Good morning, everyone, and welcome to HealthSouth Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Mary Ann Arico, Chief Investor Relations Officer.

Good morning, everyone. Thank you for joining us today for the HealthSouth Fourth Quarter 2013 Earnings Call. With me on the call in Birmingham today are Jay Grinney, President and Chief Executive Officer; Doug Coltharp, Executive Vice President and Chief Financial Officer; Mark Tarr, Executive Vice President and Chief Operating Officer; John Whittington, Executive Vice President, General Counsel and Corporate Secretary; Andy Price, Chief Accounting Officer; Ed Fay, Treasurer; and Julie Duck, Senior Vice President, Financial Operations. Before we begin, if you do not already have a copy, the press release, financial statements, the related 8-K filing with the SEC and the supplemental slides are available on our website at www.healthsouth.com. Moving to Slide 2, the Safe Harbor, which is also set forth in greater detail on the last page of the earnings release. During the call, we will make forward-looking statements, which are subject to risks and uncertainties, many of which are beyond our control. Certain risks, uncertainties and other factors that could cause actual results to differ materially from management's projection, forecasts, estimates and expectations are discussed in the company's SEC filings, including the Form 10-K for 2013 when filed and previous filings with the SEC. We encourage you to read them. You are cautioned not to place undue reliance on the estimates, projections, guidance and other forward-looking information presented. Statements made throughout the presentation are based on our current estimates of future events and speak only as of today. The company does not undertake a duty to update or correct these forward-looking statements. Our slide presentation and discussion on the call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measure is available at the end of the slide presentation or at the end of the related press release, both of which are available on our website and as part of the Form 8-K filed last night with the SEC. Before I turn it over to Jay, I would like to remind you that we will strictly adhere to the one question and one follow-up question rule to allow everyone to submit a question. If you have additional questions, please feel free to put yourself back in the queue. And with that, I will turn the call over to Jay.

Great. Thank you, Mary Ann, and good morning to everyone joining today's call. This morning, we are very pleased to report the results of another strong quarter and year for HealthSouth. As we announced in January, the number of patients treated in our hospitals increased 3.8% quarter-over-quarter, bringing discharge growth for the year to 5%. Our functional outcomes, as measured by FIM Gain and length of stay efficiency, remain significantly better than other inpatient rehabilitation providers. And at year end, 96 of our hospitals had disease-specific certifications from the Joint Commission. We believe these achievements underscore the quality of care provided by our dedicated employees, differentiate us from our competitors and allow us to continue to gain market share in the communities we serve. Importantly, our hospitals provided this care cost-effectively as both labor and hospital-related costs, as a percent of revenue, improved quarter-over-quarter. Solid discharge growth and disciplined expense management allowed us to generate $142.3 million of adjusted EBITDA in the quarter. As noted in the press release, we had several year-end reserve adjustments that affected this number. We established an $8 million reserve related to RAC audits and simultaneously, reversed approximately $4 million in bad debt reserves related to these audits. These actions had the effect of negatively impacting adjusted EBITDA by approximately $4 million in the fourth quarter of 2013. We also lowered the statistical confidence level used to determine our self-insurance reserves as a result of the enhancements in the way we manage our risks, the accumulation of additional historical data and continued favorable trends. This onetime change benefited adjusted EBITDA by $6.7 million in the fourth quarter of 2013. Excluding these reserve adjustments, adjusted EBITDA grew 8.6% in the quarter. We also celebrated several development milestones during the fourth quarter. We relocated into our new…

Thank you, Jay, and good morning, everyone. As Jay mentioned, Q4 was a solid finish to a strong 2013. There were 2 items in Q4 that Jay mentioned that merit additional explanation, the establishment of reserves related to RAC audits that began in Q3 2013 and the reduction in our self-insurance reserves stemming from lowering of the statistical confidence level. I'll provide explanations of both items as we move through the P&L for the quarter. I'll also discuss our guidance for 2014. During my remarks, I'll be making frequent reference to the supplemental slides accompanying our earnings release, so you may find it helpful to have those available. Revenue in Q4 increased by 3.5%, driven by inpatient revenue growth of 3.7%, offset by a decrease in outpatient and other revenue. Discharge growth for Q4 was 3.8% with 1.3% coming from same-store growth and 2.5% in new-store growth. Revenue for the quarter was negatively impacted by approximately $9 million for sequestration and approximately $8 million to establish reserves related to RAC audits. Those of you who follow the acute care providers know that RAC audits are a common and constant occurrence for that industry segment. We have providers who have been fortunate to have very little experience in this regard until recently. As we disclosed in Q3, in connection with CMS approved and announced audits related to IRFs, during 2013, we received a request to review certain patient files for discharges occurring from 2010 through 2013. These RAC audits are post-payment reviews and focus on medical necessity criteria and admission. To date, the Medicare payments that are subject to these RAC audit request represent less than 1% of our Medicare patient discharges during those years, and not all of these patient files requests have resulted in payment denial determinations. RAC audit…

[Operator Instructions] Your first question comes from the line of Whit Mayo of Robert Baird. Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division: Just wanted to go back for a second to the RAC audits and -- are there any specific types of cases that the auditors are looking at? And maybe can you talk a little bit about reserves going forward and your comfort level based off of the experience in the fourth quarter?

I'll take the first part of that, Whit. They're just looking at a broad spectrum of cases. Now, as you know, we've already disclosed that it's a small number of the total cases. So it's -- and it's not really zeroing in on any particular discharge. And then with respect to the reserves, I'll ask Doug to respond.

Yes, Whit. Our guidance assumptions for 2014 include some continuing RAC activity with the impact estimated to be somewhat less than that which was experienced in 2013. Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division: Okay. That's helpful. And my second question is, I guess, for Jay. I was just curious how much time you may have spent looking at the new site neutral changes and patient admission criteria changes for LTCHs. I know you've divested your facilities, but just kind of curious as you think about how that could potentially play out for rehab because it does seem that policymakers are pointing LTCHs towards more VIN [ph] and ICU patients. And today, a lot of the LTCHs are really rehab hospitals that are billing at LTCHs. So just kind of curious from your perspective, do you see more risk or opportunity for you with those potential changes?

I think it's hard to know right now with any precision. I think that there's probably a little more upside benefit to us than risk. Some of those patients, as you correctly pointed out, could conceivably be treated in an inpatient rehabilitation hospital. So I think it's going to narrow the focus of -- the efforts of their LTCHs and what they can provide clinically, and it may then create some opportunities for us to treat more patients.

Your next question comes from the line of Ann Hynes of Mizuho Securities.

So I just want to focus on free cash flow. So when I look at Slide 20 in your bridge from 2013 to 2014, it looks like free cash flow adjusted will be about, say, like $350 million to $360 million in 2014. And in the following slide, you have earmarked about $180 million of uses, so that leaves about $175 million of free cash flow unused. So I guess, when I look at 2013, you did deploy a lot of free cash flow to shareholders. At what point during the year can you make that decision to maybe, I don't know, do acquisitions, increase your dividends or do other things with your free cash flow?

That's really a dynamic ongoing process, Ann. We're not waiting for any particular milestone. We're constantly evaluating what is the best deployment of that free cash flow. But I think you point out a very significant strength of this company, and that is the very strong free cash flow generating capacity that we have. And so as we did last year, we found ways and identified ways and then executed on those ways to return value. And we certainly expect to continue to do that in 2014 and beyond.

Okay. Great. And just -- can you give a little more detail on the $4 million investment in the patient experience, the TeamWorks initiative?

Yes. It's a combination of -- that $4 million is a reflection of 2 items. One, we are initiating a new TeamWorks undertaking. And as you know in the past, we use the term TeamWorks as the moniker inside our company for any company-wide effort to identify and promulgate best practices. We started with the sales and marketing back, I think, in 2008, 2007. We did case management several years ago. We've looked at some of our supply chain initiatives. And now we're putting our focus on patient satisfaction or the patient experience. So we'll engage an outside consultant to help us with that process. And then the other portion of that $4 million, just the incremental costs associated with the continued ramp-up of our ACE-IT or our clinical information system.

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

Maybe to start at a high level, I know in the past you all have had some ideas for Washington with regard to pay-fors and with another Doc Fix potential coming. Can you update us on your proposal, I think, looking at capping outlier payments, maybe where that is in the process and the scoring? And then my second question would be more specific to the -- maybe for Doug, on just how do you go about reserving for MAC versus RAC? And how do you think about it when you come up with those numbers and those reserves?

So in terms of the pay-fors, what we're hearing, Frank, is probably the same thing that everybody on the call is hearing, and that is there is an interest in trying to resolve once and for all this annual problem of the SGR formula resulting in significant cuts to physicians who are treating Medicare beneficiaries. And I think that everyone in Washington realizes that for a host of different reasons, the scoring of that fix has come down pretty dramatically. And I think that the fact that the 3 committees of jurisdiction on the House side, energy and commerce, ways and means; on the Senate side, finance, all have come up with a single bill, albeit, a 5-year fix really sort of signals the fact that there is agreement in Washington that it ought to be resolved. But as we all know, the problem is how are you going to pay for it. And what we are hearing is that there are really a lot of different opinions which suggest that this may not get done this year on a full year basis. And if you think about it or as we think about it from then a practical standpoint, if it doesn't get done on a 5-year basis and it's just kicked down the road, it'll probably be kicked down the road into 2015. And that will allow everybody to sort of say it's off the radar and now everyone is going to focus on the 2014 midterm elections. So it's very hard to know what's going to happen. We have been on the Hill. We had a fly-in with about 20 of our CEOs a couple weeks ago. We've got another one scheduled, meeting with members, particularly members who serve on those committees or represent states where we…

Yes. The similarity in the MAC and the RAC programs is primarily twofold. First is that both are focused on medical necessity criteria. And the second is that the ultimate appeals and adjudication process is essentially the same. The differences are that the RACs are post-payment reviews and the MACs are prepayment reviews, and that results in different geography in terms of where we establish the reserves. The RAC reserve appears as a contractual allowance, an offset to revenue, and the MACs is bad debt. In addition, the form of medical necessity criteria review differs for the 2. The MACs have been specific types of cases based predominantly on diagnosis codes. The RACs have focused their medical necessity criteria review on FIM scores at both admission and discharge. And in terms of establishing the reserves for the MACs, we have substantially more history on the ADR activity that we've had with the MACs. And we've had enough history to develop what we are confident in, in terms of statistical models to establish the reserve level. We are substantially more early on with regard to the RAC activity. We believe we've had enough activity to make a good estimate, which is reflected in the reserves that we established at the end of 2013. But certainly, any additional audit activity from the RACs will serve to enhance our estimating procedures.

Your next question comes from the line of John Ransom of Raymond James. John W. Ransom - Raymond James & Associates, Inc., Research Division: Just a [indiscernible] since we've gotten through some of the typical ones. Are you any closer to seeing the day where post-acute becomes more of a single category versus [indiscernible]? And are you any [indiscernible] broadening your scope beyond Europe?

John, I am very sorry but you broke up pretty consistently throughout that question. I'm not sure that I fully understood it. [Technical Difficulty]

Your next question comes from the line of Darren Lehrich of Deutsche Bank.

This is Dana Nentin in for Darren. On de novos, are you seeing anything new or different with respect to the ramp-up of those facilities?

No. Nothing new. They continue to be a very successful growth model for us. The only thing that we have seen with respect to de novos, and we've talked about it on other calls is, as we go forward, we expect more of those will be joint ventures with acute care partners that have a rehab presence. And we think that, that makes sense, particularly as we enter new markets and we have an eye toward some kind of evolution to an integrated delivery system of some sort, be it ACOs or bundled payments. And so that's really the only thing that is a little different. But we've talk about that for the last, I guess, year or so. But in terms of ramp-up, no. The hospitals that we have opened continue to meet or exceed our expectations.

Okay. Great. And then just, I guess, on the back of that. Can you update us on some of the discussions you've been having with those hospital relationships? Have you seen any developments there that might be helpful to growth?

No. We don't comment on transactions or potential transactions until they're completed. But I do think it's fair to say that what we saw in 2013 is continuing into 2014, and that is many of the acute care hospitals who have a rehab service line recognize that there are opportunities to enhance the outcomes and the clinical efficacy of those programs. And that there are also opportunities to provide that higher level of care to more patients who need that care. And they're looking for partners to help them do that. And so we're there in many of those markets, having those conversations. They do tend to go a little bit slower, there's no question about that. If you look at the time line that we might have for a wholly-owned de novo, we can do a market assessment, evaluate the benefits of going in, what we think we can do to help patients in that community, get access to the care that they need and pull the trigger pretty quickly. When you're looking at a partnership arrangement, there are many more steps that have to be followed, valuations, third-party valuations that have to occur, terms that have to be negotiated and so it's a slower process. The benefit, however, is at the end of the day, if you can consummate that partnership, you're locked into a large acute care hospital that can be your partner as you seek to provide that care to as many patients as are required and as many patients who would benefit from that care.

Your next question comes from the line of Rob Mains of Stifel. Robert M. Mains - Stifel, Nicolaus & Company, Incorporated, Research Division: The 2 questions I have, first of all, follow-up to Frank's question about Washington. If we don't get an SGR appeal, as you suggest, we still got to get some sort of fix for the rest of the year. And just your thoughts about the likelihood that IRFs would be fingered as a pay-for for just a temporary patch. And then the second question, in the guidance for this year, for 2014, could you tell me whether there's any additional lease buyouts included and what the assumption is for Medicare rates for October?

Okay. So in terms of IRFs potentially paying for a short-term fix, I think all providers will be at risk. I don't think that we are disproportionately at risk. In large part, because inpatient rehabilitation is a relatively small and stable component of total Medicare spending, it's somewhere in that $7 billion to $8 billion range as an industry in terms of Medicare spend. And if you look at total IRF spending as a percent of total Medicare spending, it's remained fairly constant at 1.2% since 2008. So is there a possibility that we could be tapped for a short-term fix? Yes. But I personally don't believe and certainly nothing that we've heard while we we're in Washington or from our folks in Washington would suggest that rehabilitation providers are disproportionately at risk. And in terms of the lease buyouts, I'm going to ask Doug to respond to that.

Yes. Rob, I'll hit both the lease buyouts and then the assumption on Medicare pricing for October of this year. Lease buyouts, as we had suggested through the course of 2013, we're going to decrease from 2013 to 2014 and really in the years beyond. We move from kind of a unique situation where based on the timing of the options that were available to us in 2013, we had a larger universe set and we were able to consummate on 4 of those transactions. Our anticipation is that we'll have one opportunity in 2014, and that's reflected in our assumptions on Slide 21 regarding the utilization of cash flow. The estimated cost there will be about $15 million to $20 million. And I would anticipate a somewhat similar level as you look to 2015 and the immediate years beyond. With regard to Medicare pricing assumption, we last rolled forward our business outlook slide in the materials for the JPMorgan conference in January, and those assumptions have not changed. We're assuming a market basket update of 2.9% to be offset by the health care reform reduction of 20 basis points and then assumed 100 basis points in the productivity adjustment.

Your next question comes from the line of A.J. Rice of UBS.

I'll give my 2 questions upfront here. First on the discharge growth assumption for next year, 2.5% to 3.5%. Can you give us what the implicit same-store figure is there and whether you made any adjustments for weather in that in the first quarter? And then on therapists, just an update on some basic metrics on availability, productivity, turnover rates, that kind of thing.

Yes. In terms of the discharge growth, we did not include any negative impact for weather. Although I will tell you that, clearly, the weather has been disruptive in the first quarter. We're still pleased with the discharge volumes that we're seeing. But there's no question that it's been disruptive. I mean there's been a lot of ice and snow in places that don't get that very frequently. And then in the Northeast, as you know, there is a lot of snow, certainly, more than is normal. And that -- we don't parse it out between same-store and new-store in terms of that 2.5%, 3.5%, but if you look historically, it's typically that same-store, new-store is about a 2/3, 1/3 breakdown. And we would expect that, that would be continued into 2014, but we haven't really broken it down. In terms of therapists, we measure our -- that metric, couple ways. One is how many openings do we have? And then second, what kind of turnover are we experiencing? And we haven't seen a dramatic uptick in the number of openings. Our hospitals have been pretty successful in recruiting and retaining high-quality therapists. I think the therapists that we bring on to our hospitals enjoy working in a 100% rehabilitation environment. And looking at the turnover, our turnover rates are 200-plus basis points below what you see on the national average.

[Operator Instructions] Your next question comes from the line of Gary Lieberman of Wells Fargo.

When I look back at the original guidance for 2013, I think, it was $506 million to $516 million of EBITDA. In hindsight, obviously, it was pretty conservative. Can you talk about the approach you took to guidance for 2014 and if we should think that there's similar upside?

Yes. That's a good question, and there have been a lot of notes written last night and this morning about the conservative nature. And admittedly, it is conservative. I mean, we feel that we have a responsibility to our shareholders to provide guidance on what we are very confident we can achieve. I think it's very fair to say that we are all incentivized on this side of the call to do a lot better than that, and that's something that we take very seriously. So there is a conservative element to that guidance. And we think that, that's appropriate because so much of our profitability is going to be tied to the ability to continue to gain market share and to treat more patients who need inpatient rehabilitative services. And frankly, we just don't take that for granted. I mean, we don't look back and say, "Oh, okay, we grew 5% last year. That's a lay down. We can easily grow 5% this year." Now do we set goals internally that are more aggressive? Of course we do. But we feel that when we're providing guidance, our responsibility is to share with our shareholders what we have a lot of confidence we can deliver on and then strive day in and day out, month in, month out, quarter in, quarter out to do better than that.

Okay. And then as a follow-up, can I ask what were some of the specific assumptions in the decrease in the self-insurance reserves?

Again, the primary thing there was that we reduced the statistical confidence level that we used to form that estimate. And that's really looking back at the last several years of how actual losses developed with regard to our assumption about how they would develop, utilizing the input from a third-party actuary, who also then put that in the context of what's happening in the broader industry spectrum. And when we made that assessment, we determined that we were against the universe of potential losses in each particular year. We were estimating too high a probability of those coming to fruition. So we lowered that. That is not something that you would expect to see occurring on an annual basis, it is something that should occur very infrequently. And the end of 2013 was the appropriate time for us to make that adjustment based on the data that we had at our disposal.

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

Yes. I wanted to follow up on some of your comments about doing more joint ventures and see if it has anything to do with the commentary that 2014 may be a time period where you start to look at more ancillary acquisitions. Is -- you kind of dovetailed doing joint ventures as part of an ACO-type strategy. Are your joint venture partners, at all, asking you to expand services? Or is that something that is separate? And if it is separate, where are you on that?

Yes, it's very separate. And in fact, many of our joint venture partners have the same view as we do on ACOs. There's a little more receptivity to bundling. But we have not been asked by our joint venture partners to expand our services. And we'll continue to look and evaluate which services makes sense. I think it's fair to say that, we have said pretty consistently, that we believe aggregating different services in existing markets would be certainly a first step in looking at potential expansion into another complementary area. So we do continue to believe that health care is a local market service, and so there needs to be some degree of synergies in those markets. But to answer the first question, no, we're really not getting any kind of pressure whatsoever by our joint venture partners to expand.

Okay. And then just maybe just a clarification on the 2 things. I think you addressed them, but I just want to make sure. You had 2 onetime items, the RAC item and then the malpractice item. Just wanted to understand exactly what you think the ongoing impact is from those 2 items. In your guidance, you mentioned RAC would be less than 2013. I wasn't sure if that was on a gross basis or on a net basis since you had a corresponding partial offset on bad debt. So was that impact -- I'm sorry, yes, so what's the impact on that? And is it revenue or bad debt? And then on the workers' comp and malpractice, I guess, it sounds like the $6.7 million is not something you'd expect to recur, but is there an ongoing benefit of $1 million or something smaller?

Okay. So on the RAC side, the impact that we're referring to for 2013 was for the full year, not the fourth quarter. And that's the $8 million impact. With regard to the geography on where you'll see that, that's going to be in -- any incremental reserves that we take for RAC activity will be in the form of contractual allowances. These are post-payment reviews, the appropriate accounting is as a contractual allowance not as bad debt. So that's where the impact will be on a go-forward basis. And when I said that our 2014 guidance included some continuing RAC activity with the ultimate impact being less than 2013, the reference point was that $8 million number that I was utilizing. And then the second question was on the statistical confidence level. Yes, that $6.7 million should clearly be viewed as a onetime benefit. With regard to what we'll see in terms of expenses in our self-insurance programs for 2014, that is embedded in our 2014 guidance, and it does assume the continuing benefit of some of the enhancements we've made in programs like in enhancing workplace safety and patient care and so forth. So we continue to refine those programs, we think we continue to get better at it, and the run rate assumption is baked into our guidance.

Your next question comes from line of John Ransom of Raymond James. John W. Ransom - Raymond James & Associates, Inc., Research Division: To go back to the bundling question. There seems to be some disagreement in D.C. about, number one, who would control the dollars, whether it's the hospital or some other third-party; and number two, what the earliest possible timing might look like. And I would just be interested in your updated take on both of those.

Yes. I think that bundling, as well as just the ACO development, is going to be an evolutionary process. If you look at the results that have come out on the ACOs, our take is that it is -- those results are very, very mixed. Not all ACOs in the first year generated savings. Not all of those that generated savings were able to share in those savings. And those that did, on average, were getting somewhere in the $3 million to $4 million per ACO, if you just do the simple math and try to average it out. And as a result, if you think about the startup costs of being anywhere from $5 million to $10 million on an all-in basis, it's still not a compelling business model. Now maybe, over time and year 2 may be different, and the results may show that this is where the industry is going, but it's not persuasive at this point anyway. And in terms of bundling, I think it's a little easier to get your arms around bundling as a provider because you're selecting certain DRGs or certain diagnostic codes to bundle payments around. And I think that the control of that is going to be collaborative. I don't think that there is going to be a single entity that ultimately controls all of the dollars unless they have ownership of all of the services, and that is not the model that's out there. So I think it's going to be an evolutionary process. And I think it'll take several years for that to really kind of unfold and for a consistent model to emerge. John W. Ransom - Raymond James & Associates, Inc., Research Division: So not to put words in your mouth, but in other words, you would say it's unlikely, for example, that an acute care hospital would simply get an extra dollop of dollars, which would be intended for them to subcontract out all the whatever is needed on the post-acute side, but it would be different from that?

Well, I think it would be different. I don't think that they would just get it and be told, "Okay, we're going to give you x number of incremental dollars and you figure out what you're going to do with the -- your post-acute services." We certainly haven't heard anything that would suggest that is a model. I can see where the bundling pilots could continue and might take different forms. But in those kind of arrangements, all of the providers have come together ahead of time and said, "All right, we'll take the bundled payment." And maybe it's the acute care hospital that is at the head of the table, but everybody around the table has a voice in how those payments are going to be split up.

At this time, there are no further questions. I will now return the call to Mary Ann Arico for any additional or closing remarks.

Thank you, Lori. As a reminder, we will be filing the updated Investor Reference Book by sometime next week and attending the RBC Health Care Conference. And the following week, we'll be attending the Raymond James Health Care Conference. If you have additional questions, in the meantime, please feel free to call me at (205) 969-6175. Thank you.

Thank you for participating in HealthSouth Fourth Quarter 2013 Earnings Conference Call. You may now disconnect.