primarily due to increased operating expenses.
• The Outpatient Rehabilitation segment's Adjusted EBITDA decreased 17.0% to $90.2 million in 2025, with its margin declining to 7.0% from 8.7%, primarily due to increased personnel expense.
• Revenue per visit for outpatient rehabilitation decreased to $100 in 2025 from $101 in 2024.
• Occupancy in rehabilitation hospitals decreased to 82% in 2025 from 84% in 2024.
• Cash and cash equivalents decreased to $26.5 million at December 31, 2025, from $59.7 million at December 31, 2024.
• Cash flows from operating activities decreased to $346.5 million in 2025 from $517.9 million in 2024, primarily due to a decrease in cash flows from discontinued operations.
• CMS's final rule for calendar year 2026 MPFS is expected to result in a 1% decrease in Medicare payments for the therapy specialty, despite a statutory 2.5% increase to the conversion factor, due to efficiency adjustments and changes to practice expense RVU methodology.
• CMS changed the criteria for reconciliation of outlier payments for LTCHs, increasing the likelihood of recoupments of Medicare outlier payments.
• The fixed-loss amount for high-cost outlier cases for LTCH-PPS standard federal payment rate cases has seen record increases in FY 2024, FY 2025, and FY 2026, and is likely to increase again in FY 2027, which would reduce Medicare payment for many costly patients.

Risks

• Changes in government reimbursement rates or new payment policies may reduce revenue, increase costs, and decrease profitability.
• Adverse economic conditions, including an inflationary environment, could increase labor and other operating costs, negatively impacting business, operating results, cash flows, and financial condition.
• Shortages in qualified nurses, therapists, physicians, or other licensed providers, and/or the inability to attract or retain them, could limit staffing ability and significantly increase operating costs.
• Public health threats, such as a global pandemic or widespread infectious disease outbreak, may negatively impact patient volumes, revenue, and increase operational costs.
• Failure of Medicare-certified long-term care hospitals (LTCHs) or inpatient rehabilitation facilities (IRFs) to maintain Medicare certifications could cause revenue and profitability to decline.
• Government investigations or assertions of regulation violations may result in sanctions, reputational harm, and increased costs.
• Acquisitions or joint ventures may prove difficult or unsuccessful, use significant resources, or expose the company to unforeseen liabilities.
• Private third-party payors may adopt payment policies that could limit future revenue and profitability.
• Loss of key members of the management team could significantly disrupt operations.
• Security breaches of the company's or third-party vendors' information technology systems, such as cyber attacks, may cause HIPAA or HITECH violations and subject the company to potential legal and reputational harm.
• The company is subject to risks associated with artificial intelligence and machine learning technology, including data inaccuracy and potential misuse of confidential information.
• Quality reporting requirements may negatively impact Medicare reimbursement due to increased burden and potential penalties for non-compliance.
• Negative publicity can result in increased governmental and regulatory scrutiny and possibly adverse regulatory changes.
• Most critical illness recovery hospitals are subject to short-term leases, and the loss of multiple leases close in time could materially and adversely affect the business, financial condition, and results of operations.
• Significant legal actions, including professional malpractice, fraud and abuse, and wage and hour class action lawsuits, could subject the company to substantial uninsured liabilities.
• Concentration of ownership among existing executives and directors (approximately 16.04% as of February 1, 2026) may prevent new investors from influencing significant corporate decisions.
• If certain steps of the Concentra Separation or Distribution are later determined to be taxable, the company and its stockholders could incur significant U.S. federal income tax liabilities.
• The company may be exposed to claims and liabilities as a result of the Concentra Distribution, and indemnities from Concentra may not be sufficient.
• The Separation from Concentra and the distribution of Concentra shares may not achieve all anticipated benefits and may adversely affect the business by making the company smaller and less diversified.
• The non-binding proposal from the Executive Chairman to take the company private and the Board of Directors' evaluation of the proposal may result in a material impact on the company and the value of its stock, creating uncertainty and diverting management's time.
• Certain provisions in the company's Amended and Restated Certificate of Incorporation and Bylaws, and Delaware law, may prevent or delay an acquisition.
• Substantial indebtedness (approximately $1,828.2 million as of December 31, 2025) limits cash flow for investments and increases vulnerability to adverse economic conditions and rising interest rates.
• Failure to comply with covenants in credit facilities and the indenture governing senior notes could result in the acceleration of certain indebtedness.
• Payment of interest on, and repayment of principal of, indebtedness is dependent in part on cash flow generated by subsidiaries, which may be limited by legal and contractual restrictions.
• Despite substantial indebtedness, the company and its subsidiaries may incur additional indebtedness, exacerbating existing risks, especially in a rising interest rate environment.
• Inability to refinance debt on favorable terms or at all would negatively impact the business and financial condition.
• Changes to United States tariff and import/export regulations and macroeconomic conditions may have a negative effect on the business, financial condition, and results of operations.
• Labor shortages, increased employee turnover, increases in employee-related costs, and union activity could have adverse effects, including significant increases in operating costs.
• Unfavorable global economic conditions brought about by material global crises, military conflicts or war, geopolitical and trade disputes, or other factors, may adversely affect the business and financial results.
• Business operations could be significantly disrupted if key members of the management team are lost.

Future Outlook

The company plans to continue pursuing new joint venture relationships and opening new outpatient rehabilitation clinics for incremental growth, alongside opportunistic acquisitions. The impact of the One Big Beautiful Bill Act (OBBBA) on future financial condition or results of operations is currently uncertain but may lead to decreased reimbursement from governmental health care programs. CMS expects its policies for 2026 to result in a 1% decrease in Medicare payments for the therapy specialty, though statutory increases will lead to an approximate 2% increase for physical and occupational therapy services. There is a risk that CMS will continue to increase the fixed-loss amount for LTCH-PPS high cost outlier cases in FY 2027, potentially reducing Medicare payment for costly patients. The revised LTCH outlier reconciliation policy, effective October 1, 2025, is likely to result in more reconciliations and potential recoupments. The transition to MIPS Value Pathways (MVPs) for outpatient rehabilitation providers could become mandatory in the future, with an unclear impact on business and operating results. The ongoing evaluation of the non-binding take-private proposal from the Executive Chairman creates uncertainty and could impact the company's business and stock value.

Management Comments

• "We have begun leveraging artificial intelligence to enhance certain aspects of our operational and administrative functions. While adoption is in its early stages, these tools aim to improve efficiency and support decision-making and personalized development opportunities."
• "We consider our employee relations to be good and believe that our employees are essential contributors to our success."
• "We believe that our services are attractive to healthcare payors who are seeking to provide high-quality, cost-effective care to their enrollees."
• "We believe that our national footprint and our strong reputation enable us to negotiate favorable reimbursement rates with commercial insurers."
• "We believe that the success of our business model is based on a number of competitive strengths, including our position as a leading operator in each of our business segments, our proven financial performance, our strong cash flow, our significant scale, our experience in completing and integrating acquisitions, our partnerships with large healthcare systems, our ability to capitalize on acquisition opportunities, and our experienced management team."
• "We believe that the Company's current and planned activities do not constitute fee-splitting or the unlawful corporate practice of medicine as contemplated by these state laws."
• "In the Company's opinion, the outcome of these actions [legal proceedings], individually or in the aggregate, will not have a material adverse effect on its financial position, results of operations, or cash flows."

Industry Context

StockSavvy.ai notes that Select Medical operates in a highly regulated and competitive healthcare industry, facing ongoing challenges from government reimbursement changes (e.g., OBBBA, LTCH-PPS, IRF-PPS, MPFS adjustments) and labor shortages. The company's strategy of focusing on specialized inpatient services, high-quality care, cost control, and opportunistic acquisitions/joint ventures aligns with broader industry trends seeking efficiency and value in post-acute care. The increasing use of AI for operational efficiency is a key industry trend, and Select Medical's early adoption positions it to potentially gain a competitive edge. The take-private proposal highlights a trend of private equity interest in healthcare assets, potentially seeking to optimize operations away from public market scrutiny.

Comparison to Industry Standards

• The company competes with large operators of similar facilities, such as ScionHealth and Encompass Health Corporation, in its critical illness recovery and rehabilitation hospital segments.
• In outpatient rehabilitation, competitors include Athletico Physical Therapy, ATI Physical Therapy, U.S. Physical Therapy, and Upstream Rehabilitation.
• The company benchmarks its clinical and patient satisfaction information against national standards and the results of other healthcare organizations.
• StockSavvy.ai notes that while specific comparative performance metrics are not provided, the company's stated focus on 'high-quality, cost-effective care' and 'demonstrating quality outcomes' suggests an intent to meet or exceed industry benchmarks. The average length of stay for critical illness recovery hospitals (31 days) and rehabilitation hospitals (14 days) are key operational metrics that would typically be compared against industry averages for similar patient populations and facility types, though specific benchmarks are not detailed in the filing.

Management Changes

Corporate Governance

Legal Proceedings

• **Oklahoma City Investigation**: On August 24, 2020, the company and Select Specialty Hospital Oklahoma City, Inc. received civil investigative demands from the U.S. Attorney's Office for the Western District of Oklahoma. The investigation, stemming from a qui tam lawsuit, relates to documentation, billing, and reviews of medical services, principally respiratory therapy services, at SSH-Oklahoma City and Select Specialty Hospital Wichita, Inc. The company is cooperating, but the timing and outcome are unpredictable.
• **Physical Therapy Billing**: On October 7, 2021, the company received a letter from the U.S. Department of Justice (DOJ) regarding an investigation into potential False Claims Act violations related to billing for physical therapy services. The DOJ requested records from six Florida outpatient therapy clinics and later nationwide data. A related qui tam lawsuit, filed by a former employee, was unsealed in May 2024, alleging billing for one-on-one therapy when group therapy was performed, overbilling, and billing for unskilled services. The U.S. District Court granted the company's motion to dismiss the second amended complaint in June 2025, allowing a final amendment. A third amended complaint was filed in July 2025, and the company filed a motion to dismiss it in August 2025. The timing and outcome of this matter are unpredictable.

Related Party Transactions

• The company leases its corporate headquarters from companies owned by a related party affiliated through common ownership or management.
• The company provides contracted services, primarily employee leasing services, and charges management fees to related parties affiliated through its equity method investments. Revenue from these services totaled $455.2 million for the year ended December 31, 2025.
• Receivables from related parties affiliated through equity method investments were $25.6 million (current) and $2.4 million (non-current) as of December 31, 2025.
• Liabilities for operating cash held on behalf of certain rehabilitation businesses in which the company has an equity method investment were $57.9 million as of December 31, 2025.

Stakeholder Impact

• **Shareholders**: Potential for increased value from the take-private proposal (if successful) or other strategic alternatives. Stock price volatility due to uncertainty surrounding the proposal. Quarterly cash dividends of $0.0625 per share were declared.
• **Employees**: Promotions for key executives (e.g., Thomas P. Mullin to CEO). Continued focus on talent acquisition, training, development, engagement, wellness, and competitive compensation. Risks from labor shortages and increased employee turnover remain.
• **Customers/Patients**: Continued focus on high-quality care and specialized treatment programs. Potential impact from changes in Medicare/Medicaid reimbursement policies and surprise billing regulations.
• **Payors (Insurers)**: Ongoing negotiations for favorable reimbursement rates. Impact from new regulations like the No Surprises Act and the One Big Beautiful Bill Act (OBBBA).
• **Creditors**: Substantial indebtedness and compliance with debt covenants require careful management of cash flow and financial performance.

Next Steps

• The Special Committee of the Board of Directors will continue reviewing and evaluating the non-binding take-private proposal from Robert A. Ortenzio and determine the appropriate course of action.
• The Special Committee is evaluating other potential strategic alternatives to maximize stockholder value.
• The company intends to open new outpatient rehabilitation clinics in existing markets.
• The company may pursue opportunistic acquisitions within each business segment.
• The company will continue to monitor government publications applicable to supplement and enhance compliance efforts.
• The company expects to continue to navigate shortages, higher turnover, and wage pressures in the healthcare labor market.
• The company's Board of Directors declared a cash dividend of $0.0625 per share, payable on or about March 12, 2026.
• Medicare Administrative Contractors (MACs) would receive the first cost reports subject to the revised LTCH outlier reconciliation policy in March 2027.
• HHS intends to issue further guidance regarding the IDR process for surprise billing once the Fifth Circuit issues its en banc decision.

Key Dates

Recommendation

The company demonstrates solid operational performance in its rehabilitation segment and a significant increase in net income from continuing operations. However, the decline in Adjusted EBITDA and margins in critical illness recovery and outpatient rehabilitation segments, coupled with ongoing regulatory reimbursement pressures and the uncertainty surrounding the take-private proposal, suggest a 'hold' position. The take-private offer at $16.00-$16.20 per share provides a potential floor but also limits immediate upside if the offer is accepted. Investors should monitor the outcome of the take-private evaluation and the impact of regulatory changes.

Keywords

Healthcare, Rehabilitation, Hospitals, Outpatient Clinics, SEC Filing, 10-K, Financial Performance, Medicare, Medicaid, Corporate Governance, Risk Management, Acquisitions, Joint Ventures, Executive Compensation, Artificial Intelligence, Cybersecurity, Debt, Stock Repurchase, Take Private