Encompass Health operates the largest inpatient rehabilitation hospital network in the United States, and the first quarter of 2026 confirmed that demographic tailwinds are converting directly into discharge growth, pricing power, and margin expansion. Net operating revenues rose 9.0% year over year on the back of a 4.3% increase in discharges. Revenue per discharge climbed 3.7% at the same time. The combination of volume and price working in the same direction is rare in a sector where rate changes and volume shifts often pull in opposite directions.
The quarter also marked a structural shift in the company's capital structure. Encompass entered into a new credit agreement in March 2026, retired its prior facility, and drew on the new revolver to prepay outstanding borrowings. The company also completed a divestiture of its 50% interest in Gamma Knife. That sale produced $17.9 million in proceeds and a $16.3 million after-tax gain recorded in discontinued operations.
The forward outlook carries a 2.4% Medicare rate increase under the proposed fiscal year 2027 IRF rule. The increase takes effect for discharges beginning in the fourth quarter. The company also faces an expansion of the CMS review choice demonstration to Texas and California, along with a capital expenditure program of $920 million to $995 million for the coming year. The central question for the next two quarters is whether the company can sustain double-digit earnings growth through a period of elevated construction spending while absorbing the compliance costs of the expanded claims review program.