Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Net Operating Revenues—

Our Net operating revenues disaggregated by payor source and segment are as follows (in millions):



	Inpatient Rehabilitation				Home Health and Hospice				Consolidated
	Three Months Ended September 30,				Three Months Ended September 30,				Three Months Ended September 30,
	2019		2018		2019		2018		2019		2018
Medicare	$	624.5	$	600.5	$	248.4	$	205.7	$	872.9	$	806.2
Medicare Advantage	94.7		75.0		25.2		22.7		119.9		97.7
Managed care	87.3		85.1		10.4		8.6		97.7		93.7
Medicaid	28.0		25.7		4.8		4.1		32.8		29.8
Other third-party payors	12.1		11.8		—		—		12.1		11.8
Workers’ compensation	6.9		6.9		0.3		0.5		7.2		7.4
Patients	6.1		5.3		—		0.1		6.1		5.4
Other income	12.7		15.3		0.2		0.3		12.9		15.6
Total	$	872.3	$	825.6	$	289.3	$	242.0	$	1,161.6	$	1,067.6



	Inpatient Rehabilitation				Home Health and Hospice				Consolidated
	Nine Months Ended September 30,				Nine Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2019		2018
Medicare	$	1,892.8	$	1,832.1	$	684.4	$	581.8	$	2,577.2	$	2,413.9
Medicare Advantage	276.2		226.2		77.4		64.5		353.6		290.7
Managed care	257.5		256.7		26.7		24.9		284.2		281.6
Medicaid	81.4		77.2		13.8		7.3		95.2		84.5
Other third-party payors	32.6		36.5		—		—		32.6		36.5
Workers’ compensation	21.6		21.1		0.7		0.8		22.3		21.9
Patients	17.8		14.1		0.5		0.8		18.3		14.9
Other income	36.4		36.6		0.8		0.7		37.2		37.3
Total	$	2,616.3	$	2,500.5	$	804.3	$	680.8	$	3,420.6	$	3,181.3

See Note 1, Summary of Significant Accounting Policies, to the consolidated financial statements accompanying the

2018 Form 10-K for our policy related to Net operating revenues.

Leases

Leases—

We determine if an arrangement is a lease or contains a lease at inception and perform an analysis to determine whether the lease is an operating lease or a finance lease. We measure right-of-use assets and lease liabilities at the lease commencement date based on the present value of the remaining lease payments. As most of our leases do not provide a readily determinable implicit rate, we estimate an incremental borrowing rate based on the credit quality of the Company and by comparing interest rates available in the market for similar borrowings, and adjusting this amount based on the impact of collateral over the term of each lease. We use this rate to discount the remaining lease payments in measuring the right-of-use asset and lease liability. We use the implicit rate when readily determinable. We recognize lease expense for operating leases on a straight-line basis over the lease term. For our finance leases, we recognize amortization expense from the amortization of the right-of-use asset and interest expense on the related lease liability. Certain of our lease agreements contain annual escalation clauses based on changes in the Consumer Price Index. The changes to the Consumer Price Index, as compared to our initial estimate at the lease commencement date, are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. We do not account for lease and nonlease components separately for purposes of establishing right-of-use assets and lease liabilities.

Leases with an initial term of twelve months or less are not recorded on the condensed consolidated balance sheet. We recognize lease expense for these leases on a straight-line basis over the lease term.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements—

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” and has subsequently issued supplemental and/or clarifying ASUs (collectively “ASC 842”), in order to increase transparency and comparability by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements. We adopted ASC 842 using the modified retrospective approach and applied the transition provisions with an effective date as of January 1, 2019 for leases that existed on that date. Prior period results continue to be presented under ASC 840 based on the accounting originally in effect for such periods. ASC 842 provides optional practical expedients in transition. We elected the ‘package of practical expedients,’ which permits us to not reassess under ASC 842 our prior conclusions about lease identification, lease classification and initial direct costs, and the practical expedient to not reassess certain land easements. We did not elect the use-of-hindsight practical expedient during the transition to ASC 842. The adoption of ASC 842 resulted in the addition of approximately $349 million in assets and $347 million in liabilities to our condensed consolidated balance sheet as of January 1, 2019, with the remaining $2 million being recorded as an adjustment to Capital in excess of par value. The adoption of ASC 842 also resulted in increased disclosure, including qualitative and quantitative disclosures about the nature, amount,

timing and uncertainty of cash flows arising from leases. See the “Leases” section of this note and Note 4, Leases, and Note 6, Long-term Debt, for additional information about our leases.

Recent Accounting Pronouncements Not Yet Adopted—

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326),” which provides guidance for accounting for credit losses on financial instruments. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments and modifies the impairment model for available-for-sale debt securities. The new guidance is effective for us beginning January 1, 2020, including interim periods within that reporting period. Early adoption is permitted beginning January 1, 2019. We continue to review the requirements of this standard and any potential impact it may have on our condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The update helps entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement), by providing guidance in determining when the arrangement includes a software license. It requires entities to account for such costs consistent with the guidance on capitalizing costs associated with developing or obtaining internal-use software. The new guidance is effective for us beginning January 1, 2020, including interim periods within that reporting period. Early adoption is permitted. We continue to review the requirements of this standard and any potential impact it may have on our condensed consolidated financial statements.

We do not believe any other recently issued, but not yet effective, accounting standards will have a material effect on our condensed consolidated financial position, results of operations, or cash flows.