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 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 organizations these last several months.

And 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 restricted missions 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 cost in those markets. We also incurred additional cost to care for our patients and 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 is -- of 78% is close to pre-COVID levels and exceeded June's last year 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.

In June, however, we saw meaningful improvement as states began to ease restrictions in hospitals and surgery centers began performing elective surgeries again.

Volume and revenue shortfalls in June compared to 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 ease 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, our rehabilitation hospital segment 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 prior year. Occupancy -- hospitals was 71% in the second quarter, compared to 75% in the same quarter last year.

Net revenue on our outpatient rehab segment, 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 trend that along 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 for most significant 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 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. 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.

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 and current adjusted EBITDA loss of $6.3 million in the second quarter compared to $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 that had positive adjusted EBITDA in June as our volume shortfalls to 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 in 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, or 1.08 billion for the second quarter, this compares to 1.1 5 billion in the same quarter last year.

As a percent of net revenue cost of services was 87.8% for the second quarter, this 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, as compared to the 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 this 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 non-operating gain of $300,000 in the second quarter this year. Interest expense was $37.4 million in the second quarter, this 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 in effective tax rate of 25.8% in the same quarter last year.

Net income attributable to non-controlling interests were $15.8 million in the second quarter, this 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 is $0.39 excluding the non-operating gain as 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 down balance and increased accrued liabilities and tax 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..

[Operator Instructions] Your first question comes from the line of Frank Morgan with RBC Capital Markets..

Good morning. Appreciate all the detail and the color round 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. There are about -- we were about 7% in June. We're about 8% in July and [habhs] [ph] 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 on 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 addressed 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 losses, startup losses for the habhs this quarter..

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

Hey, good morning, everyone. And second that we really appreciate all the detail that you guys have been providing. And then, just wanted to -- would be without tax it sounds like they are still going strong.

And is the acuity also running higher at this point?.

Justin Yes. Typically we're running in at 1.25 to 1.26 range. This quarter we ran into 1.3. And we continued to see higher acuity patients..

Okay. And then, with the habhs as well, I'm sorry with the habhs too is that -- are you -- is the acuity kind of month over month also similar? And we think that's kind of 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 a worker's comp, employer driven and workplace injuries, as employment goes up and companies are working when there are injuries, this is -- you can think about Concentra as a lot less discretionary.

If there's an injury on the job on a workplace worksite construction site, those patients will tend to see those that 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, we capture that business, 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 what are -- 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..

And that could change dramatically if there's a change in policy regarding the repayment of the Medicare advance funds, which has been discussed, but so I would just -- if you're watching liquidity, you could watch for any regs that come through on that as well..

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 of April and May.

I think we were in the 15 -- I think was about 1500 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..

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'm in the focus there. 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 [indiscernible] yet..

And then, as far as the labor situation, Marty, did you have to furlough or [indiscernible] panel that?.

Yes. What we did Bill was, we took a look at volumes going on 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..

Okay. What would you -- just want one or two more. I know you didn't reinstate guidance.

What are the main uncertainties as you guys look at your second half holding it back from doing that?.

It's a great question. It's mainly on the outpatient side and what's going on with a flare -- the flare ops 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 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 we will end up happening 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 other locations, but I would say that none are COVID only at the current time and even at the height AJ 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.

Well, 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 -- it will not be until next year sometime though..

Okay. It's been a while since we've talked through a good center relevant to the economy. And I know some general sense that it has a little more economic sensitivity, as you've already alluded to on the call.

But can you just remind us, I think the focus of the industry that it tends to serve might be different than just taking the general unemployment picture and extrapolating that out.

Can you just sort of talk a little bit about -- of the industries that tend to use their services a lot, what you're seeing in terms of the rebound there? And then, we talked about the economy down as a negative, I guess I've always heard on workers comp, that sometimes, as you as a industry at risk from layoffs, people actually go out of work on disability more and then actually can have a positive impact.

It doesn't sound like you're seeing any of that at this point.

But can you comment on that as well?.

On that last point, AJ, no, we in the Concentra area, we would not tend to see that, which is an acceleration of the use of work comp benefits in anticipation of layoffs. So, I was saying no to that. In terms of the industries that they consent receipt, it is a profile across the U.S. economy.

So, the easiest ones to think about are construction, warehouse, airlines, but as you see certain industries get hit harder, that's where consent will be affected.

So you take hospitality, you're going to tend to see in this time, that's going to be probably pretty dramatically hit probably a lot of our work with the airlines while we have some of it, that's going to be hardest hit. But if you look at, the fulfillment centers the Amazon, the UPS, the FedEx, you're going to see more from that.

So, one thing about the Concentra platform is, is they're the only national provider and through a network of over 500 locations, you could get an appreciation where there's certain areas of the country where the business is going to be robust, while in other areas it may not be in certain markets, maybe that are or cities that maybe are heavy on hospitality, you're going to see volumes impacted there.

Whereas other areas that may be our regions where there's a lot of transportation fulfillment centers, the business is going to be more robust. So it's hard to -- the best way internally for us, you obviously can't, as we see it on a regional basis and even on a city wide or location business rather than think about it as a national.

But in general, as you pointed out earlier, I mean, this business is, again, in general, impacted and has sensitivity toward employment, because when you have higher unemployment, we see more employment, pre-employment physicals, we see less drug testing, which is also a component of the business outside of actually just treating the injured worker..

Okay. And then, well, that just bags the question to me, as you sort of sounds 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 because 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 AJ, we would say no that really is not the model. We think that most all of our centers that we have, the consolidations that were done when we did the merger with U.S. HealthWorks have been pretty much done. And I don't think we do see these consolidation opportunities with the Concentra operations.

They tend to be bigger clinics and we do think that the employment will come back. Now on the outpatient that is a bit of a different nuance business there because it's depending upon a lot of referrals from orthopedic surgeons as Marty pointed out earlier, from elective surgeries, that we do think that a lot of that business will come back.

I mean, an elective surgery postponed is not an opportunity loss for us, those will come back.

And when they do, we believe that will -- assuming all other things are equal in the environment and from a safety standpoint, we think that if patients are getting elective surgeries for their knees or their shoulders or their backs, they're going to participate in outpatient rehab. So we think that we will get that business.

And I also having said that, there is probably a little bit more opportunity to consolidate outpatient centers, they tend to be smaller, lower lease payments and they are tend to be many more of them.

I mean, we have close to 1800, outpatient locations, some of them tend to be small, some of them tend to be clustered in a market for the convenience of patients not really the case and the Concentra segment..

Okay. Maybe one last thing I'll throw out there. Ho was discussion about aversion to nursing homes discharge is going elsewhere to nursing homes.

Is that -- are you seeing any impact either in the critical illness recovery or the habhs segment to pick up patients that might have otherwise gone to nursing homes and to the extent that some of those are going home? Is that -- hearing anything about that helping you on the outpatient rehab side?.

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, that there is 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. That 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 last between skilled nursing facilities and rehab hospitals or L tags. 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, they're 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, June, it was up 24% that just compounds -- it just anniversaring 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 L tag 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 like, 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 L-tag, 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 on 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 1500 to 2000 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 managed 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 a 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 way I think about it 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 share gains. So I don't think there. 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.

And many of our competitors are private equity backed companies that are outpatient rehab only. And we see in some of our markets, that 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 use 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 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 [indiscernible] 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 in case mix index for pulmonary patients is significantly higher, then the regular standard critical in this 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, is 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 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 there's not going to be stamped out entirely and you're going to still see patients [Audio Gap] in years to come, that are going to have the kind of conditions that seek 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 are our critical illness, hospital 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 call 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, and if you have any color there as far as you know, what's happening to Bob's point about in outpatient rehab in particular, whether there's any opportunities in particular that are emerging in this whole deal?.

Well, I think from -- all comment on the broader M&A, 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 the inpatient rehab or the outpatient or the 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 a, probably a total cleanup at the end of '21. That we'll do in early 2022.

And we're will pick up the 33% plus or minus of Concentra that we don't own now, but we will, 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..