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SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION INDEX TO FINANCIAL STATEMENTS

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2013
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                             to

Commission file numbers: 001-34465 and 001-31441

SELECT MEDICAL HOLDINGS CORPORATION
SELECT MEDICAL CORPORATION
(Exact name of Registrants as specified in their Charter)

Delaware Delaware (State or Other Jurisdiction of Incorporation or Organization)	20-1764048 23-2872718 (I.R.S. Employer Identification Number)
4714 Gettysburg Road, P.O. Box 2034 Mechanicsburg, PA (Address of Principal Executive Offices)	17055 (Zip Code)
(717) 972-1100 (Registrants' telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $0.001 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:
NONE

           Indicate by check mark if the registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act. Yes o    No þ

           Indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No þ

           Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes þ    No o

           Indicate by check mark whether the registrants have submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding twelve months (or for such shorter period that the registrants were required to submit and post such files). Yes þ    No o

           Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

           Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

           Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Act). Yes o    No þ

           The aggregate market value of Holdings' voting stock held by non-affiliates at June 28, 2013 (the last business day of Holdings' most recently completed second fiscal quarter) was approximately $518,721,725, based on the closing price per share of common stock on that date of $8.20 as reported on the New York Stock Exchange. Shares of common stock known by the registrants to be beneficially owned by directors and officers of Holdings subject to the reporting and other requirements of Section 16 of the Securities Exchange Act of 1934 are not included in the computation. The registrants, however, have made no determination that such persons are "affiliates" within the meaning of Rule 12b-2 under the Securities Exchange Act of 1934.

           The number of shares of Holdings' Common Stock, $0.001 par value, outstanding as of February 1, 2014 was 140,286,867.

           This Form 10-K is a combined annual report being filed separately by two Registrants: Select Medical Holdings Corporation and Select Medical Corporation. Unless the context indicates otherwise, any reference in this report to "Holdings" refers to Select Medical Holdings Corporation and any reference to "Select" refers to Select Medical Corporation, the wholly-owned operating subsidiary of Holdings. References to the "Company," "we," "us," and "our" refer collectively to Select Medical Holdings Corporation and Select Medical Corporation.

Documents Incorporated by Reference

           Listed hereunder are the documents, any portions of which are incorporated by reference and the Parts of this Form 10-K into which such portions are incorporated:

1.

The registrant's definitive proxy statement for use in connection with the 2014 Annual Meeting of Stockholders to be held on or about April 29, 2014 to be filed within 120 days after the registrant's fiscal year ended December 31, 2013, portions of which are incorporated by reference into Part III of this Form 10-K. Such definitive proxy statement, except for the parts therein which have been specifically incorporated by reference, should not be deemed "filed" for the purposes of this form 10-K.

SELECT MEDICAL HOLDINGS CORPORATION
SELECT MEDICAL CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2013

Item		Page
	PART I
	Forward-Looking Statements	1
1.	Business	2
1A.	Risk Factors	30
1B.	Unresolved Staff Comments	40
2.	Properties	40
3.	Legal Proceedings	43
4.	Mine Safety Disclosures	44
	PART II
5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	45
6.	Selected Financial Data	47
7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	49
7A.	Quantitative and Qualitative Disclosures About Market Risk	79
8.	Financial Statements and Supplementary Data	79
9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	79
9A.	Controls and Procedures	79
9B.	Other Information	80
	PART III
10.	Directors, Executive Officers and Corporate Governance	81
11.	Executive Compensation	81
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	81
13.	Certain Relationships, Related Transactions and Director Independence	82
14.	Principal Accountant Fees and Services	82
	PART IV
15.	Exhibits and Financial Statement Schedules	83
SIGNATURES		92

PART I

Forward-Looking Statements

        This annual report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words "may," "could," "would," "should," "believe," "expect," "anticipate," "plan," "target," "estimate," "project," "intend" and similar expressions. These statements include, among others, statements regarding our expected business outlook, anticipated financial and operating results, our business strategy and means to implement our strategy, our objectives, the amount and timing of capital expenditures, the likelihood of our success in expanding our business, financing plans, budgets, working capital needs and sources of liquidity.

        Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management's beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding our services, the expansion of our services, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve known and unknown risks and uncertainties, which could cause actual results to differ materially from those contained in any forward-looking statement. Many of these factors are beyond our ability to control or predict. Such factors include, but are not limited to, the following:

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changes in government reimbursement for our services due to the implementation of healthcare reform legislation, deficit reduction measures, and/or new payment policies (including, for example, the expiration of the moratorium limiting the full application of the 25 Percent Rule that would reduce our Medicare payments for those patients admitted to a long term acute care hospital from a referring hospital in excess of an applicable percentage admissions threshold) may result in a reduction in net operating revenues, an increase in costs and a reduction in profitability;

•

the impact of the Bipartisan Budget Act of 2013, which establishes new payment limits for Medicare patients who do not meet specified criteria, may result in a reduction in net operating revenues and profitability of our long term acute care hospitals;

•

the failure of our specialty hospitals to maintain their Medicare certifications may cause our net operating revenues and profitability to decline;

•

the failure of our facilities operated as "hospitals within hospitals" to qualify as hospitals separate from their host hospitals may cause our net operating revenues and profitability to decline;

•

a government investigation or assertion that we have violated applicable regulations may result in sanctions or reputational harm and increased costs;

•

acquisitions or joint ventures may prove difficult or unsuccessful, use significant resources or expose us to unforeseen liabilities;

•

private third-party payors for our services may undertake future cost containment initiatives that limit our future net operating revenues and profitability;

•

the failure to maintain established relationships with the physicians in the areas we serve could reduce our net operating revenues and profitability;

•

shortages in qualified nurses or therapists could increase our operating costs significantly;

•

competition may limit our ability to grow and result in a decrease in our net operating revenues and profitability;

•

the loss of key members of our management team could significantly disrupt our operations;

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•

the effect of claims asserted against us could subject us to substantial uninsured liabilities; and

•

other factors discussed from time to time in our filings with the Securities and Exchange Commission (the "SEC"), including factors discussed under the heading "Risk Factors" of this annual report on Form 10-K.

        Except as required by applicable law, including the securities laws of the United States and the rules and regulations of the SEC, we are under no obligation to publicly update or revise any forward-looking statements, whether as a result of any new information, future events or otherwise. You should not place undue reliance on our forward-looking statements. Although we believe that the expectations reflected in forward-looking statements are reasonable, we cannot guarantee future results or performance.

        Investors should also be aware that while we do, from time to time, communicate with securities analysts, it is against our policy to disclose to securities analysts any material non-public information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any securities analyst irrespective of the content of the statement or report. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of the Company.

Item 1.    Business.

Overview

        We began operations in 1997, and we believe that we are one of the largest operators of both specialty hospitals and outpatient rehabilitation clinics in the United States based on number of facilities. As of December 31, 2013, we operated 108 long term acute care hospitals, or "LTCHs," and 15 inpatient rehabilitation facilities, or "IRFs," in 28 states, and 1,006 outpatient rehabilitation clinics in 32 states and the District of Columbia. We also provide medical rehabilitation services on a contract basis at nursing homes, hospitals, assisted living and senior care centers, schools and worksites.

        We manage our company through two business segments, our specialty hospital segment and our outpatient rehabilitation segment. We had net operating revenues of $2,975.6 million for the year ended December 31, 2013. Of this total, we earned approximately 74% of our net operating revenues from our specialty hospital segment and approximately 26% from our outpatient rehabilitation segment. Our specialty hospital segment consists of hospitals designed to serve the needs of long term stay acute care patients and hospitals designed to serve patients who require intensive inpatient medical rehabilitation care. Our outpatient rehabilitation segment consists of clinics and contract therapy locations that provide physical, occupational and speech rehabilitation services. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations for financial information for each of our segments for the past three fiscal years.

Specialty Hospitals

        We are a leading operator of specialty hospitals in the United States. As of December 31, 2013, we operated 123 facilities throughout 28 states, including 108 LTCHs, all of which are currently certified by the federal Medicare program as LTCHs, and 15 IRFs, all of which are currently certified by the federal Medicare program as IRFs. For the years ended December 31, 2011, December 31, 2012 and December 31, 2013, approximately 61%, 60% and 59%, respectively, of the net operating revenues of our specialty hospital segment came from Medicare reimbursement. As of December 31, 2013, we operated a total of 5,172 available licensed beds and employed approximately 21,000 people in our specialty hospital segment, consisting primarily of registered nurses, respiratory therapists, physical therapists, occupational therapists and speech therapists.

        We operate the majority of our LTCHs as a hospital within a hospital, or an "HIH." An LTCH that operates as an HIH leases space from a general acute care hospital, or "host hospital," and operates as a separately licensed hospital within the host hospital, or on the same campus as the host hospital. In

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contrast, a free-standing LTCH does not operate on a host hospital campus. We operated 108 LTCHs at December 31, 2013, of which 107 are owned and one is managed. Of the 107 LTCHs we owned, 78 were operated as HIHs and 29 were operated as free-standing hospitals.

        Patients are typically admitted to our specialty hospitals from general acute care hospitals. These patients have specialized needs, and serious and often complex medical conditions such as respiratory failure, neuromuscular disorders, traumatic brain and spinal cord injuries, strokes, non-healing wounds, cardiac disorders, renal disorders and cancer. Given their complex medical needs, these patients generally require a longer length of stay than patients in a general acute care hospital and benefit from being treated in a specialty hospital that is designed to meet their unique medical needs. The average length of stay for patients in our specialty hospitals was 27 days in our LTCHs and 15 days in our IRFs, for the year ended December 31, 2013.

        Below is a table that shows the distribution by medical condition (based on primary diagnosis) of patients in our hospitals for the year ended December 31, 2013:

Medical Condition	Distribution of Patients
Respiratory disorders		34	%
Neuromuscular disorders		32	%
Cardiac disorders		10	%
Wound care		6	%
Infectious diseases		5	%
Other		13	%
Total		100	%

        We believe that our services are attractive to healthcare payors who are seeking to provide the most cost-effective care to their enrollees. Additionally, we continually seek to increase our admissions by demonstrating our quality of care and by doing so expanding and improving our relationships with the physicians and general acute care hospitals in the markets where we operate. We maintain a strong focus on the provision of high-quality medical care within our facilities and believe that this operational focus is in part reflected by the accreditation of our specialty hospitals by The Joint Commission, the American Osteopathic Association ("AOA") and the Commission on Accreditation of Rehabilitation Facilities ("CARF"). As of December 31, 2013, all of the 123 specialty hospitals we operated were accredited by one or more of these accrediting organizations. The Joint Commission, the AOA and CARF are independent, not-for-profit organizations that establish standards related to the operation and management of healthcare facilities. Each of our accredited facilities must regularly demonstrate to a survey team conformance to the applicable standards.

        When a patient is referred to one of our hospitals by a physician, case manager, discharge planner, health maintenance organization or insurance company, we perform a clinical assessment of the patient to determine if the patient meets our criteria for admission. Based on the determinations reached in this clinical assessment, an admission decision is made.

        Upon admission, an interdisciplinary team reviews a new patient's condition. The interdisciplinary team is comprised of a number of clinicians and may include any or all of the following: an attending physician; a specialty nurse; a physical, occupational or speech therapist; a respiratory therapist; a dietician; a pharmacist; and a case manager. Upon completion of an initial evaluation by each member of the treatment team, an individualized treatment plan is established and implemented. The case manager coordinates all aspects of the patient's hospital stay and serves as a liaison with the insurance carrier's case management staff when appropriate. The case manager communicates progress, resource utilization, and treatment goals between the patient, the treatment team and the payor.

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        Each of our specialty hospitals has an interdisciplinary medical staff that is comprised of physicians that have completed the privileging and credentialing process required by that specialty hospital, and have been approved by the governing board of that specialty hospital. Physicians on the medical staff of our specialty hospitals are generally not directly employed by our specialty hospitals but instead have staff privileges at one or more hospitals. At each of our specialty hospitals, attending physicians conduct rounds on their patients on a daily basis and consulting physicians provide consulting services based on the medical needs of our patients. Our specialty hospitals also have on-call arrangements with physicians to ensure that a physician is available to care for our patients at all times. We staff our specialty hospitals with the number of physicians and other medical practitioners that we believe is appropriate to address the varying needs of our patients. When determining the appropriate composition of the medical staff of a specialty hospital, we consider (1) the size of the specialty hospital, (2) services provided by the specialty hospital, (3) if applicable, the size and capabilities of the medical staff of the general acute care hospital that hosts the HIH, and (4) if applicable, the proximity of an acute care hospital to the free-standing specialty hospital. The medical staff of each of our specialty hospitals meets the applicable requirements set forth by Medicare, the hospital's applicable accrediting organizations, and the state in which that specialty hospital is located.

        Each of our specialty hospitals has an onsite management team consisting of a chief executive officer, a chief nursing officer and a director of business development. These teams manage local strategy and day-to-day operations, including oversight of clinical care and treatment. They also assume primary responsibility for developing relationships with the general acute care providers and clinicians in the local areas we serve that refer patients to our specialty hospitals. We provide our hospitals with centralized accounting, treasury, payroll, legal, operational support, human resources, compliance, management information systems and billing and collection services. The centralization of these services improves efficiency and permits hospital staff to focus their time on patient care.

        For a description of government regulations and Medicare payments made to our LTCHs and IRFs see " — Government Regulations" and "Management's Discussion and Analysis of Financial Condition and Results of Operations — Regulatory Changes."

Specialty Hospital Strategy

        The key elements of our specialty hospital strategy are to:

        Focus on Specialized Inpatient Services.    We serve highly acute patients and patients with debilitating injuries and rehabilitation needs that cannot be adequately cared for in a less medically intensive environment, such as a skilled nursing facility. Generally, patients in our specialty hospitals require longer stays and can benefit from more specialized clinical care than patients treated in general acute care hospitals. Our patients' average length of stay in our specialty hospitals was 24 days for the year ended December 31, 2013.

        Provide High-Quality Care and Service.    We believe that our specialty hospitals serve a critical role in comprehensive healthcare delivery. Through our specialized treatment programs and staffing models, we treat patients with acute, complex and specialized medical needs who are typically referred to us by general acute care hospitals. Our specialized treatment programs focus on specific patient needs and medical conditions such as ventilator weaning programs, wound care protocols and rehabilitation programs for brain trauma and spinal cord injuries. Our responsive staffing models ensure that patients have the appropriate clinical resources over the course of their stay. We maintain quality assurance programs to support and monitor quality of care standards and to meet regulatory requirements and maintain Medicare certifications. We believe that we are recognized for providing quality care and service, as evidenced by our specialty hospitals' accreditations by The Joint Commission, the AOA and CARF. As of December 31, 2013, all of the 123 specialty hospitals we operated were accredited by either The Joint Commission or the AOA. Some of our IRFs have also received accreditation from CARF. See " — Government

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Regulations — Licensure — Accreditation." We also believe we develop brand loyalty in the local areas we serve by demonstrating our quality of care.

        Our treatment programs, which are continuously reassessed and updated, benefit patients because they give our clinicians access to the best practices and protocols that we have found to be most effective in treating various conditions such as respiratory failure, non-healing wounds, brain and spinal cord injuries, strokes and neuromuscular disorders. In addition, we combine or modify these programs to provide a treatment plan tailored to meet our patients' unique needs. We measure the outcomes and successes of our patients' recovery in order to provide the best possible patient care and service.

        The quality of the patient care we provide is continually monitored using several measures, including clinical outcomes data and analyses and patient satisfaction surveys. Quality measures from our hospitals are collected at our corporate offices and used to create monthly, quarterly and annual reports. In order to benchmark ourselves against other hospitals, we collect our clinical and patient satisfaction information and compare it to national standards and the results of other healthcare organizations. We report to the states in which our hospitals are located certain quality measures that are required to be reported under state laws. We also report to the Centers for Medicare & Medicaid Services, or "CMS", the quality data required to be reported by LTCHs and IRFs. See " — Government Regulations — Other Medicare Regulations — Medicare Quality Reporting."

        Reduce Operating Costs.    We continually seek to improve operating efficiency and reduce costs at our hospitals by standardizing operations and centralizing key administrative functions. These initiatives include:

•

centralizing administrative functions such as accounting, treasury, payroll, legal, operational support, human resources, compliance and billing and collection;

•

standardizing management information systems to aid in accounting, billing, collections and data capture and analysis; and

•

centralizing sourcing and contracting to receive discounted prices for pharmaceuticals, medical supplies and other commodities used in our operations.

        Increase Commercial Volume.    We have focused on continued expansion of our relationships with commercial insurers to increase our volume of patients with commercial insurance in our specialty hospitals. We believe that commercial payors seek to contract with our hospitals because we offer patients high-quality, cost-effective care at more attractive rates than general acute care hospitals. We also offer commercial enrollees customized treatment programs not typically offered in general acute care hospitals.

        Develop Specialty Hospitals.    Since our inception in 1997 we have internally developed 64 specialty hospitals. While there is currently no limitation on the development of new inpatient rehabilitation facilities, the Bipartisan Budget Act of 2013 reinstates the moratorium on the establishment and classification of new LTCHs, LTCH satellite facilities and LTCH beds in existing LTCHs or satellite facilities beginning January 1, 2015 through September 30, 2017. We may, however, develop new LTCHs before the imposition of the moratorium on January 1, 2015.

        Pursue Joint Ventures with Large Health Care Systems.    By leveraging the experience of our senior management and development team, we believe that we are well positioned to expand our portfolio of joint ventured operations. When we identify joint venture opportunities, our development team conducts an extensive review of the area's referral patterns and commercial insurance rates to determine the general reimbursement trends and payor mix. Once discussions commence with a health care system, we refine the specific needs of a joint venture, which could include working capital, the construction of new space or the leasing and renovation of existing space. A joint venture typically consists of us and the health care system contributing certain post acute care businesses into a newly formed entity. We typically function as the manager and hold either a majority or minority ownership interest. We believe we improve the joint venture by bringing clinical expertise, adding clinical programs that attract commercial payors, and

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implementing our standardized resource management programs, which may increase the financial performance of the joint venture.

        Pursue Opportunistic Acquisitions.    In addition to our development and joint venture initiatives, we may grow our network of specialty hospitals through opportunistic acquisitions. When we acquire a hospital or a group of hospitals, a team of our professionals is responsible for formulating and executing an integration plan. We seek to improve financial performance at such facilities by adding clinical programs that attract commercial payors, centralizing administrative functions and implementing our standardized resource management programs.

Outpatient Rehabilitation

        We believe that we are the largest operator of outpatient rehabilitation clinics in the United States based on number of facilities, with 1,006 facilities throughout 32 states and the District of Columbia as of December 31, 2013. Typically, each of our clinics is located in a medical complex or retail location. We also provide medical rehabilitative services to residents and patients of nursing homes, hospitals, schools, assisted living and senior care centers and worksites. As of December 31, 2013, we provided rehabilitative services to approximately 499 contracted locations in 30 states and the District of Columbia. Our outpatient rehabilitation segment employed approximately 9,300 people as of December 31, 2013.

        In our clinics and through our contractual relationships, we provide physical, occupational and speech rehabilitation programs and services. We also provide certain specialized programs such as functional programs for work related injuries, hand therapy and athletic training services. The typical patient in one of our clinics suffers from musculoskeletal impairments that restrict his or her ability to perform normal activities of daily living. These impairments are often associated with accidents, sports injuries, work related injuries or post-operative orthopedic and other medical conditions. Our rehabilitation programs and services are designed to help these patients minimize physical and cognitive impairments and maximize functional ability. We also provide services designed to prevent short term disabilities from becoming chronic conditions. Our rehabilitation services are provided by our professionals including licensed physical therapists, occupational therapists and speech-language pathologists.

        Outpatient rehabilitation patients are generally referred or directed to our clinics by a physician, employer or health insurer who believes that a patient, employee or member can benefit from the level of therapy we provide in an outpatient setting. We believe that our services are attractive to healthcare payors who are seeking to provide a high-quality and cost-effective care to their enrollees.

        In our outpatient rehabilitation segment, approximately 90% of our net operating revenues come from commercial payors, including healthcare insurers, managed care organizations and workers' compensation programs, contract management services and private pay sources. The balance of our reimbursement is derived from Medicare and other government sponsored programs.

        For a description of government regulations and Medicare payments made to our outpatient rehabilitation services see " — Government Regulations" and "Management's Discussion and Analysis of Financial Condition and Results of Operations — Regulatory Changes."

Outpatient Rehabilitation Strategy

        The key elements of our outpatient rehabilitation strategy are to:

        Provide High-Quality Care and Service.    We are focused on providing a high level of service to our patients throughout their entire course of treatment. To measure satisfaction with our service we have developed surveys for both patients and physicians. Our clinics utilize the feedback from these surveys to continuously refine and improve service levels. We believe that by focusing on quality care and offering a high level of customer service we develop brand loyalty in the local areas we serve. This high quality of care and service allows us to strengthen our relationships with referring physicians, employers and health insurers and drive additional patient volume.

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        Increase Market Share.    We strive to establish a leading presence within the local areas we serve. To increase our presence, we seek to expand our services and programs and to open new clinics in our existing markets. This allows us to realize economies of scale, heightened brand loyalty and workforce continuity. We are focused on increasing our workers' compensation and commercial/managed care payor mix.

        Expand Rehabilitation Programs and Services.    Through our local clinical directors of operations and clinic managers within their service areas, we assess the healthcare needs of the areas we serve. Based on these assessments, we implement additional programs and services specifically targeted to meet demand in the local community. In designing these programs we benefit from the knowledge we gain through our national network of clinics. This knowledge is used to design programs that optimize treatment methods and measure changes in health status, clinical outcomes and patient satisfaction.

        Optimize the Profitability of our Payor Contracts.    We review payor contracts up for renewal and potential new payor contracts to optimize our profitability. Before we enter into a new contract with a commercial payor, we evaluate it with the aid of our contract management system. We assess potential profitability by evaluating past and projected patient volume, clinic capacity, and expense trends. We create a retention strategy for the top performing contracts and a renegotiation strategy for contracts that do not meet our defined criteria. We believe that our size and our strong reputation enable us to negotiate favorable outpatient contracts with commercial insurers.

        Maintain Strong Employee Relations.    We believe that the relationships between our employees and the referral sources in their communities are critical to our success. Our referral sources, such as physicians and healthcare case managers, send their patients to our clinics based on three factors: the quality of our care, the service we provide and their familiarity with our therapists. We seek to retain and motivate our therapists by implementing a performance- based bonus program, a defined career path with the ability to be promoted from within, timely communication on company developments and internal training programs. We also focus on empowering our employees by giving them a high degree of autonomy in determining local area strategy. We seek to identify therapists who are potential business leaders. This management approach reflects the unique nature of each local area in which we operate and the importance of encouraging our employees to assume responsibility for their clinic's performance.

        Pursue Opportunistic Acquisitions.    We may grow our network of outpatient rehabilitation facilities through opportunistic acquisitions. We believe our size and centralized infrastructure allow us to take advantage of operational efficiencies and increase margins at acquired facilities.

Other

        Other activities include our corporate services and certain other minority investments in other healthcare related businesses. These include investments in companies that provide specialized technology, services to healthcare entities and providers of complementary services.

Our Competitive Strengths

        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, proven financial performance and strong cash flow, significant scale, experience in completing and integrating acquisitions, ability to capitalize on consolidation opportunities and an experienced management team.

        Leading Operator in Distinct but Complementary Lines of Business.    We believe that we are a leading operator in each of our principal business segments, based on number of facilities in the United States. Our leadership position and reputation as a high-quality, cost-effective healthcare provider in each of our business segments allows us to attract patients and employees, aids us in our marketing efforts to payors and referral sources and helps us negotiate payor contracts. In our specialty hospital segment, we operated 108 LTCHs in 28 states and 15 IRFs in seven states at December 31, 2013. We derived approximately 74% of net operating revenues from our specialty hospital segment, for the year ended December 31, 2013. In

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our outpatient rehabilitation segment, we operated 1,006 outpatient rehabilitation clinics in 32 states and the District of Columbia at December 31, 2013. We derived approximately 26% of net operating revenues from our outpatient rehabilitation segment, for the year ended December 31, 2013. With these leading positions in the areas we serve, we believe that we are well-positioned to benefit from the rising demand for medical services due to an aging population in the United States, which will drive growth across our business lines.

        Proven Financial Performance and Strong Cash Flow.    We have established a track record of improving the financial performance of our facilities due to our disciplined approach to revenue growth, expense management and an intense focus on free cash flow generation. This includes regular review of specific financial metrics of our business to determine trends in our revenue generation, expenses, billing and cash collection. Based on the ongoing analysis of such trends, we make adjustments to our operations to optimize our financial performance and cash flow.

        Significant Scale.    By building significant scale in each of our business segments, we have been able to leverage our operating costs by centralizing administrative functions at our corporate office. As a result, we have been able to minimize our general and administrative expense as a percentage of revenues.

        Experience in Successfully Completing and Integrating Acquisitions.    From our inception in 1997 through 2013, we completed seven significant acquisitions for approximately $1,104.8 million in aggregate consideration. We believe that we have improved the operating performance of these facilities over time by applying our standard operating practices and by realizing efficiencies from our centralized operations and management.

        Experience in Partnering with Large Health Care Systems.    Over the past several years we have partnered with large regional health care systems to provide post acute care services. We believe that we provide operating expertise through our experience in operating specialty hospitals and outpatient rehabilitation services to these ventures and have improved and expanded the level of post acute care services provided in these communities, as well as the financial performance of these operations.

        Well-Positioned to Capitalize on Consolidation Opportunities.    We believe that we are well-positioned to capitalize on consolidation opportunities within each of our business segments and selectively augment our internal growth. We believe that each of our business segments is fragmented, with many of the nation's LTCHs, IRFs and outpatient rehabilitation facilities being operated by independent operators lacking national or broad regional scope. With our geographically diversified portfolio of facilities in the United States, we believe that our footprint provides us with a wide-ranging perspective on multiple potential acquisition opportunities.

        Experienced and Proven Management Team.    Prior to co-founding our company with our current Executive Chairman and Co-Founder, our Vice Chairman and Co-Founder founded and operated three other healthcare companies focused on inpatient and outpatient rehabilitation services. In addition, our senior management team has extensive experience in the healthcare industry. In recent years, we have reorganized our operations to expand executive talent and ensure management continuity.

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Sources of Net Operating Revenues

        The following table presents the approximate percentages by source of net operating revenue received for healthcare services we provided for the periods indicated:

	Year Ended December 31,
Net Operating Revenues by Payor Source	2011			2012			2013
Medicare		48.2	%		46.9	%		45.9	%
Commercial insurance(1)		41.5	%		41.9	%		41.7	%
Private and other(2)		7.0	%		7.7	%		8.6	%
Medicaid		3.3	%		3.5	%		3.8	%
Total		100.0	%		100.0	%		100.0	%

(1)

Includes commercial healthcare insurance carriers, health maintenance organizations, preferred provider organizations, workers' compensation and managed care programs.

(2)

Includes self-payors, contract management services and non-patient related payments. Self-pay revenues represent less than 1% of total net operating revenues for all periods.

Government Sources

        Medicare is a federal program that provides medical insurance benefits to persons age 65 and over, some disabled persons, and persons with end-stage renal disease. Medicaid is a federal-state funded program, administered by the states, which provides medical benefits to individuals who are unable to afford healthcare. As of December 31, 2013, we operated 123 specialty hospitals, all of which are currently certified as Medicare providers. Our outpatient rehabilitation clinics regularly receive Medicare payments for their services. Additionally, many of our specialty hospitals participate in state Medicaid programs. Amounts received under the Medicare and Medicaid programs are generally less than the customary charges for the services provided. In recent years there have been significant changes made to the Medicare and Medicaid programs. Since a significant portion of our revenues come from patients under the Medicare program, our ability to operate our business successfully in the future will depend in large measure on our ability to adapt to changes in the Medicare program. See " — Government Regulations — Overview of U.S. and State Government Reimbursements."

Non-Government Sources

        Our non-government sources of net operating revenue include insurance companies, workers' compensation programs, health maintenance organizations, preferred provider organizations, other managed care companies and employers, as well as by patients directly. Patients are generally not responsible for any difference between customary charges for our services and amounts paid by Medicare and Medicaid programs, insurance companies, workers' compensation companies, health maintenance organizations, preferred provider organizations and other managed care companies, but are responsible for services not covered by these programs or plans, as well as for deductibles and co-insurance obligations of their coverage. The amount of these deductibles and co-insurance obligations has increased in recent years. Collection of amounts due from individuals is typically more difficult than collection of amounts due from government or commercial payors.

Employees

        As of December 31, 2013, we employed approximately 31,200 people throughout the United States. Approximately 21,100 of our employees are full time and the remaining approximately 10,100 are part-time employees. Specialty hospital employees totaled approximately 21,000 and outpatient, contract

9

therapy and physical rehabilitation and occupational health employees totaled approximately 9,300. The remaining approximately 900 employees were in corporate management, administration and other support services primarily residing at our Mechanicsburg, Pennsylvania headquarters.

Competition

        We compete on the basis of the quality of the patient services we provide, the results that we achieve for our patients and the prices we charge for our services. The primary competitive factors in the long term acute care and inpatient rehabilitation businesses include quality of services, charges for services and responsiveness to the needs of patients, families, payors and physicians. Other companies operate LTCHs and IRFs that compete with our hospitals, including large operators of similar facilities, such as Kindred Healthcare Inc. and HealthSouth Corporation and rehabilitation units and stepdown units operated by acute care hospitals in the markets we serve. The competitive position of any hospital is also affected by the ability of its management to negotiate contracts with purchasers of group healthcare services, including private employers, managed care companies, preferred provider organizations and health maintenance organizations. Such organizations attempt to obtain discounts from established hospital charges. The importance of obtaining contracts with preferred provider organizations, health maintenance organizations and other organizations which finance healthcare, and its effect on a hospital's competitive position, vary from area to area, depending on the number and strength of such organizations.

        Our outpatient rehabilitation clinics face competition principally from locally owned and managed outpatient rehabilitation clinics in the communities they serve and from selected national providers such as Physiotherapy Associates and U.S. Physical Therapy in selected local areas. Some of these clinics have longer operating histories and greater name recognition in these communities than our clinics, and they may have stronger relations with physicians in these communities on whom we rely for patient referrals.

Government Regulations

General

        The healthcare industry is required to comply with many complex laws and regulations at the federal, state and local government levels. These laws and regulations require that hospitals and outpatient rehabilitation clinics meet various requirements, including those relating to the adequacy of medical care, equipment, personnel, operating policies and procedures, maintenance of adequate records, safeguarding protected health information, compliance with building codes and environmental protection and healthcare fraud and abuse. These laws and regulations are extremely complex and, in many instances, the industry does not have the benefit of significant regulatory or judicial interpretation. If we fail to comply with applicable laws and regulations, we could suffer civil or criminal penalties, including the loss of our licenses to operate and our ability to participate in the Medicare, Medicaid and other federal and state healthcare programs.

Facility Licensure

        Our healthcare facilities are subject to state and local licensing regulations ranging from the adequacy of medical care to compliance with building codes and environmental protection laws. In order to assure continued compliance with these various regulations, governmental and other authorities periodically inspect our facilities, not only at scheduled intervals but also in response to complaints from patients and others. While our facilities intend to comply with existing licensing and Medicare certification requirements and accreditation standards, there can be no assurance that regulatory authorities will determine that all applicable requirements are fully met at any given time. A determination by an applicable regulatory authority that a facility is not in compliance with these requirements could lead to the imposition of corrective action, assessment of fines and penalties, or loss of licensure, Medicare certification or accreditation. These consequences could have an adverse effect on our company.

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        Some states still require us to get approval under certificate of need regulations when we create, acquire or expand our facilities or services, or alter the ownership of such facilities, whether directly or indirectly. The certificate of need regulations vary from state to state, and are subject to change and new interpretation. If we fail to show public need and obtain approval in these states for our new facilities or changes to the ownership structure of existing facilities, we may be subject to civil or even criminal penalties, lose our facility license or become ineligible for reimbursement.

Professional Licensure and Corporate Practice

        Healthcare professionals at our hospitals and outpatient rehabilitation clinics are required to be individually licensed or certified under applicable state law. We take steps to ensure that our employees and agents possess all necessary licenses and certifications. Some states prohibit the "corporate practice of therapy" so that business corporations such as ours are restricted from practicing therapy through the direct employment of therapists. The laws relating to corporate practice vary from state to state and are not fully developed in each state in which we have outpatient clinics. We believe that each of our outpatient therapy clinics complies with any current corporate practice prohibition of the state in which it is located. For example, in those states that apply the corporate practice prohibition, we either contract to obtain therapy services from an entity permitted to employ therapists or we manage the physical therapy practice owned by licensed therapists through which the therapy services are provided. However, future interpretations of the corporate practice prohibition, enactment of new legislation or adoption of new regulations could cause us to have to restructure our business operations or close our clinics in a particular state. If new legislation, regulations or interpretations establish that our clinics do not comply with state corporate practice prohibition, we could be subject to civil, and perhaps criminal, penalties. Any such restructuring or penalties could have a material adverse effect on our business.

Certification

        In order to participate in the Medicare program and receive Medicare reimbursement, each facility must comply with the applicable regulations of the United States Department of Health and Human Services relating to, among other things, the type of facility, its equipment, its personnel and its standards of medical care, as well as compliance with all applicable state and local laws and regulations. As of December 31, 2013, all of the 123 specialty hospitals we operated were certified as Medicare providers. In addition, we provide the majority of our outpatient rehabilitation services through clinics certified by Medicare as rehabilitation agencies or "rehab agencies."

Accreditation

        Our specialty hospitals receive accreditation from The Joint Commission, the AOA, CARF and/or other healthcare accrediting organizations. As of December 31, 2013, all of the 123 specialty hospitals we operated were accredited by either The Joint Commission or the AOA. In addition, some of our IRFs have also applied for and received accreditation from CARF.

Overview of U.S. and State Government Reimbursements

Medicare Program in General

        The Medicare program reimburses healthcare providers for services furnished to Medicare beneficiaries, which are generally persons age 65 and older, those who are chronically disabled, and those suffering from end stage renal disease. The program is governed by the Social Security Act of 1965 and is administered primarily by the Department of Health and Human Services and CMS. Net operating revenues generated directly from the Medicare program represented approximately 48% of our consolidated net operating revenues for the year ended December 31, 2011, 47% for the year ended December 31, 2012, and 46% for the year ended December 31, 2013.

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        The Medicare program reimburses various types of providers, including LTCHs, IRFs and outpatient rehabilitation providers, using different payment methodologies. The Medicare reimbursement systems specific to LTCHs, IRFs and outpatient rehabilitation providers, as described below, are different than the system applicable to general acute care hospitals. If any of our hospitals fail to comply with requirements for payment under Medicare reimbursement systems for LTCHs or IRFs, as applicable, that hospital will be paid under the system applicable to general acute care hospitals. For general acute care hospitals, Medicare payments for inpatient care are made under the inpatient prospective payment system, or "IPPS," under which a hospital receives a fixed payment amount per discharge (adjusted for area wage differences) using Medicare severity diagnosis-related groups, or "MS-DRGs." The general acute care hospital MS-DRG payment rate is based upon the national average cost of treating a Medicare patient's condition, based on severity levels of illness, in that type of facility. Although the average length of stay varies for each MS-DRG, the average stay of all Medicare patients in a general acute care hospital is substantially less than the average length of stay in LTCHs and IRFs. Thus, the prospective payment system for general acute care hospitals creates an economic incentive for those hospitals to discharge medically complex Medicare patients to a post-acute care setting as soon as clinically possible. Effective October 1, 2005, CMS expanded its post-acute care transfer policy under which general acute care hospitals are paid on a per diem basis rather than the full MS-DRG rate if a patient is discharged early to certain post-acute care settings, including LTCHs and IRFs. When a patient is discharged from selected MS-DRGs to, among other providers, an LTCH or IRF, the general acute care hospital may be reimbursed below the full MS-DRG payment if the patient's length of stay is less than the geometric mean length of stay for the MS-DRG.

Long Term Acute Care Hospital Medicare Reimbursement

        The Medicare payment system for LTCHs is based on a prospective payment system specifically applicable to LTCHs. The long term care hospital prospective payment system, or "LTCH-PPS," was established by CMS final regulations published on August 30, 2002, and applies to LTCHs for cost reporting periods beginning on or after October 1, 2002. The policies and payment rates under LTCH-PPS are subject to annual updates and revisions. Under LTCH-PPS, each patient discharged from an LTCH is assigned to a distinct MS-LTC-DRG and an LTCH is generally paid a pre-determined fixed amount applicable to the assigned MS-LTC-DRG (adjusted for area wage differences), subject to exceptions for short stay and high cost outlier patients (described below). CMS assigns relative weights to each MS-LTC-DRG to reflect their relative use of medical care resources. The payment amount for each MS-LTC-DRG is intended to reflect the average cost of treating a Medicare patient assigned to that MS-LTC-DRG in an LTCH.

Standard Federal Rate

        Payment under the LTCH-PPS is dependent on determining the patient classification, that is, the assignment of the case to a particular MS-LTC-DRG, the weight of the MS-LTC-DRG and the standard federal payment rate. There is a single standard federal rate that encompasses both the inpatient operating costs, which includes a labor and non-labor component, and capital-related costs that CMS updates on an annual basis. LTCH-PPS also includes special payment policies that adjust the payments for some patients based on the patient's length of stay, the facility's costs, whether the patient was discharged and readmitted and other factors.

Patient Criteria

        The Bipartisan Budget Act of 2013, enacted December 26, 2013, establishes new payment limits for Medicare patients who do not meet specified criteria. Specifically, for Medicare patients discharged in cost reporting periods beginning on or after October 1, 2015, LTCHs will be reimbursed under LTCH-PPS only if, immediately preceding the patient's LTCH admission, the patient was discharged from a general acute care hospital paid under IPPS and the patient's stay included at least three days in an intensive care unit

12

(ICU) or coronary care unit (CCU) or the patient is assigned to an MS-LTC-DRG for cases receiving at least 96 hours of ventilator services in the LTCH. In addition, to be paid under LTCH-PPS the patient's discharge from the LTCH may not include a principal diagnosis relating to psychiatric or rehabilitation services. For any Medicare patient who does not meet the new criteria, the LTCH will be paid a lower "site-neutral" payment rate, which will be the lower of (1) the IPPS comparable per-diem payment rate including any outlier payments, or (2) 100 percent of the estimated costs for services.

        The Bipartisan Budget Act of 2013 provides for a transition to the site-neutral payment rate for those patients not paid under LTCH-PPS. During the transition period (cost reporting periods beginning on or after October 1, 2015 through September 30, 2017), a blended rate will be paid for Medicare patients not meeting the new criteria. The blended rate will comprise half the site-neutral payment rate and half the LTCH-PPS payment rate. For discharges in cost reporting periods beginning on or after October 1, 2017, only the site-neutral payment rate will apply for Medicare patients not meeting the new criteria.

        In addition, for cost reporting periods beginning on or after October 1, 2019, qualifying discharges from an LTCH will continue to be paid at the LTCH-PPS payment rate, unless the number of discharges for which payment is made under the site-neutral payment rate is greater than 50% of the total number of discharges from the LTCH. If the number of discharges for which payment is made under the site-neutral payment rate is greater than 50%, then beginning in the next cost reporting period all discharges from the LTCH will be reimbursed at the site-neutral payment rate. The Bipartisan Budget Act of 2013 requires CMS to establish a process for an LTCH subject to the site-neutral payment rate to re-qualify for payment under LTCH-PPS.

Short Stay Outlier Policy

        CMS established a different payment methodology for Medicare patients with a length of stay less than or equal to five-sixths of the geometric average length of stay for that particular MS-LTC-DRG, referred to as a short stay outlier, or "SSO." SSO cases are paid based on the lesser of (1) 100% of the average cost of the case, (2) 120% of the MS-LTC-DRG specific per diem amount multiplied by the patient's length of stay, (3) the full MS-LTC-DRG payment, or (4) a per diem rate derived from blending 120% of the MS-LTC-DRG specific per diem amount with a per diem rate based on the general acute care hospital IPPS.

        The SSO rule also has a category referred to as a "very short stay outlier", which applies to cases with a length of stay that is less than the average length of stay plus one standard deviation for the same MS-DRG under IPPS, referred to as the so-called "IPPS comparable threshold." The LTCH payment for very short stay outlier cases is equivalent to the general acute care hospital IPPS per diem rate. The Medicare, Medicaid, and SCHIP Extension Act of 2007, or the "SCHIP Extension Act," as amended by the American Recovery and Reinvestment Act, or the "ARRA," and the Patient Protection and Affordable Care Act, or the "PPACA," prevented CMS from applying the very short stay outlier policy during the period from December 29, 2007 through December 28, 2012. The very short stay outlier policy again became applicable to discharges occurring on or after December 29, 2012.

High Cost Outliers

        Some cases are extraordinarily costly, producing losses that may be too large for hospitals to offset. Cases with unusually high costs, referred to as "high cost outliers," receive a payment adjustment to reflect the additional resources utilized. CMS provides an additional payment if the estimated costs for the patient exceed the adjusted MS-LTC-DRG payment plus a fixed-loss amount that is established in the annual payment rate update.

Interrupted stays

        An interrupted stay is defined as a case in which an LTCH patient, upon discharge, is admitted to a general acute care hospital, IRF or skilled nursing facility/swing-bed and then returns to the same LTCH

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within a specified period of time. If the length of stay at the receiving provider is equal to or less than the applicable fixed period of time, it is considered to be an interrupted stay case and the case is treated as a single discharge for the purposes of payment to the LTCH.

Freestanding, HIH and Satellite LTCHs

        LTCHs may be organized and operated as freestanding facilities or as HIHs. As its name suggests, a freestanding LTCH is not located on the campus of another hospital. For such purpose, "campus" means the physical area immediately adjacent to a hospital's main buildings, other areas and structures that are not strictly contiguous to a hospital's main buildings but are located within 250 yards of its main buildings, and any other areas determined, on an individual case basis by the applicable CMS regional office, to be part of a hospital's campus. Conversely, an HIH is an LTCH that is located on the campus of another hospital. An LTCH, whether freestanding or an HIH, that uses the same Medicare provider number of an affiliated "primary site" LTCH is known as a "satellite." Under Medicare policy, a satellite LTCH must be located within 35 miles of its primary site LTCH and be administered by such primary site LTCH. A primary site LTCH may have more than one satellite LTCH. CMS sometimes refers to a satellite LTCH that is freestanding as a "remote location."

Facility Certification Criteria

        The LTCH-PPS regulations define the criteria that must be met in order for a hospital to be certified as an LTCH. To be eligible for payment under the LTCH-PPS, a hospital must be primarily engaged in providing inpatient services to Medicare beneficiaries with medically complex conditions that require a long hospital stay. In addition, by definition, LTCHs must meet certain facility criteria, including (1) instituting a review process that screens patients for appropriateness of an admission and validates the patient criteria within 48 hours of each patient's admission, evaluates regularly their patients for continuation of care and assesses the available discharge options, (2) having active physician involvement with patient care that includes a physician available on-site daily and additional consulting physicians on call, and (3) having an interdisciplinary team of healthcare professionals to prepare and carry out an individualized treatment plan for each patient.

        An LTCH must have an average inpatient length of stay for Medicare patients (including both Medicare covered and non-covered days) of greater than 25 days. LTCHs that fail to exceed an average length of stay of 25 days during any cost reporting period may be paid under the general acute care hospital IPPS if not corrected within established timeframes. CMS, through its contractors, determines whether an LTCH has maintained an average length of stay of greater than 25 days during each annual cost reporting period. In the preamble to the final rule for fiscal year 2012, CMS clarified its policy on the calculation of the average length of stay by specifying that all data on all Medicare inpatient days, including Medicare Advantage days, must be included in the average length of stay calculation effective for cost reporting periods beginning on or after January 1, 2012. Under the Bipartisan Budget Act of 2013, for discharges occurring in cost reporting periods beginning on or after October 1, 2015, LTCH cases paid at the site-neutral rate and Medicare Advantage cases are excluded from the LTCH average length of stay calculation.

        Prior to qualifying under the payment system applicable to LTCHs, a new LTCH initially receives payments under the general acute care hospital IPPS. The LTCH must continue to be paid under this system for a minimum of six months while meeting certain Medicare LTCH requirements, the most significant requirement being an average length of stay for Medicare patients (including both Medicare covered and non-covered days) greater than 25 days.

25 Percent Rule

        The "25 Percent Rule" is a downward payment adjustment that applies if the percentage of Medicare patients discharged from LTCHs who were admitted from an individual hospital (regardless of whether the

14

LTCH or LTCH satellite is co-located with the referring hospital) exceeds the applicable percentage admissions threshold during a particular cost reporting period. Specifically, the payment rate for Medicare patients above the percentage admissions threshold are subject to a downward payment adjustment. For Medicare patients above the applicable percentage admissions threshold, the LTCH is reimbursed at a rate comparable to that under general acute care hospital IPPS, which is generally lower than LTCH-PPS rates. Cases that reach outlier status in the referring hospital do not count toward the admissions threshold and are paid under LTCH-PPS.

        The SCHIP Extension Act, as amended by the ARRA and the PPACA, has limited the full application of the 25 Percent Rule. However, the SCHIP Extension Act did not postpone the application of the percentage admissions threshold to those Medicare patients discharged from an LTCH HIH or satellite that were admitted from a non-co-located hospital. In addition, CMS adopted regulations providing for a one-year extension of relief from the full application of the 25 Percent Rule. As a result, full implementation of the Medicare percentage admissions thresholds did not go into effect until cost reporting periods beginning on or after October 1, 2013, except for certain LTCHs with cost reporting periods that begin between July 1, 2012 and through September 30, 2012. Specifically, those freestanding facilities, grandfathered HIHs and grandfathered satellites with cost reporting periods beginning on or after July 1, 2012 and through September 30, 2012 were subject to a modified 25 Percent Rule for discharges occurring in a three month period between July 1, 2012 and September 30, 2012.

        The Bipartisan Budget Act of 2013 further delays, and in some cases permanently suspends, the application of the 25 Percent Rule. The following table describes the types of LTCHs and the statutory and regulatory relief they have received from the payment adjustment for these discharges:

Type of LTCH	Non Co-located Admissions(1)	Co-located Admissions(2)
Non-grandfathered HIHs and satellite facilities opened before October 1, 2004 (69 owned hospitals)	LTCHs in this category are subject to a payment adjustment for discharged Medicare patients exceeding 25% of the LTCH's total Medicare population.	Percentage admissions threshold was raised from 25% to 50%. In the special case of rural LTCHs, LTCHs co-located with an urban single hospital, or LTCHs co-located with an MSA-dominant hospital the referral percentage was raised from 50% to 75%. This relief is now effective until cost reporting periods beginning on or after October 1, 2016.
Grandfathered HIHs (2 owned hospitals)	25 Percent Rule not applicable.	25 Percent Rule not applicable.
Grandfathered satellites (0 owned hospitals)	LTCHs in this category are subject to a payment adjustment for discharged Medicare patients exceeding 25% of the LTCH's total Medicare population.	Percentage admissions threshold was raised from 25% to 50%. In the special case of rural LTCHs, LTCHs co-located with an urban single hospital, or LTCHs co-located with an MSA-dominant hospital the referral percentage was raised from 50% to 75%. This relief is now effective until cost reporting periods beginning on or after July 1, 2016.

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Type of LTCH	Non Co-located Admissions(1)	Co-located Admissions(2)
Freestanding facilities (29 owned hospitals)	Percentage admissions threshold is suspended until cost reporting periods beginning on or after July 1, 2016.	25 Percent Rule not applicable.
Facilities co-located with a provider-based, off-campus, non-inpatient location of an inpatient prospective payment system hospital (0 owned hospitals)	Percentage admissions threshold is suspended until cost reporting periods beginning on or after July 1, 2016.	Percentage admissions threshold is suspended until cost reporting periods beginning on or after July 1, 2016.
HIHs and satellite facilities opened on or after October 1, 2004 (7 owned hospitals)	LTCHs in this category are subject to a payment adjustment for discharged Medicare patients exceeding 25% of the LTCH's total Medicare population.	LTCHs in this category are subject to a payment adjustment for discharged Medicare patients exceeding 25% of the LTCH's total Medicare population. In the special case where an LTCH is co-located with an MSA-dominant hospital, the referral percentage is no more than 50%, nor less than 25%.

(1)

Medicare patients admitted from a hospital not located in the same building or on the same campus as the LTCH or satellites of the LTCH.

(2)

Medicare patients admitted from a hospital located in the same building or on the same campus as the LTCH or satellites of the LTCH.

        After the expiration of the regulatory relief, as described above, our LTCHs (whether freestanding, HIH or satellite) will be subject to a downward payment adjustment for any Medicare patients who were admitted from a co-located or a non-co-located hospital and that exceed the applicable percentage admissions threshold of all Medicare patients discharged from the LTCH during the cost reporting period. These regulatory changes will have an adverse financial impact on the net operating revenues and profitability of many of these hospitals for cost reporting periods beginning on or after July 1, 2016.

        The Bipartisan Budget Act of 2013 requires CMS to report to Congress before October 2016 on the need for any further extensions or modifications of the extensions of the 25 Percent Rule. In addition, the Bipartisan Budget Act of 2013 requires the Medicare Payment Advisory Commission, or "MedPAC," to report to Congress by June 2019 on the need to continue applying the 25 Percent Rule, the effect of site-neutral payment on LTCHs, and recommendations on how to change the site-neutral payment policy.

Moratorium on New LTCHs, LTCH Satellite Facilities and LTCH beds

        The SCHIP Extension Act imposed a moratorium on the establishment and classification of new LTCHs, LTCH satellite facilities and LTCH beds in existing LTCHs or satellite facilities. The PPACA extended this moratorium by two years. The moratorium expired on December 28, 2012. The Bipartisan Budget Act of 2013 reinstates the moratorium on the establishment and classification of new LTCHs, LTCH satellite facilities and LTCH beds in existing LTCHs or satellite facilities beginning January 1, 2015 through September 30, 2017.

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One-Time Budget Neutrality Adjustment

        Congress required that the LTC-DRG payment rates maintain budget neutrality during the first years of the prospective payment system with total expenditures that would have been made under the previous reasonable cost-based payment system. The LTCH-PPS regulations give CMS the ability to make a one-time adjustment to the standard federal rate to correct any "significant difference between actual payments and estimated payments for the first year" of LTCH-PPS. The SCHIP Extension Act precluded CMS from implementing the one-time prospective adjustment to the LTCH standard federal rate for a period of three years. The PPACA extended the stay on CMS's ability to adopt a one-time budget neutrality adjustment to LTCH-PPS through December 28, 2012. In the update to the Medicare policies and payment rates for fiscal year 2013, CMS adopted a one-time budget neutrality adjustment that results in a permanent negative adjustment of 3.75% to the LTCH base rate. CMS is implementing the adjustment over a three-year period by applying a factor of 0.98734 to the standard federal rate in fiscal years 2013, 2014 and 2015, except that the adjustment would not apply to payments for discharges occurring on or after October 1, 2012 through December 28, 2012.

Annual Payment Rate Update

Fiscal Year 2012.    On August 18, 2011, CMS published the policies and payment rates for LTCH-PPS for fiscal year 2012 (affecting discharges and cost reporting periods beginning on or after October 1, 2011 through September 30, 2012). The standard federal rate for fiscal year 2012 was $40,222, which was an increase from the fiscal year 2011 standard federal rate of $39,600. The update to the standard federal rate for fiscal year 2012 included a market basket increase of 2.9%, less a productivity adjustment of 1.0%, and less an additional market basket reduction of 0.1% as mandated by the PPACA. The final rule established a fixed-loss amount for high cost outlier cases for fiscal year 2012 of $17,931, which was a decrease from the fixed-loss amount in the 2011 fiscal year of $18,785.

Fiscal Year 2013.    On August 1, 2012, CMS published the final rule updating the policies and payment rates for LTCH-PPS for fiscal year 2013 (affecting discharges and cost reporting periods beginning on or after October 1, 2012 through September 30, 2013). Two different standard federal rates apply during fiscal year 2013. The standard federal rate for discharges on or after October 1, 2012 and before December 29, 2012 is $40,916 and the standard federal rate for discharges on or after December 29, 2012 for the remainder of fiscal year 2013 is $40,398, both of which are an increase from the fiscal year 2012 standard federal rate of $40,222. The update to the standard federal rate for fiscal year 2013 through December 28, 2012 included a market basket increase of 2.6%, less a productivity adjustment of 0.7%, and less an additional market basket reduction of 0.1% as mandated by the PPACA. The standard federal rate for the period of December 29, 2012 through the remainder of fiscal 2013 is further reduced by a portion of the one-time budget neutrality adjustment of 1.266%, as discussed above. The final rule establishes a fixed-loss amount for high cost outlier cases for fiscal year 2013 of $15,408, which is a decrease from the fixed-loss amount in the 2012 fiscal year of $17,931.

Fiscal Year 2014.    On August 19, 2013, CMS published the final rule updating the policies and payment rates for LTCH-PPS for fiscal year 2014 (affecting discharges and cost reporting periods beginning on or after October 1, 2013 through September 30, 2014). The standard federal rate was set at $40,607, an increase from the standard federal rate applicable during the period from December 29, 2012 through September 30, 2013 of $40,398. The update to the standard federal rate for fiscal year 2014 includes a market basket increase of 2.5%, less a productivity adjustment of 0.5%, less a reduction of 0.3% mandated by the PPACA, and less a budget neutrality adjustment of 1.266%, as discussed above. The fixed-loss amount for high cost outlier cases was set at $13,314, which is a decrease from the fixed-loss amount in the 2013 fiscal year of $15,408.

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Medicare Market Basket Adjustments

        The PPACA instituted a market basket payment adjustment to LTCHs. In fiscal years 2015 and 2016 the market basket update will be reduced by 0.2%. Finally, in fiscal years 2017 through 2019, the market basket update will be reduced by 0.75%. The PPACA specifically allows these market basket reductions to result in less than a 0% payment update and payment rates that are less than the prior year.

Medicare Reimbursement of Inpatient Rehabilitation Facility Services

        IRFs are paid under a prospective payment system specifically applicable to this provider type, which is referred to as "IRF-PPS." Under the IRF-PPS, each patient discharged from an IRF is assigned to a case mix group, or "IRF-CMG," containing patients with similar clinical conditions that are expected to require similar amounts of resources. An IRF is generally paid a pre-determined fixed amount applicable to the assigned IRF-CMG (subject to applicable case adjustments related to length of stay and facility level adjustments for location and low income patients). The payment amount for each IRF-CMG is intended to reflect the average cost of treating a Medicare patient's condition in an IRF relative to patients with conditions described by other IRF-CMGs. The IRF-PPS also includes special payment policies that adjust the payments for some patients based on the patient's length of stay, the facility's costs, whether the patient was discharged and readmitted and other factors.

Facility Certification Criteria

        Our rehabilitation hospitals must meet certain facility criteria to be classified as an IRF by the Medicare program, including: (1) a provider agreement to participate as a hospital in Medicare, (2) a preadmission screening procedure, (3) ensuring that patients receive close medical supervision and furnish, through the use of qualified personnel, rehabilitation nursing, physical therapy, and occupational therapy, plus, as needed, speech therapy, social or psychological services, and orthotic and prosthetic services, (4) a full-time, qualified director of rehabilitation, (5) a plan of treatment for each inpatient that is established, reviewed, and revised as needed by a physician in consultation with other professional personnel who provide services to the patient, and (6) a coordinated multidisciplinary team approach in the rehabilitation of each inpatient, as documented by periodic clinical entries made in the patient's medical record to note the patient's status in relationship to goal attainment, and that team conferences are held at least every two weeks to determine the appropriateness of treatment. Failure to comply with any of the classification criteria may result in the denial of claims for payment or cause a hospital to lose its status as an IRF and be paid under the prospective payment system that applies to general acute care hospitals.

Patient Classification Criteria

        Under the IRF certification criteria that has been in effect since 1983, in order to qualify as an IRF, a hospital was required to satisfy certain operational criteria as well as demonstrate that, during its most recent 12-month cost reporting period, it served an inpatient population of whom at least 75% required intensive rehabilitation services for one or more of 10 conditions specified in the regulation. We refer to such 75% requirement as the "75 Percent Rule."

        New IRF certification criteria became effective for cost reporting periods beginning on or after July 1, 2004 as a result of the major changes that CMS adopted on May 7, 2004 to the 75 Percent Rule that: (1) temporarily lowered the 75% compliance threshold (starting at 50% and phasing to 75% over four years), (2) modified and expanded from 10 to 13 the medical conditions used to determine whether a hospital qualifies as an IRF, (3) identified the conditions under which comorbidities can be used to verify compliance with the 75 Percent Rule, and (4) changed the timeframe used to determine compliance with the 75 Percent Rule from "the most recent 12-month cost reporting period" to "the most recent, consecutive, and appropriate 12-month period," with the result that a determination of non-compliance with the applicable compliance threshold will affect the facility's certification as an IRF for its cost reporting period that begins immediately after the 12-month review period.

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        Under the Deficit Reduction Act of 2005, enacted on February 8, 2006, Congress extended the phase-in period for the 75 Percent Rule by maintaining the compliance threshold at 60% (rather than increasing it to the scheduled 65%) during the 12-month period beginning on July 1, 2006. The compliance threshold was then to increase to 65% for cost reporting periods beginning on or after July 1, 2007 and again to 75% for cost reporting periods beginning on or after July 1, 2008. However, the SCHIP Extension Act included a permanent freeze in the 75 Percent Rule patient classification criteria compliance threshold at 60% (with comorbidities counting toward this threshold) and a payment freeze from April 1, 2008 through September 30, 2009.

        Compliance with the patient classification criteria is demonstrated through either medical review or the "presumptive" method, in which a patient's diagnosis codes are compared to a "presumptive compliance" list. CMS has announced that it will remove a number of diagnosis codes from the presumptive compliance list. According to CMS, these conditions do not demonstrate the need for intensive inpatient rehabilitation services in the absence of additional facts that would have to be pulled from a patient's medical record. As a result, beginning on or after October 1, 2014, a number of diagnosis codes previously on the presumptive compliance list will be removed, including diagnosis codes in the following categories: non-specific diagnosis codes, arthritis diagnosis codes, unilateral upper extremity amputations diagnosis, some congenital anomalies diagnosis codes, other miscellaneous diagnosis codes.

Annual Payment Rate Update

Fiscal Year 2012.    On August 5, 2011, CMS published the policies and payment rates for IRF-PPS for fiscal year 2012 (affecting discharges and cost reporting periods beginning on or after October 1, 2011 through September 30, 2012). The standard payment conversion factor for discharges during fiscal year 2012 was $14,076, which was an increase from the fiscal year 2011 standard payment conversion factor of $13,860. The update to the standard payment conversion factor for fiscal year 2012 included a market basket increase of 2.9%, less a productivity adjustment of 1.0%, and less an additional market basket reduction of 0.1% as mandated by the PPACA CMS decreased the outlier threshold amount for fiscal year 2012 to $10,660 from $11,410 established in the final rule for fiscal year 2011. In a notice published September 26, 2011, CMS corrected its calculation of the outlier threshold amount for fiscal year 2012 to $10,713.

Fiscal Year 2013.    On July 30, 2012, CMS published the final rule updating policies and payment rates for IRF-PPS for fiscal year 2013 (affecting discharges and cost reporting periods beginning on or after October 1, 2012 through September 30, 2013). The standard payment conversion factor for discharges during fiscal year 2013 is $14,343, which is an increase from the fiscal year 2012 standard payment conversion factor of $14,076. The update to the standard payment conversion factor for fiscal year 2013 includes a market basket increase of 2.7%, less a productivity adjustment of 0.7%, less an additional reduction of 0.1% as mandated by the PPACA. CMS decreased the outlier threshold amount for fiscal year 2013 to $10,466 from $10,713 established in the final rule for fiscal year 2012.

Fiscal Year 2014.    On August 6, 2013, CMS published the final rule updating policies and payment rates for IRF-PPS for fiscal year 2014 (affecting discharges and cost reporting periods beginning on or after October 1, 2013 through September 30, 2014). The standard payment conversion factor for discharges for fiscal year 2014 is $14,846, which is an increase from the fiscal year 2013 standard payment conversion factor of $14,343. The update to the standard payment conversion factor for fiscal year 2014 includes a market basket increase of 2.6%, less a productivity adjustment of 0.5%, less an additional reduction of 0.3% as mandated by the PPACA. CMS decreased the outlier threshold amount for fiscal year 2014 to $9,272 from $10,466 established in the final rule for fiscal year 2013.

Medicare Market Basket Adjustments

        The PPACA instituted a market basket payment adjustment for IRFs. For fiscal years 2015 and 2016, the reduction is 0.2%. For fiscal years 2017 through 2019, the reduction is 0.75%.

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Medicare Reimbursement of Outpatient Rehabilitation Services

        The Medicare program reimburses outpatient rehabilitation providers based on the Medicare physician fee schedule. The Medicare physician fee schedule rates are automatically updated annually based on a formula, called the sustainable growth rate, or "SGR," formula, contained in legislation. The SGR formula has resulted in automatic reductions in rates every year since 2002; however, for each year through March 31, 2014 CMS or Congress has taken action to prevent the SGR formula reductions. On December 10, 2013, CMS estimated a 20.1% reduction in the Medicare physician fee schedule payment rates for calendar year 2014 as a result of the SGR formula. The Bipartisan Budget Act of 2013 blocks the 20.1% reduction for services provided through March 31, 2014. Reimbursement for outpatient rehabilitation services paid under the Medicare physician fee schedule will generally remain unchanged through March 31, 2014. Automatic reductions in the Medicare physician fee schedule payment rates will commence on April 1, 2014, unless Congress again takes legislative action to prevent the SGR formula reductions from going into effect. For the year ended December 31, 2013, we received approximately 9% of our outpatient rehabilitation net operating revenues from Medicare.

        In addition, MedPAC recommended that Congress direct CMS to collect data on provider service volume and work time to establish more accurate relative value unit payment rates and to identify and reduce overpriced fee schedule services. Similarly, the PPACA requires CMS to identify and review potentially misvalued codes and make appropriate adjustments to the relative values of those services identified as being misvalued.

Therapy Caps

        Beginning on January 1, 1999, the Balanced Budget Act of 1997 subjected certain outpatient therapy providers reimbursed under the Medicare physician fee schedule to annual limits for therapy expenses. Effective January 1, 2014, the annual limit on outpatient therapy services is $1,920 for combined physical and speech language pathology services and $1,920 for occupational therapy services. The per beneficiary caps were $1,900 for calendar year 2013.

        The annual limits for therapy expenses historically did not apply to services furnished and billed by outpatient hospital departments. However, the American Taxpayer Relief Act of 2012 and the Bipartisan Budget Act of 2013 extended the annual limits on therapy expenses and manual medical review thresholds to services furnished in hospital outpatient department settings through March 31, 2014. The application of annual limits to hospital outpatient department settings will sunset on March 31, 2014 unless Congress extends it. We operated 1,006 outpatient rehabilitation clinics at December 31, 2013, of which 158 were provider-based outpatient rehabilitation clinics operated as departments of the inpatient rehabilitation hospitals we operated.

        In the Deficit Reduction Act of 2005, Congress implemented an exceptions process to the annual limit for therapy expenses. Under this process, a Medicare enrollee (or person acting on behalf of the Medicare enrollee) is able to request an exception from the therapy caps if the provision of therapy services was deemed to be medically necessary. Therapy cap exceptions have been available automatically for certain conditions and on a case-by-case basis upon submission of documentation of medical necessity. The Bipartisan Budget Act of 2013 extends the exceptions process for outpatient therapy caps through March 31, 2014. Unless Congress extends the exceptions process, the therapy caps will apply to all outpatient therapy services beginning April 1, 2014, except those services furnished and billed by outpatient hospital departments.

        The Middle Class Tax Relief and Job Creation Act of 2012 made several changes to the exceptions process to the annual limit for therapy expenses. For any claim above the annual limit, the claim must contain a modifier indicating that the services are medically necessary and justified by appropriate documentation in the medical record. Effective October 1, 2012, all claims exceeding $3,700 are subject to a manual medical review process. The $3,700 threshold is applied separately to the combined physical therapy/speech therapy cap and the occupational therapy cap. The Bipartisan Budget Act of 2013 extends

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through March 31, 2014 the requirement that Medicare perform manual medical review of therapy services when an exception is requested for cases in which the beneficiary has reached a specified dollar aggregate threshold. Effective October 1, 2012, all therapy claims, whether above or below the annual limit, must include the national provider identifier (NPI) of the physician responsible for certifying and periodically reviewing the plan of care.

        Several government agencies are expected to release reports on aspects of the Medicare payment system for therapy services. In the final 2011 Medicare physician fee schedule rule, CMS indicated the agency is evaluating alternative payment methodologies that would provide appropriate payment for medically necessary and effective therapy services furnished to Medicare beneficiaries based on patient needs rather than the current therapy caps. The Middle Class Tax Relief and Job Creation Act of 2012 directed MedPAC to submit a report to Congress by June 15, 2013 making recommendations on how to reform the payment system to better reflect acuity, condition, and the therapy needs of the patient. The MedPAC report is to include an examination of private sector initiatives related to therapy benefits. On June 14, 2013, MedPAC released their mandated report to Congress and recommended reducing the therapy cap for physical therapy and speech language pathology services combined and the separate cap for occupational therapy to $1,270 in 2013; permanently including services delivered in hospital outpatient departments under therapy caps; implementing a manual review process for requests to exceed the therapy cap amount; and applying a multiple procedure payment reduction of 50% to the practice expense portion of the outpatient therapy services provided to the same patient on the same day. In addition, the Government Accountability Office, or "GAO," was directed to issue a report no later than May 1, 2013 regarding implementation of the manual medical review process instituted by the Middle Class Tax Relief and Job Creation Act of 2012. On July 10, 2013, the GAO issued its report to Congress on CMS's implementation of the 2012 manual medical review process, and the number of claims subject to manual reviews and the outcomes of these reviews.

Multiple Procedure Payment Reduction

        CMS adopted a multiple procedure payment reduction for therapy services in the final update to the Medicare physician fee schedule for calendar year 2011. This multiple procedure payment reduction policy became effective January 1, 2011 and applies to all outpatient therapy services paid under Medicare Part B. Furthermore, the multiple procedure payment reduction policy applies across all therapy disciplines — occupational therapy, physical therapy and speech-language pathology. Under the policy, the Medicare program pays 100% of the practice expense component of the therapy procedure or unit of service with the highest Relative Value Unit, and then reduces the payment for the practice expense component for the second and subsequent therapy procedures or units of service furnished during the same day for the same patient, regardless of whether those therapy services are furnished in separate sessions. In 2011 and 2012, the second and subsequent therapy service furnished during the same day for the same patient were reduced by 20% in office and other non-institutional settings and by 25% in institutional settings. The American Taxpayer Relief Act of 2012 increases the payment reduction to 50%, in either setting, effective April 1, 2013. Our outpatient rehabilitation therapy services are primarily offered in institutional settings and, as such, were subject to the applicable 25% payment reduction in the practice expense component for the second and subsequent therapy services furnished by us to the same patient on the same day until April 1, 2013 when the payment reduction was increased to 50%.

Other Requirements for Payment

        Historically, outpatient rehabilitation services have been subject to scrutiny by the Medicare program for, among other things, medical necessity for services, appropriate documentation for services, supervision of therapy aides and students and billing for single rather than group therapy when services are furnished to more than one patient. CMS has issued guidance to clarify that services performed by a student are not reimbursed even if provided under "line of sight" supervision of the therapist. Likewise, CMS has reiterated that Medicare does not pay for services provided by aides regardless of the level of supervision.

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CMS also has issued instructions that outpatient physical and occupational therapy services provided simultaneously to two or more individuals by a practitioner should be billed as group therapy services.

Budget Control Act of 2011

        The Budget Control Act of 2011, enacted on August 2, 2011, increased the federal debt ceiling in connection with deficit reductions over the next ten years. The Budget Control Act of 2011 requires automatic reductions in federal spending by approximately $1.2 trillion split evenly between domestic and defense spending. Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2% cap. On April 1, 2013, a 2% reduction to Medicare payments was implemented.

Specialty Hospital Medicaid Reimbursement

        The Medicaid program is designed to provide medical assistance to individuals unable to afford care. The program is governed by the Social Security Act of 1965, funded jointly by each individual state and the federal government, and administered by state agencies. Medicaid payments are made under a number of different systems, which include cost based reimbursement, prospective payment systems or programs that negotiate payment levels with individual hospitals. In addition, Medicaid programs are subject to statutory and regulatory changes, administrative rulings, interpretations of policy by the state agencies and certain government funding limitations, all of which may increase or decrease the level of program payments to our hospitals. Net operating revenues generated directly from the Medicaid program represented approximately 5% of our specialty hospital net operating revenues for the year ended December 31, 2013.

Workers' Compensation

        Workers' compensation is a state mandated, comprehensive insurance program that requires employers to fund or insure medical expenses, lost wages and other costs resulting from work related injuries and illnesses. Workers' compensation benefits and arrangements vary on a state-by-state basis and are often highly complex. In some states, payment for services covered by workers' compensation programs are subject to cost containment features, such as requirements that all workers' compensation injuries be treated through a managed care program, or the imposition of payment caps. In addition, these workers' compensation programs may impose requirements that affect the operations of our outpatient rehabilitation services. Net operating revenues generated directly from workers' compensation programs represented approximately 18% of our net operating revenue from outpatient rehabilitation services and 1% of our net operating revenue from our specialty hospitals for the year ended December 31, 2013.

Other Medicare Regulations

Medicare Quality Reporting

        The PPACA established quality reporting requirements for LTCHs and IRFs. These programs are mandatory. For fiscal year 2014 and each subsequent year, LTCHs and IRFs that do not submit the required quality data will be subject to a 2% reduction in their annual payment update. The reduction can result in payment rates less than the prior year. However, the reduction will not carry over into the subsequent fiscal years.

        The Physician Quality Reporting System, or "PQRS," is a CMS reporting program that uses a combination of incentive payments and payment reductions to promote reporting of quality information by "eligible professionals." Although physical therapists, occupational therapists and qualified speech-language therapists are generally able to participate in the PQRS program, therapy professionals for whose services we bill through our rehab agencies cannot participate because the Medicare claims processing systems currently cannot accommodate institutional providers such as rehab agencies. Eligible professionals, such as those of our therapy professionals for whose services we bill using their individual Medicare provider numbers, who do not satisfactorily report data on quality measures will be subject to a 2% reduction in their Medicare payment. Eligible professionals who satisfactorily report data on PQRS quality measures will earn a 0.5% incentive payment.

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Medicare Productivity Adjustment

        The PPACA implemented a separate annual productivity adjustment for the first time for hospital inpatient services beginning in fiscal year 2012 for LTCHs and IRFs. This provision applied a negative productivity adjustment to the market basket that is used to update the standard federal rate on an annual basis. The market basket does not currently account for increases in provider productivity that could reduce the actual cost of providing services (e.g., through new technology or fewer inputs). The productivity adjustment will equal the 10-year moving average of changes in the annual economy-wide private non-farm business multi-factor productivity. This is a statistic reported by the Bureau of Labor Statistics and updated in the spring of each year. While this adjustment will change each year, it is currently estimated that this adjustment to the market basket will be approximately minus 1.0% on average.

Hospital Wage Index

        As part of the methodology for determining prospective payments to LTCHs and IRFs, CMS adjusts the standard payment amounts for area differences in hospital wage levels by a factor reflecting the relative hospital wage level in the geographic area of the hospital compared to the national average hospital wage level. This adjustment factor is the hospital wage index. CMS currently defines hospital geographic areas (labor market areas) based on the definitions of Core-Based Statistical Areas established by the Office of Management and Budget. The PPACA calls for CMS to develop and present to Congress a comprehensive reform plan using Bureau of Labor Statistics data, or other data or methodologies, to calculate relative wages for each geographic area involved. In the preamble to the proposed rule for LTCH-PPS for fiscal year 2012, CMS solicited public comments on ways to redefine the geographic reclassification requirements to more accurately define labor markets. To date CMS has not presented a comprehensive reform plan to Congress.

Independent Payment Advisory Board

        The PPACA established an independent board called the Independent Payment Advisory Board that is authorized to develop and submit proposals to the President and Congress to reduce Medicare spending to meet specified targets. The Independent Payment Advisory Board is precluded from submitting proposals that reduce Medicare payments prior to December 31, 2019 for providers, including LTCHs and IRFs, scheduled to receive a reduction in their payment updates in addition to the Medicare productivity adjustment (discussed above). The Independent Payment Advisory Board's proposals would go into effect automatically unless Congress enacts alternative legislation to achieve the required savings (with certain exceptions). The PPACA authorized the Independent Payment Advisory Board to issue its first recommendations by January 2014 for implementation in 2015 if the Medicare per capita target growth rate is exceeded, but the CMS Office of the Actuary has determined that the Medicare spending target will not be triggered for 2015. To date, no Independent Payment Advisory Board members have been appointed, and there have been repeated legislative attempts to repeal the provision of the PPACA authorizing the establishment of the Independent Payment Advisory Board.

Physician-Owned Hospital Limitations

        CMS regulations include a number of hospital ownership and physician referral provisions, including certain obligations requiring physician-owned hospitals to disclose ownership or investment interests held by the referring physician or his or her immediate family members. In particular, physician-owned hospitals must furnish to patients, on request, a list of physicians or immediate family members who own or invest in the hospital. Moreover, a physician-owned hospital must require all physician owners or investors who are also active members of the hospital's medical staff to disclose in writing their ownership or investment interests in the hospital to all patients they refer to the hospital. CMS can terminate the Medicare provider agreement of a physician-owned hospital if it fails to comply with these disclosure provisions or with the requirement that a hospital disclose in writing to all patients whether there is a physician on-site at the hospital 24 hours per day, seven days per week.

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        Under the transparency and program integrity provisions of the PPACA, the exception to the federal self-referral law, or "Stark law," that permits physicians to refer patients to hospitals in which they have an ownership or investment interest has been dramatically curtailed. Only hospitals, including LTCHs and IRFs, with physician ownership and a provider agreement in place on December 31, 2010 are exempt from the general ban on self-referral. Existing physician-owned hospitals are prohibited from increasing the percentage of physician ownership or investment interests held in the hospital after March 23, 2010. In addition, physician-owned hospitals are prohibited from increasing the number of licensed beds after March 23, 2010, unless meeting specific exceptions related to the hospital's location and patient population. In order to retain their exemption from the general ban on self-referrals, our physician-owned hospitals are required to adopt specific measures relating to conflicts of interest, bona fide investments and patient safety. As of December 31, 2013, we operated 11 hospitals that are owned in-part by physicians.

Provider and Employee Screening

        The PPACA imposed new screening requirements on all Medicare providers, including LTCHs, IRFs and outpatient rehabilitation providers. The screening must include a licensure check and may include other procedures such as a criminal background check, fingerprinting, unscheduled and unannounced site visits, database checks, and other screening techniques CMS deems appropriate to prevent fraud, waste and abuse. Effective March 23, 2011, Medicare providers and suppliers submitting new enrollment applications or revalidating their existing enrollment status are required to pay a $500 application fee that is adjusted annually by the percentage change in the consumer price index. The PPACA also imposed new disclosure requirements and authorizes surety bonds for the enrollment of new providers and suppliers.

        In addition, the PPACA requires LTCHs to conduct national and state criminal background checks, including fingerprint checks of their employees and contractors who have (or may have) one-on-one contact with patients. Our LTCHs are prohibited from hiring or retaining workers with a history of patient or resident abuse.

Medicare Compliance Requirements and Penalties

        The PPACA included new compliance requirements and increases existing penalties for non-compliance with federal law and the Medicare conditions of participation. In addition, Medicare claims will be paid only if submitted within 12 months. Penalties for submitting false claims and for submitting false statements material to a false claim will be increased. The Secretary will be granted the authority to suspend payments to a provider pending an investigation of credible allegations of fraud. Further, the Recovery Audit Contractor program has been extended to Medicare Parts C and D and Medicaid.

Other Healthcare Regulations

        Medicare Recovery Audit Contractors.    The Tax Relief and Health Care Act of 2006 instructed CMS to contract with third-party organizations, known as Recovery Audit Contractors, or "RACs," to identify Medicare underpayments and overpayments, and to authorize RACs to recoup any overpayments. The compensation paid to each RAC is based on a percentage of overpayment recoveries identified by the RAC. CMS has selected and entered into contracts with four RACs, each of which has begun their audit activities in specific jurisdictions. RAC audits of our Medicare reimbursement may lead to assertions that we have been overpaid, require us to incur additional costs to respond to requests for records and pursue the reversal of payment denials, and ultimately require us to refund any amounts determined to have been overpaid. We cannot predict the impact of future RAC reviews on our results of operations or cash flows.

        Fraud and Abuse Enforcement.    Various federal and state laws prohibit the submission of false or fraudulent claims, including claims to obtain payment under Medicare, Medicaid and other government healthcare programs. Penalties for violation of these laws include civil and criminal fines, imprisonment and exclusion from participation in federal and state healthcare programs. In recent years, federal and

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state government agencies have increased the level of enforcement resources and activities targeted at the healthcare industry. In addition, the federal False Claims Act and similar state statutes allow individuals to bring lawsuits on behalf of the government, in what are known as qui tam or "whistleblower" actions, alleging false or fraudulent Medicare or Medicaid claims or other violations of the statute. The use of these private enforcement actions against healthcare providers has increased dramatically in recent years, in part because the individual filing the initial complaint is entitled to share in a portion of any settlement or judgment. Revisions to the False Claims Act enacted in 2009 expanded significantly the scope of liability, provided for new investigative tools, and made it easier for whistleblowers to bring and maintain False Claims Act suits on behalf of the government. See "— Legal Proceedings."

        From time to time, various federal and state agencies, such as the Office of Inspector General of the Department of Health and Human Services, or "OIG," issue a variety of pronouncements, including fraud alerts, the OIG's Annual Work Plan and other reports, identifying practices that may be subject to heightened scrutiny. These pronouncements can identify issues relating to LTCHs, IRFs or outpatient rehabilitation services or providers. For example, in the OIG's 2013 Work Plan, the OIG indicated that it would study appropriateness of admissions to IRFs, the level of therapy provided in IRFs and whether IRFs received reduced payments for claims with patient assessment instruments that were transmitted to CMS outside defined time limits. In addition, the OIG stated that it would study the extent to which Medicare made improper payments for interrupted stays in LTCH in 2011. The OIG stated in its 2014 Work Plan that it would study (1) readmission patterns in LTCHs to determine whether LTCHs are billing Medicare for higher paying new stays instead of interrupted stays and (2) the extent to which co-located LTCHs readmit patients from the providers with which they are co-located. According to the 2014 Work Plan, the OIG has identified vulnerabilities in CMS's ability to detect readmissions and appropriately pay the readmissions as interrupted stays instead of as higher paying new admissions. The OIG stated that it would determine the extent to which Medicare made improper payments for interrupted stays in LTCHs in 2011. In addition, the OIG intends to study the incidence of adverse and temporary harm events for Medicare beneficiaries receiving post-acute care in IRFs. We monitor government publications applicable to us to supplement and enhance our compliance efforts.

        We endeavor to conduct our operations in compliance with applicable laws, including healthcare fraud and abuse laws. If we identify any practices as being potentially contrary to applicable law, we will take appropriate action to address the matter, including, where appropriate, disclosure to the proper authorities, which may result in a voluntary refund of monies to Medicare, Medicaid or other governmental healthcare programs.

        Remuneration and Fraud Measures.    The federal anti-kickback statute prohibits some business practices and relationships under Medicare, Medicaid and other federal healthcare programs. These practices include the payment, receipt, offer or solicitation of remuneration in connection with, to induce, or to arrange for, the referral of patients covered by a federal or state healthcare program. Violations of the anti-kickback law may be punished by a criminal fine of up to $50,000 or imprisonment for each violation, or both, civil monetary penalties of $50,000 and damages of up to three times the total amount of remuneration, and exclusion from participation in federal or state healthcare programs.

        The Stark Law prohibits referrals for designated health services by physicians under the Medicare and Medicaid programs to other healthcare providers in which the physicians have an ownership or compensation arrangement unless an exception applies. Sanctions for violating the Stark Law include civil monetary penalties of up to $15,000 per prohibited service provided, assessments equal to three times the dollar value of each such service provided and exclusion from the Medicare and Medicaid programs and other federal and state healthcare programs. The statute also provides a penalty of up to $100,000 for a circumvention scheme. In addition, many states have adopted or may adopt similar anti-kickback or anti-self-referral statutes. Some of these statutes prohibit the payment or receipt of remuneration for the referral of patients, regardless of the source of the payment for the care. While we do not believe our arrangements are in violation of these prohibitions, we cannot assure you that governmental officials

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charged with the responsibility for enforcing the provisions of these prohibitions will not assert that one or more of our arrangements are in violation of the provisions of such laws and regulations.

        Provider-Based Status.    The designation "provider-based" refers to circumstances in which a subordinate facility (e.g., a separately certified Medicare provider, a department of a provider or a satellite facility) is treated as part of a provider for Medicare payment purposes. In these cases, the services of the subordinate facility are included on the "main" provider's cost report and overhead costs of the main provider can be allocated to the subordinate facility, to the extent that they are shared. As of December 31, 2013, we operated 17 specialty hospitals that were treated as provider-based satellites of certain of our other facilities, 158 of the outpatient rehabilitation clinics we operated were provider-based and are operated as departments of the IRFs we operated, and we provide rehabilitation management and staffing services to hospital rehabilitation departments that may be treated as provider-based. These facilities are required to satisfy certain operational standards in order to retain their provider-based status.

        Health Information Practices.    The Health Insurance Portability and Accountability Act of 1996, or "HIPAA," mandates the adoption of standards for the exchange of electronic health information in an effort to encourage overall administrative simplification and enhance the effectiveness and efficiency of the healthcare industry, while maintaining the privacy and security of health information. Among the standards that the Department of Health and Human Services has adopted or will adopt pursuant to HIPAA are standards for electronic transactions and code sets, unique identifiers for providers (referred to as National Provider Identifier), employers, health plans and individuals, security and electronic signatures, privacy and enforcement. If we fail to comply with the HIPAA requirements, we could be subject to criminal penalties and civil sanctions. The privacy, security and enforcement provisions of HIPAA were enhanced by the Health Information Technology for Economic and Clinical Health Act, or "HITECH," which was included in the ARRA. Among other things, HITECH establishes security breach notification requirements, allows enforcement of HIPAA by state attorneys general, and increases penalties for HIPAA violations.

        The Department of Health and Human Services has adopted standards in three areas in which we are required to comply that affect our operations.

        Standards relating to the privacy of individually identifiable health information govern our use and disclosure of protected health information and require us to impose those rules, by contract, on any business associate to whom such information is disclosed.

        Standards relating to electronic transactions and code sets require the use of uniform standards for common healthcare transactions, including healthcare claims information, plan eligibility, referral certification and authorization, claims status, plan enrollment and disenrollment, payment and remittance advice, plan premium payments and coordination of benefits.

        Standards for the security of electronic health information require us to implement various administrative, physical and technical safeguards to ensure the integrity and confidentiality of electronic protected health information.

        We maintain a HIPAA committee that is charged with evaluating and monitoring our compliance with HIPAA. The HIPAA committee monitors regulations promulgated under HIPAA as they have been adopted to date and as additional standards and modifications are adopted. Although health information standards have had a significant effect on the manner in which we handle health data and communicate with payors, the cost of our compliance has not had a material adverse effect on our business, financial condition or results of operations. We cannot estimate the cost of compliance with standards that have not been issued or finalized by the Department of Health and Human Services.

        In addition to HIPAA, there are numerous federal and state laws and regulations addressing patient and consumer privacy concerns, including unauthorized access or theft of personal information. State statutes and regulations vary from state to state. Lawsuits, including class actions and action by state attorneys general, directed at companies that have experienced a privacy or security breach also can occur.

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Although our policies and procedures are aimed at complying with privacy and security requirements and minimizing the risks of any breach of privacy or security, there can be no assurance that a breach of privacy or security will not occur. If there is a breach, we may be subject to various penalties and damages and may be required to incur costs to mitigate the impact of the breach on affected individuals.

Compliance Program

Our Compliance Program

        In 1998, we voluntarily adopted our code of conduct. The code is reviewed and amended as necessary and is the basis for our company-wide compliance program. Our written code of conduct provides guidelines for principles and regulatory rules that are applicable to our patient care and business activities. These guidelines are implemented by a compliance officer, a compliance and internal audit committee, and employee education and training. We also have established a reporting system, auditing and monitoring programs, and a disciplinary system as a means for enforcing the code's policies.

Compliance and Internal Audit Committee

        Our compliance and internal audit committee is made up of members of our senior management and in-house counsel. The compliance and internal audit committee meets on a quarterly basis and reviews the activities, reports and operation of our compliance program. In addition, the HIPAA committee provides reports to the compliance and internal audit committee. The vice president of compliance and audit services meets with the compliance and internal audit committee on a quarterly basis to provide an overview of the activities and operation of our compliance program.

Operating Our Compliance Program

        We focus on integrating compliance responsibilities with operational functions. We recognize that our compliance with applicable laws and regulations depends upon individual employee actions as well as company operations. As a result, we have adopted an operations team approach to compliance. Our corporate executives, with the assistance of corporate experts, designed the programs of the compliance and internal audit committee. We utilize facility leaders for employee-level implementation of our code of conduct. This approach is intended to reinforce our company-wide commitment to operate in accordance with the laws and regulations that govern our business.

Compliance Issue Reporting

        In order to facilitate our employees' ability to report known, suspected or potential violations of our code of conduct, we have developed a system of reporting. This reporting, anonymous or attributable, may be accomplished through our toll-free compliance hotline, compliance e-mail address or our compliance post office box. The compliance officer and the compliance and internal audit committee are responsible for reviewing and investigating each compliance incident in accordance with the compliance and audit services department's investigation policy.

Compliance Monitoring and Auditing / Comprehensive Training and Education

        Monitoring reports and the results of compliance for each of our business segments are reported to the compliance and internal audit committee on a quarterly basis. We train and educate our employees regarding the code of conduct, as well as the legal and regulatory requirements relevant to each employee's work environment. New and current employees are required to acknowledge and certify that the employee has read, understood and has agreed to abide by the code of conduct. Additionally, all employees are required to re-certify compliance with the code on an annual basis.

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Policies and Procedures Reflecting Compliance Focus Areas

        We review our policies and procedures for our compliance program from time to time in order to improve operations and to ensure compliance with requirements of standards, laws and regulations and to reflect the ongoing compliance focus areas which have been identified by the compliance and internal audit committee.

Internal Audit

        In addition to and in support of the efforts of our compliance and audit department, during 2001 we established an internal audit function. The vice president of compliance and audit services manages the combined compliance and audit department and meets with the audit and compliance committee of the board of directors on a quarterly basis to discuss audit results and provide an overview of the activities and operation of our compliance program.

Available Information

        We are subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information is available for inspection and copying at the SEC's Public Reference Room at 100 F Street, NE., Washington, DC 20549, or may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC.

        Our website address is www.selectmedicalholdings.com and can be used to access free of charge, through the investor relations section, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC. The information on our website is not incorporated as a part of this annual report.

Executive Officers of the Registrant

        The following table sets forth the names, ages and titles, as well as a brief account of the business experience, of each person who was an executive officer of the Company as of January 1, 2014:

Name	Age		Position
Robert A. Ortenzio		56	Executive Chairman and Co-Founder
Rocco A. Ortenzio		81	Vice Chairman and Co-Founder
David S. Chernow		56	President and Chief Executive Officer
Martin F. Jackson		59	Executive Vice President and Chief Financial Officer
John A. Saich		45	Executive Vice President and Chief Human Resources Officer
James J. Talalai		52	Executive Vice President and Chief Operating Officer
Michael E. Tarvin		53	Executive Vice President, General Counsel and Secretary
Scott A. Romberger		53	Senior Vice President, Controller and Chief Accounting Officer
Robert G. Breighner, Jr.		45	Vice President, Compliance and Audit Services and Corporate Compliance Officer

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Robert A. Ortenzio was appointed Executive Chairman and Co-Founder effective January 1, 2014. Mr. Ortenzio served as our Chief Executive Officer from January 1, 2005 until December 31, 2013 and. Mr. Ortenzio served as our President and Chief Executive Officer from September 2001 to January 1, 2005. Mr. Ortenzio also served as our President and Chief Operating Officer from February 1997 to September 2001. Mr. Ortenzio co-founded the Company and has served as a director since February 1997. He was an Executive Vice President and a director of Horizon/CMS Healthcare Corporation from July 1995 until July 1996. In 1986, Mr. Ortenzio co-founded Continental Medical Systems, Inc., and served in a number of different capacities, including as a Senior Vice President from February 1986 until April 1988, as Chief Operating Officer from April 1988 until July 1995, as President from May 1989 until August 1996 and as Chief Executive Officer from July 1995 until August 1996. Before co-founding Continental Medical Systems, Inc., he was a Vice President of Rehab Hospital Services Corporation. Until August 17, 2010, Mr. Ortenzio served on the board of directors of Odyssey Healthcare, Inc., a hospice healthcare company. Mr. Ortenzio also served on the board of directors of US Oncology, Inc. until December 30, 2010. Mr. Ortenzio is the son of Rocco A. Ortenzio, our Vice Chairman and Co-Founder.

Rocco A. Ortenzio was appointed Vice Chairman and Co-Founder effective January 1, 2014. Mr. Ortenzio served as our Executive Chairman from September 2001 until December 2013. From February 1997 to September 2001, Mr. Ortenzio served as our Chief Executive Officer. Mr. Ortenzio co-founded the Company and has served as a director since February 1997. In 1986, he co-founded Continental Medical Systems, Inc., and served as its Chairman and Chief Executive Officer until July 1995. In 1979, Mr. Ortenzio founded Rehab Hospital Services Corporation, and served as its Chairman and Chief Executive Officer until June 1986. In 1969, Mr. Ortenzio founded Rehab Corporation and served as its Chairman and Chief Executive Officer until 1974. Mr. Ortenzio is the father of Robert A. Ortenzio, our Executive Chairman and Co-Founder.

David S. Chernow has served as our President and Chief Executive Officer since January 1, 2014. Mr. Chernow has served as our President and previously held various additional executive officer titles since September 2010. Mr. Chernow served as a director of the Company from January 2002 until February 2005 and from August 2005 until September 2010. From May 2007 to February 2010, Mr. Chernow served as the President and Chief Executive Officer of Oncure Medical Corp., one of the largest providers of free-standing radiation oncology care in the United States. From July 2001 to June 2007, Mr. Chernow served as the President and Chief Executive Officer of JA Worldwide, a nonprofit organization dedicated to the education of young people about business (formerly, Junior Achievement, Inc.). From 1999 to 2001, he was the President of the Physician Services Group at US Oncology, Inc. Mr. Chernow co-founded American Oncology Resources in 1992 and served as its Chief Development Officer until the time of the merger with Physician Reliance Network, Inc., which created US Oncology, Inc. in 1999.

Martin F. Jackson has served as our Executive Vice President and Chief Financial Officer since February 2007. He served as our Senior Vice President and Chief Financial Officer from May 1999 to February 2007. Mr. Jackson previously served as a Managing Director in the Health Care Investment Banking Group for CIBC Oppenheimer from January 1997 to May 1999. Prior to that time, he served as Senior Vice President, Health Care Finance with McDonald & Company Securities, Inc. from January 1994 to January 1997. Prior to 1994, Mr. Jackson held senior financial positions with Van Kampen Merritt, Touche Ross, Honeywell and L'Nard Associates.

John A. Saich has served as our Executive Vice President and Chief Human Resources Officer since December 15, 2010. He served as our Senior Vice President, Human Resources from February 2007 to December 2010. He served as our Vice President, Human Resources from November 1999 to January 2007. He joined the Company as Director, Human Resources and HRIS in February 1998. Previously, Mr. Saich served as Director of Benefits and Human Resources for Integrated Health Services in 1997 and as Director of Human Resources for Continental Medical Systems, Inc. from August 1993 to January 1997.

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James J. Talalai has served as our Executive Vice President and Chief Operating Officer since January 2012. Prior to this, he served as our Executive Vice President and Chief Information Officer from February 2007 to December 2011. He served as our Senior Vice President and Chief Information Officer from August 2001 to February 2007. He joined the Company in May 1997 and served in various leadership capacities within Information Services. Before joining us, Mr. Talalai was Director of Information Technology for Horizon/ CMS Healthcare Corporation from 1995 to 1997. He also served as Data Center Manager at Continental Medical Systems, Inc. in the mid-1990s.

Michael E. Tarvin has served as our Executive Vice President, General Counsel and Secretary since February 2007. He served as our Senior Vice President, General Counsel and Secretary from November 1999 to February 2007. He served as our Vice President, General Counsel and Secretary from February 1997 to November 1999. He was Vice President — Senior Counsel of Continental Medical Systems from February 1993 until February 1997. Prior to that time, he was Associate Counsel of Continental Medical Systems from March 1992. Mr. Tarvin was an associate at the Philadelphia law firm of Drinker Biddle & Reath, LLP from September 1985 until March 1992.

Scott A. Romberger has served as our Senior Vice President and Controller since February 2007. He served as our Vice President and Controller from February 1997 to February 2007. In addition, he has served as our Chief Accounting Officer since December 2000. Prior to February 1997, he was Vice President — Controller of Continental Medical Systems from January 1991 until January 1997. Prior to that time, he served as Acting Corporate Controller and Assistant Controller of Continental Medical Systems from June 1990 and December 1988, respectively. Mr. Romberger is a certified public accountant and was employed by a national accounting firm from April 1985 until December 1988.

        Robert G. Breighner, Jr.    has served as our Vice President, Compliance and Audit Services since August 2003. He served as our Director of Internal Audit from November 2001 to August 2003. Previously, Mr. Breighner was Director of Internal Audit for Susquehanna Pfaltzgraff Co. from June 1997 until November 2001. Mr. Breighner held other positions with Susquehanna Pfaltzgraff Co. from May 1991 until June 1997.

Item 1A.    Risk Factors.

In addition to the factors discussed elsewhere in this Form 10-K, the following are important factors which could cause actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of us.

If there are changes in the rates or methods of government reimbursements for our services, our net operating revenues and profitability could decline.

        Approximately 48% of our net operating revenues for the year ended December 31, 2011, 47% of our net operating revenues for the year ended December 31, 2012 and 46% of our net operating revenues for the year ended December 31, 2013 came from the highly regulated federal Medicare program.

        In recent years, through legislative and regulatory actions, the federal government has made substantial changes to various payment systems under the Medicare program. President Obama signed into law comprehensive reforms to the healthcare system, including changes to the methods for, and amounts of, Medicare reimbursement. Additional reforms or other changes to these payment systems, including modifications to the conditions on qualification for payment, bundling payments to cover both acute and post-acute care or the imposition of enrollment limitations on new providers, may be proposed or could be adopted, either by Congress or CMS. If revised regulations are adopted, the availability, methods and rates of Medicare reimbursements for services of the type furnished at our facilities could change. Some of these changes and proposed changes could adversely affect our business strategy, operations and financial results. In addition, there can be no assurance that any increases in Medicare reimbursement rates established by CMS will fully reflect increases in our operating costs.

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        The Budget Control Act of 2011, enacted on August 2, 2011, increased the federal debt ceiling in connection with deficit reductions over the next ten years. The Budget Control Act of 2011 requires automatic reductions in federal spending by approximately $1.2 trillion split evenly between domestic and defense spending. Payments to Medicare providers are subject to these automatic spending reductions, subject to a 2% cap. On April 1, 2013 a 2% reduction to Medicare payments was implemented. The Bipartisan Budget Act of 2013 extended the automatic spending reductions through 2023. For the year ended December 31, 2013, this reduction has reduced our net operating revenues and income from operations by approximately $24.0 million.

We conduct business in a heavily regulated industry, and changes in regulations, new interpretations of existing regulations or violations of regulations may result in increased costs or sanctions that reduce our net operating revenues and profitability.

        The healthcare industry is subject to extensive federal, state and local laws and regulations relating to (1) facility and professional licensure, including certificates of need, (2) conduct of operations, including financial relationships among healthcare providers, Medicare fraud and abuse and physician self-referral, (3) addition of facilities and services and enrollment of newly developed facilities in the Medicare program, (4) payment for services and (5) safeguarding protected health information.

        Both federal and state regulatory agencies inspect, survey and audit our facilities to review our compliance with these laws and regulations. While our facilities intend to comply with existing licensing, Medicare certification requirements and accreditation standards, there can be no assurance that these regulatory authorities will determine that all applicable requirements are fully met at any given time. A determination by any of these regulatory authorities that a facility is not in compliance with these requirements could lead to the imposition of requirements that the facility takes corrective action, assessment of fines and penalties, or loss of licensure, Medicare certification or accreditation. These consequences could have an adverse effect on our company.

        In addition, there have been heightened coordinated civil and criminal enforcement efforts by both federal and state government agencies relating to the healthcare industry. The ongoing investigations relate to, among other things, various referral practices, cost reporting, billing practices, physician ownership and joint ventures involving hospitals. In the future, different interpretations or enforcement of these laws and regulations could subject us to allegations of impropriety or illegality or could require us to make changes in our facilities, equipment, personnel, services and capital expenditure programs. These changes may increase our operating expenses and reduce our operating revenues. If we fail to comply with these extensive laws and government regulations, we could become ineligible to receive government program reimbursement, suffer civil or criminal penalties or be required to make significant changes to our operations. In addition, we could be forced to expend considerable resources responding to any related investigation or other enforcement action.

Full implementation of the Medicare 25 Percent Rule applicable to LTCHs will have an adverse effect on our future net operating revenues and profitability.

        Under the 25 Percent Rule, the Medicare payment rate for LTCHs is subject to a downward payment adjustment if the percentage of Medicare patients discharged from an LTCH who were admitted from an individual referring hospital exceeds an applicable percentage admissions threshold during a particular cost reporting period. Cases admitted to an LTCH in excess of the applicable percentage admissions threshold are reimbursed at a rate comparable to that under IPPS. IPPS rates are generally lower than LTCH-PPS rates. Cases that reach outlier status in the discharging hospital do not count toward the limit and are paid under LTCH-PPS.

        LTCHs that are operated as HIHs or as HIH "satellites," are subject to payment reductions for those Medicare patients admitted from their host hospitals in excess of the applicable percentage admissions threshold and from other referring hospitals in excess of the applicable percentage admissions threshold.

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LTCHs that are operated as freestanding facilities are subject to a payment reduction for those Medicare patients admitted from other referring hospitals in excess of the applicable admissions threshold. Grandfathered HIHs are excluded from the Medicare percentage admissions threshold regulations.

        The SCHIP Extension Act, as amended by the ARRA, the PPACA and the Bipartisan Budget Act of 2013, postponed the full application of the percentage admissions threshold for specific classifications of LTCHs. Full implementation of the Medicare percentage admissions thresholds under the 25 Percent Rule will not go into effect until cost reporting periods beginning on or after July 1, 2016 or October 1, 2016, depending on the specific classification of LTCH. See "Business — Government Regulations — Overview of U.S. and State Government Reimbursements — Long Term Acute Care Hospital Medicare Reimbursement — 25 Percent Rule."

        As of December 31, 2013, we owned 78 HIHs and satellite facilities of which two are grandfathered HIHs and are excluded from the percentage threshold regulations. Of the remaining 76 HIHs and satellite facilities subject to a percentage admissions threshold for admissions from their host hospital; four of these HIHs and satellite facilities were subject to a maximum 25% Medicare percentage admissions threshold for admissions from their host hospital, three HIHs and satellite facilities are co-located with an MSA dominant hospital and were subject to a Medicare percentage admissions threshold of no more than 50%, nor less than 25%, 18 of these HIHs and satellite facilities were co-located with a MSA dominant hospital or single urban hospital and were subject to a Medicare percentage admissions threshold of no more than 75%, 48 of these HIHs and satellite facilities were subject to a maximum 50% Medicare admissions threshold, and three of these HIHs and satellite facilities were located in a rural area and were subject to a maximum 75% Medicare percentage admissions threshold. As of December 31, 2013, we owned 2 grandfathered HIHs, all of which are excluded from the percentage admissions threshold regulations. As of December 31, 2013, we owned 29 free-standing LTCHs, which are not subject to the Medicare percentage admissions threshold until cost reporting periods beginning on or after July 1, 2017.

        The Bipartisan Budget Act of 2013 requires CMS to report to Congress before October 2016 on the need for any further extensions or modifications of the extensions of the 25 Percent Rule. In addition, the Bipartisan Budget Act of 2013 requires MedPAC, an independent federal body that advises Congress on issues affecting the Medicare program, to report to Congress by June 2019 on the need to continue applying the 25 Percent Rule, the effect of site-neutral payment on LTCHs and recommendations on how to change the site-neutral payment policy.

        Because these rules are complex and are based on the volume of Medicare admissions from other referring hospitals as a percent of our overall Medicare admissions, we cannot predict with any certainty the impact on our future net operating revenues and profitability of compliance with these regulations. We expect many of our LTCHs will experience an adverse financial impact when full implementation of the Medicare percentage admissions thresholds goes into effect. Our LTCHs have cost reporting periods that commence on various dates throughout the calendar year. Therefore, the application of the lower percentage admissions thresholds will be staggered and we would not realize the full impact of lower percentage admissions thresholds until 2017.

Expiration of the moratorium imposed on the payment adjustment for very short-stay cases in our LTCHs has reduced and will continue to reduce our future net operating revenues and profitability.

        On May 1, 2007, CMS published a new provision that changed the payment methodology for Medicare patients with a length of stay that is less than the IPPS comparable threshold. Beginning with discharges on or after July 1, 2007, for these very short-stay cases, the rule lowered the LTCH payment to a rate based on the general acute care hospital IPPS per diem. SSO cases with covered lengths of stay that exceed the IPPS comparable threshold would continue to be paid under the existing SSO payment policy. The SCHIP Extension Act and PPACA prevented CMS from applying this change to SSO policy for a period of five years through December 28, 2012. The implementation of the payment methodology for very

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short-stay outliers discharged after December 29, 2012 has reduced and will continue to reduce our future net operating revenues and profitability.

If our LTCHs fail to maintain their certifications as LTCHs or if our facilities operated as HIHs fail to qualify as hospitals separate from their host hospitals, our net operating revenues and profitability may decline.

        As of December 31, 2013, we operated 108 LTCHs, all of which are currently certified by Medicare as LTCHs. LTCHs must meet certain conditions of participation to enroll in, and seek payment from, the Medicare program as an LTCH, including, among other things, maintaining an average length of stay for Medicare patients in excess of 25 days. An LTCH that fails to maintain this average length of stay for Medicare patients in excess of 25 days during a single cost reporting period is generally allowed an opportunity to show that it meets the length of stay criteria during the subsequent cost reporting period. If the LTCH can show that it meets the length of stay criteria during this cure period, it will continue to be paid under the LTCH-PPS. If the LTCH again fails to meet the average length of stay criteria during the cure period, it will be paid under the general acute care inpatient prospective payment system at rates generally lower than the rates under the LTCH-PPS.

        Similarly, our HIHs must meet conditions of participation in the Medicare program, which include additional criteria establishing separateness from the hospital with which the HIH shares space. If our LTCHs or HIHs fail to meet or maintain the standards for certification as LTCHs, they will receive payment under the general acute care hospitals IPPS which is generally lower than payment under the system applicable to LTCHs. Payments at rates applicable to general acute care hospitals would result in our LTCHs receiving significantly less Medicare reimbursement than they currently receive for their patient services.

Implementation of additional patient or facility criteria for LTCHs that limit the population of patients eligible for our hospitals' services or change the basis on which we are paid could adversely affect our net operating revenue and profitability.

        The Bipartisan Budget Act of 2013 establishes new payment limits for Medicare patients who do not meet specified criteria. Specifically, for Medicare patients discharged in cost reporting periods beginning on or after October 1, 2015, LTCHs will be reimbursed under LTCH-PPS only if, immediately preceding the patient's LTCH admission, the patient was discharged from a general acute care hospital paid under IPPS and the patient's stay included at least three days in an intensive care unit (ICU) or coronary care unit (CCU) or the patient is assigned to an MS-LTC-DRG for cases receiving at least 96 hours of ventilator services in the LTCH. In addition, to be paid under LTCH-PPS the patient's discharge from the LTCH may not include a principal diagnosis relating to psychiatric or rehabilitation services. For any Medicare patient who does not meet the new criteria, the LTCH will be paid a "site-neutral" payment rate, which will be the lower of (1) the IPPS comparable per-diem payment rate including any outlier payments, or (2) 100 percent of the estimated costs for services. For cost reporting periods beginning in fiscal year 2020, payment for all discharges from an LTCH may be subject to the site-neutral payment limitation unless the number of discharges for which payment is made under the LTCH-PPS payment rate is greater than 50% of the total number of discharges for the LTCH. The application of the new site-neutral payment rates under LTCH-PPS may reduce our operating revenues.

        CMS requested public comments in May 2013 on adoption of a payment adjustment based on whether a particular case qualifies as chronically critically ill/medically complex ("CCI/MC"). CMS indicated that it was considering a change to the LTCH-PPS payment policies that would limit full LTCH-PPS payment to those patients meeting the definition of CCI/MC while they were in an IPPS hospital inpatient setting and subsequently directly admitted to an LTCH. Payment for non-CCI/MC patients would be made at an "IPPS comparable amount," that is, an amount comparable to what would have been paid under the IPPS calculated as a per diem rate with total payments capped at the full IPPS MS-DRG payment rate.

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        It is unclear how the adoption of the Bipartisan Budget Act of 2013 will impact regulatory or legislative proposals to change the LTCH-PPS payment policies. We cannot predict whether Congress or CMS will adopt additional patient-level criteria in the future or, if adopted, how such criteria would affect our LTCHs. Implementation of additional patient or facility criteria that may limit the population of patients eligible for our LTCHs' services or change the basis on which we are paid could adversely affect our net operating revenues and profitability. See "Business — Government Regulations — Overview of U.S. and State Government Reimbursements — Long Term Acute Care Hospital Medicare Reimbursement."

Decreases in Medicare reimbursement rates received by our outpatient rehabilitation clinics, implementation of annual caps, and payment reductions applied to the second and subsequent therapy services may reduce our future net operating revenues and profitability.

        Our outpatient rehabilitation clinics receive payments from the Medicare program under a fee schedule. The Medicare physician fee schedule rates are automatically updated annually based on the SGR formula, contained in legislation. On December 10, 2013, CMS estimated a 20.1% reduction in the Medicare physician fee schedule payment rates for calendar year 2014 as a result of the SGR formula. The Bipartisan Budget Act of 2013 blocks the 20.1% cut and replaces it with a 0.5% increase for services provided through March 31, 2014. If no further legislation is passed by Congress and signed by the President, the SGR formula will likely reduce our Medicare outpatient rehabilitation payment rates beginning April 1, 2014.

        Congress has established annual caps that limit the amount that can be paid (including deductible and coinsurance amounts) for outpatient therapy services rendered to any Medicare beneficiary. As directed by Congress in the Deficit Reduction Act of 2005, CMS implemented an exception process for therapy expenses incurred in 2006. Under this process, a Medicare enrollee (or person acting on behalf of the Medicare enrollee) was able to request an exception from the therapy caps if the provision of therapy services was deemed to be medically necessary. Therapy cap exceptions were available automatically for certain conditions and on a case-by-case basis upon submission of documentation of medical necessity. The exception process has been extended by Congress several times. Most recently, the Bipartisan Budget Act of 2013 extended the exceptions process through March 31, 2014. The exception process will expire on April 1, 2014 unless further extended by Congress. There can be no assurance that Congress will extend it further. To date, the implementation of the therapy caps has not had a material adverse effect on our business. However, if the exception process is not renewed, our future net operating revenues and profitability may decline.

        CMS adopted a multiple procedure payment reduction for therapy services in the final update to the Medicare physician fee schedule for calendar year 2011. The policy became effective January 1, 2011 and applies to all outpatient therapy services paid under Medicare Part B — occupational therapy, physical therapy and speech-language pathology. Under the policy, the Medicare program pays 100% of the practice expense component of the therapy procedure or unit of service with the highest Relative Value Unit, and then reduces the payment for the practice expense component for the second and subsequent therapy procedures or units of service furnished during the same day for the same patient, regardless of whether those therapy services are furnished in separate sessions. In 2011 and 2012 the second and subsequent therapy service furnished during the same day for the same patient was reduced by 20% in office and other non-institutional settings and by 25% in institutional settings. The American Taxpayer Relief Act of 2012 increased the payment reduction to 50% effective April 1, 2013. Our outpatient rehabilitation therapy services are primarily offered in institutional settings and, as such, were subject to the applicable 25% payment reduction in the practice expense component for the second and subsequent therapy services furnished by us to the same patient on the same day until April 1, 2013 when the payment reduction increased to 50%. See "Business — Government Regulations."

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Regulations limiting the diagnosis codes on the presumptive compliance list could adversely affect our net operating revenue and profitability.

        As of December 31, 2013, we operated 15 IRFs, all of which are currently certified by Medicare as IRFs. IRFs must meet certain conditions of participation to enroll in, and seek payment from, the Medicare program as an IRF. Among other things, at least 60 percent of the IRF's total inpatient population must require treatment for one or more of 13 conditions specified by regulation. This requirement is commonly referred to as the "60 percent rule." Compliance with the 60 percent rule is demonstrated through a two step process. The first step is the "presumptive" method, in which patient diagnosis codes are compared to a "presumptive compliance" list. IRFs that fail to demonstrate compliance with the 60 percent rule using this presumptive test may demonstrate compliance through a second step involving an audit of the facility's medical records to assess compliance. Beginning on October 1, 2014, CMS removed a number of diagnosis codes previously on the presumptive compliance list. If an IRF does not demonstrate compliance with the 60 percent rule by either the presumptive method or through a review of medical records, then the facility's classification as an IRF may be terminated at the start of its next cost reporting period causing the facility to be paid as a general acute care hospital under IPPS. By removing diagnosis codes from the presumptive compliance list our facilities may be required to demonstrate compliance with the 60 percent rule through medical record reviews. If our IRFs fail to demonstrate compliance with the 60 percent rule through either method and are classified as general acute care hospitals, our net operating revenue and profitability may be adversely affected.

Our facilities are subject to extensive federal and state laws and regulations relating to the privacy of individually identifiable information.

        HIPAA required the United States Department of Health and Human Services to adopt standards to protect the privacy and security of individually identifiable health-related information. The department released final regulations containing privacy standards in December 2000 and published revisions to the final regulations in August 2002. The privacy regulations extensively regulate the use and disclosure of individually identifiable health-related information. The regulations also provide patients with significant new rights related to understanding and controlling how their health information is used or disclosed. The security regulations require healthcare providers to implement administrative, physical and technical practices to protect the security of individually identifiable health information that is maintained or transmitted electronically. HITECH, which was signed into law in February of 2009, enhanced the privacy, security and enforcement provisions of HIPAA by, among other things establishing security breach notification requirements, allowing enforcement of HIPAA by state attorneys general, and increasing penalties for HIPAA violations. Violations of HIPAA or HITECH could result in civil or criminal penalties.

        In addition to HIPAA, there are numerous federal and state laws and regulations addressing patient and consumer privacy concerns, including unauthorized access or theft of personal information. State statutes and regulations vary from state to state. Lawsuits, including class actions and action by state attorneys general, directed at companies that have experienced a privacy or security breach also can occur.

        We have developed a comprehensive set of policies and procedures in our efforts to comply with HIPAA and other privacy laws. Our compliance officer, privacy officer and information security officer are responsible for implementing and monitoring compliance with our privacy and security policies and procedures at our facilities. We believe that the cost of our compliance with HIPAA and other federal and state privacy laws will not have a material adverse effect on our business, financial condition, results of operations or cash flows. However, there can be no assurance that a breach of privacy or security will not occur. If there is a breach, we may be subject to various penalties and damages and may be required to incur costs to mitigate the impact of the breach on affected individuals.

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As a result of increased post-payment reviews of claims we submit to Medicare for our services, we may incur additional costs and may be required to repay amounts already paid to us.

        We are subject to regular post-payment inquiries, investigations and audits of the claims we submit to Medicare for payment for our services. These post-payment reviews are increasing as a result of new government cost-containment initiatives, including enhanced medical necessity reviews for Medicare patients admitted to LTCHs, and audits of Medicare claims under the Recovery Audit Contractor program. These additional post-payment reviews may require us to incur additional costs to respond to requests for records and to pursue the reversal of payment denials, and ultimately may require us to refund amounts paid to us by Medicare that are determined to have been overpaid.

We may be adversely affected by negative publicity which can result in increased governmental and regulatory scrutiny and possibly adverse regulatory changes.

        Negative press coverage can result in increased governmental and regulatory scrutiny and possibly adverse regulatory changes. Adverse publicity and increased governmental scrutiny can have a negative impact on our reputation with referral sources and patients and on the morale and performance of our employees, both of which could adversely affect our businesses and results of operations.

Future acquisitions may use significant resources, may be unsuccessful and could expose us to unforeseen liabilities.

        As part of our growth strategy, we may pursue acquisitions of specialty hospitals, outpatient rehabilitation clinics and other related healthcare facilities and services. These acquisitions may involve significant cash expenditures, debt incurrence, additional operating losses and expenses and compliance risks that could have a material adverse effect on our financial condition and results of operations.

        We may not be able to successfully integrate acquired businesses into ours, and therefore we may not be able to realize the intended benefits from an acquisition. If we fail to successfully integrate acquisitions, our financial condition and results of operations may be materially adversely affected. Acquisitions could result in difficulties integrating acquired operations, technologies and personnel into our business. Such difficulties may divert significant financial, operational and managerial resources from our existing operations and make it more difficult to achieve our operating and strategic objectives. We may fail to retain employees or patients acquired through acquisitions, which may negatively impact the integration efforts. Acquisitions could also have a negative impact on our results of operations if it is subsequently determined that goodwill or other acquired intangible assets are impaired, thus resulting in an impairment charge in a future period.

        In addition, acquisitions involve risks that the acquired businesses will not perform in accordance with expectations; that we may become liable for unforeseen financial or business liabilities of the acquired businesses, including liabilities for failure to comply with healthcare regulations; that the expected synergies associated with acquisitions will not be achieved; and that business judgments concerning the value, strengths and weaknesses of businesses acquired will prove incorrect, which could have an material adverse effect on our financial condition and results of operations.

Future joint ventures may use significant resources, may be unsuccessful and could expose us to unforeseen liabilities.

        As part of our growth strategy, we may partner with large health care systems to provide post acute care services. These joint ventures may involve significant cash expenditures, debt incurrence, additional operating losses and expenses, and compliance risks that could have a material adverse effect on our financial condition and results of operations.

        A joint venture involves the combining of corporate cultures and mission. As a result, we may not be able to successfully operate a joint venture, and therefore we may not be able to realize the intended

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benefits. If we fail to successfully execute a joint venture relationship, our financial condition and results of operations may be materially adversely affected. A new joint venture could result in difficulties in combining operations, technologies and personnel. Such difficulties may divert significant financial, operational and managerial resources from our existing operations and make it more difficult to achieve our operating and strategic objectives. We may fail to retain employees or patients as a result of the integration efforts.

        A joint venture is operated through a board of directors that contains representatives of Select and other parties to the joint venture. We may not control the board or some actions of the board may require supermajority votes. As a result, the joint venture may elect certain actions that could have adverse effects on our financial condition and results of operations.

Future cost containment initiatives undertaken by private third-party payors may limit our future net operating revenues and profitability.

        Initiatives undertaken by major insurers and managed care companies to contain healthcare costs affect the profitability of our specialty hospitals and outpatient rehabilitation clinics. These payors attempt to control healthcare costs by contracting with hospitals and other healthcare providers to obtain services on a discounted basis. We believe that this trend may continue and may limit reimbursements for healthcare services. If insurers or managed care companies from whom we receive substantial payments reduce the amounts they pay for services, our profit margins may decline, or we may lose patients if we choose not to renew our contracts with these insurers at lower rates.

If we fail to maintain established relationships with the physicians in the areas we serve, our net operating revenues may decrease.

        Our success is partially dependent upon the admissions and referral practices of the physicians in the communities our hospitals and our outpatient rehabilitation clinics serve, and our ability to maintain good relations with these physicians. Physicians referring patients to our hospitals and clinics are generally not our employees and, in many of the local areas that we serve, most physicians have admitting privileges at other hospitals and are free to refer their patients to other providers. If we are unable to successfully cultivate and maintain strong relationships with these physicians, our hospitals' admissions and clinics' businesses may decrease, and our net operating revenues may decline.

Changes in federal or state law limiting or prohibiting certain physician referrals may preclude physicians from investing in our hospitals or referring to hospitals in which they already own an interest.

        The Stark Law prohibits a physician who has a financial relationship with an entity from referring his or her Medicare or Medicaid patients to that entity for certain designated health services, including inpatient and outpatient hospital services. Under the transparency and program integrity provisions of the PPACA, the exception to the Stark Law that previously permitted physicians to refer patients to hospitals in which they have an ownership or investment interest has been dramatically curtailed. Only hospitals, including LTCHs and IRFs, with physician ownership and a provider agreement in place on December 31, 2010 are exempt from the general ban on self-referral. Existing physician- owned hospitals are prohibited from increasing the percentage of physician ownership or investment interests held in the hospital after March 23, 2010. In addition, physician-owned hospitals are prohibited from increasing the number of licensed beds after March 23, 2010, unless meeting specific exceptions related to the hospital's location and patient population. In order to retain their exemption from the general ban on self-referrals, our physician- owned hospitals are required to adopt specific measures relating to conflicts of interest, bona fide investments and patient safety. Furthermore, initiatives are underway in some states to restrict physician referrals to physician-owned hospitals. Currently, 11 of our consolidating hospitals have physicians as minority owners. The aggregate net operating revenue of these 11 hospitals was $194.0 million for the year ended December 31, 2013, or approximately 6.5% of our consolidated net operating revenues for the year ended December 31, 2013. The range of physician minority ownership of these 11 hospitals was 2.1% to

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49.0% as of the year ended December 31, 2013. There can be no assurance that new legislation or regulation prohibiting or limiting physician referrals to physician-owned hospitals will not be successfully enacted in the future. If such federal or state laws are adopted, among other outcomes, physicians who have invested in our hospitals could be precluded from referring to, investing in or continuing to be physician owners of a hospital. In addition, expansion of our physician-owned hospitals may be limited, and the revenues, profitability and overall financial performance of our hospitals may be negatively affected.

We could experience significant increases to our operating costs due to shortages of healthcare professionals or union activity.

        Our specialty hospitals are highly dependent on nurses, and our outpatient rehabilitation division is highly dependent on therapists, for patient care. The market for qualified healthcare professionals is highly competitive. We have sometimes experienced difficulties in attracting and retaining qualified healthcare personnel. We cannot assure you we will be able to attract and retain qualified healthcare professionals in the future. Additionally, the cost of attracting and retaining qualified healthcare personnel may be higher than we anticipate, and as a result, our profitability could decline.

        In addition, U.S. healthcare providers are continuing to see an increase in the amount of union activity. Though we cannot predict the degree to which we will be affected by future union activity, there are continuing legislative proposals that could result in increased union activity. We could experience an increase in labor and other costs from such union activity.

Competition may limit our ability to acquire hospitals and clinics and adversely affect our growth.

        We have historically faced limited competition in acquiring specialty hospitals and outpatient rehabilitation clinics, but we may face heightened competition in the future. Our competitors may acquire or seek to acquire many of the hospitals and clinics that would be suitable acquisition candidates for us. This increased competition could hamper our ability to acquire companies, or such increased competition may cause us to pay a higher price than we would otherwise pay in a less competitive environment. Increased competition from both strategic and financial buyers could limit our ability to grow by acquisitions or make our cost of acquisitions higher and therefore decrease our profitability.

If we fail to compete effectively with other hospitals, clinics and healthcare providers in the local areas we serve, our net operating revenues and profitability may decline.

        The healthcare business is highly competitive, and we compete with other hospitals, rehabilitation clinics and other healthcare providers for patients. If we are unable to compete effectively in the specialty hospital and outpatient rehabilitation businesses, our net operating revenues and profitability may decline. Many of our specialty hospitals operate in geographic areas where we compete with at least one other hospital that provides similar services. Our outpatient rehabilitation clinics face competition from a variety of local and national outpatient rehabilitation providers. Other outpatient rehabilitation clinics in local areas we serve may have greater name recognition and longer operating histories than our clinics. The managers of these clinics may also have stronger relationships with physicians in their communities, which could give them a competitive advantage for patient referrals.

Our business operations could be significantly disrupted if we lose key members of our management team.

        Our success depends to a significant degree upon the continued contributions of our senior officers and other key employees, and our ability to retain and motivate these individuals. We currently have employment agreements in place with four executive officers and change in control agreements and/or non-competition agreements with several other officers. Many of these individuals also have significant equity ownership in our company. We do not maintain any key life insurance policies for any of our employees. The loss of the services of any of these individuals could disrupt significant aspects of our

38

business, could prevent us from successfully executing our business strategy and could have a material adverse affect on our results of operations.

Significant legal actions could subject us to substantial uninsured liabilities.

        Physicians, hospitals and other healthcare providers have become subject to an increasing number of legal actions alleging malpractice, product liability or related legal theories. Many of these actions involve large claims and significant defense costs. We are also subject to lawsuits under federal and state whistleblower statutes designed to combat fraud and abuse in the healthcare industry. These whistleblower lawsuits are not covered by insurance and can involve significant monetary damages and award bounties to private plaintiffs who successfully bring the suits. See "Legal Proceedings" and Note 15 in our audited consolidated financial statements.

        We currently maintain professional malpractice liability insurance and general liability insurance coverages under a combination of policies with a total annual aggregate limit of $30.0 million. Our insurance for the professional liability coverage is written on a "claims-made" basis and our commercial general liability coverage is maintained on an "occurrence" basis. These coverages apply after a self-insured retention of $2.0 million per medical incident for professional liability claims and $2.0 million per occurrence for general liability claims. We review our insurance program annually and may make adjustments to the amount of insurance coverage and self-insured retentions in future years. In addition, our insurance coverage does not generally cover punitive damages and may not cover all claims against us. See "Business — Government Regulations — Other Healthcare Regulations."

Concentration of ownership among our existing executives, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.

        Welsh Carson beneficially owns approximately 20.5% of Holdings' outstanding common stock as of February 1, 2014. Our executives, directors and principal stockholders, including Welsh Carson, beneficially own, in the aggregate, approximately 37.5% of Holdings' outstanding common stock as of February 1, 2014. As a result, these stockholders have significant control over our management and policies and are able to exercise influence over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions. The directors elected by these stockholders are able to make decisions affecting our capital structure, including decisions to issue additional capital stock, implement stock repurchase programs and incur indebtedness. This influence may have the effect of deterring hostile takeovers, delaying or preventing changes in control or changes in management, or limiting the ability of our other stockholders to approve transactions that they may deem to be in their best interest.

Our substantial indebtedness may limit the amount of cash flow available to invest in the ongoing needs of our business.

        We have a substantial amount of indebtedness. As of December 31, 2013, we had approximately $1,445.3 million of total indebtedness. For the years ended December 31, 2011, December 31, 2012 and December 31, 2013, we paid cash interest of $107.5 million, $80.7 million and $89.1 million, respectively, on our indebtedness.

        Our indebtedness could have important consequences to you. For example, it:

•

requires us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, reducing the availability of our cash flow to fund working capital, capital expenditures, development activity, acquisitions and other general corporate purposes;

•

increases our vulnerability to adverse general economic or industry conditions;

•

limits our flexibility in planning for, or reacting to, changes in our business or the industries in which we operate;

39

•

makes us more vulnerable to increases in interest rates, as borrowings under our senior secured credit facilities are at variable rates;

•

limits our ability to obtain additional financing in the future for working capital or other purposes; and

•

places us at a competitive disadvantage compared to our competitors that have less indebtedness.

        See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources."

Our senior secured credit facilities require Select to comply with certain financial covenants, the default of which may result in the acceleration of certain of our indebtedness.

        The senior secured credit facilities require Select to maintain a leverage ratio (based upon the ratio of indebtedness to consolidated EBITDA as defined in the agreement), which is tested quarterly and becomes more restrictive over time. The senior secured credit facilities also prohibit Select from making capital expenditures in excess of $125.0 million in any fiscal year (subject to a 50% carry-over provision). Failure to comply with these covenants would result in an event of default under the senior secured credit facilities and, absent a waiver or an amendment from the lenders, preclude Select from making further borrowings under the revolving credit facility and permit the lenders to accelerate all outstanding borrowings under the senior secured credit facilities.

        As of December 31, 2013, Select was required to maintain its leverage ratio (its ratio of total indebtedness to consolidated EBITDA for the prior four consecutive fiscal quarters) at less than 4.50 to 1.00. For the four quarters ended December 31, 2013, Select's leverage ratio was 3.91 to 1.00.

        While Select has never defaulted on compliance with any of these financial covenants, its ability to comply with these ratios in the future may be affected by events beyond its control. Inability to comply with the required financial covenants could result in a default under our senior secured credit facilities. In the event of any default under our senior secured credit facilities, the lenders under our senior secured credit facilities could elect to terminate borrowing commitments and declare all borrowings outstanding, together with accrued and unpaid interest and other fees, to be immediately due and payable.

Despite our substantial level of indebtedness, we and our subsidiaries may be able to incur additional indebtedness. This could further exacerbate the risks described above.

        We and our subsidiaries may be able to incur additional indebtedness in the future. Although our senior secured credit facilities contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. Also, these restrictions do not prevent us or our subsidiaries from incurring obligations that do not constitute indebtedness. As of December 31, 2013, we had $237.7 million of revolving loan availability under our senior secured credit facilities (after giving effect to $42.3 million of outstanding letters of credit). In addition, to the extent new debt is added to our and our subsidiaries' current debt levels, the substantial leverage risks described above would increase.

Item 1B.    Unresolved Staff Comments.

        None.

Item 2.    Properties.

        We currently lease most of our facilities, including clinics, offices, specialty hospitals and our corporate headquarters. We own 24 of our specialty hospitals.

        We lease all but one of our outpatient rehabilitation clinics and related offices, which, as of December 31, 2013 included 884 leased outpatient rehabilitation clinics throughout the United States. We

40

also lease the majority of our LTCH facilities except for the facilities described above. As of December 31, 2013, in our specialty hospitals we had 75 HIH leases and 16 free-standing building leases.

        We lease our corporate headquarters from companies owned by a related party affiliated with us through common ownership or management. Our corporate headquarters is approximately 150,000 square feet and is located in Mechanicsburg, Pennsylvania. We lease several other administrative spaces related to administrative and operational support functions. As of December 31, 2013, this was comprised 11 locations throughout the United States with approximately 50,000 square feet in total.

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        The following is a list by state of the number of facilities we operated as of December 31, 2013.

	Specialty Hospitals
	Long Term Acute Care		Inpatient Rehabilitation		Outpatient Clinics		Total Facilities
Alabama		1						1
Alaska						5		5
Arizona		3		1		13		17
Arkansas		4				1		5
California						9		9
Colorado		3				17		20
Connecticut						39		39
District of Columbia						2		2
Delaware		1				1		2
Florida		9		1		100		110
Georgia		5				24		29
Illinois						40		40
Indiana		5				19		24
Iowa		1						1
Kansas		3				15		18
Kentucky		2				42		44
Louisiana		1				3		4
Maine						11		11
Maryland						23		23
Massachusetts						9		9
Michigan		11				13		24
Minnesota		1				27		28
Mississippi		5						5
Missouri		3		2		64		69
Nebraska		1						1
Nevada						7		7
New Hampshire						3		3
New Jersey		1		3		148		152
New Mexico						2		2
North Carolina		3				33		36
Ohio		14		1		60		75
Oklahoma		2				20		22
Pennsylvania		9		1		118		128
South Carolina		2				14		16
South Dakota		1						1
Tennessee		5				12		17
Texas		8		6		91		105
Virginia						21		21
West Virginia		1						1
Wisconsin		3						3
Total Company		108		15		1,006		1,129

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Item 3.    Legal Proceedings.

        The Company is a party to various legal actions, proceedings and claims (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of its business. The Company cannot predict the ultimate outcome of pending litigation, proceedings and regulatory and other governmental audits and investigations. These matters could potentially subject the Company to sanctions, damages, recoupments, fines and other penalties. The Department of Justice, CMS or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the Company's businesses in the future that may, either individually or in the aggregate, have a material adverse effect on the Company's business, financial position, results of operations and liquidity.

        To address claims arising out of the operations of the Company's specialty hospitals and outpatient rehabilitation facilities, the Company maintains professional malpractice liability insurance and general liability insurance, subject to self-insured retention of $2.0 million per medical incident for professional liability claims and $2.0 million per occurrence for general liability claims. The Company also maintains umbrella liability insurance covering claims which, due to their nature or amount, are not covered by or not fully covered by the Company's other insurance policies. These insurance policies also do not generally cover punitive damages and are subject to various deductibles and policy limits. Significant legal actions, as well as the cost and possible lack of available insurance, could subject the Company to substantial uninsured liabilities. In the Company's opinion, the outcome of these actions, individually or in the aggregate, will not have a material adverse effect on its financial position, results of operations, or cash flows.

        Healthcare providers are subject to lawsuits under the qui tam provisions of the federal False Claims Act. Qui tam lawsuits typically remain under seal (hence, usually unknown to the defendant) for some time while the government decides whether or not to intervene on behalf of a private qui tam plaintiff (known as a relator) and take the lead in the litigation. These lawsuits can involve significant monetary damages and penalties and award bounties to private plaintiffs who successfully bring the suits. The Company has been a defendant in these cases in the past, and may be named as a defendant in similar cases from time to time in the future.

        On January 8, 2013, a federal magistrate judge unsealed an Amended Complaint in United States of America and the State of Indiana, ex rel. Doe I, Doe II and Doe III v. Select Medical Corporation, Select Specialty Hospital-Evansville, Evansville Physician Investment Corporation, Dr. Richard Sloan and Dr. Jeffrey Selby. The Amended Complaint, which was served on the Company on February 15, 2013, is a civil action filed under seal on September 28, 2012 in the United States District Court for the Southern District of Indiana by private plaintiff-relators on behalf of the United States and the state of Indiana under the federal False Claims Act and Indiana False Claims and Whistleblower Protection Act. Although the Amended Complaint identifies the relators by fictitious pseudonyms, on March 28, 2013, the relators filed a Notice identifying themselves as the former CEO at the Company's long term acute care hospital in Evansville, Indiana ("SSH-Evansville") and two former case managers at SSH-Evansville. The named defendants include the Company, SSH-Evansville, and two physicians who have practiced at SSH-Evansville. On March 26, 2013, the defendants, relators and the United States filed a joint motion seeking a stay of the proceedings, in which the United States notified the court that its investigation has not been completed and therefore it is not yet able to decide whether or not to intervene, and on March 29, 2013, the magistrate judge granted the motion and stayed all deadlines in the case for 90 days. The court has subsequently granted additional motions filed by the United States to continue the stay, and the current stay extends until March 17, 2014.

        In January, 2014, representatives of the United States Attorney's Office for the Southern District of Indiana and the Office of Attorney General for the State of Indiana informed the Company that, while they have not yet decided whether to intervene in the case, their investigation is continuing concerning allegations that SSH-Evansville admitted patients for whom long-term acute care was not medically necessary, up-coded diagnoses at admission, discharged patients too early or held patients too long,

43

readmitted patients discharged to short-stay acute care hospitals only after nine days to enable billing for two admissions, and allowed unnecessary bronchoscopies to be performed. The Company is involved in ongoing discussions with the government regarding this matter.

        As previously disclosed, beginning in April 2012, the Company and SSH-Evansville have received various subpoenas and demands for documents relating to SSH-Evansville, including a request for information and subpoenas from the Office of Inspector General of the U.S. Department of Health and Human Services and subpoenas from the Office of Attorney General for the State of Indiana, and the Evansville (Indiana) Police Department has executed a search warrant at SSH-Evansville. The Company has produced and will continue to produce documents in response to, and intends to fully cooperate with, these governmental investigations. At this time, the Company is unable to predict the timing and outcome of this matter.

Item 4.    Mine Safety Disclosures.

        None.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

        Select Medical Holdings Corporation common stock has been quoted on the New York Stock Exchange under the symbol "SEM" since our initial public offering on September 25, 2009. Prior to that date there was no public market for our common stock. The following table sets forth, for the periods indicated, the high and low sales prices of our common stock, reported by the New York Stock Exchange.

	Market Prices
Fiscal Year Ended December 31, 2012	High		Low
First Quarter	$	8.88	$	7.45
Second Quarter	$	10.25	$	6.94
Third Quarter	$	14.89	$	9.94
Fourth Quarter	$	12.03	$	9.20

	Market Prices
Fiscal Year Ended December 31, 2013	High		Low
First Quarter	$	10.00	$	8.38
Second Quarter	$	9.11	$	7.21
Third Quarter	$	9.09	$	7.77
Fourth Quarter	$	11.89	$	8.00

Holders

        At the close of business on February 1, 2014, Holdings had 140,286,867 shares of common stock issued and outstanding. As of that date, there were 124 registered holders of record. This does not reflect beneficial stockholders who hold their stock in nominee or "street" name through brokerage firms.

Dividend Policy

        On October 30, 2012, Holdings declared a special cash dividend of $1.50 per share, totaling approximately $210.9 million. This special cash dividend was paid on December 12, 2012 to all stockholders of record at the close of business on December 5, 2012.

        On May 1, August 7 and October 30, 2013, Holdings declared cash dividends of $0.10 per share. Such dividends were paid on May 30, August 30 and November 22, 2013, respectively, to stockholders of record as of the close of business on May 20, August 20 and November 12, 2013, respectively.

        There is no assurance that future dividends will be declared or the timing or amount of any future dividends. The declaration and payment of dividends in the future are at the sole discretion of our board of directors after taking into account various factors, including, but not limited to, our financial condition, operating results, available cash and current and anticipated cash needs. Additionally, certain contractual agreements we are party to, including the senior secured credit facility, dated as of June 1, 2011, as amended, and the Indenture governing Select's 6.375% senior notes, dated as of May 28, 2013, restrict our capacity to pay dividends.

Securities Authorized For Issuance Under Equity Compensation Plans

        For information regarding securities authorized for issuance under equity compensation plans, see Part III "Item 12 — Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters."

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Stock Performance Graph

        The graph below compares the cumulative total stockholder return on $100 invested at the close of the market on September 25, 2009, the first trading day of the Company's common stock on the New York Stock Exchange, with dividends being reinvested on the date paid through and including the market close on December 31, 2013 with the cumulative total return of the same time period on the same amount invested in the Standard & Poor's 500 Index (S&P 500), the Morgan Stanley Healthcare Providers Index (RXH) and the S&P Health Care Services Select Industry Index (SPSIHP). The graph below includes the S&P Health Care Services Select Industry Index to replace the previously used Morgan Stanley Healthcare Providers Index following the discontinuation of the Morgan Stanley Healthcare Providers Index, effective October 18, 2013. For comparative purposes, the graph below includes both the S&P Health Care Services Select Industry Index as well as the Morgan Stanley Healthcare Providers Index through October 18, 2013. The chart below the graph sets forth the actual numbers depicted on the graph.

	09/25/09		12/31/09		12/31/10		12/30/11		12/31/12		10/18/13		12/31/13
Select Medical Holdings Corporation (SEM)	$	100.00	$	105.25	$	72.45	$	84.04	$	107.00	$	104.17	$	136.55
S&P Health Care Services Select Industry Index (SPSIHP)	$	100.00	$	110.36	$	127.01	$	130.73	$	160.09	$	210.83	$	219.16
Morgan Stanley Healthcare Providers Index (RXH)	$	100.00	$	103.27	$	125.54	$	120.47	$	132.23	$	218.64		—
S&P 500	$	100.00	$	106.77	$	120.42	$	120.42	$	136.56	$	167.04	$	177.03

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Item 6.    Selected Financial Data.

        You should read the following selected historical consolidated financial data in conjunction with our consolidated financial statements and the accompanying notes. You should also read "Management's Discussion and Analysis of Financial Condition and Results of Operations," which is contained elsewhere herein. The historical financial data as of December 31, 2009, 2010, 2011, 2012 and 2013 and for the years ended December 31, 2009, 2010, 2011, 2012 and 2013 have been derived from consolidated financial statements audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm. The selected historical consolidated financial data as of December 31, 2012 and 2013, and for the years ended December 31, 2011, 2012 and 2013 have been derived from our consolidated financial information included elsewhere herein. The selected historical consolidated financial data as of December 31, 2009, 2010 and 2011 and for the years ended December 31, 2009 and 2010 have been derived from our audited consolidated financial information not included elsewhere herein.

	Select Medical Holdings Corporation
	Year Ended December 31,
	2009			2010			2011			2012			2013
	(In thousands, except per share data)
Statement of Operations Data:
Net operating revenues	$	2,239,871		$	2,390,290		$	2,804,507		$	2,948,969		$	2,975,648
Operating expenses(1)(2)		1,933,052			2,085,447			2,422,271			2,548,799			2,609,820
Depreciation and amortization		70,981			68,706			71,517			63,311			64,392
Income from operations		235,838			236,137			310,719			336,859			301,436
Gain (loss) on early retirement of debt(3)		13,575			—			(31,018	)		(6,064	)		(18,747	)
Equity in earnings (losses) of unconsolidated subsidiaries		—			(440	)		2,923			7,705			2,476
Other income (expense)		(632	)		632			—			—			—
Interest expense, net(4)		(132,377	)		(112,337	)		(98,894	)		(94,950	)		(87,364	)
Income before income taxes		116,404			123,992			183,730			243,550			197,801
Income tax expense		37,516			41,628			70,968			89,657			74,792
Net income		78,888			82,364			112,762			153,893			123,009
Less: Net income attributable to non-controlling interests(5)		3,606			4,720			4,916			5,663			8,619
Net income attributable to Select Medical Holdings Corporation		75,282			77,644			107,846			148,230			114,390
Less: Preferred dividends		19,537			—			—			—			—
Net income (loss) available to common stockholders and participating securities		55,745			77,644			107,846			148,230			114,390
Other comprehensive income (loss):
Unrealized gain (loss) on interest rate swap, net of tax		4,298			8,914			—			—			—
Comprehensive income (loss) attributable to Select Medical Holdings Corporation	$	60,043		$	86,558		$	107,846		$	148,230		$	114,390
Income (loss) per common share:
Basic	$	0.61		$	0.49		$	0.71		$	1.05		$	0.82
Diluted	$	0.61		$	0.48		$	0.71		$	1.05		$	0.82
Weighted average common shares outstanding:
Basic		85,587			159,184			150,501			138,767			136,879
Diluted		86,045			159,442			150,725			139,042			137,047
Balance Sheet Data (at end of period):
Cash and cash equivalents	$	83,680		$	4,365		$	12,043		$	40,144		$	4,319
Working capital (deficit)		156,685			(70,232	)		99,472			80,397			82,878
Total assets		2,588,146			2,722,086			2,772,147			2,761,361			2,817,622
Total debt		1,405,571			1,430,769			1,396,798			1,470,243			1,445,275
Total Select Medical Holdings Corporation stockholders' equity		735,930			780,947			819,679			717,048			786,234

47

	Select Medical Corporation
	Year Ended December 31,
	2009			2010			2011			2012			2013
	(In thousands)
Statement of Operations Data:
Net operating revenues	$	2,239,871		$	2,390,290		$	2,804,507		$	2,948,969		$	2,975,648
Operating expenses(1)(2)		1,933,052			2,085,447			2,422,271			2,548,799			2,609,820
Depreciation and amortization		70,981			68,706			71,517			63,311			64,392
Income from operations		235,838			236,137			310,719			336,859			301,436
Gain (loss) on early retirement of debt(3)		12,446			—			(20,385	)		(6,064	)		(17,788	)
Equity in earnings (losses) of unconsolidated subsidiaries		—			(440	)		2,923			7,705			2,476
Other income (expense)		3,204			632			—			—			—
Interest expense, net(4)		(99,451	)		(84,472	)		(80,910	)		(83,759	)		(84,954	)
Income before income taxes		152,037			151,857			212,347			254,741			201,170
Income tax expense		49,987			51,380			80,984			93,574			75,971
Net income		102,050			100,477			131,363			161,167			125,199
Less: Net income attributable to non-controlling interests(5)		3,606			4,720			4,916			5,663			8,619
Net income attributable to Select Medical Corporation		98,444			95,757			126,447			155,504			116,580
Other comprehensive income (loss):
Unrealized gain (loss) on interest rate swap, net of tax		2,522			8,914			—			—			—
Comprehensive income attributable to Select Medical Corporation	$	100,966		$	104,671		$	126,447		$	155,504		$	116,580
Balance Sheet Data (at end of period):
Cash and cash equivalents	$	83,680		$	4,365		$	12,043		$	40,144		$	4,319
Working capital (deficit)		153,231			(73,481	)		97,348			78,414			82,878
Total assets		2,585,092			2,719,572			2,770,738			2,760,313			2,817,622
Total debt		1,100,987			1,124,292			1,229,498			1,302,943			1,445,275
Total Select Medical Corporation stockholders' equity		1,034,006			1,081,661			983,446			881,317			786,234

(1)

Operating expenses include cost of services, general and administrative expenses, and bad debt expenses.

(2)

Includes stock compensation expense related to restricted stock, stock options and long term incentive compensation for the years ended December 31, 2009, 2010, 2011, 2012 and 2013.

(3)

During the year ended December 31, 2009, we paid approximately $30.1 million to repurchase and retire $46.5 million principal amount of Select's 7⁵/8% senior subordinated notes and made prepayments of $168.4 million on term loans under our credit facility. In addition, we paid $6.5 million to repurchase and retire $7.7 million principal amount of Holdings' senior floating rate notes. A gain on early retirement of debt of $13.6 million and $12.5 million for Holdings and Select, respectively, was recognized for the year ended December 31, 2009, which included the write-off of unamortized debt issuance costs.

During the year ended December 31, 2011, we refinanced Select's senior secured credit facility, repurchased and retired $266.5 million principal amount of Select's 7⁵/8% senior subordinated notes, and repurchased and retired $150.0 million principal amount of Holdings 10% senior subordinated notes. A loss on early retirement of debt of $31.0 million and $20.4 million for Holdings and Select, respectively, was recognized for the year ended

48

December 31, 2011, which included the write-off of unamortized debt issuance costs, tender premiums and original issue discount.

During the year ended December 31, 2012, we repurchased and retired an aggregate of $275.0 million principal amount of Select's outstanding 7⁵/8% senior subordinated notes. A loss on early retirement of debt of $6.1 million was recognized by Holdings and Select for the year ended December 31, 2012, which included the write-off of unamortized debt issuance costs and call premiums.

During the year ended December 31, 2013, Select entered into a credit extension amendment on February 20, 2013, the proceeds of which were used to redeem all of its outstanding 7⁵/8% senior subordinated notes, to finance Holdings' redemption of all of its 10% senior floating rate, and to repay a portion of the balance outstanding under Select's revolving credit facility. Additionally, on May 28, 2013, Select issued and sold $600.0 million aggregate principal amount of its 6.375% senior notes due 2021, the proceeds of which were used to pay a portion of the senior secured credit facility term loans then outstanding and to pay related fees and expenses. A loss on early retirement of debt of $18.7 million and $17.8 million for Holdings and Select, respectively, was recognized for the year ended December 31, 2013, which included the write-off of unamortized debt issuance costs.

(4)

Interest expense, net equals interest expense minus interest income.

(5)

Reflects interests held by other parties in subsidiaries, limited liability companies and limited partnerships owned and controlled by us.

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read this discussion together with the "Selected Financial Data" and consolidated financial statements and accompanying notes included elsewhere herein.

Overview

        We began operations in 1997, and we believe that we are one of the largest operators of both specialty hospitals and outpatient rehabilitation clinics in the United States based on number of facilities. As of December 31, 2013, we operated 123 specialty hospitals in 28 states, and 1,006 outpatient rehabilitation clinics in 32 states and the District of Columbia. We also provide medical rehabilitation services on a contracted basis to nursing homes, hospitals, assisted living and senior care centers, schools and work sites. As of December 31, 2013, we had operations in 44 states and the District of Columbia.

        We manage our Company through two business segments, our specialty hospital segment and our outpatient rehabilitation segment. We had net operating revenues of $2,975.6 million for the year ended December 31, 2013. Of this total, we earned approximately 74% of our net operating revenues from our specialty hospitals and approximately 26% from our outpatient rehabilitation business. Our specialty hospital segment consists of hospitals designed to serve the needs of long term stay acute patients and hospitals designed to serve patients that require intensive medical rehabilitation care. Patients are typically admitted to our specialty hospitals from general acute care hospitals. These patients have specialized needs, and serious and often complex medical conditions such as respiratory failure, neuromuscular disorders, traumatic brain and spinal cord injuries, strokes, non-healing wounds, cardiac disorders, renal disorders and cancer. Our outpatient rehabilitation segment consists of clinics and contract services that provide physical, occupational and speech rehabilitation services. Our outpatient rehabilitation patients are typically diagnosed with musculoskeletal impairments that restrict their ability to perform normal activities of daily living.

Significant 2013 Events

Refinancing Activities

        On February 20, 2013, Select entered into a credit extension amendment to its senior secured credit facilities providing for a $300.0 million additional term loan tranche, (the "series B term loan") to Select. Select used the borrowings under the series B term loan to redeem all of its outstanding 7⁵/8% senior subordinated notes due 2015 on March 22, 2013, to finance Holdings' redemption of all of its senior floating rate notes due 2015 on March 22, 2013 and to repay a portion of the balance outstanding under Select's revolving credit facility. Holdings and Select recognized a loss on early retirement of debt of $1.5 million and $0.5 million, respectively, related to this financing in 2013.

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        On May 28, 2013, Select issued and sold $600.0 million aggregate principal amount of its 6.375% senior notes due 2021. The senior notes are senior unsecured obligations of Select and are fully and unconditionally guaranteed by all of Select's wholly-owned subsidiaries. On May 28, 2013, Select used the proceeds of the senior notes to pay a portion of the amounts then outstanding on the original term loan and the series A term loan and to pay related fees and expenses. Select recognized a loss on early retirement of debt of $17.3 million in 2013 in connection with the repayment of a portion of its term loans and amendment of the existing senior secured credit facility, which included the write-off of unamortized debt issuance costs.

        On June 3, 2013, Select amended its existing senior secured credit facilities in order to:

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extend the maturity date on $293.3 million of its $300.0 million revolving credit facility from June 1, 2016 to March 1, 2018;

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convert the remaining original term loan and series A term loan to a series C term loan and lower the interest rate payable on the series C term loan from Adjusted LIBO plus 3.75%, or Alternate Base Rate plus 2.75%, to Adjusted LIBO plus 3.00%, or Alternate Base Rate plus 2.00%, and amend the provision of the series C term loan from providing that Adjusted LIBO will at no time be less than 1.75% to providing that Adjusted LIBO will at no time be less than 1.00%; and

•

amend the restrictive covenants governing the senior secured credit facilities in order to allow for unlimited restricted payments so long as there is no event of default under the senior secured credit facilities and the total pro forma ratio of total indebtedness to Consolidated EBITDA (as defined in our senior secured credit facilities) is less than or equal to 2.75 to 1.00.

Stock Repurchase Program

        The Company's board of directors has authorized a common stock repurchase program to repurchase up to $350.0 million worth of shares of its common stock. The program will remain in effect until March 31, 2015, unless extended by the board of directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as the Company deems appropriate. The Company is funding this program with cash on hand and borrowings under its revolving credit facility. The Company repurchased 1,115,691 shares at a cost of approximately $10.0 million, an average cost per share of $8.95, which includes transaction costs, during the year ended December 31, 2013. Since the inception of the program through December 31, 2013, the Company has repurchased 23,606,080 shares at a cost of approximately $173.6 million, or $7.36 per share, which includes transaction costs.

Budget Control Act of 2011

        On April 1, 2013, a federally mandated 2% reduction to Medicare payments was implemented (the "Sequestration Reduction") resulting in reductions to both our net operating revenues and income from operations for the year ended December 31, 2013 of approximately $23.9 million, of which approximately $22.8 million was related to our specialty hospitals and $1.1 million was related to our outpatient rehabilitation segment.

American Taxpayer Relief Act of 2012

        On April 1, 2013, the multiple procedure payment reduction ("MPPR Reduction") for therapy services was increased from 25% to 50% resulting in reductions to both our net operating revenues and income from operations of approximately $5.7 million for the year ended December 31, 2013.

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Summary Financial Results

Year Ended December 31, 2013

        For the year ended December 31, 2013, our net operating revenues increased 0.9% to $2,975.6 million compared to $2,949.0 million for the year ended December 31, 2012. We experienced increases in net operating revenues in both our specialty hospital and outpatient rehabilitation segments. We had income from operations for the year ended December 31, 2013 of $301.4 million, compared to $336.9 million for the year ended December 31, 2012. Our Adjusted EBITDA for the year ended December 31, 2013 was $372.9 million, compared to $405.8 million for the year ended December 31, 2012 and our Adjusted EBITDA margin was 12.5% for the year ended December 31, 2013, compared to 13.8% for the year ended December 31, 2012. See the section titled "Results of Operations" for a reconciliation of net income to Adjusted EBITDA. The decrease in our income from operations, Adjusted EBITDA and Adjusted EBITDA margin is principally due to the Sequestration Reduction and the MPPR Reduction and increases in our operating expenses.

        Net income attributable to Holdings was $114.4 million for the year ended December 31, 2013, compared to $148.2 million for the year ended December 31, 2012. The decrease in Holdings' net income resulted principally from a decline in our income from operations described above and greater losses on early retirement of debt from refinancing activities in 2013 compared to refinancing activities in 2012.

        Cash flow from operations provided $192.5 million of cash for the year ended December 31, 2013 for Holdings and $198.1 million of cash for the year ended December 31, 2013 for Select. The difference in cash flow from operations between Holdings and Select primarily relates to interest payments on Holdings' senior floating rate notes.

Year Ended December 31, 2012

        For the year ended December 31, 2012, our net operating revenues increased 5.2% to $2,949.0 million compared to $2,804.5 million for the year ended December 31, 2011. For the year ended December 31, 2012, our specialty hospital revenues increased $102.0 million or 4.9% from the prior year and our outpatient rehabilitation revenues increased $42.5 million or 6.0% from the prior year. We had income from operations for the year ended December 31, 2012 of $336.9 million compared to $310.7 million for the year ended December 31, 2011. We had net income attributable to Holdings for the year ended December 31, 2012 of $148.2 million compared to $107.8 million for the year ended December 31, 2011. Our Adjusted EBITDA for the year ended December 31, 2012 was $405.8 million compared to $386.0 million for the year ended December 31, 2011. See the section entitled "Results of Operations" for a reconciliation of net income to Adjusted EBITDA. The increases in our income from operations and Adjusted EBITDA for the year ended December 31, 2012 were principally due to increases in the operating performance of our specialty hospital segment. We were able to increase our specialty hospital income from operations $22.8 million or 7.3% and our specialty hospital Adjusted EBITDA $19.0 million or 5.2% for the year ended December 31, 2012 as compared to the year ended December 31, 2011.

        Net income attributable to Holdings increased $40.4 million to $148.2 million for the year ended December 31, 2012 compared to $107.8 million for the year ended December 31, 2011. The increase resulted primarily from an increase in our income from operations described above, increases in our equity in earnings of unconsolidated subsidiaries principally related to our joint venture with the Baylor Health Care System, or the "Baylor JV," and a reduction of interest expense. We also incurred a smaller loss on early retirement of debt related to the refinancing transactions completed in 2012 compared to the refinancing transactions completed in 2011.

        Cash flow from operations provided $298.7 million of cash for the year ended December 31, 2012 for Holdings and $309.4 million of cash for the year ended December 31, 2012 for Select. The difference between Holdings and Select in cash flow from operations primarily relates to interest payments on Holdings' senior floating rate notes.

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Regulatory Changes

        The Medicare program reimburses us for services furnished to Medicare beneficiaries, which are generally persons age 65 and older, those who are chronically disabled, and those suffering from end stage renal disease. Net operating revenues generated directly from the Medicare program represented approximately 48%, 47% and 46% of our consolidated net operating revenues for the years ended December 31, 2011, 2012 and 2013, respectively.

        The Medicare program reimburses our LTCHs, IRFs and outpatient rehabilitation providers, using different payment methodologies. Those payment methodologies are complex and are described elsewhere in this report under "Business — Government Regulations." The following is a summary of some of the more significant healthcare regulatory changes that have affected our financial performance in the periods covered by this report or are likely to affect our financial performance and financial condition in the future.

Medicare Reimbursement of LTCH Services

        In the last few years, there have been significant regulatory changes affecting LTCHs that have affected our net operating revenues and, in some cases, caused us to change our operating models and strategies. We have been subject to regulatory changes that occur through the rulemaking procedures of CMS. All Medicare payments to our LTCHs are made in accordance with LTCH-PPS. Proposed rules specifically related to LTCHs are generally published in May, finalized in August and effective on October 1st of each year.

        The following is a summary of significant changes to the Medicare prospective payment system for LTCHs which have affected our results of operations, as well as the policies and payment rates for fiscal year 2014 that affect our patient discharges and cost reporting periods beginning on or after October 1, 2013.

        Fiscal Year 2012.    On August 18, 2011, CMS published the policies and payment rates for LTCH-PPS for fiscal year 2012 (affecting discharges and cost reporting periods beginning on or after October 1, 2011 through September 30, 2012). The standard federal rate for fiscal year 2012 was $40,222, which was an increase from the fiscal year 2011 standard federal rate of $39,600. The update to the standard federal rate for fiscal year 2012 included a market basket increase of 2.9%, less a productivity adjustment of 1.0%, and less an additional market basket reduction of 0.1% as mandated by the PPACA. The final rule established a fixed-loss amount for high cost outlier cases for fiscal year 2012 of $17,931, which was a decrease from the fixed loss amount in the 2011 fiscal year of $18,785.

        Fiscal Year 2013.    On August 1, 2012, CMS published the final rule updating the policies and payment rates for LTCH-PPS for fiscal year 2013 (affecting discharges and cost reporting periods beginning on or after October 1, 2012 through September 30, 2013). Two different standard federal rates apply during fiscal year 2013. The standard federal rate for discharges on or after October 1, 2012 and before December 29, 2012 was set at $40,916 and the standard federal rate for discharges on or after December 29, 2012 for the remainder of fiscal year 2013 was $40,398 both of which were an increase from the fiscal year 2012 standard federal rate of $40,222. The update to the standard federal rate for fiscal year 2013 through December 28, 2012 included a market basket increase of 2.6%, less a productivity adjustment of 0.7%, and less an additional reduction of 0.1% mandated by the PPACA. The standard federal rate for the period of December 29, 2012 through the remainder of fiscal 2013 was further reduced by a portion of the one-time budget neutrality adjustment of 1.266%, as discussed below. The final rule established a fixed-loss amount for high cost outlier cases for fiscal year 2013 of $15,408, which was a decrease from the fixed loss amount in the 2012 fiscal year of $17,931.

        Fiscal Year 2014.    On August 19, 2013, CMS published the final rule updating the policies and payment rates for LTCH-PPS for fiscal year 2014 (affecting discharges and cost reporting periods beginning on or after October 1, 2013 through September 30, 2014). The standard federal rate was set at

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$40,607, an increase from the standard federal rate applicable during the period from December 29, 2012 through September 30, 2013 of $40,398. The update to the standard federal rate for fiscal year 2014 includes a market basket increase of 2.5%, less a productivity adjustment of 0.5%, less a reduction of 0.3% mandated by the PPACA, and less a budget neutrality adjustment of 1.266%, as discussed above. The fixed-loss amount for high cost outlier cases was set at $13,314, which is a decrease from the fixed-loss amount in the 2013 fiscal year of $15,408.

Medicare Market Basket Adjustments

        The PPACA instituted a market basket payment adjustment to LTCHs. In fiscal years 2015 and 2016 the market basket update will be reduced by 0.2%. Finally, in fiscal years 2017-2019, the market basket update will be reduced by 0.75%. The PPACA specifically allows these market basket reductions to result in a less than 0% payment update and payment rates that are less than the prior year.

25 Percent Rule

        The 25 Percent Rule is a downward payment adjustment that applies if the percentage of Medicare patients discharged from LTCHs who were admitted from an individual hospital (regardless of whether the LTCH or LTCH satellite is co-located with the referring hospital) exceeds the applicable percentage admissions thresholds during a particular cost reporting period. The SCHIP Extension Act, as amended by the ARRA and the PPACA, has limited the application of the 25 Percent Rule, as described elsewhere in this report under "Business — Government Regulations." CMS adopted regulations providing for an additional one-year extension of relief from the full application of the 25 Percent Rule. As a result, full implementation of the Medicare percentage admission thresholds did not go into effect until cost reporting periods beginning on or after October 1, 2013, except for certain LTCHs with cost reporting periods that begin between July 1, 2012 and September 30, 2012. Specifically, those freestanding facilities, grandfathered HIHs and grandfathered satellites with cost reporting periods beginning on or after July 1, 2012 and before October 1, 2012 are subject to a modified 25 Percent Rule for discharges occurring in the three month period between July 1, 2012 and September 30, 2012. The Bipartisan Budget Act of 2013 further delays, and in some cases permanently suspends, the application of the 25 Percent Rule. After the expiration of the extension, our LTCHs will be subject to a downward payment adjustment for any Medicare patients who were admitted from a co-located or a non-co-located hospital and that exceed the applicable percentage admissions threshold of all Medicare patients discharged from the LTCH during the cost reporting period. These regulatory changes will have an adverse financial impact on the net operating revenues and profitability of many of our LTCH hospitals for cost reporting periods beginning on or after July 1, 2016.

One-Time Budget Neutrality Adjustment

        The regulations governing LTCH-PPS authorizes CMS to make a one-time adjustment to the standard federal rate to correct any "significant difference between actual payments and estimated payments for the first year" of LTCH-PPS. In the update to the Medicare policies and payment rates for fiscal year 2013, CMS adopted a one-time budget neutrality adjustment that results in a permanent negative adjustment of 3.75% to the LTCH base rate. CMS is implementing the adjustment over a three-year period by applying a factor of 0.98734 to the standard federal rate in fiscal years 2013, 2014 and 2015, except that the adjustment did not apply to payments for discharges occurring on or after October 1, 2012 through December 28, 2012.

Short Stay Outlier Policy

        The SCHIP Extension Act prevented CMS from applying the so-called very short stay outlier policy for discharges occurring after July 1, 2007. This policy would result in a payment equivalent to the general acute care hospital rate for cases with a length of stay that is less than the average length of stay plus one standard deviation of a case with the same diagnosis related group under IPPS, regardless of the clinical

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considerations for admission to the LTCH or the average length of stay an LTCH must satisfy for Medicare certification. The SCHIP Extension Act as amended by the ARRA and the PPACA precluded CMS from implementing the very short stay outlier policy before December 29, 2012. The very short stay outlier policy again became applicable to discharges occurring on or after December 29, 2012.

Moratorium on New LTCHs and New LTCH Beds

        The SCHIP Extension Act imposed a moratorium on the establishment and classification of new LTCHs, LTCH satellite facilities and LTCH beds in existing LTCHs or satellite facilities subject to certain exceptions. PPACA extended this moratorium by two years. The moratorium expired on December 28, 2012. The Bipartisan Budget Act of 2013 reinstates the moratorium on the establishment and classification of new LTCHs, LTCH satellite facilities and LTCH beds in existing LTCHs or satellite facilities beginning January 1, 2015 through September 30, 2017.

Medicare Reimbursement of Inpatient Rehabilitation Facility Services

        The following is a summary of significant changes to the Medicare prospective payment system for IRFs which have affected our results of operations during the periods presented in this report, as well as the policies and payment rates for fiscal year 2014 that affect our patient discharges and cost reporting periods beginning on or after October 1, 2013.

        Fiscal Year 2012.    On August 5, 2011, CMS published the policies and payment rates for IRF-PPS for fiscal year 2012 (affecting discharges and cost reporting periods beginning on or after October 1, 2011 and through September 30, 2012). The standard payment conversion factor for discharges during fiscal year 2012 was $14,076 which was an increase from the fiscal year 2011 standard payment conversion factor of $13,860. The update to the standard payment conversion factor for fiscal year 2012 included a market basket increase of 2.9%, less a productivity adjustment of 1.0%, and less an additional market basket reduction of 0.1% as mandated by the PPACA. CMS decreased the outlier threshold amount for fiscal year 2012 to $10,660 from $11,410 established in the final rule for fiscal year 2011. In a notice published September 26, 2011, CMS corrected its calculation of the outlier threshold amount for fiscal year 2012 to $10,713.

        Fiscal Year 2013.    On July 30, 2012, CMS published the final rule updating policies and payment rates for IRF-PPS for fiscal year 2013 (affecting discharges and cost reporting periods beginning on or after October 1, 2012 through September 30, 2013). The standard payment conversion factor for discharges for fiscal year 2013 was $14,343, which was an increase from the fiscal year 2012 standard payment conversion factor of $14,076. The update to the standard payment conversion factor for fiscal year 2013 included a market basket increase of 2.7%, less a productivity adjustment of 0.7%, less an additional market basket reduction of 0.1% as mandated by the PPACA. CMS decreased the outlier threshold amount for fiscal year 2013 to $10,466 from $10,713 established in the final rule for fiscal year 2012.

        Fiscal Year 2014.    On August 6, 2013, CMS published the final rule updating policies and payment rates for IRF-PPS for fiscal year 2014 (affecting discharges and cost reporting periods beginning on or after October 1, 2013 through September 30, 2014). The standard payment conversion factor for discharges for fiscal year 2014 is $14,846, which is an increase from the fiscal year 2013 standard payment conversion factor of $14,343. The update to the standard payment conversion factor for fiscal year 2014 includes a market basket increase of 2.6%, less a productivity adjustment of 0.5%, less an additional reduction of 0.3% as mandated by the PPACA. CMS decreased the outlier threshold amount for fiscal year 2014 to $9,272 from $10,466 established in the final rule for fiscal year 2013.

Medicare Market Basket Adjustments

        The PPACA instituted a market basket payment adjustment for IRFs. For fiscal years 2015 and 2016, the reduction is 0.2%. For fiscal years 2017 - 2019, the reduction is 0.75%.

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Medicare Reimbursement of Outpatient Rehabilitation Services

        The Medicare program reimburses outpatient rehabilitation providers based on the Medicare physician fee schedule. The Medicare physician fee schedule rates are automatically updated annually based on the SGR formula, contained in legislation. The SGR formula has resulted in automatic reductions in rates in every year since 2002; however, for each year through March 31, 2014 CMS or Congress has taken action to prevent the SGR formula reductions. On December 10, 2013, CMS estimated a 20.1% reduction in the Medicare physician fee schedule payment rates for calendar year 2014 as a result of the SGR formula. The Bipartisan Budget Act of 2013 blocks the 20.1% reduction for services provided through March 31, 2014. Reimbursement for outpatient rehabilitation services paid under the Medicare physician fee schedule will generally remain unchanged through March 31, 2014. Automatic reductions in the Medicare physician fee schedule payment rates will commence on April 1, 2014, unless Congress again takes legislative action to prevent the SGR formula reductions from going into effect. For the year ended December 31, 2013, we received approximately 9% of our outpatient rehabilitation net operating revenues from Medicare.

Therapy Caps

        Beginning on January 1, 1999, the Balanced Budget Act of 1997 subjected certain outpatient therapy providers reimbursed under the Medicare physician fee schedule to annual limits for therapy expenses. Effective January 1, 2014, the annual limit on outpatient therapy services is $1,920 for combined physical and speech language pathology services and $1,920 for occupational therapy services. The per beneficiary caps were $1,900 for calendar year 2013. The annual limits for therapy expenses do not apply to services furnished and billed by outpatient hospital departments. However, the American Taxpayer Relief Act of 2012 and the Bipartisan Budget Act of 2013 extends the annual limits on therapy expenses and manual medical review thresholds to services furnished in hospital outpatient department settings through December 31, 2014. The application of annual limits to hospital outpatient department settings will sunset on March 31, 2014 unless Congress extends it. We operated 1,006 outpatient rehabilitation clinics at December 31, 2013, of which 158 are provider-based outpatient rehabilitation clinics operated as departments of the inpatient rehabilitation hospitals we operated.

        In the Deficit Reduction Act of 2005, Congress implemented an exceptions process to the annual limit for therapy expenses. Under this process, a Medicare enrollee (or person acting on behalf of the Medicare enrollee) is able to request an exception from the therapy caps if the provision of therapy services was deemed to be medically necessary. Therapy cap exceptions have been available automatically for certain conditions and on a case-by-case basis upon submission of documentation of medical necessity. The Bipartisan Budget Act of 2013 extends the exceptions process for outpatient therapy caps through March 31, 2014. Unless Congress extends the exceptions process, the therapy caps will apply to all outpatient therapy services beginning April 1, 2014, except those services furnished and billed by outpatient hospital departments.

        The Middle Class Tax Relief and Job Creation Act of 2012 made several changes to the exceptions process to the annual limit for therapy expenses. For any claim above the annual limit, the claim must contain a modifier indicating that the services are medically necessary and justified by appropriate documentation in the medical record. Effective October 1, 2012, all claims exceeding $3,700 are subject to a manual medical review process. The $3,700 threshold is applied separately to the combined physical therapy/speech therapy cap and the occupational therapy cap. The Bipartisan Budget Act of 2013 extends through March 31, 2014 the requirement that Medicare perform manual medical review of therapy services when an exception is requested for cases in which the beneficiary has reached a specified dollar aggregate threshold. Effective October 1, 2012, all therapy claims, whether above or below the annual limit, must include the national provider identifier (NPI) of the physician responsible for certifying and periodically reviewing the plan of care.

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Multiple Procedure Payment Reduction

        CMS adopted a multiple procedure payment reduction for therapy services in the final update to the Medicare physician fee schedule for calendar year 2011. This multiple procedure payment reduction policy became effective January 1, 2011 and applies to all outpatient therapy services paid under Medicare Part B. Furthermore, the multiple procedure payment reduction policy applies across all therapy disciplines — occupational therapy, physical therapy and speech-language pathology. Under the policy, the Medicare program pays 100% of the practice expense component of the therapy procedure or unit of service with the highest Relative Value Unit, and then reduces the payment for the practice expense component for the second and subsequent therapy procedures or units of service furnished during the same day for the same patient, regardless of whether those therapy services are furnished in separate sessions. In 2011 and 2012, the practice expense component for the second and subsequent therapy service furnished during the same day for the same patient was reduced by 20% in office and other non-institutional settings and by 25% in institutional settings. The American Taxpayer Relief Act of 2012 increases the payment reduction to 50% effective April 1, 2013. Our outpatient rehabilitation therapy services are primarily offered in institutional settings and, as such, were subject to the applicable 25% payment reduction in the practice expense component for the second and subsequent therapy services furnished by us to the same patient on the same day until April 1, 2013 when the payment reduction increased to 50%.

Development of New Specialty Hospitals and Clinics

        In addition to the growth of our business through the acquisition and integration of other businesses, we have also grown our business by developing specialty hospitals and outpatient rehabilitation facilities. Since our inception in 1997 through December 31, 2013, we have internally developed 64 specialty hospitals and 382 outpatient rehabilitation clinics. The SCHIP Extension Act as extended by PPACA instituted a moratorium on the development of new LTCHs through December 28, 2012. As a result, we stopped all new LTCH development during this period. The Bipartisan Budget Act of 2013 reinstates the moratorium on the establishment and classification of new LTCHs, LTCH satellite facilities and LTCH beds in existing LTCHs or satellite facilities beginning January 1, 2015 through September 30, 2017. We continue to evaluate opportunities to develop new joint venture relationships with significant health systems and from time to time we may also develop new inpatient rehabilitation hospitals. We also intend to open new outpatient rehabilitation clinics in the local areas that we currently serve where we can benefit from existing referral relationships and brand awareness to produce incremental growth.

Critical Accounting Matters

Merger Transactions

        On February 24, 2005, EGL Acquisition Corp., a subsidiary of Holdings, was merged with and into Select, with Select continuing as the surviving corporation and a wholly owned subsidiary of Holdings. We refer to the merger and the related transactions collectively as the "Merger." As a result of the Merger, the majority of Select's assets and liabilities were adjusted to their fair value as of February 25, 2005. The excess of the total purchase price over the fair value of Select's tangible and identifiable intangible assets was allocated to goodwill. Additionally, a portion of the equity related to our continuing stockholders was recorded at the stockholder's predecessor basis and a corresponding portion of the fair value of the acquired assets was reduced accordingly.

Sources of Revenue

        Our net operating revenues are derived from a number of sources, including commercial, managed care, private and governmental payors. Our net operating revenues include amounts estimated by management to be reimbursable from each of the applicable payors and the federal Medicare program. Amounts we receive for treatment of patients are generally less than the standard billing rates. We account

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for the differences between the estimated reimbursement rates and the standard billing rates as contractual adjustments, which we deduct from gross revenues to arrive at net operating revenues.

        Net operating revenues generated directly from the Medicare program from all segments represented approximately 46%, 47% and 48% of net operating revenues for the years ended December 31, 2013, 2012 and 2011, respectively. Approximately 59%, 60% and 61% of our specialty hospital revenues for the years ended December 31, 2013, 2012 and 2011, respectively, were received for services provided to Medicare patients.

        Most of our specialty hospitals receive bi-weekly periodic interim payments from Medicare instead of being paid on an individual claim basis. Under a periodic interim payment methodology, Medicare estimates a hospital's claim volume based on historical trends and makes bi-weekly interim payments to us based on these estimates. Twice a year per hospital, Medicare reconciles the differences between the actual claim data and the estimated payments. To the extent our actual hospital's experience is different from the historical trends used by Medicare to develop the estimate, the periodic interim payment will result in our being either temporarily over-paid or under-paid for our Medicare claims. At each balance sheet date, we record any aggregate under-payment as an account receivable or any aggregate over-payment as a payable to third-party payors on our balance sheet. The timing of when we receive our bi-weekly periodic interim payments, in relation to our balance sheet date, has an impact on our accounts receivable balance and our days sales outstanding as of the end of any reporting period.

Contractual Adjustments

        Net operating revenues include amounts estimated by us to be reimbursable by Medicare and Medicaid under prospective payment systems and provisions of cost-reimbursement and other payment methods. In addition, we are reimbursed by non-governmental payors using a variety of payment methodologies. Amounts we receive for treatment of patients covered by these programs are generally less than the standard billing rates. Contractual allowances are calculated and recorded through our internally developed systems. In our specialty hospital segment our billing system automatically calculates estimated Medicare reimbursement and associated contractual allowances. For non-governmental payors in our specialty hospital segment, we either manually calculate the contractual allowance for each patient based upon the contractual provisions associated with the specific payor or where we have a relatively homogeneous patient population, we monitor individual payors' historical closed paid claims data and apply those payment rates to the existing patient population. The net payments are converted into per diem rates. The per diem rates are applied to unpaid patient days to determine the expected payment and a contractual adjustment is recorded to adjust the recorded amount to agree with the expected payment. Quarterly, we update our analysis of historical closed paid claims. In our outpatient segment, we perform provision testing, using internally developed systems, whereby we monitor a payors' historical paid claims data and compare it against the associated gross charges. This difference is determined as a percentage of gross charges and is applied against gross billing revenue to determine the contractual allowances for the period. Additionally, these contractual percentages are applied against the gross receivables on the balance sheet to determine that adequate contractual reserves are maintained for the gross accounts receivables reported on the balance sheet. We account for any difference as additional contractual adjustments to gross revenues to arrive at net operating revenues in the period that the difference is determined. We believe the processes described above and used in recording our contractual adjustments have resulted in reasonable estimates determined on a consistent basis.

Allowance for Doubtful Accounts

        Substantially all of our accounts receivable are related to providing healthcare services to patients. Collection of these accounts receivable is our primary source of cash and is critical to our financial performance. Our primary collection risks relate to non-governmental payors who insure these patients, and deductibles, co-payments and self-insured amounts owed by the patient. Deductibles, co-payments and self-insured amounts are an immaterial portion of our net accounts receivable balance. At December 31,

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2013, deductibles, co-payments and self-insured amounts owed by patients accounted for approximately 0.3% of our net accounts receivable balance before doubtful accounts. Our general policy is to verify insurance coverage prior to the date of admission for a patient admitted to our hospitals, or in the case of our outpatient rehabilitation clinics, we verify insurance coverage prior to their first therapy visit. Our estimate for the allowance for doubtful accounts is calculated by providing a reserve allowance based upon the age of an account balance. Generally, we reserve as uncollectible all governmental accounts over 365 days from discharge and non-governmental accounts over 180 days from discharge. This method is based on our historical cash collections experience and is periodically assessed in light of any changes to such experience. Collections are impacted by the effectiveness of our collection efforts with non-governmental payors and regulatory or administrative disruptions with the fiscal intermediaries that pay our governmental receivables.

        We estimate bad debts for total accounts receivable within each of our operating units. We believe our policies have resulted in reasonable estimates determined on a consistent basis. We have historically collected substantially all of our third-party insured receivables (net of contractual allowances) which include receivables from governmental agencies. Historically, there has not been a material difference between our bad debt allowances and the ultimate historical collection rates on accounts receivable. We review our overall reserve adequacy by monitoring historical cash collections as a percentage of net revenue less the provision for bad debts. Uncollected accounts are charged against the reserve when they are turned over to an outside collection agency, or when management determines that the balance is uncollectible, whichever occurs first.

        The following table is an aging of our net (after allowances for contractual adjustments but before doubtful accounts) accounts receivable as of the dates indicated (in thousands):

	Balance as of December 31,
	2012				2013
	0-180 Days		Over 180 Days		0-180 Days		Over 180 Days
Commercial insurance and other	$	230,878	$	31,441	$	234,852	$	33,299
Medicare and Medicaid		133,318		6,146		156,841		7,142
Total net accounts receivable	$	364,196	$	37,587	$	391,693	$	40,441

        The approximate percentage of total net accounts receivable (after allowance for contractual adjustments but before doubtful accounts) summarized by aging categories as of the dates indicated is as follows:

	As of December 31,
	2012			2013
0 to 90 days		83.0	%		82.3	%
91 to 180 days		7.6	%		8.3	%
181 to 365 days		4.8	%		5.4	%
Over 365 days		4.6	%		4.0	%
Total		100.0	%		100.0	%

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        The approximate percentage of total net accounts receivable (after allowance for contractual adjustments but before doubtful accounts) summarized by insured status as of the dates indicated is as follows:

	As of December 31,
	2012			2013
Commercial insurance and other		65.1	%		61.8	%
Medicare and Medicaid		34.7	%		37.9	%
Self-pay receivables (including deductibles and co-payments)		0.2	%		0.3	%
Total		100.0	%		100.0	%

Insurance

        Under a number of our insurance programs, which include our employee health insurance program and certain components under our property and casualty insurance program, we are liable for a portion of our losses. In these cases we accrue for our losses under an occurrence based principle whereby we estimate the losses that will be incurred by us in a given accounting period and accrue that estimated liability. We utilize actuarial methods in estimating the losses. We monitor these programs quarterly and revise our estimates as necessary to take into account additional information. At December 31, 2013 and December 31, 2012, we recorded a liability of $103.4 million and $92.5 million, respectively, for our estimated losses under these insurance programs.

Related Party Transactions

        We are party to various rental and other agreements with companies affiliated with us through common ownership. Our payments to these related parties amounted to $4.2 million and $4.0 million for the years ended December 31, 2013 and 2012, respectively. Our future commitments are related to commercial office space we lease for our corporate headquarters in Mechanicsburg, Pennsylvania. These future commitments as of December 31, 2013 amount to $36.2 million through 2023. These transactions and commitments are described more fully in the notes to our consolidated financial statements included herein. The Company's practice is that any such transaction must receive the prior approval of both the audit and compliance committee of the board of directors and a majority of non-interested members of the board of directors. It is the Company's practice that an independent third-party appraisal supporting the amount of rent for such leased space is obtained prior to approving the related party lease of office space.

Goodwill and Other Intangible Assets

        Goodwill and certain other indefinite-lived intangible assets are subject to periodic impairment evaluations. Our most recent impairment assessment was completed during the fourth quarter of 2013, which indicated that there was no impairment with respect to goodwill or other recorded intangible assets. We have recorded total goodwill and other intangible assets of $1.7 billion, of which goodwill and other intangible assets of $1.4 billion relates to our specialty hospital reporting unit, $338.0 million relates to our outpatient clinic reporting unit and $2.0 million relates to our contract therapy reporting unit. In performing periodic impairment tests, the fair value of the reporting unit is compared to the carrying value, including goodwill and other intangible assets. If the carrying value exceeds the fair value, an impairment condition exists, which results in an impairment loss equal to the excess carrying value. Impairment tests are required to be conducted at least annually, or when events or conditions occur that might suggest a possible impairment. These events or conditions include, but are not limited to, a significant adverse change in the business environment, regulatory environment or legal factors; a current period operating or cash flow loss combined with a history of such losses or a projection of continuing losses; or a sale or disposition of a significant portion of a reporting unit. The occurrence of one of these events or conditions could significantly impact an impairment assessment, necessitating an impairment

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charge and adversely affecting our results of operations. For purposes of goodwill impairment assessment, we have defined our reporting units as specialty hospitals, outpatient rehabilitation clinics and contract therapy, with goodwill having been allocated among reporting units based on the relative fair value of those divisions when the Merger occurred in 2005 and based on subsequent acquisitions.

        As a result of the Sequestration Reduction, we lowered our future operating performance assumptions for our specialty hospital operations resulting in a decline in our estimate of future cash flows. As a result, we observed a decline in the fair value and excess fair value of our specialty hospital reporting unit. The excess fair value, as a percentage of carrying value, of our specialty hospital reporting unit was approximately 10.4%, 25.5% and 28.0% as of October 1, 2013, 2012 and 2011, respectively. The fair value of our outpatient rehabilitation clinics and our contract therapy reporting units significantly exceeded the carrying values of each of those corresponding reporting units as of October 1, 2013, 2012, and 2011.

        To determine the fair value of our reporting units, we use a discounted cash flow approach. Included in the discounted cash flow are assumptions regarding revenue growth rates, internal development of specialty hospitals and rehabilitation clinics, future Adjusted EBITDA margin estimates, future general and administrative expense rates and the weighted average cost of capital for our industry. We also must estimate residual values at the end of the forecast period and future capital expenditure requirements. Each of these assumptions requires us to use our knowledge of (1) our industry, (2) our recent transactions, and (3) reasonable performance expectations for our operations. If any one of the above assumptions changes or fails to materialize, the resulting decline in our estimated fair value could result in a material impairment charge to the goodwill associated with any one of the reporting units. We have consistently applied the discounted cash flow approach methodology to determine the fair value of each of our reporting units at each annual impairment test dated October 1, 2013, 2012, and 2011.

Realization of Deferred Tax Assets

        Deferred tax assets and liabilities are required to be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Deferred tax assets are also required to be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. As part of the process of preparing our consolidated financial statements, we estimate our income taxes based on our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. We also recognize as deferred tax assets the future tax benefits from net operating loss carry forwards. We evaluate the realizability of these deferred tax assets by assessing their valuation allowances and by adjusting the amount of such allowances, if necessary. Among the factors used to assess the likelihood of realization are our projections of future taxable income streams, the expected timing of the reversals of existing temporary differences, and the impact of tax planning strategies that could be implemented to avoid the potential loss of future tax benefits. However, changes in tax codes, statutory tax rates or future taxable income levels could materially impact our valuation of tax accruals and assets and could cause our provision for income taxes to vary significantly from period to period.

        At December 31, 2013, we had deferred tax liabilities in excess of deferred tax assets of approximately $78.7 million for both Holdings and Select principally due to depreciation deductions that have been accelerated for tax purposes. This amount includes approximately $10.5 million of valuation reserves related primarily to state net operating losses.

Uncertain Tax Positions

        We record and review quarterly our uncertain tax positions. Reserves for uncertain tax positions are established for exposure items related to various federal and state tax matters. Income tax reserves are recorded when an exposure is identified and when, in the opinion of management, it is more likely than not that a tax position will not be sustained and the amount of the liability can be estimated. While we believe that our reserves for uncertain tax positions are adequate, the settlement of any such exposures at amounts

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that differ from current reserves may require us to materially increase or decrease our reserves for uncertain tax positions.

Stock Based Compensation

        We measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Our share-based compensation arrangements comprise both stock options and restricted share plans. We value employee stock options using the Black-Scholes option valuation method that uses assumptions that relate to the expected volatility of our common stock, the expected dividend yield of our stock, the expected life of the options and the risk free interest rate. Such compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant. We value restricted stock grants by using the closing market price of our stock on the date of grant.

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Operating Statistics

        The following tables set forth operating statistics for our specialty hospitals and our outpatient rehabilitation clinics for each of the periods presented. The data in the tables reflect the changes in the number of specialty hospitals and outpatient rehabilitation clinics we operate that resulted from acquisitions, start-up activities, closures and sales. The operating statistics reflect data for the period of time these operations were managed by us.

	Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2013
Specialty hospital data(1):
Number of hospitals owned — start of period		116			115			116
Number of hospital start-ups		—			1			—
Number of hospitals acquired		1			1			1
Number of hospitals closed/sold		(2	)		(1	)		(2	)
Number of hospitals owned — end of period		115			116			115
Number of hospitals managed — end of period		4			6			8
Total number of hospitals (all) — end of period		119			122			123
Long term acute care hospitals		110			110			108
Rehabilitation hospitals		9			12			15
Available licensed beds(2)		5,135			5,138			5,172
Admissions(2)		54,734			55,147			55,729
Patient days(2)		1,330,890			1,345,430			1,353,847
Average length of stay (days)(2)		24			24			24
Net revenue per patient day(2)(3)	$	1,497		$	1,534		$	1,514
Occupancy rate(2)		71	%		71	%		72	%
Percent patient days — Medicare(2)		65	%		64	%		64	%
Outpatient rehabilitation data:
Number of clinics owned — start of period		875			850			867
Number of clinics acquired		15			12			5
Number of clinic start-ups		26			30			27
Number of clinics closed/sold		(66	)		(25	)		(14	)
Number of clinics owned — end of period		850			867			885
Number of clinics managed — end of period		104			112			121
Total number of clinics (all) — end of period		954			979			1,006
Number of visits(2)		4,470,061			4,568,821			4,780,723
Net revenue per visit(2)(4)	$	103		$	103		$	104

(1)

Specialty hospitals consist of long term acute care hospitals and inpatient rehabilitation facilities.

(2)

Data excludes specialty hospitals and outpatient clinics managed by the Company.

(3)

Net revenue per patient day is calculated by dividing specialty hospital direct patient service revenues by the total number of patient days.

(4)

Net revenue per visit is calculated by dividing outpatient rehabilitation clinic direct patient service revenue by the total number of visits. For purposes of this computation, outpatient rehabilitation clinic direct patient service revenue does not include managed clinics or contract services revenue.

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Results of Operations

        The following table outlines, for the periods indicated, selected operating data as a percentage of net operating revenues:

	Select Medical Holdings Corporation
	Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2013
Net operating revenues		100.0	%		100.0	%		100.0	%
Cost of services(1)		82.3			82.9			83.8
General and administrative		2.2			2.2			2.6
Bad debt expense		1.8			1.3			1.3
Depreciation and amortization		2.6			2.2			2.2
Income from operations		11.1			11.4			10.1
Loss on early retirement of debt		(1.1	)		(0.2	)		(0.6	)
Equity in earnings of unconsolidated subsidiaries		0.1			0.3			0.1
Interest expense, net		(3.5	)		(3.2	)		(2.9	)
Income before income taxes		6.6			8.3			6.7
Income tax expense		2.5			3.1			2.6
Net income		4.1			5.2			4.1
Net income attributable to non-controlling interests		0.2			0.2			0.3
Net income attributable to Holdings		3.9	%		5.0	%		3.8	%

	Select Medical Corporation
	Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2013
Net operating revenues		100.0	%		100.0	%		100.0	%
Cost of services(1)		82.3			82.9			83.8
General and administrative		2.2			2.2			2.6
Bad debt expense		1.8			1.3			1.3
Depreciation and amortization		2.6			2.2			2.2
Income from operations		11.1			11.4			10.1
Loss on early retirement of debt		(0.7	)		(0.2	)		(0.6	)
Equity in earnings of unconsolidated subsidiaries		0.1			0.3			0.1
Interest expense, net		(2.9	)		(2.9	)		(2.8	)
Income before income taxes		7.6			8.6			6.8
Income tax expense		2.9			3.1			2.6
Net income		4.7			5.5			4.2
Net income attributable to non-controlling interests		0.2			0.2			0.3
Net income attributable to Select		4.5	%		5.3	%		3.9	%

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        The following tables summarize selected financial data by business segment, for the periods indicated:

	Select Medical Holdings Corporation
	Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2013			% Change 2011- 2012			% Change 2012- 2013
	(In thousands)
Net operating revenues:
Specialty hospitals	$	2,095,519		$	2,197,529		$	2,198,121			4.9	%		0.0	%
Outpatient rehabilitation		708,867			751,317			777,177			6.0			3.4
Other(2)		121			123			350			1.7			184.6
Total company	$	2,804,507		$	2,948,969		$	2,975,648			5.2	%		0.9	%
Income (loss) from operations:
Specialty hospitals	$	311,705		$	334,518		$	305,222			7.3	%		(8.8	)%
Outpatient rehabilitation		67,377			73,816			78,289			9.6			6.1
Other(2)		(68,363	)		(71,475	)		(82,075	)		(4.6	)		(14.8	)
Total company	$	310,719		$	336,859		$	301,436			8.4	%		(10.5	)%
Adjusted EBITDA:(3)
Specialty hospitals	$	362,334		$	381,354		$	353,843			5.2	%		(7.2	)%
Outpatient rehabilitation		83,864			87,024			90,313			3.8			3.8
Other(2)		(60,237	)		(62,531	)		(71,295	)		(3.8	)		(14.0	)
Total company	$	385,961		$	405,847		$	372,861			5.2	%		(8.1	)%
Adjusted EBITDA margins:(3)
Specialty hospitals		17.3	%		17.4	%		16.1	%
Outpatient rehabilitation		11.8			11.6			11.6
Other(2)		N/M			N/M			N/M
Total company		13.8	%		13.8	%		12.5	%
Total assets:
Specialty hospitals	$	2,187,767		$	2,143,906		$	2,205,921
Outpatient rehabilitation		486,589			491,920			512,539
Other(2)		97,791			125,535			99,162
Total company	$	2,772,147		$	2,761,361		$	2,817,622
Purchases of property and equipment, net:
Specialty hospitals	$	30,464		$	50,005		$	56,523
Outpatient rehabilitation		12,135			13,209			14,113
Other(2)		3,417			4,971			3,024
Total company	$	46,016		$	68,185		$	73,660

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	Select Medical Corporation
	Year Ended December 31, 2011			Year Ended December 31, 2012			Year Ended December 31, 2013			% Change 2011- 2012			% Change 2012- 2013
	(In thousands)
Net operating revenues:
Specialty hospitals	$	2,095,519		$	2,197,529		$	2,198,121			4.9	%		0.0	%
Outpatient rehabilitation		708,867			751,317			777,177			6.0			3.4
Other(2)		121			123			350			1.7			184.6
Total company	$	2,804,507		$	2,948,969		$	2,975,648			5.2	%		0.9	%
Income (loss) from operations:
Specialty hospitals	$	311,705		$	334,518		$	305,222			7.3	%		(8.8	)%
Outpatient rehabilitation		67,377			73,816			78,289			9.6			6.1
Other(2)		(68,363	)		(71,475	)		(82,075	)		(4.6	)		(14.8	)
Total company	$	310,719		$	336,859		$	301,436			8.4	%		(10.5	)%
Adjusted EBITDA:(3)
Specialty hospitals	$	362,334		$	381,354		$	353,843			5.2	%		(7.2	)%
Outpatient rehabilitation		83,864			87,024			90,313			3.8			3.8
Other(2)		(60,237	)		(62,531	)		(71,295	)		(3.8	)		(14.0	)
Total company	$	385,961		$	405,847		$	372,861			5.2	%		(8.1	)%
Adjusted EBITDA margins:(3)
Specialty hospitals		17.3	%		17.4	%		16.1	%
Outpatient rehabilitation		11.8			11.6			11.6
Other(2)		N/M			N/M			N/M
Total company		13.8	%		13.8	%		12.5	%
Total assets:
Specialty hospitals	$	2,187,767		$	2,143,906		$	2,205,921
Outpatient rehabilitation		486,589			491,920			512,539
Other(2)		96,382			124,487			99,162
Total company	$	2,770,738		$	2,760,313		$	2,817,622
Purchases of property and equipment, net:
Specialty hospitals	$	30,464		$	50,005		$	56,523
Outpatient rehabilitation		12,135			13,209			14,113
Other(2)		3,417			4,971			3,024
Total company	$	46,016		$	68,185		$	73,660

N/M — Not Meaningful.

(1)

Cost of services includes salaries, wages and benefits, operating supplies, lease and rent expense and other operating costs.

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(2)

Other includes our corporate services and certain other non-consolidating joint ventures and minority investments in other healthcare related businesses.

(3)

We define Adjusted EBITDA as net income before interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, equity in earnings (losses) of unconsolidated subsidiaries, and other income (expense). We believe that the presentation of Adjusted EBITDA is important to investors because Adjusted EBITDA is commonly used as an analytical indicator of performance by investors within the healthcare industry. Adjusted EBITDA is used by management to evaluate financial performance and determine resource allocation for each of our operating units. Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles. Items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Adjusted EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, cash flows generated by operations, investing or financing activities, or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because Adjusted EBITDA is not a measurement determined in accordance with generally accepted accounting principles and is thus susceptible to varying calculations, Adjusted EBITDA as presented may not be comparable to other similarly titled measures of other companies.

Following is a reconciliation of net income to Adjusted EBITDA as utilized by us in reporting our segment performance.

	Select Medical Holdings Corporation
	Year Ended December 31,
	2011			2012			2013
	(In thousands)
Net income	$	112,762		$	153,893		$	123,009
Income tax expense		70,968			89,657			74,792
Loss on early retirement of debt		31,018			6,064			18,747
Interest expense, net of interest income		98,894			94,950			87,364
Equity in earnings of unconsolidated subsidiaries		(2,923	)		(7,705	)		(2,476	)
Stock compensation expense:
Included in general and administrative		1,996			3,538			5,276
Included in cost of services		1,729			2,139			1,757
Depreciation and amortization		71,517			63,311			64,392
Adjusted EBITDA	$	385,961		$	405,847		$	372,861

	Select Medical Corporation
	Year Ended December 31,
	2011			2012			2013
	(In thousands)
Net income	$	131,363		$	161,167		$	125,199
Income tax expense		80,984			93,574			75,971
Loss on early retirement of debt		20,385			6,064			17,788
Interest expense, net of interest income		80,910			83,759			84,954
Equity in earnings of unconsolidated subsidiaries		(2,923	)		(7,705	)		(2,476	)
Stock compensation expense:
Included in general and administrative		1,996			3,538			5,276
Included in cost of services		1,729			2,139			1,757
Depreciation and amortization		71,517			63,311			64,392
Adjusted EBITDA	$	385,961		$	405,847		$	372,861

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Year Ended December 31, 2013 Compared to Year Ended December 31, 2012

        In the following discussion, we discuss changes in the components of our results of operations related to net operating revenues, operating expenses, Adjusted EBITDA, income from operations, equity in earnings of unconsolidated subsidiaries and non-controlling interest which are the same for Holdings and Select. In addition, we discuss separately for Holdings and Select changes related to loss on early retirement of debt, interest expense and income taxes.

Net Operating Revenues

        Our net operating revenues increased by 0.9% to $2,975.6 million for the year ended December 31, 2013 compared to $2,949.0 million for the year ended December 31, 2012.

        Specialty Hospitals.    Our specialty hospital net operating revenues were $2,198.1 million for the year ended December 31, 2013 compared to $2,197.5 million for the year ended December 31, 2012. We experienced growth in our net operating revenues primarily resulting from increases in our patient volume and increases in revenues that are generated from contracted labor services provided to certain of our non-consolidated joint ventures. This growth was offset by decreases resulting from the Sequestration Reduction and a decline in our net revenue per patient day for our non-Medicare patients. Our patient days increased 0.6% to 1,353,847 days for the year ended December 31, 2013 compared to the year ended December 31, 2012. Our occupancy percentage was 72% for the year ended December 31, 2013 compared to 71% for the year ended December 31, 2012. Our average net revenue per patient day decreased to $1,514 for the year ended December 31, 2013 compared to $1,534 for the year ended December 31, 2012. This decrease principally resulted from decreases in our average Medicare net revenue per patient day as a result of the Sequestration Reduction and reductions in our non-Medicare net revenue per patient day. The reductions in our specialty hospital Medicare net operating revenues due to the Budget Control Act of 2011 were $22.8 million for the year ended December 31, 2013.

        Outpatient Rehabilitation.    Our outpatient rehabilitation segment net operating revenues increased 3.4% to $777.2 million for the year ended December 31, 2013 compared to $751.3 million for the year ended December 31, 2012 more than offsetting reductions in net operating revenues of $1.1 million due to the Sequestration Reduction and $5.7 million revenue reduction related to the MPPR Reduction. The net operating revenues generated by our outpatient rehabilitation clinics for the year ended December 31, 2013 increased 5.8% to $593.7 million compared to the year ended December 31, 2012. The increase was related principally to growth in our number of visits. Additionally, for the year ended December 31, 2012, net operating revenues for our outpatient rehabilitation clinics were adversely impacted by $3.2 million due to the effects of hurricane Sandy. The number of visits in our owned outpatient rehabilitation clinics increased 4.6% for the year ended December, 2013 to 4,780,723 visits compared to 4,568,821 visits for the year ended December 31, 2012. Net revenue per visit in our owned outpatient rehabilitation clinics increased 1.0% to $104 for the year ended December 31, 2013 compared to $103 for the year ended December 31, 2012. Our contract services business had $183.5 million in net operating revenues for the year ended December 31, 2013 compared to $189.9 million of net operating revenues for the year ended December 31, 2012, which principally resulted from both reductions in the number of contracts under which services are provided and regulatory changes that affected the annual limit for therapy services.

Operating Expenses

        Our operating expenses include our cost of services, general and administrative expense and bad debt expense. Our operating expenses increased by $61.0 million to $2,609.8 million for the year ended December 31, 2013 compared to $2,548.8 million for the year ended December 31, 2012. We experienced increases in cost of services for both our specialty hospital and outpatient rehabilitation segments as well as an increase in our general and administrative expenses. As a percentage of our net operating revenues, our operating expenses were 87.7% for the year ended December 31, 2013 compared to 86.4% for the year ended December 31, 2012. Our cost of services, a major component of which is labor expense, were

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$2,495.5 million or 83.8% of net operating revenues for the year ended December 31, 2013 compared to $2,443.6 million or 82.9% of net operating revenues for the year ended December 31, 2012. The principal cause of the increase in cost of services as a percentage of net operating revenues resulted from inflationary increases in labor costs in our specialty hospitals and the loss of net operating revenues associated with the Sequestration Reduction and the MPPR Reduction discussed above under "Net Operating Revenues" with no relative offsetting reduction in costs. Facility rent expense, which is a component of cost of services, was $123.7 million for the year ended December 31, 2013 compared to $124.2 million for the year ended December, 2012. General and administrative expenses were 2.6% of net operating revenues or $76.9 million for the year ended December 31, 2013 compared to 2.2% of net operating revenues or $66.2 million for the year ended December 31, 2012. Our general and administrative expenses for the year ended December 31, 2013 increased principally due to higher compensation and employee benefit costs of which a principal driver was unexpected healthcare plan costs resulting from changes we implemented on April 1, 2013 to conform and bring our group health insurance plan into compliance with the PPACA. Excluding these healthcare costs, general and administrative expenses would have been 2.3% for the year ended December 31, 2013. Our general and administrative expenses for the year ended December 31, 2012 were favorably impacted by gains on sale of assets; excluding these gains, general and administrative expenses for the year ended December 31, 2012 would have been 2.4% of net operating revenues. Our bad debt expense was $37.4 million or 1.3% of net operating revenues for the year ended December 31, 2013 compared to $39.1 million or 1.3% of net operating revenues for the year ended December 31, 2012.

Adjusted EBITDA

        Specialty Hospitals.    Adjusted EBITDA for our specialty hospitals decreased 7.2% to $353.8 million for the year ended December 31, 2013 compared to $381.4 million for the year ended December 31, 2012. Our Adjusted EBITDA margin for the segment was 16.1% for the year ended December 31, 2013 compared to 17.4% for the year ended December 31, 2012. The decrease in Adjusted EBITDA for our specialty hospitals was primarily the result of the Sequestration Reduction as discussed above under "Net Operating Revenues," which reductions were accompanied by no relative offsetting reduction in costs, and increases in our operating expenses discussed above under "Operating Expenses."

        Outpatient Rehabilitation.    Our Adjusted EBITDA for our outpatient rehabilitation segment increased 3.8% to $90.3 million for the year ended December 31, 2013 compared to $87.0 million for the year ended December 31, 2012. Our Adjusted EBITDA margin for the outpatient rehabilitation segment was 11.6% for both the years ended December 31, 2013 and 2012. The Adjusted EBITDA in our outpatient rehabilitation clinics increased by $4.2 million to $77.1 million for the year ended December 31, 2013 compared to $72.9 million the year ended December 31, 2012, principally due to the growth in the number of visits in our owned outpatient clinics. Our outpatient rehabilitation clinics experienced reductions in net operating revenues of $1.1 million for the Sequestration Reduction and $5.7 million for the MPPR Reduction for the year ended December 31, 2013. Our Adjusted EBITDA margin for our outpatient rehabilitation clinics was 13.0% for both the years ended December 31, 2013 and 2012. The Adjusted EBITDA in our contract services business decreased by 6.5% for the year ended December 31, 2013 compared to the year ended December 31, 2012, principally due to reductions in the number of contracts under which services are provided and regulatory changes that affected the annual limit for therapy services.

        Other.    The Adjusted EBITDA loss was $71.3 million for the year ended December 31, 2013 compared to an Adjusted EBITDA loss of $62.5 million for the year ended December 31, 2012. The higher Adjusted EBITDA loss for the year ended December 31, 2012 is primarily attributable to higher compensation and employee benefit expenses for the year ended December 31, 2013 principally related to increased healthcare costs. Additionally, the results for the year ended December 31, 2012 were favorably impacted by gains on sale of assets.

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Income from Operations

        For the year ended December 31, 2013, we had income from operations of $301.4 million compared to $336.9 million for the year ended December 31, 2012. The decrease in our income from operations resulted principally from the Sequestration Reduction and the MPPR Reduction, as discussed above under "Net Operating Revenues," and increases in our general and administrative expenses as discussed above under "Operating Expenses."

Loss on Early Retirement of Debt

        Select Medical Corporation.    On March 22, 2013, Select redeemed all of its outstanding 7⁵/8% senior subordinated notes due 2015 and recognized a loss on early retirement of debt of $0.5 million for the unamortized debt issuance costs associated with the redeemed debt. On May 28, 2013, Select repaid a portion of its original term loan and series A term loan under its senior secured credit facility and on June 3, 2013 Select amended its existing senior secured credit facility. Select recognized an additional loss on early retirement of debt of $17.3 million, which included unamortized debt issuance costs, unamortized original issue discount, and certain debt issuance costs associated with refinancing activities.

        On September 12, 2012, Select redeemed an aggregate of $275.0 million principal amount of its 7⁵/8% senior subordinated notes due 2015 at a redemption price of 101.271% of the principal amount. Select recognized a loss on early retirement of debt of $6.1 million in connection with the redemption of the 7⁵/8% senior subordinated notes, which included the write-off of call premiums and unamortized deferred financing costs.

        Select Medical Holdings Corporation.    On March 22, 2013, we redeemed all of Select's outstanding 7⁵/8% senior subordinated notes due 2015, and redeemed all of our senior floating rate notes due 2015. We recognized a loss on early retirement of debt of $1.5 million for the unamortized debt issuance costs associated with the redeemed debt. On May 28, 2013, we repaid a portion of Select's original term loan and series A term loan under its senior secured credit facility and on June 3, 2013 Select amended its existing senior secured credit facility. We recognized an additional loss of $17.3 million, which included unamortized debt issuance costs, unamortized original issue discount, and certain debt issuance costs associated with refinancing activities.

        On September 12, 2012, we redeemed an aggregate of $275.0 million principal amount of Select's 7⁵/8% senior subordinated notes at a redemption price of 101.271% of the principal amount. We recognized a loss on early retirement of debt of $6.1 million in connection with the redemption of the 7⁵/8% senior subordinated notes, which included the write-off of call premiums and unamortized deferred financing costs.

Equity in Earnings of Unconsolidated Subsidiaries

        For the year ended December 31, 2013, we had equity in earnings of unconsolidated subsidiaries of $2.5 million compared to equity in earnings of unconsolidated subsidiaries of $7.7 million for the year ended December 31, 2012. The principal decrease in our equity in earnings of unconsolidated subsidiaries resulted from losses incurred by start-up companies where we own a minority interest.

Interest Expense

        Select Medical Corporation.    Interest expense was $85.0 million for the year ended December 31, 2013 compared to $83.8 million for the year ended December 31, 2012. The increase in interest expense was principally due to increased borrowings that were used to refinance debt held by Holdings in both the third quarter of 2012 and the first quarter of 2013, offset in part by lower interest rates.

        Select Medical Holdings Corporation.    Interest expense was $87.4 million for the year ended December 31, 2013 compared to $95.0 million for the year ended December 31, 2012. The decrease in interest expense was principally due to lower interest rates on borrowings.

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Income Taxes

        Select Medical Corporation.    We recorded income tax expense of $76.0 million for the year ended December 31, 2013. The expense represented an effective tax rate of 37.8%. We recorded income tax expense of $93.6 million for the year ended December 31, 2012. The expense represented an effective tax rate of 36.7%. Select is part of the consolidated federal tax return for Holdings. We allocate income taxes between Select and Holdings for purposes of financial statement presentation. Because Holdings is a passive investment company incorporated in Delaware, it does not incur any state income tax expense or benefit on its specific income or loss and, as such, receives a tax allocation equal to the federal statutory rate of 35% on its specific income or loss. Based upon the relative size of Holdings' income or loss, this can cause the effective tax rate for Select to differ from the effective tax rate for the consolidated company.

        Select Medical Holdings Corporation.    We recorded income tax expense of $74.8 million for the year ended December 31, 2013, which represented an effective tax rate of 37.8%. We recorded income tax expense of $89.7 million for the year ended December 31, 2012, which represented an effective tax rate of 36.8%. The increase in our effective tax rate has resulted from an increase in our state effective tax rate that has resulted from a higher proportion of our income being generated in states with higher tax rates, offset in part by an increase in earnings of our consolidated subsidiaries where we have less than a 100% ownership interest that are taxed as pass-through entities in which we only record income taxes on our share of the income. Additionally, our effective tax rate for the year ended December 31, 2012 was reduced by an Internal Revenue Service penalty abatement.

Non-Controlling Interests

        Non-controlling interests in consolidated earnings were $8.6 million for the year ended December 31, 2013 and $5.7 million for the year ended December 31, 2012.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

        In the following discussion, we discuss our results of operations related to net operating revenues, operating expenses, Adjusted EBITDA, income from operations, equity in earnings of unconsolidated subsidiaries and non-controlling interest which are the same for Holdings and Select. In addition, we discuss separately for Holdings and Select, changes related to loss on early retirement of debt, interest expense and income taxes.

Net Operating Revenues

        Our net operating revenues increased by 5.2% to $2,949.0 million for the year ended December 31, 2012 compared to $2,804.5 million for the year ended December 31, 2011.

        Specialty Hospitals.    Our specialty hospital net operating revenues increased by 4.9% to $2,197.5 million for the year ended December 31, 2012 compared to $2,095.5 million for the year December 31, 2011. The growth in net operating revenue for the year ended December 31, 2012 resulted from increases in patient volumes, increases in both Medicare and non-Medicare reimbursement rates and revenues generated from contracted labor services provided to the Baylor JV. Our patient days increased 1.1% compared to the year ended December 31, 2011 to 1,345,430 days for the year ended December 31, 2012. Our specialty hospital occupancy was 71% for both the years ended December 31, 2012 and 2011. Our average net revenue per patient day was $1,534 for the year ended December 31, 2012 compared to $1,497 for the year ended December 31, 2011. For the year ended December 31, 2012, we experienced increases in both our Medicare and non-Medicare net revenue per patient day from the prior year. The increase in our Medicare net revenue per patient day was due to increases in our Medicare base rate. The increases in our non-Medicare net revenue per patient day resulted from increases in our non-government payment rates that have occurred through contract renewal and from Medicaid bonus payments we received during the three months ended June 30, 2012.

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        Outpatient Rehabilitation.    Our outpatient rehabilitation net operating revenues increased 6.0% to $751.3 million for the year ended December 31, 2012 compared to $708.9 million for the year ended December 31, 2011. The net operating revenues generated by our outpatient rehabilitation clinics for the year ended December 31, 2012 increased 3.0% to $561.4 million compared to $545.1 million for the year ended December 31, 2011. The increase was principally related to volume growth in our owned outpatient rehabilitation clinics and revenues we generated from contract labor services provided to the Baylor JV. The number of patient visits in our owned outpatient rehabilitation clinics increased 2.2% for the year ended December 31, 2012 to 4,568,821 visits compared to 4,470,061 visits for the year ended December 31, 2011. Net revenue per visit in our owned outpatient rehabilitation clinics was $103 for both the years ended December 31, 2012 and 2011. Our contract services business increased net operating revenues 16.0% to $189.9 million compared to $163.8 million for the year ended December 31, 2011, which primarily resulted from the addition of new contracts in the fourth quarter of 2011. During the fourth quarter of 2012, our outpatient rehabilitation operations in the mid-Atlantic and Northeastern states were adversely affected by hurricane Sandy. We currently estimate that the lost patient revenue from this event in the three months ended December 31, 2012 was approximately $3.9 million, of which $3.2 million occurred in our outpatient rehabilitation clinics and $0.7 million occurred in our contract services business.

Operating Expenses

        Our operating expenses include our cost of services, general and administrative expense and bad debt expense. Our operating expenses increased by 5.2% to $2,548.8 million for the year ended December 31, 2012 compared to $2,422.3 million for the year ended December 31, 2011. As a percentage of our net operating revenues, our operating expenses were 86.4% for both the years ended December 31, 2012 and December 31, 2011. Our cost of services, a major component of which is labor expense, were $2,443.6 million or 82.9% of net operating revenues for the year ended December 31, 2012 compared to $2,308.6 million or 82.3% of net operating revenues for the year ended December 31, 2011. The increase in cost of services as a percentage of net operating revenues resulted primarily from increased relative labor costs in both our specialty hospital and our outpatient rehabilitation segments. Our specialty hospitals experienced an increase in relative labor costs due to the labor costs associated with the Baylor JV services agreement and increased staffing costs during the year ended December 31, 2012 compared to the year ended December 31, 2011. Our outpatient rehabilitation segment experienced an increase in relative labor costs associated with the Baylor JV services agreement and increased relative staffing costs of providing patient services in our outpatient rehabilitation clinics. Additionally, our outpatient rehabilitation segment experienced higher relative labor costs during the year ended December 31, 2012 as a result of hurricane Sandy, as we incurred continuing labor costs in our affected outpatient rehabilitation clinics without corresponding revenue. Facility rent expense, which is a component of cost of services, was $124.2 million for year ended December 31, 2012 compared to $118.4 million for the year ended December 31, 2011. General and administrative expenses were 2.2% of net operating revenue or $66.2 million for the year ended December 31, 2012 compared to 2.2% of net operating revenue or $62.4 million for the year ended December 31, 2011. This increase in general and administrative expense resulted principally from increases in executive compensation. Our bad debt expense was $39.1 million or 1.3% of net operating revenues for the year ended December 31, 2012 compared to $51.3 million or 1.8% for the year ended December 31. 2011. The decline in our bad debt expense was attributed to our favorable collections experience of accounts receivable in both our operating segments for the year ended December 31, 2012 as compared to the year ended December 31, 2011.

Adjusted EBITDA

        Specialty Hospitals.    Our Adjusted EBITDA for our specialty hospitals increased by 5.2% to $381.4 million for the year ended December 31, 2012 compared to $362.3 million for the year ended December 31, 2011. Our Adjusted EBITDA margins for the segment increased to 17.4% for the year ended December 31, 2012 from 17.3% for the year ended December 31, 2011. The increase in the Adjusted EBITDA for our specialty hospitals was primarily the result of both rate improvements and

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patient volume increases discussed above under "Net Operating Revenues" and a reduction in bad debt expense discussed above under "Operating Expenses." The increase in the Adjusted EBITDA margin is principally due to the decline in bad debt expense, offset in part by increases in cost of services as discussed above under "Operating Expenses."

        Outpatient Rehabilitation.    Adjusted EBITDA for our outpatient rehabilitation segment increased 3.8% to $87.0 million for the year ended December 31, 2012 compared to $83.9 million for the year ended December 31, 2011. Our Adjusted EBITDA margins decreased to 11.6% for the year ended December 31, 2012 from 11.8% for the year ended December 31, 2011. Our Adjusted EBITDA in our outpatient rehabilitation segment was adversely affected by hurricane Sandy as discussed above under "Net Operating Revenues." The Adjusted EBITDA in our outpatient rehabilitation clinics increased by $1.3 million to $72.9 million for the year ended December 31, 2012 compared to $71.6 for the year ended December 31, 2011. Our Adjusted EBITDA margins for our outpatient rehabilitation clinics decreased to 13.0% for the year ended December 31, 2012 from 13.1% for the year ended December 31, 2011. The decrease in our Adjusted EBITDA margin in our outpatient rehabilitation clinics was principally due to the incurrence of labor costs in the outpatient rehabilitation clinics affected by hurricane Sandy without any corresponding patient revenue as discussed above under "Net Operating Revenues." The Adjusted EBITDA in our contract services business increased by $1.8 million to $14.1 million for the year ended December 31, 2012 compared to $12.3 million for the year ended December 31, 2011. The Adjusted EBITDA margins for our contract services business declined to 7.4% for the year ended December 31, 2012 compared to 7.5% for the year ended December 31, 2011. The decline in Adjusted EBITDA margins for our contract services business was principally due to increased labor costs associated with new business and lower productivity resulting from regulatory changes that became effective on October 1, 2011.

        Other.    The Adjusted EBITDA loss was $62.5 million for the year ended December 31, 2012 compared to an Adjusted EBITDA loss of $60.2 million for the year ended December 31, 2011 and is principally related to increases in executive compensation that are a component of our general and administrative expense.

Income from Operations

        For the year ended December 31, 2012 we had income from operations of $336.9 million compared to $310.7 million for the year ended December 31, 2011. The increase in our income from operations resulted principally from increases in our operating performance of our specialty hospital and outpatient rehabilitation segments described above and a decline in depreciation and amortization expense.

Loss on Early Retirement of Debt

        Select Medical Corporation.    On September 12, 2012 we redeemed an aggregate of $275.0 million principal amount of Select's 7⁵/8% senior subordinated notes at a redemption price of 101.271% of the principal amount. We recognized a loss on early retirement of debt of $6.1 million for the year ended December 31, 2012 in connection with the redemption of the senior subordinated notes, which included the write-off of unamortized deferred financing costs and call premiums.

        On June 1, 2011, we refinanced our senior secured credit facility. A portion of the proceeds from this transaction were used to repurchase and retire $266.5 million of Select's 7⁵/8% senior subordinated notes. We recognized a loss on early retirement of debt of $20.4 million for the year ended December 31, 2011, which included the write-off of unamortized deferred financing costs and tender premiums.

        Select Medical Holdings Corporation.    On September 12, 2012 we redeemed an aggregate of $275.0 million principal amount of Select's 7⁵/8% senior subordinated notes at a redemption price of 101.271% of the principal amount. We recognized a loss on early retirement of debt of $6.1 million for the year ended December 31, 2012 in connection with the redemption of Select's 7⁵/8% senior subordinated notes, which included the write-off of unamortized deferred financing costs and call premiums.

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        On June 1, 2011, we refinanced our senior secured credit facility. A portion of the proceeds from this transaction were used to repurchase and retire $266.5 million of Select's 7⁵/8% senior subordinated notes and $150.0 million to repurchase and retire our 10% senior subordinated notes. We recognized a loss on early retirement of debt of $31.0 million for the year ended December 31, 2011 in connection with the redemption of Select's 7⁵/8% senior subordinated notes and our 10% senior subordinated notes, which included the write-off of unamortized deferred financing costs, tender premiums and original issue discount.

Equity in Earnings of Unconsolidated Subsidiaries

        For the year ended December 31, 2012, we had equity in earnings of unconsolidated subsidiaries of $7.7 million compared to equity in earnings of unconsolidated subsidiaries of $2.9 million for the year ended December 31, 2011. The increase in our equity in earnings of unconsolidated subsidiaries resulted principally from an increase in the income contribution from the Baylor JV.

Interest Expense

        Select Medical Corporation.    Interest expense was $83.8 million for the year ended December 31, 2012 compared to $81.2 million for the year ended December 31, 2011. The increase in interest expense resulted primarily from the refinancing of $150.0 million of Holdings' debt, for which Select was not previously obligated through indebtedness incurred by Select under the new senior secured credit facility on June 1, 2011.

        Select Medical Holdings Corporation.    Interest expense was $95.0 million for the year ended December 31, 2012 compared to $99.2 million for the year ended December 31, 2011. The decrease in interest expense resulted primarily from the lower interest rates on the portions of the debt that were refinanced on June 1, 2011, lower interest rates on portions of the debt that we refinanced in the third quarter of 2012 and lower average debt balances during the year ended December 31, 2012 compared to the year ended December 31, 2011.

Income Taxes

        Select Medical Corporation.    We recorded income tax expense of $93.6 million for the year ended December 31, 2012. The expense represented an effective tax rate of 36.7%. We recorded income tax expense of $81.0 million for the year ended December 31, 2011. The expense represented an effective tax rate of 38.1%. Select is part of the consolidated federal tax return for Holdings. We allocate income taxes between Select and Holdings for purposes of financial statement presentation. Because Holdings is a passive investment company incorporated in Delaware, it does not incur any state income tax expense or benefit on its specific income or loss and, as such, receives a tax allocation equal to the federal statutory rate of 35% on its specific income or loss. Based upon the relative size of Holdings' income or loss, this can cause the effective tax rate for Select to differ from the effective tax rate for the consolidated company.

        Select Medical Holdings Corporation.    We recorded income tax expense of $89.7 million for the year ended December 31, 2012. The expense represented an effective tax rate of 36.8%. We recorded income tax expense of $71.0 million for the year ended December 31, 2011. The expense represented an effective tax rate of 38.6%. The decline in our effective tax rate is primarily a consequence of an Internal Revenue Service penalty abatement and a lower effective state tax rate.

Non-Controlling Interests

        Non-controlling interests in consolidated earnings were $5.7 million for the year ended December 31, 2012 and $4.9 million for the year ended December 31, 2011.

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Liquidity and Capital Resources

Years Ended December 31, 2011, 2012 and 2013

	Select Medical Holdings Corporation									Select Medical Corporation
	Year Ended December 31,									Year Ended December 31,
	2011			2012			2013			2011			2012			2013
	(In thousands)									(In thousands)
Cash flows provided by operating activities	$	217,128		$	298,682		$	192,523		$	240,053		$	309,371		$	198,102
Cash flows used in investing activities		(54,735	)		(72,406	)		(107,306	)		(54,735	)		(72,406	)		(107,306	)
Cash flows used in financing activities		(154,715	)		(198,175	)		(121,042	)		(177,640	)		(208,864	)		(126,621	)
Net increase (decrease) in cash and cash equivalents		7,678			28,101			(35,825	)		7,678			28,101			(35,825	)
Cash and cash equivalents at beginning of period		4,365			12,043			40,144			4,365			12,043			40,144
Cash and cash equivalents at end of period	$	12,043		$	40,144		$	4,319		$	12,043		$	40,144		$	4,319

        Operating activities for Select provided $198.1 million of cash flows for the year ended December 31, 2013. The decline in operating cash flows for the year ended December 31, 2013 compared to the year ended December 31, 2012 is principally due to reductions in income from operations resulting from the Sequestration Reduction and the MPPR Reduction as well as the timing of the interim payments we receive from Medicare for the services provided at our specialty hospitals. Our days sales outstanding were 48 days at December 31, 2013, 45 days at December 31, 2012, and 53 days at December 31, 2011. Consequently the increase in days sales outstanding at December 31, 2013 compared to December 31, 2012, resulted from increases in accounts receivable that used cash for the year ended December 31, 2013.

        Operating activities for Select provided $309.4 million of cash flows for the year ended December 31, 2012. The increase in cash flow provided by operating activities is principally related to a reduction in our days sales outstanding. Our days sales outstanding were 45 days at December 31, 2012 compared to 53 days at December 31, 2011. The reduction in days sales outstanding is primarily due to timing of the periodic interim payments we receive from Medicare for the services provided at our specialty hospitals and a reduction in our non-Medicare receivables.

        Operating activities for Select provided $240.1 million of cash flows for the year ended December 31, 2011. The cash flow provided by operating activities for the year ended December 31, 2011 is principally related to the increase in our income from operations. Additionally, we were able to offset the cash impact of an increase in our tax expense through a one-time deferral of income effectuated through a tax accounting change related to how we recognize our specialty hospital Medicare revenues for tax reporting purposes. This tax accounting change had the effect of deferring $16.5 million of tax liability in 2011. Our days sales outstanding were 53 days at December 31, 2011 compared to 51 days at December 31, 2010. The increase is principally related to the timing and settlement of our Medicare accounts receivable for services provided at our specialty hospitals.

        The operating cash flow of Select exceeds the operating cash flow of Holdings by $5.6 million, $10.7 million and $22.9 million for the years ended December 31, 2013, 2012 and 2011, respectively. The difference relates to interest payments on Holdings' indebtedness.

        Investing activities for Holdings and Select used $107.3 million, $72.4 million and $54.7 million of cash flow for the years ended December 31, 2013, 2012, and 2011, respectively. Of this amount, we incurred acquisition related payments of $1.7 million, $6.0 million and $0.9 million, respectively in 2013, 2012 and

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2011. The acquisition payments for 2013 related principally to several small acquisitions of clinics in our outpatient rehabilitation segment and a specialty hospital. The acquisition payments for 2012 related principally to several small acquisitions of clinics in our outpatient rehabilitation segment. The acquisition payments for 2011 related primarily to small acquisitions of outpatient businesses and specialty hospitals. Investing activities also used cash for the purchases of property and equipment of $73.7 million, $68.2 million and $46.0 million in 2013, 2012, and 2011, respectively. In addition, we sold business units and real property which generated $2.9 million, $16.5 million and $7.9 million in cash during the years ended December 31, 2013, 2012 and 2011, respectively. Investment in businesses relates to equity investments in unconsolidated businesses. The $34.9 million of investments for the year ended December 31, 2013 related primarily to minority investments in two specialty hospitals. The $14.7 million of investments for the year ended December 31, 2012 and $15.7 million of investments for the year ended December 31, 2011 related primarily to our investment in the Baylor JV partnership units. In addition, Select purchased minority investment interests in other healthcare related businesses that provide specialized technology, services to healthcare entities, and other healthcare services during the year ended December 31, 2013 and 2012.

        Financing activities for Select used $126.6 million of cash flow for the year ended December 31, 2013. The primary financing activities were associated with a $600.0 million 6.375% senior notes offering on May 28, 2013. The proceeds of this senior notes offering were used to repay $587.0 million of Select's senior secured credit facility term loans and fund certain transaction costs amounting to $14.7 million. In addition, $298.5 million was provided through the issuance of senior secured credit facility term loans which was used to pay dividends to Holdings to fund the redemption of $167.3 million principal amount of Holdings' senior floating rate notes and pay $4.2 million of transaction costs related to the financing transactions completed during the first quarter ended March 31, 2013. In addition, during the year ended December 31, 2013, Select paid dividends to Holdings to fund $42.0 million of dividends paid to common stockholders, $11.8 million to fund Holdings' repurchase of common stock and $5.6 million to fund interest payments on Holdings' debt. Select also made net repayments on the revolving portion of the credit facility of $110.0 million.

        Financing activities for Select used $208.9 million of cash flow for the year ended December 31, 2012. The primary use of cash related to dividends paid to Holdings of $268.5 million principally to fund the payment of a special dividend to stockholders on December 12, 2012, fund interest payments, and the repurchase of common stock. Select also used $6.5 million for debt issuances costs and paid $3.3 million in distributions to non-controlling interests, offset in part by net borrowings of debt of $66.4 million, $1.2 million of proceeds from bank overdrafts and $1.8 million of equity investment made by Holdings.

        Financing activities for Select used $177.6 million of cash flow for the year ended December 31, 2011. The primary use of cash related to dividends paid to Holdings of $245.7 million to fund interest payments, repurchase of common stock and the repurchase of all $150.0 million principal amount of Holdings 10% senior subordinated notes, $18.6 million of debt issuance costs, repayment of bank overdrafts of $2.2 million and $4.6 million in distributions to non-controlling interests offset by net borrowings of debt of $93.2 million.

        The difference in cash flows used in financing activities of Holdings compared to Select of $5.6 million, $10.7 million and $22.9 million for the years ended December 31, 2013, 2012 and 2011, respectively, relates to dividends paid by Select to Holdings to service Holdings' interest obligations related to its indebtedness.

Capital Resources

        Select Medical Corporation.    Select had net working capital of $82.9 million at December 31, 2013 compared to net working capital of $78.4 million at December 31, 2012. The increase in net working capital is primarily due to increases in accounts receivable.

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        Select Medical Holdings Corporation.    Holdings had net working capital of $82.9 million at December 31, 2013 compared to net working capital of $80.4 million at December 31, 2012. The increase in net working capital is primarily due to increases in accounts receivable.

        On February 20, 2013, Select entered into a credit extension amendment to its senior secured credit facilities providing for a $300.0 million additional term loan tranche, the series B term loan, to Select. Select used the borrowings under the series B term loan to redeem all of its outstanding 7⁵/8% senior subordinated notes due 2015 on March 22, 2013, to finance Holdings' redemption of all of its senior floating rate notes due 2015 on March 22, 2013 and to repay a portion of the balance outstanding under Select's revolving credit facility. The Company recognized a loss on early retirement of debt of $1.5 million during the three months ended March 31, 2013 for unamortized debt issuance costs of which, approximately $0.5 million was associated with Select's 7⁵/8% senior subordinated notes due 2015 and approximately $1.0 million was associated with Holdings' senior floating rate notes due 2015.

        Borrowings under the series B term loan bear interest at a rate equal to Adjusted LIBO plus 3.25%, or Alternate Base Rate plus 2.25%. The series B term loan amortizes in equal quarterly installments on the last day of each March, June, September and December in aggregate annual amounts equal to $3.0 million. The balance of the series B term loan is payable on February 20, 2016.

        At the time of issuing the series B term loan, Select had additional term loan tranches including an $850.0 million term loan tranche issued on June 1, 2011, original term loan, and a $275.0 million incremental term loan tranche issued August 13, 2012, series A term loan. Both the original term loan and series A term loan tranches were issued at a discount and amortized in equal quarterly installments on the last day of each March, June, September and December. The balance of both the original term loan and series A term loan was payable on June 1, 2018.

        On May 28, 2013, Select issued and sold $600.0 million aggregate principal amount of its 6.375% senior notes due 2021. On May 28, 2013, Select used the proceeds of the senior notes to pay a portion of the amounts then outstanding on the original term loan and the series A term loan, and to pay related fees and expenses. Select recognized a loss on early retirement of debt of $17.3 million in the three months ended June 30, 2013 in connection with the repayment of a portion of its term loans and amendment of the existing senior secured credit facility, which included the write-off of unamortized debt issuance costs.

        Interest on the senior notes accrues at the rate of 6.375% per annum and is payable semi-annually in cash in arrears on June 1 and December 1 of each year, commencing on December 1, 2013. The senior notes are Select's senior unsecured obligations and rank equally in right of payment with all of its other existing and future senior unsecured indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness. The senior notes are fully and unconditionally guaranteed by all of Select's wholly owned subsidiaries. The senior notes are guaranteed, jointly and severally, by Select's direct or indirect existing and future domestic restricted subsidiaries other than certain non-guarantor subsidiaries.

        Select may redeem some or all of the senior notes prior to June 1, 2016 by paying a "make-whole" premium. Select may redeem some or all of the senior notes on or after June 1, 2016 at specified redemption prices. In addition, prior to June 1, 2016, Select may redeem up to 35% of the senior notes with the net proceeds of certain equity offerings at a price of 106.375% plus accrued and unpaid interest, if any. Select is obligated to offer to repurchase the senior notes at a price of 101% of their principal amount plus accrued and unpaid interest, if any, as a result of certain change of control events. These restrictions and prohibitions are subject to certain qualifications and exceptions.

        The Indenture, dated as of May 28, 2013 (the "Indenture") relating to the senior notes contains covenants that, among other things, limit Select's ability and the ability of certain of its subsidiaries to (i) grant liens on its assets, (ii) make dividend payments, other distributions or other restricted payments, (iii) incur restrictions on the ability of Select's restricted subsidiaries to pay dividends or make other payments, (iv) enter into sale and leaseback transactions, (v) merge, consolidate, transfer or dispose of

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substantially all of their assets, (vi) incur additional indebtedness, (vii) make investments, (viii) sell assets, including capital stock of subsidiaries, (ix) use the proceeds from sales of assets, including capital stock of restricted subsidiaries, and (x) enter into transactions with affiliates. In addition, the Indenture requires, among other things, Select to provide financial and current reports to holders of the senior notes or file such reports electronically with the SEC. These covenants are subject to a number of exceptions, limitations and qualifications set forth in the Indenture.

        On June 3, 2013, Select amended its existing senior secured credit facilities in order to:

•

extend the maturity date on $293.3 million of its $300.0 million revolving credit facility from June 1, 2016 to March 1, 2018;

•

convert the remaining original term loan and series A term loan to a series C term loan and lower the interest rate payable on the series C term loan from Adjusted LIBO plus 3.75%, or Alternate Base Rate plus 2.75%, to Adjusted LIBO plus 3.00%, or Alternate Base Rate plus 2.00%, and amend the provision of the series C term loan from providing that Adjusted LIBO will at no time be less than 1.75% to providing that Adjusted LIBO will at no time be less than 1.00%; and

•

amend the restrictive covenants governing the senior secured credit facilities in order to allow for unlimited restricted payments so long as there is no event of default under the senior secured credit facilities and the total pro forma ratio of total indebtedness to Consolidated EBITDA (as defined in our senior secured credit facilities) is less than or equal to 2.75 to 1.00.

        At December 31, 2013, we had outstanding borrowings of $807.8 million (net of unamortized original issue discounts of $6.3 million) under the term loans and borrowings of $20.0 million (excluding letters of credit) under the revolving loan portion of our senior secured credit facilities. We had $237.7 million of availability under our revolving loan facility (after giving effect to $42.3 million of outstanding letters of credit) at December 31, 2013.

        The applicable margin percentage for borrowings under our revolving loan is subject to change based upon the ratio of Select's leverage ratio (as defined in our senior secured credit facility). The applicable interest rate for revolving loans as of December 31, 2013 was (1) Alternate Base plus 2.75% for alternate base rate loans and (2) LIBO plus 3.75% for adjusted LIBO rate loans.

        Our senior secured credit facility requires Select to maintain certain leverage ratios (as defined in our senior secured credit facility). For the four consecutive fiscal quarters ended December 31, 2013, Select was required to maintain its leverage ratio (its ratio of total indebtedness to Consolidated EBITDA) at less than 4.50 to 1.00. Select's leverage ratio was 3.91 to 1.00 as of December 31, 2013, which will require a prepayment of borrowings under the senior secured credit facilities of 50% of excess cash flow (as defined in the senior secured credit agreement), or approximately $34.0 million. Select expects to have the borrowing capacity and intends to use borrowings under its revolving credit facility to make the required prepayment during the first quarter ended March 31, 2014.

        We may from time to time seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions, tender offers or otherwise. Such repurchases or exchanges, if any, may be funded from operating cash flows or other sources and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

        On February 19, 2014, Holdings' board of directors authorized an extension of its $350.0 million common stock repurchase program for an additional year. The program will now remain in effect until March 31, 2015, unless extended by the board of directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Holdings deems appropriate. The timing of purchases of stock will be based upon market conditions and other factors. Holdings is funding this program with cash on hand and borrowings under its revolving credit facility. During the year ended December 31, 2013, Holdings repurchased 1,115,691 shares at a cost of

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approximately $10.0 million, an average cost per share of $8.95, which includes transaction costs. Since the inception of the program through December 31, 2013, Holdings has repurchased 23,606,080 shares at a cost of approximately $173.6 million, or $7.36 per share, which includes transaction costs.

        We believe our internally generated cash flows and borrowing capacity under our senior secured credit facility will be sufficient to finance operations over the next twelve months.

        We may from time to time pursue opportunities to develop new joint venture relationships with significant health systems, and from time to time we may also develop new inpatient rehabilitation hospitals. We also intend to open new outpatient rehabilitation clinics in local areas that we currently serve where we can benefit from existing referral relationships and brand awareness to produce incremental growth. In addition to our development activities, we may grow our network of specialty hospitals through opportunistic acquisitions.

Commitments and Contingencies

        The following table summarizes contractual obligations for both Holdings and Select at December 31, 2013, and the effect such obligations are expected to have on liquidity and cash flow in future periods. Reserves for uncertain tax positions of $13.6 million have been excluded from the tables below as we cannot reasonably estimate the amounts or periods in which these liabilities will be paid.

Contractual Obligations	Total		2014		2015-2017		2018-2019		After 2019
	(in thousands)
6.375% senior notes	$	600,000	$	—	$	—	$	—	$	600,000
Senior secured credit facility(1)(2)		827,815		6,500		305,495		515,820		—
Other debt obligations		17,460		11,065		4,995		1,400		—
Total debt		1,445,275		17,565		310,490		517,220		600,000
Interest(3)		400,232		71,059		190,045		85,054		54,074
Letters of credit outstanding		42,278		—		—		42,278		—
Purchase obligations		11,171		6,238		4,662		271		—
Construction contracts		22,833		22,833		—		—		—
Naming, promotional and sponsorship agreement		40,107		2,937		9,226		6,513		21,431
Operating leases		780,309		125,611		239,341		91,977		323,380
Related party operating leases		36,240		3,758		11,485		7,993		13,004
Total contractual cash obligations	$	2,778,445	$	250,001	$	765,249	$	751,306	$	1,011,889

(1)

Reflects the balance sheet liability of the senior secured credit facility calculated in accordance with GAAP. The balance sheet liability so reflected is less than the $814.2 million aggregate principal amount of term loans that were issued with original issue discount. The remaining unamortized original issue discount on the term loans was $6.3 million at December 31, 2013. Interest on the senior secured credit facility accrued on the full principal amount thereof and Holdings will be obligated to repay the full principal thereof at maturity or upon any mandatory or voluntary prepayment thereof.

(2)

The balance of the series B term loan will be payable on February 20, 2016 and the balance of the series C term loan will be payable on June 1, 2018 and the revolving credit facility will be payable on March 1, 2018.

(3)

The interest obligation for the senior secured credit facility was calculated using the average interest rate at December 31, 2013 of 3.5% for the series B term loan, 4.0% for the series C term loan and 3.9% for the revolving portion. The interest obligation was calculated using the stated interest rate for the 6.375% senior notes and 6.0% for the other debt obligations.

78

Effects of Inflation and Changing Prices

        We derive a substantial portion of our revenues from the Medicare program. We have been, and could be in the future, affected by the continuing efforts of governmental and private third party payors to contain healthcare costs by limiting or reducing reimbursement payments.

        Additionally, reimbursement payments under governmental and private third party payor programs may not increase to sufficiently cover increasing costs. Medicare reimbursement in long term acute care hospitals and inpatient rehabilitation facilities are subject to fixed payments under the Medicare prospective payment systems. In accordance with Medicare laws, CMS makes annual adjustments to Medicare payments under what is commonly known as a "market basket update." Generally, these rates are adjusted for inflation. However, these adjustments may not reflect the actual increase in the costs of providing healthcare services and may be reduced by CMS for other adjustments.

        The healthcare industry is labor intensive and the Company's largest expenses are labor related costs. Wage and other expenses increase during periods of inflation and when labor shortages occur in the marketplace. While we believe the current economic climate may help to moderate wage increases in the near term, there can be no guarantee we will not experience increases in the cost of labor, as the need for clinical healthcare professionals is expect to grow. In addition, suppliers pass along rising costs to us in the form of higher prices. We have little or no ability to pass on these increased costs associated with providing services due to federal laws that establish fixed reimbursement rates.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

        We are subject to interest rate risk in connection with our long-term indebtedness. In 2013, our principal interest rate exposure related to the loans outstanding under Select's senior secured credit facility. As of December 31, 2013, we had $814.2 million (excluding unamortized original issue discount) in term loans and $20.0 million in revolving loans outstanding under our senior secured credit facility. Each eighth of a point change in interest rates on the variable rate portion of our long-term indebtedness would result in a $1.0 million annual change in interest expense. However, because the variable interest rate for an aggregate $517.2 million in series C term loan is subject to an Adjusted LIBO Rate floor of 1.00% until the Adjusted LIBO Rate exceeds 1.00%, our interest rate on this indebtedness is currently effectively fixed at 4.00%.

Item 8.    Financial Statements and Supplementary Data.

        See Consolidated Financial Statements and Notes thereto commencing at Page F-1.

Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

        None.

Item 9A.    Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

        We carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered in this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures, including the accumulation and communication of disclosure to our principal executive officer and principal financial officer as appropriate to allow timely decisions regarding disclosure, are effective as of December 31, 2013 to provide reasonable assurance that material information required to be included in our periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the relevant SEC rules and forms.

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Changes in Internal Control Over Financial Reporting

        There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) identified in connection with the evaluation required by Rule 13a-15(d) of the Securities Exchange Act of 1934 that occurred during the fourth quarter of the year ended December 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management's Report on Internal Control Over Financial Reporting

        Management is responsible for establishing and maintaining an adequate system of internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria of "Internal Control — Integrated Framework (1992)," issued by the Committee of Sponsoring Organizations of the Treadway Commission, or "COSO," as of December 31, 2013. Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2013. This assessment was based on criteria for effective internal control over financial reporting described in "Internal Control — Integrated Framework (1992)," issued by COSO. Based on this assessment, management concludes that, as of December 31, 2013, internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. The effectiveness of the Company's internal control over financial reporting as of December 31, 2013 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm as stated in their report which appears herein.

Item 9B.    Other Information.

        None.

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PART III

Item 10.    Directors, Executive Officers and Corporate Governance.

        The information regarding directors and nominees for directors of the Company, including identification of the audit committee and audit committee financial expert, and Compliance with Section 16(a) of the Exchange Act is presented under the headings "Corporate Governance — Committees of the Board of Directors," "Election of Directors — Directors and Nominees" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive proxy statement for use in connection with the 2014 Annual Meeting of Stockholders (the "Proxy Statement") to be filed within 120 days after the end of the Company's fiscal year ended December 31, 2013. The information contained under these headings is incorporated herein by reference. Information regarding the executive officers of the Company is included in this Annual Report on Form 10-K under Item 1 of Part I as permitted by Instruction 3 to Item 401(b) of Regulation S-K.

        We have adopted a written code of business conduct and ethics, known as our code of conduct, which applies to all of our directors, officers, and employees, as well as a code of ethics applicable to our senior financial officers, including our chief executive officer, our chief financial officer and our chief accounting officer. Our code of conduct and code of ethics for senior financial officers are available on our Internet website, www.selectmedicalholdings.com. Our code of conduct and code of ethics for senior financial officers may also be obtained by contacting investor relations at (717) 972-1100. Any amendments to our code of conduct or code of ethics for senior financial officers or waivers from the provisions of the codes for our chief executive officer, our chief financial officer and our chief accounting officer will be disclosed on our Internet website promptly following the date of such amendment or waiver.

Item 11.    Executive Compensation.

        Information concerning executive compensation is presented under the headings "Executive Compensation" and "Compensation Committee Report" in the Proxy Statement. The information contained under these headings is incorporated herein by reference.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

        Information with respect to security ownership of certain beneficial owners and management is set forth under the heading "Security Ownership of Certain Beneficial Owners and Directors and Officers" in the Proxy Statement. The information contained under this heading is incorporated herein by reference.

Equity Compensation Plan Information

        Set forth in the table below is a list of all of our equity compensation plans and the number of securities to be issued on exercise of equity rights, average exercise price, and number of securities that would remain available under each plan if outstanding equity rights were exercised as of December 31, 2013.

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Plan Category	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)		Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (b)		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (c)
Equity compensation plans approved by security holders:
Select Medical Holdings Corporation 2005 Equity Incentive Plan		11,922,179	$	8.22		0
Select Medical Holdings Corporation 2011 Equity Incentive Plan		18,000	$	8.38		2,838,660
Director equity incentive plan		42,000	$	8.69		12,000

Item 13.    Certain Relationships, Related Transactions and Director Independence.

        Information concerning related transactions is presented under the heading "Certain Relationships, Related Transactions and Director Independence" in the Proxy Statement. The information contained under this heading is incorporated herein by reference.

Item 14.    Principal Accountant Fees and Services.

        Information concerning principal accountant fees and services is presented under the heading "Ratification of Appointment of Independent Registered Public Accounting Firm" in the Proxy Statement. The information contained under this heading is incorporated herein by reference.

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PART IV

Item 15.    Exhibits and Financial Statement Schedules.

        (a)   The following documents are filed as part of this report:

        1)    Financial Statements: See Index to Financial Statements appearing on page F-1 of this report.

        2)    Financial Statement Schedule: See Schedule II — Valuation and Qualifying Accounts appearing on page F-49 of this report.

        3)    The following exhibits are filed as part of, or incorporated by reference into, this report:

Number		Description
	3.1	Amended and Restated Certificate of Incorporation of Select Medical Corporation, incorporated by reference to Exhibit 3.1 of Select Medical Corporation's Form S-4 filed June 15, 2005 (Reg. no. 001-31441).
	3.2	Form of Restated Certificate of Incorporation of Select Medical Holdings Corporation, incorporated by reference to Exhibit 3.3 of Select Medical Holdings Corporation's Form S-1/A filed September 21, 2009 (Reg No. 333-152514).
	3.3	Amended and Restated Bylaws of Select Medical Corporation, as amended, incorporated by reference to Exhibit 3.2 of the Quarterly Report on Form 10-Q of Select Medical Holdings Corporation and Select Medical Corporation filed on November 12, 2010 (Reg. Nos. 001-34465 and 001-31441).
	3.4	Amended and Restated Bylaws of Select Medical Holdings Corporation, as amended, incorporated by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q of Select Medical Holdings Corporation and Select Medical Corporation filed on November 12, 2010 (Reg. Nos. 001-34465 and 001-31441).
	4.1	Registration Rights Agreement, dated as of February 24, 2005, among Select Medical Holdings Corporation, Welsh, Carson, Anderson & Stowe IX, L.P., WCAS Capital Partners IV, L.P., each of the entities and individuals listed on Schedule I thereto and each of the other entities and individuals from time to time listed on Schedule II thereto, incorporated by reference to Exhibit 10.77 of Select Medical Holdings Corporation's Form S-4 filed April 13, 2006 (Reg. No. 333-133284).
	4.2	Indenture, dated as of May 28, 2013, by and among Select Medical Holdings Corporation, the guarantors named therein and U.S. Bank National Association, as trustee, incorporated herein by reference to Exhibit 4.1 of the Current Report on Form 8-K of Select Medical Holdings Corporation on May 28, 2013 (Reg. No. 001-34465).
	4.3	Forms of 6.375% Senior Notes due 2021, incorporated herein by reference to Exhibit 4.2 of the Current Report on Form 8-K of Select Medical Holdings Corporation on May 28, 2013 (Reg. No. 001-34465).
	4.4	Registration Rights Agreement, dated May 28, 2013, by and among Select Medical Holdings Corporation, the guarantors named therein and J.P. Morgan Securities LLC, on behalf of itself and the other initial purchasers named therein, incorporated herein by reference to Exhibit 4.3 of the Current Report on Form 8-K of Select Medical Holdings Corporation on May 28, 2013 (Reg. No. 001-34465).

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Number		Description
	10.1	Credit Agreement, dated as of June 1, 2011, among Select Medical Holdings Corporation, Select Medical Corporation, JPMorgan Chase Bank, N.A., as Administrative and Collateral Agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Goldman Sachs Bank USA, as Co-Syndication Agents and Morgan Stanley Senior Funding, Inc. and Wells Fargo Bank, National Association, LLC, as Co-Documentation Agents and the other lenders party thereto, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K of Select Medical Holdings Corporation and Select Medical Corporation filed on June 2, 2011 (Reg. Nos. 001-34465 and 001-31441).
	10.2	Employment Agreement, dated as of March 1, 2000, between Select Medical Corporation and Rocco A. Ortenzio, incorporated by reference to Exhibit 10.16 of Select Medical Corporation's Registration Statement on Form S-1 filed October 27, 2000 (Reg. No. 333-48856).
	10.3	Amendment No. 1 to Employment Agreement, dated as of August 8, 2000, between Select Medical Corporation and Rocco A. Ortenzio, incorporated by reference to Exhibit 10.17 of Select Medical Corporation's Registration Statement on Form S-1 filed October 27, 2000 (Reg. No. 333-48856).
	10.4	Amendment No. 2 to Employment Agreement, dated as of February 23, 2001, between Select Medical Corporation and Rocco A. Ortenzio, incorporated by reference to Exhibit 10.47 of Select Medical Corporation's Registration Statement on Form S-1 March 30, 2001 (Reg. No. 333-48856).
	10.5	Amendment No. 3 to Employment Agreement, dated as of April 24, 2001, between Select Medical Corporation and Rocco A. Ortenzio, incorporated by reference to Exhibit 10.50 of Select Medical Corporation's Registration Statement on Form S-4 filed June 26, 2001 (Reg. No. 333-63828).
	10.6	Amendment No. 4 to Employment Agreement, dated as of September 17, 2001, between Select Medical Corporation and Rocco A. Ortenzio, incorporated by reference to Exhibit 10.52 of Select Medical Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (Reg. No. 000-32499).
	10.7	Amendment No. 5 to Employment Agreement, dated as of February 24, 2005, between Select Medical Corporation and Rocco A. Ortenzio, incorporated by reference to Exhibit 10.10 of Select Medical Corporation's Form S-4 filed June 16, 2005 (Reg. No. 333-125846).
	10.8	Employment Agreement, dated as of March 1, 2000, between Select Medical Corporation and Robert A. Ortenzio, incorporated by reference to Exhibit 10.14 of Select Medical Corporation's Registration Statement on Form S-1 filed October 27, 2000 (Reg. No. 333-48856).
	10.9	Amendment No. 1 to Employment Agreement, dated as of August 8, 2000, between Select Medical Corporation and Robert A. Ortenzio, incorporated by reference to Exhibit 10.15 of Select Medical Corporation's Registration Statement on Form S-1 filed October 27, 2000 (Reg. No. 333-48856).
	10.10	Amendment No. 2 to Employment Agreement, dated as of February 23, 2001, between Select Medical Corporation and Robert A. Ortenzio, incorporated by reference to Exhibit 10.48 of Select Medical Corporation's Registration Statement on Form S-1 filed March 30, 2001 (Reg. No. 333-48856).
	10.11	Amendment No. 3 to Employment Agreement, dated as of September 17, 2001, between Select Medical Corporation and Robert A. Ortenzio, incorporated by reference to Exhibit 10.53 of Select Medical Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (Reg. No. 000-32499).

84

Number		Description
	10.12	Amendment No. 4 to Employment Agreement, dated as of December 10, 2004, between Select Medical Corporation and Robert A. Ortenzio, incorporated by reference to Exhibit 99.3 of Select Medical Corporation's Current Report on Form 8-K filed December 16, 2004 (Reg. No. 001-31441).
	10.13	Amendment No. 5 to Employment Agreement, dated as of February 24, 2005, between Select Medical Corporation and Robert A. Ortenzio, incorporated by reference to Exhibit 10.16 of Select Medical Corporation's Form S-4 filed June 16, 2005 (Reg. No. 333-125846).
	10.14	Employment Agreement, dated as of March 1, 2000, between Select Medical Corporation and Patricia A. Rice, incorporated by reference to Exhibit 10.19 of Select Medical Corporation's Registration Statement on Form S-1 filed October 27, 2000 (Reg. No. 333-48856).
	10.15	Amendment No. 1 to Employment Agreement, dated as of August 8, 2000, between Select Medical Corporation and Patricia A. Rice, incorporated by reference to Exhibit 10.20 of Select Medical Corporation's Registration Statement on Form S-1 filed October 27, 2000 (Reg. No. 333-48856).
	10.16	Amendment No. 2 to Employment Agreement, dated as of February 23, 2001, between Select Medical Corporation and Patricia A. Rice, incorporated by reference to Exhibit 10.49 of Select Medical Corporation's Registration Statement on Form S-1 filed March 30, 2001 (Reg. No. 333-48856).
	10.17	Amendment No. 3 to Employment Agreement, dated as of December 10, 2004, between Select Medical Corporation and Patricia A. Rice, incorporated by reference to Exhibit 99.2 of Select Medical Corporation's Current Report on Form 8-K filed December 16, 2004 (Reg. No. 001-31441).
	10.18	Amendment No. 4 to Employment Agreement, dated as of February 24, 2005, between Select Medical Corporation and Patricia A. Rice, incorporated by reference to Exhibit 10.21 of Select Medical Corporation's Form S-4 filed June 16, 2005 (Reg. No. 333-125846).
	10.19	Amendment No. 5 to Employment Agreement, dated as of April 27, 2005, between Select Medical Corporation and Patricia A. Rice, incorporated by reference to Exhibit 10.46 of Select Medical Corporation's Form S-4 filed June 16, 2005 (Reg. No. 333-125846).
	10.20	Amendment No. 6 to Employment Agreement, dated as of February 13, 2008, between Select Medical Corporation and Patricia A. Rice, incorporated by reference to Exhibit 10.27 of Select Medical Holdings Corporation's Form S-1 filed July 24, 2008 (Reg. No. 333-152514).
	10.21	Amendment No. 1 to Restricted Stock Award Agreement, dated as of February 13, 2008, between Select Medical Holdings Corporation and Patricia A. Rice, incorporated by reference to Exhibit 10.29 of Select Medical Holdings Corporation's Form S-1 filed July 24, 2008 (Reg. No. 333-152514).
	10.22	Change of Control Agreement, dated as of March 1, 2000, between Select Medical Corporation and Martin F. Jackson, incorporated by reference to Exhibit 10.11 of Select Medical Corporation's Registration Statement on Form S-1 filed October 27, 2000 (Reg. No. 333-48856).
	10.23	Amendment to Change of Control Agreement, dated as of February 23, 2001, between Select Medical Corporation and Martin F. Jackson, incorporated by reference to Exhibit 10.52 of Select Medical Corporation's Registration Statement on Form S-1 filed March 30, 2001 (Reg. No. 333-48856).

85

Number		Description
	10.24	Second Amendment to Change of Control Agreement, dated as of February 24, 2005, between Select Medical Corporation and Martin F. Jackson, incorporated by reference to Exhibit 10.24 of Select Medical Corporation's Form S-4 filed June 16, 2005 (Reg. No. 333-125846).
	10.25	Change of Control Agreement, dated as of March 1, 2000, between Select Medical Corporation and James J. Talalai, incorporated by reference to Exhibit 10.58 of Select Medical Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (Reg. No. 000-32499).
	10.26	Amendment to Change of Control Agreement, dated as of February 23, 2001, between Select Medical Corporation and James J. Talalai, incorporated by reference to Exhibit 10.59 of Select Medical Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (Reg. No. 000-32499).
	10.27	Second Amendment to Change of Control Agreement, dated as of February 24, 2005, between Select Medical Corporation and James J. Talalai, incorporated by reference to Exhibit 10.35 of Select Medical Corporation's Form S-4 filed June 16, 2005 (Reg. No. 333-125846).
	10.28	Change of Control Agreement, dated as of March 1, 2000, between Select Medical Corporation and Michael E. Tarvin, incorporated by reference to Exhibit 10.22 of Select Medical Corporation's Registration Statement on Form S-1 filed October 27, 2000 (Reg. No. 333-48856).
	10.29	Amendment to Change of Control Agreement, dated as of February 23, 2001, between Select Medical Corporation and Michael E. Tarvin, incorporated by reference to Exhibit 10.54 of Select Medical Corporation's Registration Statement on Form S-1 filed March 30, 2001 (Reg. No. 333-48856).
	10.30	Second Amendment to Change of Control Agreement, dated as of February 24, 2005, between Select Medical Corporation and Michael E. Tarvin, incorporated by reference to Exhibit 10.39 of Select Medical Corporation's Form S-4 filed June 16, 2005 (Reg. No. 333-125846).
	10.31	Change of Control Agreement, dated as of March 1, 2000, between Select Medical Corporation and Scott A. Romberger, incorporated by reference to Exhibit 10.56 of Select Medical Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (Reg. No. 000-32499).
	10.32	Amendment to Change of Control Agreement, dated as of February 23, 2001, between Select Medical Corporation and Scott A. Romberger, incorporated by reference to Exhibit 10.57 of Select Medical Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 (Reg. No. 000-32499).
	10.33	Second Amendment to Change of Control Agreement, dated as of February 24, 2005, between Select Medical Corporation and Scott A. Romberger, incorporated by reference to Exhibit 10.42 of Select Medical Corporation's Form S-4 filed June 16, 2005 (Reg. No. 333-125846).
	10.34	Form of Unit Award Agreement, incorporated by reference to Exhibit 10.54 of Select Medical Holdings Corporation's Form S-1 filed July 24, 2008 (Reg. No. 333-152514).
	10.35	Office Lease Agreement, dated as of June 17, 1999, between Select Medical Corporation and Old Gettysburg Associates III, incorporated by reference to Exhibit 10.27 of Select Medical Corporation's Registration Statement on Form S-1 filed October 27, 2000 (Reg. No. 333-48856).

86

Number		Description
	10.36	First Addendum to Lease Agreement, dated as of April 25, 2008, between Old Gettysburg Associates III and Select Medical Corporation, incorporated by reference to Exhibit 10.65 of Select Medical Holdings Corporation's Form S-1 filed July 24, 2008 (Reg. No. 333-152514).
	10.37	Second Addendum to Lease Agreement, dated as of November 1, 2012, between Old Gettysburg Associates III LP and Select Medical Corporation, incorporated by reference to Exhibit 10.37 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on February 26, 2013 (Reg. Nos. 001-34465 and 001-31441).
	10.38	Office Lease Agreement, dated August 25, 2006, between Old Gettysburg Associates IV, L.P. and Select Medical Corporation, incorporated by reference to Exhibit 10.1 of Select Medical Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (Reg. No. 001-31441).
	10.39	First Addendum to Lease Agreement, dated as of November 1, 2012, between Old Gettysburg Associates IV LP and Select Medical Corporation, incorporated by reference to Exhibit 10.39 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on February 26, 2013 (Reg. Nos. 001-34465 and 001-31441).
	10.40	Office Lease Agreement, dated November 1, 2012, by and between Select Medical Corporation and Old Gettysburg Associates, incorporated by reference to Exhibit 10.40 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on February 26, 2013 (Reg. Nos. 001-34465 and 001-31441).
	10.41	Office Lease Agreement, dated November 1, 2012, by and between Select Medical Corporation and Old Gettysburg Associates II, LP., incorporated by reference to Exhibit 10.41 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on February 26, 2013 (Reg. Nos. 001-34465 and 001-31441).
	10.42	Naming, Promotional and Sponsorship Agreement, dated as of October 1, 1997, between NovaCare, Inc. and the Philadelphia Eagles Limited Partnership, assumed by Select Medical Corporation in a Consent and Assumption Agreement dated November 19, 1999 by and among NovaCare, Inc., Select Medical Corporation and the Philadelphia Eagles Limited Partnership, incorporated by reference to Exhibit 10.36 of Select Medical Corporation's Registration Statement on Form S-1 filed December 7, 2000 (Reg. No. 333-48856).
	10.43	First Amendment to Naming, Promotional and Sponsorship Agreement, dated as of January 1, 2004, between Select Medical Corporation and Philadelphia Eagles, LLC, incorporated by reference to Exhibit 10.63 of Select Medical Corporation's Form S-4 filed June 16, 2005 (Reg. No. 333-125846).
	10.44	Select Medical Holdings Corporation 2005 Equity Incentive Plan, as amended and restated, incorporated by reference to Exhibit 10.88 of Select Medical Holdings Corporation's Form S-1/A filed September 9, 2009 (Reg. No. 333-152514).
	10.45	Select Medical Holdings Corporation 2011 Equity Incentive Plan, incorporated by reference to Exhibit A to Select Medical Holdings Corporation's Definitive Proxy Statement on Schedule 14A filed on March 25, 2011 (Reg. No. 333-174393).
	10.46	Select Medical Holdings Corporation 2005 Equity Incentive Plan for Non-Employee Directors, as amended and restated, incorporated by reference to Exhibit 10.89 of Select Medical Holdings Corporation's Form S-1/A filed September 9, 2009 (Reg. No. 333-152514).
	10.47	Amendment No. 6 to Employment Agreement between Select Medical Corporation and Rocco A. Ortenzio, incorporated by reference to Exhibit 10.95 of Select Medical Holdings Corporation's Form S-1/A filed June 18, 2009 (Reg. No. 333-152514).

87

Number		Description
	10.48	Amendment No. 6 to Employment Agreement between Select Medical Corporation and Robert A. Ortenzio, incorporated by reference to Exhibit 10.96 of Select Medical Holdings Corporation's Form S-1/A filed June 18, 2009 (Reg. No. 333-152514).
	10.49	Amendment No. 7 to Employment Agreement between Select Medical Corporation and Patricia A. Rice, incorporated by reference to Exhibit 10.97 of Select Medical Holdings Corporation's Form S-1/A filed June 18, 2009 (Reg. No. 333-152514).
	10.50	Third Amendment to Change of Control Agreement between Select Medical Corporation and Michael E. Tarvin, incorporated by reference to Exhibit 10.100 of Select Medical Holdings Corporation's Form S-1/A filed June 18, 2009 (Reg. No. 333-152514).
	10.51	Third Amendment to Change of Control Agreement between Select Medical Corporation and James J. Talalai, incorporated by reference to Exhibit 10.101 of Select Medical Holdings Corporation's Form S-1/A filed June 18, 2009 (Reg. No. 333-152514).
	10.52	Third Amendment to Change of Control Agreement between Select Medical Corporation and Scott A. Romberger, incorporated by reference to Exhibit 10.102 of Select Medical Holdings Corporation's Form S-1/A filed June 18, 2009 (Reg. No. 333-152514).
	10.53	Third Amendment to Change of Control Agreement between Select Medical Corporation and Martin F. Jackson, incorporated by reference to Exhibit 10.103 of Select Medical Holdings Corporation's Form S-1/A filed June 18, 2009 (Reg. No. 333-152514).
	10.54	Form of Restricted Stock Agreement under the 2005 Equity Incentive Plan, incorporated by reference to Exhibit 10.119 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on March 17, 2010 (Reg. Nos. 001-34465 and 001-31441).
	10.55	Second Addendum to Lease Agreement, dated August 1, 2010, by and between Old Gettysburg Associates II and Select Medical Corporation, incorporated by reference to Exhibit 10.1 of the Quarterly Report on Form 10-Q of Select Medical Holdings Corporation and Select Medical Corporation filed on November 12, 2010 (Reg. Nos. 001-34465 and 001-31441).
	10.56	Restricted Stock Award Agreement, dated August 11, 2010, by and between Select Medical Holdings Corporation and Bryan C. Cressey, incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q of Select Medical Holdings Corporation and Select Medical Corporation filed on November 12, 2010 (Reg. Nos. 001-34465 and 001-31441).
	10.57	Restricted Stock Award Agreement, dated August 11, 2010, by and between Select Medical Holdings Corporation and James E. Dalton, Jr., incorporated by reference to Exhibit 10.3 of the Quarterly Report on Form 10-Q of Select Medical Holdings Corporation and Select Medical Corporation filed on November 12, 2010 (Reg. Nos. 001-34465 and 001-31441).
	10.58	Restricted Stock Award Agreement, dated August 11, 2010, by and between Select Medical Holdings Corporation and James S. Ely, III, incorporated by reference to Exhibit 10.4 of the Quarterly Report on Form 10-Q of Select Medical Holdings Corporation and Select Medical Corporation filed on November 12, 2010 (Reg. Nos. 001-34465 and 001-31441).
	10.59	Restricted Stock Award Agreement, dated August 11, 2010, by and between Select Medical Holdings Corporation and William H. Frist, M.D., incorporated by reference to Exhibit 10.5 of the Quarterly Report on Form 10-Q of Select Medical Holdings Corporation and Select Medical Corporation filed on November 12, 2010 (Reg. Nos. 001-34465 and 001-31441).

88

Number		Description
	10.60	Restricted Stock Award Agreement, dated August 11, 2010, by and between Select Medical Holdings Corporation and Leopold Swergold, incorporated by reference to Exhibit 10.6 of the Quarterly Report on Form 10-Q of Select Medical Holdings Corporation and Select Medical Corporation filed on November 12, 2010 (Reg. Nos. 001-34465 and 001-31441).
	10.61	Employment Agreement, dated September 13, 2010, by and between Select Medical Corporation and David S. Chernow, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K of Select Medical Holdings Corporation and Select Medical Corporation filed on September 15, 2010. (Reg. Nos. 001-34465 and 001-31441).
	10.62	Restricted Stock Award Agreement, dated September 13, 2010, by and between Select Medical Holdings Corporation and David S. Chernow, incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K of Select Medical Holdings Corporation and Select filed on September 15, 2010. (Reg. Nos. 001-34465 and 001-31441).
	10.63	Amendment No. 1 to Employment Agreement, dated March 21, 2011, between Select Medical Corporation and David S. Chernow, incorporated herein by reference to Exhibit 10.8 of the Quarterly Report on Form 10-Q of Select Medical Holdings Corporation and Select Medical Corporation filed on May 5, 2011. (Reg. Nos. 001-34465 and 001-31441).
	10.64	Amendment No. 7 to Employment Agreement, dated November 10, 2010, by and between Select Medical Corporation and Rocco A. Ortenzio, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K of Select Medical Holdings Corporation and Select filed on November 15, 2010. (Reg. Nos. 001-34465 and 001-31441).
	10.65	Amendment No. 7 to Employment Agreement, dated November 10, 2010, by and between Select Medical Corporation and Robert A. Ortenzio, incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K of Select Medical Holdings Corporation and Select filed on November 15, 2010. (Reg. Nos. 001-34465 and 001-31441).
	10.66	Amendment No. 8 to Employment Agreement, dated November 10, 2010, by and between Select Medical Corporation and Patricia A. Rice, incorporated herein by reference to Exhibit 10.3 of the Current Report on Form 8-K of Select Medical Holdings Corporation and Select filed on November 15, 2010. (Reg. Nos. 001-34465 and 001-31441).
	10.67	Fourth Amendment to Change of Control Agreement, dated March 8, 2011, between Select Medical Corporation and Martin F. Jackson, incorporated herein by reference to Exhibit 10.111 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on March 9, 2011 (Reg. Nos. 001-34465 and 001-31441).
	10.68	Amendment No. 8 to Employment Agreement, dated March 8, 2011, between Select Medical Corporation and Robert A. Ortenzio, incorporated herein by reference to Exhibit 10.112 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on March 9, 2011 (Reg. Nos. 001-34465 and 001-31441).
	10.69	Amendment No. 8 to Employment Agreement, dated March 8, 2011, between Select Medical Corporation and Rocco A. Ortenzio, incorporated herein by reference to Exhibit 10.113 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on March 9, 2011 (Reg. Nos. 001-34465 and 001-31441).
	10.70	Amendment No. 9 to Employment Agreement, dated March 8, 2011, between Select Medical Corporation and Patricia A. Rice, incorporated herein by reference to Exhibit 10.114 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on March 9, 2011 (Reg. Nos. 001-34465 and 001-31441).

89

Number		Description
	10.71	Fourth Amendment to Change of Control Agreement, dated March 8, 2011, between Select Medical Corporation and Scott A. Romberger, incorporated herein by reference to Exhibit 10.115 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on March 9, 2011 (Reg. Nos. 001-34465 and 001-31441).
	10.72	Fourth Amendment to Change of Control Agreement, dated March 8, 2011, between Select Medical Corporation and James J. Talalai, incorporated herein by reference to Exhibit 10.116 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on March 9, 2011 (Reg. Nos. 001-34465 and 001-31441).
	10.73	Fourth Amendment to Change of Control Agreement, dated March 8, 2011, between Select Medical Corporation and Michael E. Tarvin, incorporated herein by reference to Exhibit 10.117 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on March 9, 2011 (Reg. Nos. 001-34465 and 001-31441).
	10.74	Restrictive Covenants Agreement Letter, dated December 15, 2011, by and between Select Medical Corporation and James J. Talalai, incorporated herein by reference to Exhibit 10.106 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on March 2, 2012 (Reg. Nos. 001-34465 and 001-31441).
	10.75	Form of Restricted Stock Award Agreement under the Select Medical Holdings Corporation 2011 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.107 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on March 2, 2012 (Reg. Nos. 001-34465 and 001-31441).
	10.76	Additional Credit Extension Amendment, dated as of August 13, 2012, among Select Medical Holdings Corporation, Select Medical Corporation, the subsidiaries of Select Medical Corporation named therein and the financial institutions party thereto, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K of Select Medical Holdings Corporation and Select Medical Corporation filed on August 14, 2012 (Reg. Nos. 001-34465 and 001-31441).
	10.77	Amendment No. 1 to the Credit Agreement, dated as of August 8, 2012, among Select Medical Holdings Corporation, Select Medical Corporation and JPMorgan Chase Bank, N.A., incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K of Select Medical Holdings Corporation and Select Medical Corporation filed on August 14, 2012 (Reg. Nos. 001-34465 and 001-31441).
	10.78	Amendment No. 2 to the Credit Agreement, dated as of November 6, 2012, among Select Medical Holdings Corporation, Select Medical Corporation and JPMorgan Chase Bank, N.A., incorporated by reference to Exhibit 10.85 of the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation filed on February 26, 2013 (Reg. Nos. 001-34465 and 001-31441).
	10.79	Additional Credit Extension Amendment, dated as of February 20, 2013, among Select Medical Holdings Corporation, Select Medical Corporation, the subsidiaries of Select Medical Corporation named therein and the financial institutions party thereto, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K of Select Medical Holdings Corporation and Select Medical Corporation filed on February 20, 2013 (Reg. Nos. 001-34465 and 001-31441).

90

Number		Description
	10.80	Amendment No. 3 to the Credit Agreement, dated as of February 15, 2013, among Select Medical Holdings Corporation, Select Medical Corporation and JPMorgan Chase Bank, N.A., incorporated herein by reference to Exhibit 10.2 of the Current Report on Form 8-K of Select Medical Holdings Corporation and Select Medical Corporation filed on February 20, 2013 (Reg. Nos. 001-34465 and 001-31441).
	10.81	Amendment No. 10 to Employment Agreement, by and between Select Medical Corporation and Patricia A. Rice, dated June 28, 2013, incorporated herein by reference to Exhibit 10.1 of the Current Report on Form 8-K of Select Medical Holdings Corporation on July 2, 2013 (Reg. No. 001-34465).
	10.82	Amendment No. 4 to the Credit Agreement, dated as of June 3, 2013, among Select Medical Holdings Corporation, Select Medical Corporation and JPMorgan Chase Bank, N.A., incorporated by reference to Exhibit 10.2 of the Quarterly Report on Form 10-Q of Select Medical Holdings Corporation filed on August 8, 2013 (Reg. No. 001-34465).
	10.83	Consulting Agreement, dated October 30, 2013, by and between Select Medical Corporation and William H. Frist.
	10.84	Consulting Agreement, dated October 30, 2013, by and between Select Medical Corporation and Thomas A. Scully.
	10.85	Restricted Stock Award Agreement Under the 2011 Equity Incentive Plan, dated October 30, 2013, by and between Select Medical Corporation and William H. Frist.
	10.86	Restricted Stock Award Agreement Under the 2011 Equity Incentive Plan, dated October 30, 2013, by and between Select Medical Corporation and Thomas A. Scully.
	12	Statement of Ratio of Earnings to Fixed Charges.
	21.1	Subsidiaries of Select Medical Holdings Corporation.
	23	Consent of PricewaterhouseCoopers LLP.
	31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Executive Vice President and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Chief Executive Officer, and Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101	The following financial information from the Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2013, 2012 and 2011 (ii) Consolidated Balance Sheets as of December 31, 2013 and 2012, (iii) Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011, (iv) Consolidated Statements of Changes in Equity and Income for the years ended December 31, 2013, 2012 and 2011 and (v) Notes to Consolidated Financial Statements.*

*

XBRL information is furnished and not filed herewith, is not part of a registration statement or prospectus for purposes of section 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

91

Signatures

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SELECT MEDICAL HOLDINGS CORPORATION SELECT MEDICAL CORPORATION
By:	/s/ MICHAEL E. TARVIN Michael E. Tarvin (Executive Vice President, General Counsel and Secretary)

Date: February 25, 2014

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated as of February 25, 2014.

/s/    Rocco A. Ortenzio         Rocco A. Ortenzio Director, Vice Chairman and Co-Founder	/s/    Robert A. Ortenzio         Robert A. Ortenzio Director, Executive Chairman and Co-Founder
/s/    David S. Chernow         David S. Chernow President and Chief Executive Officer (principal executive officer)	/s/    Martin F. Jackson         Martin F. Jackson Executive Vice President and Chief Financial Officer (principal financial officer)
/s/    Scott A. Romberger         Scott A. Romberger Senior Vice President, Controller and Chief Accounting Officer (principal accounting officer)	/s/    Russell L. Carson         Russell L. Carson Director
/s/    Bryan C. Cressey         Bryan C. Cressey Director	/s/    James E. Dalton, Jr.         James E. Dalton, Jr. Director
/s/    James S. Ely III         James S. Ely III Director	/s/    William H. Frist, M.D.         William H. Frist, M.D. Director
/s/    Thomas A. Scully         Thomas A. Scully Director	/s/    Leopold Swergold         Leopold Swergold Director

92

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION
INDEX TO FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-4
Consolidated Statements of Operations and Comprehensive Income	F-5
Consolidated Statement of Changes in Equity and Income	F-7
Consolidated Statements of Cash Flows	F-9
Notes to Consolidated Financial Statements	F-11
Financial Statements Schedule II — Valuation and Qualifying Accounts	F-49

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
of Select Medical Holdings Corporation:

        In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Select Medical Holdings Corporation and its subsidiaries at December 31, 2013 and December 31, 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 25, 2014

F-2

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholder
of Select Medical Corporation:

        In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Select Medical Corporation and its subsidiaries at December 31, 2013 and December 31, 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 25, 2014

F-3

PART I    FINANCIAL INFORMATION

ITEM 1.    CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets
(in thousands, except share and per share amounts)

	Select Medical Holdings Corporation				Select Medical Corporation
	December 31, 2012		December 31, 2013		December 31, 2012		December 31, 2013
ASSETS
Current Assets:
Cash and cash equivalents	$	40,144	$	4,319	$	40,144	$	4,319
Accounts receivable, net of allowance for doubtful accounts of $41,854 and $40,815 in 2012 and 2013, respectively		359,929		391,319		359,929		391,319
Current deferred tax asset		17,877		17,624		17,877		17,624
Prepaid income taxes		3,895		—		3,895		—
Other current assets		31,818		41,140		31,818		41,140
Total Current Assets		453,663		454,402		453,663		454,402
Property and equipment, net		501,552		509,102		501,552		509,102
Goodwill		1,640,534		1,642,633		1,640,534		1,642,633
Other identifiable intangibles		71,745		71,907		71,745		71,907
Other assets		93,867		139,578		92,819		139,578
Total Assets	$	2,761,361	$	2,817,622	$	2,760,313	$	2,817,622
LIABILITIES AND EQUITY
Current Liabilities:
Bank overdrafts	$	17,836	$	12,506	$	17,836	$	12,506
Current portion of long-term debt and notes payable		11,646		17,565		11,646		17,565
Accounts payable		89,547		88,285		89,547		88,285
Accrued payroll		88,586		90,011		88,586		90,011
Accrued vacation		55,714		59,730		55,714		59,730
Accrued interest		22,016		12,297		18,759		12,297
Accrued other		86,843		90,471		92,083		90,471
Income taxes payable		—		622		—		622
Due to third party payors		1,078		37		1,078		37
Total Current Liabilities		373,266		371,524		375,249		371,524
Long-term debt, net of current portion		1,458,597		1,427,710		1,291,297		1,427,710
Non-current deferred tax liability		89,510		96,287		89,510		96,287
Other non-current liabilities		83,699		91,875		83,699		91,875
Total Liabilities		2,005,072		1,987,396		1,839,755		1,987,396
Redeemable non-controlling interests		10,811		11,584		10,811		11,584
Stockholders' Equity:
Common stock of Holdings, $0.001 par value, 700,000,000 shares authorized, 140,589,256 shares and 140,260,968 shares issued and outstanding in 2012 and 2013, respectively		141		140		—		—
Common stock of Select, $0.01par value, 100 shares issued and outstanding		—		—		0		0
Capital in excess of par		473,697		474,729		859,839		869,576
Retained earnings (accumulated deficit)		243,210		311,365		21,478		(83,342	)
Total Select Medical Holdings Corporation and Select Medical Corporation Stockholders' Equity		717,048		786,234		881,317		786,234
Non-controlling interests		28,430		32,408		28,430		32,408
Total Equity		745,478		818,642		909,747		818,642
Total Liabilities and Equity	$	2,761,361	$	2,817,622	$	2,760,313	$	2,817,622

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Select Medical Holdings Corporation

Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per share amounts)

	For the Year Ended December 31,
	2011			2012			2013
Net operating revenues	$	2,804,507		$	2,948,969		$	2,975,648
Costs and expenses:
Cost of services		2,308,570			2,443,550			2,495,476
General and administrative		62,354			66,194			76,921
Bad debt expense		51,347			39,055			37,423
Depreciation and amortization		71,517			63,311			64,392
Total costs and expenses		2,493,788			2,612,110			2,674,212
Income from operations		310,719			336,859			301,436
Other income and expense:
Loss on early retirement of debt		(31,018	)		(6,064	)		(18,747	)
Equity in earnings of unconsolidated subsidiaries		2,923			7,705			2,476
Interest income		322			—			—
Interest expense		(99,216	)		(94,950	)		(87,364	)
Income before income taxes		183,730			243,550			197,801
Income tax expense		70,968			89,657			74,792
Net income		112,762			153,893			123,009
Less: Net income attributable to non-controlling interests		4,916			5,663			8,619
Net income attributable to Select Medical Holdings Corporation	$	107,846		$	148,230		$	114,390
Income per common share:
Basic	$	0.71		$	1.05		$	0.82
Diluted	$	0.71		$	1.05		$	0.82

The accompanying notes are an integral part of these consolidated financial statements.

F-5

Select Medical Corporation

Consolidated Statements of Operations and Comprehensive Income
(in thousands)

	For the Year Ended December 31,
	2011			2012			2013
Net operating revenues	$	2,804,507		$	2,948,969		$	2,975,648
Costs and expenses:
Cost of services		2,308,570			2,443,550			2,495,476
General and administrative		62,354			66,194			76,921
Bad debt expense		51,347			39,055			37,423
Depreciation and amortization		71,517			63,311			64,392
Total costs and expenses		2,493,788			2,612,110			2,674,212
Income from operations		310,719			336,859			301,436
Other income and expense:
Loss on early retirement of debt		(20,385	)		(6,064	)		(17,788	)
Equity in earnings of unconsolidated subsidiaries		2,923			7,705			2,476
Interest income		322			—			—
Interest expense		(81,232	)		(83,759	)		(84,954	)
Income before income taxes		212,347			254,741			201,170
Income tax expense		80,984			93,574			75,971
Net income		131,363			161,167			125,199
Less: Net income attributable to non-controlling interests		4,916			5,663			8,619
Net income attributable to Select Medical Corporation	$	126,447		$	155,504		$	116,580

The accompanying notes are an integral part of these consolidated financial statements.

F-6

Select Medical Holdings Corporation

Consolidated Statement of Changes in Equity and Income
(in thousands)

						Select Medical Holdings Corporation Stockholders
	Comprehensive Income		Total			Common Stock Issued			Common Stock Par Value			Capital in Excess of Par			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Non-controlling Interests
Balance at December 31, 2010			$	807,176			154,519		$	155		$	535,628		$	245,164		$	—	$	26,229
Net income	$	111,197		111,197												107,846					3,351
Net income — attributable to redeemable non-controlling interests		1,565
Total comprehensive income	$	112,762	$	111,197
Issuance and vesting of restricted stock				2,527			565			0			2,527
Repurchase of common shares				(72,804	)		(9,870	)		(10	)		(45,733	)		(27,061	)
Stock option expense				1,198									1,198
Exercise of stock options				208			54			0			208
Distributions to non-controlling interests				(2,688	)																(2,688	)
Other				(476	)											(243	)				(233	)
Balance at December 31, 2011			$	846,338			145,268		$	145		$	493,828		$	325,706		$	—	$	26,659
Net income	$	151,948		151,948												148,230					3,718
Net income — attributable to redeemable non-controlling interests		1,945
Total comprehensive income	$	153,893	$	151,948
Dividends paid to common stockholders				(210,888	)											(210,888	)
Issuance and vesting of restricted stock				4,472			746						4,472			—
Repurchase of common shares				(46,902	)		(5,726	)		(5	)		(27,208	)		(19,689	)
Stock option expense				1,205									1,205
Exercise of stock options				1,817			301			1			1,816
Distributions to non-controlling interests				(1,884	)																(1,884	)
Purchase of non-controlling interests				(479	)								(416	)							(63	)
Other				(149	)											(149	)
Balance at December 31, 2012			$	745,478			140,589		$	141		$	473,697		$	243,210		$	—	$	28,430
Net income	$	119,946		119,946												114,390					5,556
Net income — attributable to redeemable non-controlling interests		3,063
Total comprehensive income	$	123,009
Dividends paid to common stockholders				(41,961	)											(41,961	)
Issuance and vesting of restricted stock				6,220			953						6,220
Repurchase of common shares				(11,781	)		(1,447	)		(1	)		(7,524	)		(4,256	)
Stock option expense				811									811
Exercise of stock options				1,525			166						1,525
Distributions to non-controlling interests				(1,839	)																(1,839	)
Purchase of non-controlling interests				261																	261
Other				(18	)											(18	)
Balance at December 31, 2013			$	818,642			140,261		$	140		$	474,729		$	311,365		$	—	$	32,408

The accompanying notes are an integral part of these consolidated financial statements.

F-7

Select Medical Corporation

Consolidated Statement of Changes in Equity and Income
(in thousands)

						Select Medical Corporation Stockholders
	Comprehensive Income		Total			Common Stock Issued		Common Stock Par Value		Capital in Excess of Par			Retained Earnings (Accumulated Deficit)			Accumulated Other Comprehensive Income (Loss)		Non-controlling Interests
Balance at December 31, 2010			$	1,107,890			0	$	0	$	834,894		$	246,767		$	—	$	26,229
Net income	$	129,798		129,798										126,447					3,351
Net income — attributable to redeemable non-controlling interests		1,565
Total comprehensive income	$	131,363	$	129,798
Federal tax benefit of losses contributed by Holdings				10,016							10,016
Additional investment by Holdings				208							208
Net change in dividends payable to Holdings				7,360										7,360
Dividends declared and paid to Holdings				(245,729	)									(245,729	)
Contribution related to restricted stock awards and stock option issuances by Holdings				3,726							3,726
Distributions to non-controlling interests				(2,688	)														(2,688	)
Other				(476	)									(243	)				(233	)
Balance at December 31, 2011			$	1,010,105			0	$	0	$	848,844		$	134,602		$	—	$	26,659
Net income	$	159,222		159,222										155,504					3,718
Net income — attributable to redeemable non-controlling interests		1,945
Total comprehensive income	$	161,167	$	159,222
Federal tax benefit of losses contributed by Holdings				3,917							3,917
Additional investment by Holdings				1,817							1,817
Dividends declared and paid to Holdings				(268,479	)									(268,479	)
Contribution related to restricted stock awards and stock option issuances by Holdings				5,677							5,677
Distributions to non-controlling interests				(1,884	)														(1,884	)
Purchase of non-controlling interests				(479	)						(416	)							(63	)
Other				(149	)									(149	)
Balance at December 31, 2012			$	909,747			0	$	0	$	859,839		$	21,478		$	—	$	28,430
Net income	$	122,136		122,136										116,580					5,556
Net income — attributable to redeemable non-controlling interests		3,063
Total comprehensive income	$	125,199	$	122,136
Federal tax benefit of losses contributed by Holdings				1,179							1,179
Net change in dividends payable to Holdings				5,239										5,239
Additional investment by Holdings				1,525							1,525
Dividends declared and paid to Holdings				(226,621	)									(226,621	)
Contribution related to restricted stock awards and stock option issuances by Holdings				7,033							7,033
Distributions to non-controlling interests				(1,839	)														(1,839	)
Purchase of non-controlling interests				261															261
Other				(18	)									(18	)
Balance at December 31, 2013			$	818,642			0	$	0	$	869,576		$	(83,342	)	$	—	$	32,408

The accompanying notes are an integral part of these consolidated financial statements.

F-8

Select Medical Holdings Corporation

Consolidated Statements of Cash Flows
(in thousands)

	For the Year Ended December 31,
	2011			2012			2013
Operating activities
Net income	$	112,762		$	153,893		$	123,009
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		71,517			63,311			64,392
Provision for bad debts		51,347			39,055			37,423
Equity in earnings of unconsolidated subsidiaries		(2,923	)		(7,705	)		(2,476	)
Loss on early retirement of debt		31,018			6,064			18,747
Gain from disposal or sale of assets		(4,966	)		(5,906	)		(581	)
Non-cash stock compensation expense		3,725			5,677			7,033
Amortization of debt discount and issuance costs		8,007			7,566			8,433
Deferred income taxes		35,305			7,909			7,032
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Accounts receivable		(111,126	)		15,158			(67,145	)
Other current assets		(1,201	)		(1,607	)		(8,167	)
Other assets		(2,081	)		5,862			(3,484	)
Accounts payable		20,629			(6,117	)		(1,283	)
Due to third-party payors		227			(4,448	)		(1,041	)
Accrued expenses		4,888			19,970			10,631
Net cash provided by operating activities		217,128			298,682			192,523
Investing activities
Purchases of property and equipment		(46,016	)		(68,185	)		(73,660	)
Investment in businesses, net of distributions		(15,699	)		(14,689	)		(34,893	)
Acquisition of businesses, net of cash acquired		(899	)		(6,043	)		(1,665	)
Proceeds from sale of assets		7,879			16,511			2,912
Net cash used in investing activities		(54,735	)		(72,406	)		(107,306	)
Financing activities
Borrowings on revolving credit facilities		735,000			495,000			690,000
Payments on revolving credit facilities		(720,000	)		(405,000	)		(800,000	)
Borrowings on 2011 credit facility term loans, net of discount		841,500			266,750			298,500
Payments on 2011 credit facility term loans		(4,250	)		(9,875	)		(596,720	)
Issuance of 6.375% senior notes		—			—			600,000
Payments on 2005 credit facility term loans, net of premium		(484,633	)		—			—
Repurchase of 10% senior subordinated notes		(150,000	)		—			—
Repurchase of senior floating rate notes		—			—			(167,300	)
Repurchase of 75/8% senior subordinated notes, net of premiums		(273,941	)		(278,495	)		(70,000	)
Borrowings of other debt		7,055			8,281			15,310
Principal payments on other debt		(7,499	)		(10,295	)		(10,834	)
Debt issuance costs		(18,556	)		(6,527	)		(18,914	)
Proceeds from (repayment of) bank overdrafts		(2,183	)		1,227			(5,330	)
Dividends paid to common stockholders		—			(210,888	)		(41,961	)
Repurchase of common stock		(72,804	)		(46,902	)		(11,781	)
Proceeds from issuance of common stock		208			1,817			1,525
Distributions to non-controlling interests		(4,612	)		(3,268	)		(3,537	)
Net cash used in financing activities		(154,715	)		(198,175	)		(121,042	)
Net increase (decrease) in cash and cash equivalents		7,678			28,101			(35,825	)
Cash and cash equivalents at beginning of period		4,365			12,043			40,144
Cash and cash equivalents at end of period	$	12,043		$	40,144		$	4,319
Supplemental Cash Flow Information
Cash paid for interest	$	107,488		$	80,722		$	89,061
Cash paid for taxes	$	39,000		$	77,614		$	64,963

The accompanying notes are an integral part of these consolidated financial statements.

F-9

Select Medical Corporation

Consolidated Statements of Cash Flows
(in thousands)

	For the Year Ended December 31,
	2011			2012			2013
Operating activities
Net income	$	131,363		$	161,167		$	125,199
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		71,517			63,311			64,392
Provision for bad debts		51,347			39,055			37,423
Equity in earnings of unconsolidated subsidiaries		(2,923	)		(7,705	)		(2,476	)
Loss on early retirement of debt		20,385			6,064			17,788
Gain from disposal or sale of assets		(4,966	)		(5,906	)		(581	)
Non-cash stock compensation expense		3,725			5,677			7,033
Amortization of debt discount and issuance costs		6,700			7,190			8,344
Deferred income taxes		35,305			7,909			7,032
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Accounts receivable		(111,126	)		15,158			(67,145	)
Other current assets		(1,201	)		(1,607	)		(8,167	)
Other assets		(2,068	)		5,877			(3,484	)
Accounts payable		20,629			(6,117	)		(1,283	)
Due to third-party payors		227			(4,448	)		(1,041	)
Accrued expenses		21,139			23,746			15,068
Net cash provided by operating activities		240,053			309,371			198,102
Investing activities
Purchases of property and equipment		(46,016	)		(68,185	)		(73,660	)
Investment in businesses, net of distributions		(15,699	)		(14,689	)		(34,893	)
Acquisition of businesses, net of cash acquired		(899	)		(6,043	)		(1,665	)
Proceeds from sale of assets		7,879			16,511			2,912
Net cash used in investing activities		(54,735	)		(72,406	)		(107,306	)
Financing activities
Borrowings on revolving credit facilities		735,000			495,000			690,000
Payments on revolving credit facilities		(720,000	)		(405,000	)		(800,000	)
Borrowings on 2011 credit facility term loans, net of discount		841,500			266,750			298,500
Payments on 2011 credit facility term loans		(4,250	)		(9,875	)		(596,720	)
Issuance of 6.375% senior subordinated notes		—			—			600,000
Payments on 2005 credit facility term loans, net of premium		(484,633	)		—			—
Repurchase of 75/8% senior subordinated notes, net of premiums		(273,941	)		(278,495	)		(70,000	)
Borrowings of other debt		7,055			8,281			15,310
Principal payments on other debt		(7,499	)		(10,295	)		(10,834	)
Debt issuance costs		(18,556	)		(6,527	)		(18,914	)
Proceeds from (repayment of) bank overdrafts		(2,183	)		1,227			(5,330	)
Equity investment by Holdings		208			1,817			1,525
Dividends paid to Holdings		(245,729	)		(268,479	)		(226,621	)
Distributions to non-controlling interests		(4,612	)		(3,268	)		(3,537	)
Net cash used in financing activities		(177,640	)		(208,864	)		(126,621	)
Net increase (decrease) in cash and cash equivalents		7,678			28,101			(35,825	)
Cash and cash equivalents at beginning of period		4,365			12,043			40,144
Cash and cash equivalents at end of period	$	12,043		$	40,144		$	4,319
Supplemental Cash Flow Information
Cash paid for interest	$	84,575		$	70,047		$	83,482
Cash paid for taxes	$	39,000		$	77,614		$	64,963

The accompanying notes are an integral part of these consolidated financial statements.

F-10

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     Organization and Significant Accounting Policies

Business Description

        Select Medical Corporation ("Select") was formed in December 1996 and commenced operations during February 1997 upon the completion of its first acquisition. Select Medical Holdings Corporation ("Holdings") was formed in October 2004 for the purpose of affecting a leveraged buyout of Select, which was a publicly traded entity. On February 24, 2005, Select merged with a subsidiary of Holdings, which resulted in Select becoming a wholly-owned subsidiary of Holdings (the "Merger"). On September 30, 2009 Holdings completed its initial public offering of common stock. Generally accepted accounting principles ("GAAP") require that any amounts recorded or incurred (such as goodwill and compensation expense) by the parent as a result of the Merger or for the benefit of the subsidiary be "pushed down" and recorded in Select's consolidated financial statements. Holdings and Select and their subsidiaries are collectively referred to as the "Company." The consolidated financial statements of Holdings include the accounts of its wholly-owned subsidiary Select. Holdings conducts substantially all of its business through Select and its subsidiaries.

        The Company provides long term acute care hospital services and inpatient acute rehabilitative hospital care through its specialty hospital segment and provides physical, occupational and speech rehabilitation services through its outpatient rehabilitation segment. The Company's specialty hospital segment consists of hospitals designed to serve the needs of long term stay acute patients and hospitals designed to serve patients that require intensive medical rehabilitation care. Patients are typically admitted to the Company's specialty hospitals from general acute care hospitals. These patients have specialized needs, and serious and often complex medical conditions such as respiratory failure, neuromuscular disorders, traumatic brain and spinal cord injuries, strokes, non-healing wounds, cardiac disorders, renal disorders and cancer. The Company's outpatient rehabilitation segment consists of clinics and contract services that provide physical, occupational and speech rehabilitation services. The Company's outpatient rehabilitation patients are typically diagnosed with musculoskeletal impairments that restrict their ability to perform normal activities of daily living. The Company operated 119, 122 and 123 specialty hospitals at December 31, 2011, 2012 and 2013, respectively. At December 31, 2011, 2012 and 2013, the Company operated 954, 979, and 1,006 outpatient clinics, respectively. At December 31, 2011, 2012 and 2013, the Company had facilities in the District of Columbia and 39 states.

Reclassifications

        Certain reclassifications have been made to prior-year amounts in order to conform to the current-year presentation.

Principles of Consolidation

        The consolidated financial statements include the accounts of the Company, its majority owned subsidiaries, limited liability companies and limited partnerships the Company and its subsidiaries control through ownership of general and limited partnership or membership interests. All significant intercompany balances and transactions are eliminated in consolidation.

Use of Estimates

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and

F-11

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

        The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are stated at cost which approximates market value.

Accounts Receivable and Allowance for Doubtful Accounts

        The Company reports accounts receivable at estimated net realizable values. Substantially all of the Company's accounts receivable are related to providing healthcare services to patients whose costs are primarily paid by federal and state governmental authorities, managed care health plans, commercial insurance companies and workers' compensation programs. Collection of these accounts receivable is the Company's primary source of cash and is critical to its operating performance. The Company's primary collection risks relate to non-governmental payors who insure these patients and deductibles, co-payments and amounts owed by the patient. Deductibles, co-payments and amounts owed by the patient are an immaterial portion of the Company's net accounts receivable balance and accounted for approximately 0.2% and 0.3% of the net accounts receivable balance before doubtful accounts at December 31, 2012 and 2013, respectively. The Company's general policy is to verify insurance coverage prior to the date of admission for a patient admitted to the Company's hospitals or in the case of the Company's outpatient rehabilitation clinics, the Company verifies insurance coverage prior to their first therapy visit. The Company's estimate for the allowance for doubtful accounts is calculated by providing a reserve allowance based upon the age of an account balance. Generally the Company has reserved as uncollectible all governmental accounts over 365 days and non-governmental accounts over 180 days from discharge. This method is monitored based on historical cash collections experience. Collections are impacted by the effectiveness of the Company's collection efforts with non-governmental payors and regulatory or administrative disruptions with the fiscal intermediaries that pay the Company's governmental receivables.

        The Company has historically collected substantially all of its third-party insured receivables (net of contractual allowances) which include receivables from governmental agencies. The Company reviews its overall reserve adequacy by monitoring historical cash collections as a percentage of net revenue less the provision for bad debts.

        Uncollected accounts are written off the balance sheet when they are turned over to an outside collection agency, or when management determines that the balance is uncollectible, whichever occurs first.

Property and Equipment

        Property and equipment are stated at cost net of accumulated depreciation. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or the term of the lease, as appropriate. The general range of useful lives is as follows:

Leasehold improvements	5 – 15 years
Furniture and equipment	3 – 20 years
Buildings	40 years
Building Improvements	5 – 25 years
Land Improvements	2 – 25 years

F-12

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        The Company reviews the realizability of long-lived assets whenever events or circumstances occur which indicate recorded costs may not be recoverable. Gains or losses related to the retirement or disposal of property and equipment are reported as a component of income from operations.

Concentration of Credit Risk

        Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash balances and trade receivables. The Company invests its excess cash with large financial institutions. The Company grants unsecured credit to its patients, most of who reside in the service area of the Company's facilities and are insured under third-party payor agreements. Because of the geographic diversity of the Company's facilities and non-governmental third-party payors, Medicare represents the Company's only significant concentration of credit risk.

Income Taxes

        Deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. As part of the process of preparing its consolidated financial statements, the Company estimates income taxes based on its actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for book and tax purposes. The Company also recognizes as deferred tax assets the future tax benefits from net operating loss carry forwards. The Company evaluates the realizability of these deferred tax assets by assessing their valuation allowances and by adjusting the amount of such allowances, if necessary. Among the factors used to assess the likelihood of realization are projections of future taxable income streams, the expected timing of the reversals of existing temporary differences, and the impact of tax planning strategies that could be implemented to avoid the potential loss of future tax benefits.

        Reserves for uncertain tax positions are established for exposure items related to various federal and state tax matters. Income tax reserves are recorded when an exposure is identified and when, in the opinion of management, it is more likely than not that a tax position will not be sustained and the amount of the liability can be estimated.

Intangible Assets

        Goodwill and certain other indefinite-lived intangible assets are not amortized, but instead are subject to periodic impairment evaluations. In performing the quantitative periodic impairment tests, the fair value of the reporting unit is compared to its carrying value, including goodwill and other intangible assets. If the carrying value exceeds the fair value, an impairment condition exists, which results in an impairment loss equal to the excess carrying value.

        To determine the fair value of its reporting units, the Company uses a discounted cash flow approach. Included in this analysis are assumptions regarding revenue growth rate, future Adjusted EBITDA margin estimates, future general and administrative expense rates and the industry's weighted average cost of capital and industry specific market comparable Adjusted EBITDA multiples. The Company also must estimate residual values at the end of the forecast period and future capital expenditure requirements. Each of these assumptions requires the Company to use its knowledge of (1) its industry, (2) its recent transactions, and (3) reasonable performance expectations for its operations. If any one of the above assumptions changes or fails to materialize, the resulting decline in the Company's estimated fair value could result in a material impairment charge to the goodwill associated with any one of the reporting units.

F-13

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        Impairment tests are required to be conducted at least annually, or when events or conditions occur that might suggest a possible impairment. These events or conditions include, but are not limited to, a significant adverse change in the business environment, regulatory environment or legal factors; a current period operating or cash flow loss combined with a history of such losses or a projection of continuing losses; or a sale or disposition of a significant portion of a reporting unit. The occurrence of one of these events or conditions could significantly impact an impairment assessment, necessitating an impairment charge. For purposes of goodwill impairment assessment, the Company has defined its reporting units as specialty hospitals, outpatient rehabilitation clinics and contract therapy with goodwill having been allocated among reporting units based on the relative fair value of those divisions when the Merger occurred in 2005 and based on subsequent acquisitions and dispositions. The Company's most recent impairment assessment was completed during the fourth quarter of 2013 utilizing financial information as of October 1, 2013 and indicated that there was no impairment with respect to goodwill or other recorded intangible assets.

        Identifiable assets and liabilities acquired in connection with business combinations accounted for under the purchase method are recorded at their respective fair values. Deferred income taxes have been recorded to the extent of differences between the fair value and the tax basis of the assets acquired and liabilities assumed. Company management has allocated the intangible assets between identifiable intangibles and goodwill. At December 31, 2013, intangible assets other than goodwill consist of the values assigned to trademarks, certificates of need and accreditations. Management believes that the estimated useful lives established are reasonable based on the economic factors applicable to each of the intangible assets.

        The approximate useful life of each class of intangible assets is as follows:

Trademarks	Indefinite
Certificates of need	Indefinite
Accreditations	Indefinite

        The Company reviews the realizability of intangible assets whenever events or circumstances occur which indicate recorded amounts may not be recoverable.

        If the expected future cash flows (undiscounted) are less than the carrying amount of such assets, the Company recognizes an impairment loss for the difference between the carrying amount of the assets and their estimated fair value.

Due to Third-Party Payors

        Due to third-party payors represents the difference between amounts received under interim payment plans from Medicare and Medicaid for services rendered and amounts estimated to be reimbursed by those third-party payors upon settlement of cost reports.

Insurance Risk Programs

        Under a number of the Company's insurance programs, which include the Company's employee health insurance program, its workers' compensation, professional malpractice liability insurance programs and certain components under its property and casualty insurance program, the Company is liable for a portion of its losses. In these situations the Company accrues for its losses under an occurrence-based approach whereby the Company estimates the losses that will be incurred in a respective accounting period and accrues that estimated liability. Where the Company has substantial exposure, actuarial methods are utilized in estimating the losses. In cases where the Company has minimal exposure, losses are estimated

F-14

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

by analyzing historical trends. These programs are monitored quarterly and estimates are revised as necessary to take into account additional information. Provisions for losses for professional liability risks retained by the Company at December 31, 2012 and 2013 have been discounted at 3%. At December 31, 2012 and 2013, respectively, the Company had recorded a liability of $92.5 million and $103.4 million related to these programs. If the Company did not discount the provisions for losses for professional liability risks, the aggregate liability for all of the insurance risk programs would be approximately $95.6 million and $106.8 million at December 31, 2012 and 2013, respectively.

Equity Method Investments

        Investments in equity method investees are accounted for using the equity method based upon the level of ownership and/or the Company's ability to exercise significant influence over the operating and financial policies of the investee. Investments of this nature are recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income or losses after the date of investment. When net losses from an investment accounted for under the equity method exceeds its carrying amount, the investment balance is reduced to zero. The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company's share of that net income exceeds the share of the net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred. The Company evaluates its investments in companies accounted for using the equity method for impairment when there is evidence or indicators that a decrease in value may be other than temporary.

Non-Controlling Interests

        The interests held by other parties in subsidiaries, limited liability companies and limited partnerships owned and controlled by the Company are generally reported as a component of stockholders' equity. Some of those minority ownership interests consist of outside owners that have certain "put rights," that are currently exercisable, and that, if exercised, require the Company to purchase the minority member's interest. These redeemable non-controlling interests that are currently redeemable or considered probable of becoming redeemable have been adjusted to their approximate redemption values and are reported outside of the stockholders' equity section. As of December 31, 2012 and 2013, the Company believes the redemption values of the non-controlling ownership interests approximates the fair value of those interests classified as redeemable non-controlling interests. The redeemable non-controlling interests' balances reported on our consolidated balance sheets were $10.8 million and $11.6 million as of December 31, 2012 and 2013, respectively. The non-controlling interests' balances reported in the stockholders' equity section of our consolidated balance sheets were $28.4 million and $32.4 million as of December 31, 2012 and 2013, respectively.

        Net income attributable to non-controlling interests was $4.9 million, $5.7 million and $8.6 million for the years ended December 31, 2011, 2012, and 2013, respectively. Non-controlling interests reported in the consolidated statement of operations and comprehensive income reflect the respective interests in the income or loss of the subsidiaries, attributable to the other parties, the effect of which is removed from the Company's consolidated statement of operations and comprehensive income.

Revenue Recognition

        Net operating revenues consists primarily of patient service revenues and revenues generated from therapy services provided to healthcare institutions under contractual arrangements and are recognized as services are rendered.

F-15

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        Patient service revenue is reported net of provisions for contractual allowances from third-party payors and patients. The Company has agreements with third-party payors that provide for payments to the Company at amounts different from its established billing rates. The differences between the estimated program reimbursement rates and the standard billing rates are accounted for as contractual adjustments, which are deducted from gross revenues to arrive at net operating revenues. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges, per diem and per visit payments. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. Accounts receivable resulting from such payment arrangements are recorded net of contractual allowances.

        A significant portion of the Company's net operating revenues are generated directly from the Medicare program. Net operating revenues generated directly from the Medicare program represented approximately 48%, 47% and 46% of the Company's net operating revenues for the years ended December 31, 2011, 2012 and 2013, respectively. Approximately 29% and 32% of the Company's accounts receivable (after allowances for contractual adjustments but before doubtful accounts) at December 31, 2012 and 2013, respectively, are from Medicare. As a provider of services to the Medicare program, the Company is subject to extensive regulations. The inability of any of the Company's specialty hospitals or clinics to comply with regulations can result in significant changes in that specialty hospital's or clinic's net operating revenues generated from the Medicare program.

        Revenues generated under contractual arrangements are comprised primarily of billings for services rendered to nursing homes, hospitals, schools and other third parties.

Stock Based Compensation

        The Company measures the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognizes the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements comprise both stock options and restricted share plans. Employee stock options are valued using the Black-Scholes option valuation method which uses assumptions that relate to the expected volatility of the Company's common stock, the expected dividend yield of the Company's stock, the expected life of the options and the risk free interest rate. Such compensation amounts, if any, are amortized over the respective vesting periods or periods of service of the option grant. The Company values restricted stock grants by using the closing market price of its stock on the date of grant.

2.     Acquisitions

For the Year Ended December 31, 2011

        The Company exchanged one of its long term acute care hospitals and paid $2.0 million in cash for an entity that operates an inpatient rehabilitation hospital. The Company also paid $2.3 million in cash and issued a $1.0 million note for an outpatient rehabilitation business. In addition, the Company purchased non-controlling interests for $0.5 million in cash. The Company completed the post-closing settlement of net working capital with the seller of Regency Hospital Company, L.L.C. resulting in the receipt of $3.9 million in cash.

For the Year Ended December 31, 2012

        The Company paid $5.9 million in cash and issued $1.8 million in notes for the purchase of several outpatient rehabilitation businesses. In addition, the Company purchased non-controlling interests for $0.1 million in cash.

F-16

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

For the Year Ended December 31, 2013

        The Company paid $0.9 million in cash and issued $0.3 million in notes for the purchase of several outpatient rehabilitation businesses and paid $0.2 million in cash and issued a $3.0 million note for the purchase of an inpatient rehabilitation hospital. In addition, the Company purchased non-controlling interests for $0.6 million in cash.

        Information with respect to all businesses acquired in purchase transactions is as follows:

	For the Year Ended December 31,
	2011			2012			2013
	(in thousands)
Cash paid (net of cash acquired)	$	899		$	6,043		$	1,665
Notes issued		1,020			1,844			3,283
		1,919			7,887			4,948
Contingent consideration		—			1,500			100
Liabilities assumed		701			107			885
		2,620			9,494			5,933
Fair value of assets acquired, principally accounts receivable and property and equipment		767			1,313			3,487
Non-controlling interests		(602	)		(970	)		347
Cost in excess of fair value of net assets acquired (goodwill)	$	2,455		$	9,151		$	2,099

3.     Significant Transactions

        On April 1, 2011, the Company entered into a joint venture with Baylor Health Care System. The joint venture consists of a partnership between Baylor Institute for Rehabilitation and a wholly-owned subsidiary of the Company. The Company contributed several businesses to the joint venture, including its Frisco inpatient rehabilitation hospital and certain Texas-based outpatient rehabilitation clinics. A gain of $1.2 million was recognized on this contribution and is included in the general and administrative line item on the consolidated statement of operations for the year ended December 31, 2011. In 2011, the Company invested $13.5 million in cash which consisted of the purchase of partnership units for $7.6 million and working capital investments of $5.9 million and in 2012, the Company invested an additional $7.8 million. The Company owns a 49.0% non-controlling interest in the partnership and is accounting for the investment using the equity method.

F-17

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.     Property and Equipment

        Property and equipment consists of the following:

	December 31,
	2012		2013
	(in thousands)
Land	$	68,573	$	68,492
Leasehold improvements		128,468		146,117
Buildings		352,677		368,968
Furniture and equipment		246,858		256,079
Construction-in-progress		21,648		26,639
		818,224		866,295
Less: accumulated depreciation		316,672		357,193
Total property and equipment	$	501,552	$	509,102

        Depreciation expense was $69.8 million, $62.5 million and $63.9 million for the years ended December 31, 2011, 2012 and 2013, respectively.

5.     Intangible Assets

        The gross carrying amounts of the Company's indefinite-lived intangible assets consist of the following:

	December 31,
	2012		2013
	(in thousands)
Goodwill	$	1,640,534	$	1,642,633
Trademarks		57,709		57,709
Certificates of need		11,914		12,115
Accreditations		2,122		2,083
Total	$	1,712,279	$	1,714,540

        The Company's accreditations and trademarks have renewal terms. The costs to renew these intangibles are expensed as incurred. At December 31, 2013, the accreditations and trademarks have a weighted average time until next renewal of 1.5 years and 6.5 years, respectively.

        Amortization expense for intangible assets with finite lives follows:

	For the Year Ended December 31
	2011		2012		2013
	(in thousands)
Amortization expense	$	1,306	$	340	$	—

        Amortization expense for the Company's intangible assets primarily relates to the amortization of the value associated with the non-compete agreements entered into in connection with the acquisitions of the

F-18

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

outpatient rehabilitation division of HealthSouth Corporation and SemperCare Inc. During 2011 the non-compete agreement related to the acquisition of SemperCare Inc. was fully amortized and during 2012 the non-compete agreement related to the acquisition of substantially all of the outpatient rehabilitation division of HealthSouth Corporation was fully amortized.

        The changes in the carrying amount of goodwill for the Company's reportable segments for the years ended December 31, 2012 and 2013 are as follows:

	Specialty Hospitals			Outpatient Rehabilitation			Total
	(in thousands)
Balance as of January 1, 2012	$	1,333,553		$	298,163		$	1,631,716
Goodwill acquired during year		—			9,151			9,151
Other		(333	)		—			(333	)
Balance as of December 31, 2012	$	1,333,220		$	307,314		$	1,640,534
Goodwill acquired during year		1,395			837			2,232
Purchase price adjustment		—			(133	)		(133	)
Balance as of December 31, 2013	$	1,334,615		$	308,018		$	1,642,633

6.     Long-Term Debt and Notes Payable

        The components of long-term debt and notes payable are shown in the following tables:

	Holdings
	December 31,
	2012		2013
	(in thousands)
75/8% senior subordinated notes	$	70,000	$	—
6.375% senior notes		—		600,000
Senior secured credit facilities:
Revolving loan		130,000		20,000
Term loans(1)		1,096,641		807,815
Senior floating rate notes		167,300		—
Other		6,302		17,460
Total debt		1,470,243		1,445,275
Less: current maturities		11,646		17,565
Total long-term debt	$	1,458,597	$	1,427,710

F-19

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Select
	December 31,
	2012		2013
	(in thousands)
75/8% senior subordinated notes	$	70,000	$	—
6.375% senior notes		—		600,000
Senior secured credit facilities:
Revolving loan		130,000		20,000
Term loans(1)		1,096,641		807,815
Other		6,302		17,460
Total debt		1,302,943		1,445,275
Less: current maturities		11,646		17,565
Total long-term debt	$	1,291,297	$	1,427,710

(1)

Presented net of unamortized discount of $14.2 million and $6.3 million at December 31, 2012 and 2013, respectively.

Senior Secured Credit Facilities

        On June 1, 2011, Select entered into a senior secured credit agreement that provided $1.15 billion in senior secured credit facilities. Subsequently, the Company has amended its senior secured credit agreement and at December 31, 2013, it consists of the following:

•

A $300.0 million revolving credit facility of which $293.3 million matures on March 1, 2018 and $6.7 million matures on June 1, 2016. Select had $237.7 million of availability under its revolving loan facility (after giving effect to $42.3 million of outstanding letters of credit) at December 31, 2013.

•

An aggregate $814.2 million principle amount ($807.8 million net of discounts) term loan facility consisting of a series B term loan in the amount of $295.9 million, net of discount, and a series C term loan in the amount of $511.9 million, net of discount. The term loans amortize in equal quarterly installments on the last day of each March, June, September and December in aggregate amounts equal to $2.1 million. The balance of the series B term loan and series C term loans will be payable on February 20, 2016 and June 1, 2018, respectively.

        As of December 31, 2013, borrowings under the senior secured credit facilities bear interest at a rate equal to:

•

in the case of the series B term loans, Adjusted LIBO plus 3.25%, or Alternate Base Rate plus 2.25%;

•

in the case of the series C term loans, Adjusted LIBO plus 3.00%, or Alternate Base Rate plus 2.00%; and

•

in the case of the revolving loans, Adjusted LIBO plus 3.75%, or Alternate Base Rate plus 2.75%,

        "Adjusted LIBO" (as defined in the senior secured credit agreement) shall at no time be less than 1.00% with respect to borrowings under the series C term loans. Adjusted LIBO and Alternate Base Rate with respect to the revolving loans may vary, in each case based on Select's leverage ratio (the ratio of

F-20

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

indebtedness to consolidated EBITDA, as defined in the senior secured credit agreement) for the most recently reported period.

        Select will be required to prepay borrowings under the senior secured credit facilities with (1) 100% of the net cash proceeds received from non-ordinary course asset sales or other dispositions, or as a result of a casualty or condemnation, subject to reinvestment provisions and other customary carveouts and the payment of certain indebtedness secured by liens subject to a first lien intercreditor agreement, (2) 100% of the net cash proceeds received from the issuance of debt obligations other than certain permitted debt obligations, and (3) 50% of excess cash flow (as defined in the senior secured credit agreement) if Select's leverage ratio is greater than 3.75 to 1.00 and 25% of excess cash flow if Select's leverage ratio is less than or equal to 3.75 to 1.00 and greater than 3.25 to 1.00, in each case, reduced by the aggregate amount of term loans optionally prepaid during the applicable fiscal year. Select will not be required to prepay borrowings with excess cash flow if Select's leverage ratio is less than or equal to 3.25 to 1.00. At December 31, 2013, Select's leverage ratio was 3.91 to 1.00 which will require a prepayment of borrowings under the senior secured credit facilities of 50% of excess cash flow (as defined in the senior secured credit agreement), or approximately $34.0 million. Select expects to have the borrowing capacity and intends to use borrowings under its revolving credit facility to make the required prepayment during the first quarter ended March 31, 2014. Therefore, outstanding borrowings subject to required prepayment as of December 31, 2013 under the senior secured credit facilities are classified as long-term on our Consolidated Balance Sheet as of December 31, 2013.

        The senior secured credit facilities require Select to maintain a leverage ratio, which is tested quarterly and prohibits Select from making capital expenditures in excess of $125.0 million in any fiscal year (subject to a 50% carry-over provision). Failure to comply with these financial covenants would result in an event of default under the senior secured credit facilities and, absent a waiver or an amendment from the lenders, preclude Select from making further borrowings under the revolving credit facility and permit the lenders to accelerate all outstanding borrowings under the senior secured credit facilities. As of December 31, 2013, Select was in compliance with all financial covenants related to the senior secured credit facilities.

        The senior secured credit facilities also contain a number of affirmative and restrictive covenants, including limitations on mergers, consolidations and dissolutions; sales of assets; investments and acquisitions; indebtedness; liens; affiliate transactions; and dividends and restricted payments. The senior secured credit facilities contain events of default for non-payment of principal and interest when due, cross-default and cross-acceleration provisions and an event of default that would be triggered by a change of control.

Senior Notes

        On May 28, 2013, Select issued and sold $600.0 million aggregate principal amount of its 6.375% senior notes due 2021. On May 28, 2013, Select used the proceeds of the senior notes to pay a portion of the amounts then outstanding on the original term loan and the series A term loan, and to pay related fees and expenses.

        Interest on the senior notes accrues at the rate of 6.375% per annum and is payable semi-annually in cash in arrears on June 1 and December 1 of each year, commencing on December 1, 2013. The senior notes are Select's senior unsecured obligations and rank equally in right of payment with all of its other existing and future senior unsecured indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness. The senior notes are unconditionally guaranteed by all of Select's wholly-owned subsidiaries. The senior notes are guaranteed, jointly and severally, by Select's direct or indirect existing and future domestic restricted subsidiaries other than certain non-guarantor subsidiaries.

F-21

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        Select may redeem some or all of the senior notes prior to June 1, 2016 by paying a "make-whole" premium. Select may redeem some or all of the senior notes on or after June 1, 2016 at specified redemption prices. In addition, prior to June 1, 2016, Select may redeem up to 35% of the senior notes with the net proceeds of certain equity offerings at a price of 106.375% plus accrued and unpaid interest, if any. Select is obligated to offer to repurchase the senior notes at a price of 101% of their principal amount plus accrued and unpaid interest, if any, as a result of certain change of control events. These restrictions and prohibitions are subject to certain qualifications and exceptions.

        The Indenture relating to the senior notes contains covenants that, among other things, limit Select's ability and the ability of certain of its subsidiaries to (i) grant liens on its assets, (ii) make dividend payments, other distributions or other restricted payments, (iii) incur restrictions on the ability of Select's restricted subsidiaries to pay dividends or make other payments, (iv) enter into sale and leaseback transactions, (v) merge, consolidate, transfer or dispose of substantially all of their assets, (vi) incur additional indebtedness, (vii) make investments, (viii) sell assets, including capital stock of subsidiaries, (ix) use the proceeds from sales of assets, including capital stock of restricted subsidiaries, and (x) enter into transactions with affiliates. In addition, the Indenture requires, among other things, Select to provide financial and current reports to holders of the senior notes or file such reports electronically with the U.S. Securities and Exchange Commission (the "SEC"). These covenants are subject to a number of exceptions, limitations and qualifications set forth in the Indenture.

Maturities of Long-Term Debt and Notes Payable

        Maturities of the Company's long-term debt for the years after 2013 are approximately as follows and are presented net of the discount on the senior secured credit facility term loans (in thousands):

2014	$	17,565
2015		10,183
2016		296,232
2017		4,075
2018		515,820
2019 and beyond		601,400

Loss on Early Retirement of Debt

        During the year ended December 31, 2011, the Company refinanced its senior secured credit facility, repurchased and retired $266.5 million principal amount of Select's 7⁵/8% senior subordinated notes, and repurchased and retired $150.0 million principal amount of Holdings 10% senior subordinated notes. A loss on early retirement of debt of $31.0 million and $20.4 million for Holdings and Select, respectively, was recognized for the year ended December 31, 2011, which included the write-off of unamortized debt issuance costs, tender premiums and original issue discount.

        During the year ended December 31, 2012, the Company repurchased and retired an aggregate of $275.0 million principal amount of Select's outstanding 7⁵/8% senior subordinated notes. A loss on early retirement of debt of $6.1 million was recognized by Holdings and Select for the year ended December 31, 2012, which included the write-off of unamortized debt issuance costs and call premiums.

F-22

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        During the year ended December 31, 2013, Select entered into a credit extension amendment on February 20, 2013, the proceeds of which were used to redeem all of its outstanding 7⁵/8% senior subordinated notes, to finance Holdings' redemption of all of its 10% senior floating rate, and to repay a portion of the balance outstanding under Select's revolving credit facility. Additionally, on May 28, 2013, Select issued and sold $600.0 million aggregate principal amount of its 6.375% senior notes due 2021, the proceeds of which were used to pay a portion of the senior secured credit facility term loans then outstanding and to pay related fees and expenses. A loss on early retirement of debt of $18.7 million and $17.8 million for Holdings and Select, respectively, was recognized for the year ended December 31, 2013, which included the write-off of unamortized debt issuance costs.

7.     Stockholders' Equity

Common Stock

        Holdings' board of directors has authorized a common stock repurchase program to repurchase up to $350.0 million worth of shares of its common stock. The program will remain in effect until March 31, 2015, unless extended by the board of directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Holdings deems appropriate. Holdings is funding this program with cash on hand and borrowings under its revolving credit facility. For the years ended December 31, 2011, 2012 and 2013, respectively, Holdings repurchased 9,858,907 shares at a cost of $72.7 million, 5,725,782 shares at a cost of $46.8 million and 1,115,691 shares at a cost of $10.0 million which includes transaction costs.

        Holdings granted 565,000 shares, 761,500 shares and 952,500 shares of restricted stock for the years ended December 31, 2011, 2012 and 2013, respectively and issued 53,932 shares, 301,208 shares and 166,600 shares of common stock related to the exercise of stock options and for the years ended December 31, 2011, 2012 and 2013, respectively. Also, 10,860 shares, 15,860 shares and 331,697 shares of stock were forfeited for the years ended December 31, 2011, 2012 and 2013, respectively.

8.     Stock Option and Restricted Stock Plans

        On February 25, 2005, Holdings adopted the Select Medical Holdings Corporation 2005 Equity Incentive Plan. On May 13, 2011, the Select Medical Holdings Corporation 2005 Equity Incentive Plan was frozen and Holdings adopted the 2011 Select Medical Holdings Corporation 2011 Equity Incentive Plan. The Select Medical Holdings Corporation 2005 Equity Incentive Plan and the Select Medical Holdings Corporation 2011 Equity Incentive Plan are referred to as the "Plans." The Plans provide for grants of restricted stock and stock options of Holdings. On November 8, 2005 the board of directors of Holdings adopted a director equity incentive plan ("Director Plan") and on August 12, 2009, the board of directors and stockholders of Holdings approved an amendment and restatement of the Director Plan. This amendment authorized Holdings to issue under the Director Plan options to purchase up to 75,000 shares of its common stock and restricted stock awards covering up to 150,000 shares of its common stock.

        The options under the Plans and Director Plan generally vest over five years and have an option term not to exceed ten years. The fair value of the options granted was estimated using the Black-Scholes option pricing model assuming an expected volatility of 36%, no dividend yield, an expected life of five years and a risk free rate of 3.3% for 2011. There were no options granted under the Plans or Director Plan during the years ended December 31, 2012 and 2013.

F-23

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        The following is a summary of stock option grants under the Plans and Director Plan from January 1, 2011 through December 31, 2013:

	Number of Options Granted		Exercise Price		Fair Value of Common Stock
	(share amounts in thousands)
March 3, 2011		88		7.66		7.66
May 13, 2011		20		9.00		9.00
August 3, 2011		10		7.14		7.14

        Stock option transactions and other information related to the Plans are as follows:

	Price Per Share		Shares			Weighted Average Exercise Price
	(share amounts in thousands)
Balance, January 1, 2012	$	3.33 - 10.00		2,730		$	8.16
Granted		—		—			—
Exercised		3.33 - 10.00		(280	)		6.07
Canceled		7.66 - 10.00		(27	)		8.18
Balance, December 31, 2012	$	3.33 - 10.00		2,423		$	8.40
Granted		—		—			—
Exercised		7.14 - 10.00		(167	)		9.15
Canceled		8.33 - 10.00		(316	)		9.13
Balance, December 31, 2013	$	3.33 - 10.00		1,940		$	8.22

        Additional information with respect to the outstanding options as of December 31, 2013 for the Plans is as follows:

Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life		Number Exercisable
	(share amounts in thousands)
$  3.00 – 4.00		220		1.15		220
6.00 – 7.00		9		6.61		3
7.01 – 8.00		75		7.20		28
8.01 – 9.00		585		3.31		557
9.01 – 10.00		1,051		5.51		848

        The weighted average remaining contractual term for all outstanding options is 4.42 years and the weighted average remaining contractual term of exercisable options is 4.11 years.

        The total intrinsic value of options exercised for the years ended December 31, 2013, 2012, and 2011 was $0.2 million, $1.1 million and $0.2 million respectively. The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2013 was $6.6 million and $5.8 million, respectively.

F-24

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        Transactions and other information related to the Director Plan are as follows:

	Price Per Share		Shares			Weighted Average Exercise Price
	(share amounts in thousands)
Balance, January 1, 2012	$	3.33 - 10.00		63		$	7.62
Granted		—		—			—
Exercised		3.33 - 8.33		(21	)		5.47
Balance, December 31, 2012	$	3.33 - 10.00		42		$	8.69
Granted		—		—			—
Exercised		—		—			—
Balance, December 31, 2013	$	3.33 - 10.00		42		$	8.69

        Additional information with respect to the outstanding options as of December 31, 2013 for the Director Plan is as follows:

Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life		Number Exercisable
		(share amounts in thousands)
$	3.00 – 4.00		6		1.61		6
	8.00 – 9.00		9		3.37		9
	9.01 – 10.00		27		5.12		25

        The weighted average remaining contractual term for all outstanding options is 4.24 years and the weighted average remaining contractual term of exercisable options is 4.16 years.

        The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2013 was $122.7 thousand and $118.8 thousand, respectively.

F-25

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        The following is a summary of restricted stock issuances from January 1, 2011 through December 31, 2013:

	Number of Shares Issued		Fair Value of Common Stock
	(share amounts in thousands)
August 3, 2011		25		7.14
November 3, 2011		190		8.61
December 15, 2011		350		8.57
March 26, 2012		65		8.33
May 2, 2012		129		8.67
August 7, 2012		38		11.84
October 30, 2012		530		10.75
January 2, 2013		5		9.90
February 20, 2013		35		8.80
May 1, 2013		115		8.06
August 7, 2013		38		8.89
October 30, 2013		760		8.50

        Stock compensation expense for each of the next five years, based on restricted stock awards granted as of December 31, 2013, is estimated to be as follows:

	2014		2015		2016		2017		2018
	(in thousands)
Stock compensation expense	$	7,740	$	6,057	$	3,061	$	581	$	40

        The Company recognized the following stock compensation expense related to restricted stock and stock option awards:

	For the Year Ended December 31,
	2011		2012		2013
	(in thousands)
Stock compensation expense:
Included in general and administrative	$	1,996	$	3,538	$	5,276
Included in cost of services		1,729		2,139		1,757
Total	$	3,725	$	5,677	$	7,033

F-26

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9.     Income Taxes

        Significant components of the Company's tax provision for the years ended December 31, 2011, 2012, and 2013 are as follows:

	Holdings						Select
	For the Year Ended December 31,						For the Year Ended December 31,
	2011		2012		2013		2011		2012		2013
	(in thousands)						(in thousands)
Current:
Federal	$	29,991	$	70,159	$	55,847	$	40,007	$	74,076	$	57,026
State and local		5,672		11,589		11,913		5,672		11,589		11,913
Total current		35,663		81,748		67,760		45,679		85,665		68,939
Deferred		35,305		7,909		7,032		35,305		7,909		7,032
Total income tax provision	$	70,968	$	89,657	$	74,792	$	80,984	$	93,574	$	75,971

        The differences between the expected income tax provision and income taxes computed at the federal statutory rate of 35% were as follows:

	Holdings									Select
	For the Year Ended December 31,									For the Year Ended December 31,
	2011			2012			2013			2011			2012			2013
Expected federal tax rate		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%
State and local taxes, net of federal benefit		4.5			4.2			4.6			3.9			4.0			4.5
Other permanent differences		1.0			0.6			1.1			0.9			0.6			1.1
Valuation allowance		(0.5	)		(0.6	)		(0.7	)		(0.4	)		(0.6	)		(0.6	)
Uncertain tax positions		(3.6	)		(0.5	)		(0.6	)		(3.1	)		(0.5	)		(0.6	)
IRS audit settlements		—			(0.6	)		—			—			(0.5	)		—
Non-controlling interest		(1.1	)		(0.9	)		(1.7	)		(0.9	)		(0.9	)		(1.7	)
Sale of entities		3.1			—			—			2.7			—			—
Other		0.2			(0.4	)		0.1			—			(0.4	)		0.1
Total		38.6	%		36.8	%		37.8	%		38.1	%		36.7	%		37.8	%

F-27

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        A summary of deferred tax assets and liabilities for Holdings and Select is as follows:

	December 31, 2012									December 31, 2013
	Total			Current			Non-Current			Total			Current			Non-Current
	(in thousands)
Deferred tax assets
Allowance for doubtful accounts	$	1,496		$	1,496		$	—		$	1,484		$	1,484		$	—
Compensation and benefit related accruals		45,784			38,254			7,530			45,147			35,706			9,441
Professional malpractice liability insurance		17,005			5,003			12,002			20,333			6,382			13,951
Restructuring reserve		679			679			—			441			441			—
Net operating loss carryforwards		24,543			777			23,766			22,686			422			22,264
Other		1,025			996			29			630			630			—
Stock options		4,089			—			4,089			4,392			—			4,392
Uncertain tax positions		2,661			—			2,661			2,107			—			2,107
Total deferred tax assets		97,282			47,205			50,077			97,220			45,065			52,155
Deferred tax liabilities
Deferred income		(33,188	)		(26,253	)		(6,935	)		(31,832	)		(24,897	)		(6,935	)
Other		(1,311	)		(118	)		(1,193	)		(2,620	)		(230	)		(2,390	)
Depreciation and amortization		(121,075	)		—			(121,075	)		(130,884	)		—			(130,884	)
Total deferred tax liabilities		(155,574	)		(26,371	)		(129,203	)		(165,336	)		(25,127	)		(140,209	)
Net deferred taxes before valuation allowance		(58,292	)		20,834			(79,126	)		(68,116	)		19,938			(88,054	)
Valuation allowance		(13,341	)		(2,957	)		(10,384	)		(10,547	)		(2,314	)		(8,233	)
Net deferred taxes	$	(71,633	)	$	17,877		$	(89,510	)	$	(78,663	)	$	17,624		$	(96,287	)

        The valuation allowance as of December 31, 2013 is primarily attributable to the uncertainty regarding the realization of state net operating losses and other net deferred tax assets of loss entities. The net deferred tax liabilities at December 31, 2012 and 2013 of approximately $71.6 million and $78.7 million, respectively, consist of items which have been recognized for tax reporting purposes, but which will increase tax on returns to be filed in the future, and include the use of net operating loss carryforwards. The Company has performed the required assessment of positive and negative evidence regarding the realization of the deferred tax assets. This assessment included a review of legal entities with three years of cumulative losses, estimates of projected future taxable income and the impact of tax-planning strategies that management plans to implement. Although realization is not assured, based on the Company's assessment, it has concluded that it is more likely than not that such assets, net of the determined valuation allowance, will be realized.

F-28

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        The total state net operating losses are approximately $512.3 million. State net operating loss carry forwards expire and are subject to gross valuation allowances as follows:

	State Net Operating Losses		Gross Valuation Allowance
	(in thousands)
2014	$	5,427	$	5,401
2015		8,333		7,980
2016		11,238		9,728
2017		12,834		11,092
Thereafter through 2033		473,034		355,392

Reserves for Uncertain Tax Positions:

        The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. Significant judgment is required in evaluating the Company's tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when it is believed that certain positions might be challenged despite the Company's belief that its tax return positions are fully supportable. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of a tax audit. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.

        The reconciliation of the Company's unrecognized tax benefits is as follows (in thousands):

Gross tax contingencies — January 1, 2011	$	22,310
Reductions for tax positions taken in prior periods due primarily to statute expiration		(2,706	)
Reductions for tax positions taken in prior periods due to change in estimate		(7,012	)
Additions for existing tax positions taken		3,064
Gross tax contingencies — December 31, 2011		15,656
Reductions for tax positions taken in prior periods due primarily to statute expiration		(2,516	)
Additions for existing tax positions taken		750
Gross tax contingencies — December 31, 2012		13,890
Reductions for tax positions taken in prior periods due primarily to statute expiration		(2,299	)
Additions for existing tax positions taken		435
Gross tax contingencies — December 31, 2013	$	12,026

        In 2011, the Company recognized $7.0 million of income tax benefits based on new information discovered by the Company which substantiates previously unrecognized tax benefits from an acquisition which occurred in 1999.

F-29

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        As of December 31, 2012 and 2013, the Company had $13.9 million and $12.0 million of unrecognized tax benefits, respectively, all of which, if fully recognized, would affect the Company's effective income tax rate.

        As of December 31, 2013, changes to the Company's gross unrecognized tax benefits that the Company believes are reasonably possible in the next 12 months are not material. The Company's policy is to include interest related to income taxes in income tax expense. As of December 31, 2012 and December 31, 2013, the Company had accrued interest related to income taxes of $1.5 million and $1.6 million, net of federal income taxes, respectively. Interest recognized for the years ended December 31, 2011, 2012 and 2013 was $0.4 million, $0.5 million, and $0.5 million, net of federal income tax benefits, respectively.

        The Company has substantially concluded all U.S. federal income tax matters for years through 2005. Substantially all material state, local and foreign income tax matters have been concluded for years through 2008.

10.    Retirement Savings Plan

        The Company sponsors a defined contribution retirement savings plan for substantially all of its employees. Employees who are not classified as HCE's (highly compensated employees) may contribute up to 30% of their salary; HCE's may contribute up to 6% of their salary. The Plan provides a discretionary company match which is determined annually. Currently, the Company matches 25% of the first 6% of compensation employees contribute to the plan. The employees vest in the employer contributions over a three-year period beginning on the employee's hire date. The expense incurred by the Company related to this plan was $7.6 million, $8.2 million and $8.7 million during the years ended December 31, 2011, 2012 and 2013, respectively.

11.    Segment Information

        The Company's reportable segments consist of (i) specialty hospitals and (ii) outpatient rehabilitation. Other activities include the Company's corporate services and certain other non-consolidating joint ventures and minority investments in other healthcare related businesses. The outpatient rehabilitation reportable segment has two operating segments: outpatient rehabilitation clinics and contract therapy. These operating segments are aggregated for reporting purposes as they have common economic characteristics and provide a similar service to a similar patient base. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance of the segments based on Adjusted EBITDA. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, equity in earnings (losses) of unconsolidated subsidiaries and other income (expense).

F-30

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        The following tables summarize selected financial data for the Company's reportable segments. The segment results of Holdings are identical to those of Select with the exception of total assets.

	Year Ended December 31, 2011
	Specialty Hospitals		Outpatient Rehabilitation		Other			Total
	(in thousands)
Net revenue	$	2,095,519	$	708,867	$	121		$	2,804,507
Adjusted EBITDA		362,334		83,864		(60,237	)		385,961
Total assets(1):
Select		2,187,767		486,589		96,382			2,770,738
Holdings		2,187,767		486,589		97,791			2,772,147
Capital expenditures		30,464		12,135		3,417			46,016

	Year Ended December 31, 2012
	Specialty Hospitals		Outpatient Rehabilitation		Other			Total
	(in thousands)
Net revenue	$	2,197,529	$	751,317	$	123		$	2,948,969
Adjusted EBITDA		381,354		87,024		(62,531	)		405,847
Total assets(1):
Select		2,143,906		491,920		124,487			2,760,313
Holdings		2,143,906		491,920		125,535			2,761,361
Capital expenditures		50,005		13,209		4,971			68,185

	Year Ended December 31, 2013
	Specialty Hospitals		Outpatient Rehabilitation		Other			Total
	(in thousands)
Net revenue	$	2,198,121	$	777,177	$	350		$	2,975,648
Adjusted EBITDA		353,843		90,313		(71,295	)		372,861
Total assets(1):
Select		2,205,921		512,539		99,162			2,817,622
Holdings		2,205,921		512,539		99,162			2,817,622
Capital expenditures		56,523		14,113		3,024			73,660

(1)

The specialty hospital segment includes $2.7 million in real estate assets held for sale on December 31, 2011, 2012 and 2013.

F-31

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        A reconciliation of Adjusted EBITDA to income before income taxes is as follows:

	Year Ended December 31, 2011
	Specialty Hospitals			Outpatient Rehabilitation			Other
							(in thousands)
Adjusted EBITDA	$	362,334		$	83,864		$	(60,237	)
Depreciation and amortization		(50,629	)		(16,487	)		(4,401	)
Stock compensation expense		—			—			(3,725	)
										Holdings			Select
Income (loss) from operations	$	311,705		$	67,377		$	(68,363	)	$	310,719		$	310,719
Loss on early retirement of debt											(31,018	)		(20,385	)
Equity in earnings of unconsolidated subsidiaries											2,923			2,923
Interest expense, net											(98,894	)		(80,910	)
Income before income taxes										$	183,730		$	212,347

	Year Ended December 31, 2012
	Specialty Hospitals			Outpatient Rehabilitation			Other
							(in thousands)
Adjusted EBITDA	$	381,354		$	87,024		$	(62,531	)
Depreciation and amortization		(46,836	)		(13,208	)		(3,267	)
Stock compensation expense		—			—			(5,677	)
										Holdings			Select
Income (loss) from operations	$	334,518		$	73,816		$	(71,475	)	$	336,859		$	336,859
Loss on early retirement of debt											(6,064	)		(6,064	)
Equity in earnings of unconsolidated subsidiaries											7,705			7,705
Interest expense, net											(94,950	)		(83,759	)
Income before income taxes										$	243,550		$	254,741

F-32

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Year Ended December 31, 2013
	Specialty Hospitals			Outpatient Rehabilitation			Other
							(in thousands)
Adjusted EBITDA	$	353,843		$	90,313		$	(71,295	)
Depreciation and amortization		(48,621	)		(12,024	)		(3,747	)
Stock compensation expense		—			—			(7,033	)
										Holdings			Select
Income (loss) from operations	$	305,222		$	78,289		$	(82,075	)	$	301,436		$	301,436
Loss on early retirement of debt											(18,747	)		(17,788	)
Equity in earnings of unconsolidated subsidiaries											2,476			2,476
Interest expense, net											(87,364	)		(84,954	)
Income before income taxes										$	197,801		$	201,170

12.   Income per Share

        The Company applies the two-class method for calculating and presenting income per common share. The two-class method is an earnings allocation formula that determines earnings per share for each class of stock participation rights in undistributed earnings. Under the two class method:

(a)

Net income attributable to Select Medical Holdings Corporation is reduced by any contractual amount of dividends in the current period for each class of stock. There were no contractual dividends for the years ended December 31, 2011, 2012 and 2013.



(b)

The remaining income is allocated to common stock and unvested restricted stock to the extent that each security may share in income, as if all of the earnings for the period had been distributed. The total income allocated to each security is determined by adding together the amount allocated for dividends in (a) above and the amount allocated for participation features.



(c)

The income allocated to common stock is then divided by the weighted average number of outstanding shares to which the earnings are allocated to determine the income per share for common stock.

        In applying the two-class method, the Company determined that undistributed earnings should be allocated equally on a per share basis between the common stock and unvested restricted stock due to the equal participation rights of the common stock and unvested restricted stock (i.e., the voting conversion rights).

        The following table sets forth for the periods indicated the calculation of income per share in the Company's Consolidated Statement of Operations and the differences between basic weighted average

F-33

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

shares outstanding and diluted weighted average shares outstanding used to compute basic and diluted earnings per share, respectively:

	For the Year Ended December 31,
	2011		2012		2013
	(in thousands, except per share amounts)
Numerator:
Net income attributable to Select Medical Holdings Corporation	$	107,846	$	148,230	$	114,390
Less: Earnings allocated to unvested restricted stockholders		1,205		2,514		2,450
Net income available to common stockholders	$	106,641	$	145,716	$	111,940
Denominator:
Weighted average shares — basic		150,501		138,767		136,879
Effect of dilutive securities:
Stock options		224		275		168
Weighted average shares — diluted		150,725		139,042		137,047
Basic income per common share:	$	0.71	$	1.05	$	0.82
Diluted income per common share:	$	0.71	$	1.05	$	0.82

        The following amounts are shown here for informational and comparative purposes only since their inclusion would be anti-dilutive:

	For the Year Ended December 31,
	2011		2012		2013
	(in thousands)
Stock options		2,414		1,654		1,474

13.   Fair Value

        Financial instruments include cash and cash equivalents, notes payable and long-term debt. The carrying amount of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments.

        The carrying value of Select's senior secured credit facility was $1,226.6 million and $827.8 million at December 31, 2012 and 2013, respectively. The fair value of Select's senior secured credit facility was $1,216.2 million and $828.3 million at December 31, 2012 and 2013, respectively. The fair value of Select's senior secured credit facility was based on quoted market prices for this debt in the syndicated loan market.

        The carrying value of Select's 6.375% senior notes was $600.0 million at December 31, 2013. The fair value of Select's 6.375% senior notes was $586.5 million at December 31, 2013. The fair value of this debt was based on quoted market prices.

F-34

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        The Company considers the inputs in the valuation process of its senior secured credit facility and 6.375% senior notes to be Level 2 in the fair value hierarchy. Level 2 in the fair value hierarchy is defined as inputs that are observable for the asset or liability, either directly or indirectly which includes quoted prices for identical assets or liabilities in markets that are not active.

14.   Related Party Transactions

        The Company rents its corporate office space from related parties affiliated through common ownership or management. The Company made payments for office rent, leasehold improvements and miscellaneous expenses aggregating $4.0 million during both the years ended December 31, 2011 and 2012 and $4.2 million during the year ended December 31, 2013 to the affiliated companies.

        As of December 31, 2013, future rental commitments under outstanding agreements with the affiliated companies are approximately as follows (in thousands):

2014	$	3,758
2015		3,792
2016		3,828
2017		3,865
2018		3,950
Thereafter		17,047
	$	36,240

        The Company provides contracted services, principally employee leasing services and charges management fees to related parties affiliated through its equity investments. Net operating revenues generated from the provision of contracted services and management fees to related parties through equity investments are as follows:

	For the Year Ended December 31,
	2011		2012		2013
	(in thousands)
BIR JV, LLP	$	53,309	$	92,205	$	96,465
Rehabilitation Institute of Denton, LLC		7,292		8,133		7,163
OHRH, LLC		—		—		2,069
Global Rehab — Scottsdale, LLC.		—		—		4,129
Amplion Clinical Communications, Inc.		—		305		1,534
Other		150		140		310
Total	$	60,751	$	100,783	$	111,670

F-35

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

15.   Commitments and Contingencies

Leases

        The Company leases facilities and equipment from unrelated parties under operating leases. Minimum future lease obligations on long-term non-cancelable operating leases in effect at December 31, 2013 are approximately as follows (in thousands):

2014	$	125,611
2015		98,100
2016		77,724
2017		63,517
2018		51,104
Thereafter		364,253
	$	780,309

        Total rent expense for operating leases, including cancelable leases, for the years ended December 31, 2011, 2012 and 2013 was $163.9 million, $168.3 million and $164.6 million, respectively.

        Property rent expense to unrelated parties for the years ended December 31, 2011, 2012 and 2013 was $114.8 million, $118.1 million and $119.5 million, respectively.

Construction Commitments

        At December 31, 2013, the Company had outstanding commitments under construction contracts related to new construction, improvements and renovations at the Company's long term acute care properties and inpatient rehabilitation facilities totaling approximately $22.8 million.

Other

        A subsidiary of the Company has entered into a naming, promotional and sponsorship agreement with an NFL team for the team's headquarters complex that requires a payment of $2.9 million in 2014. Each successive annual payment increases by 2.3% through 2025. The naming, promotional and sponsorship agreement is in effect until 2025.

Litigation

        The Company is a party to various legal actions, proceedings and claims (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of its business. The Company cannot predict the ultimate outcome of pending litigation, proceedings and regulatory and other governmental audits and investigations. These matters could potentially subject the Company to sanctions, damages, recoupments, fines and other penalties. The Department of Justice, Centers for Medicare & Medicaid Services ("CMS") or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the Company's businesses in the future that may, either individually or in the aggregate, have a material adverse effect on the Company's business, financial position, results of operations and liquidity.

        To address claims arising out of the operations of the Company's specialty hospitals and outpatient rehabilitation facilities, the Company maintains professional malpractice liability insurance and general liability insurance, subject to self-insured retention of $2.0 million per medical incident for professional liability claims and $2.0 million per occurrence for general liability claims. The Company also maintains

F-36

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

umbrella liability insurance covering claims which, due to their nature or amount, are not covered by or not fully covered by the Company's other insurance policies. These insurance policies also do not generally cover punitive damages and are subject to various deductibles and policy limits. Significant legal actions, as well as the cost and possible lack of available insurance, could subject the Company to substantial uninsured liabilities. In the Company's opinion, the outcome of these actions, individually or in the aggregate, will not have a material adverse effect on its financial position, results of operations, or cash flows.

        Healthcare providers are subject to lawsuits under the qui tam provisions of the federal False Claims Act. Qui tam lawsuits typically remain under seal (hence, usually unknown to the defendant) for some time while the government decides whether or not to intervene on behalf of a private qui tam plaintiff (known as a relator) and take the lead in the litigation. These lawsuits can involve significant monetary damages and penalties and award bounties to private plaintiffs who successfully bring the suits. The Company has been a defendant in these cases in the past, and may be named as a defendant in similar cases from time to time in the future.

        On January 8, 2013, a federal magistrate judge unsealed an Amended Complaint in United States of America and the State of Indiana, ex rel. Doe I, Doe II and Doe III v. Select Medical Corporation, Select Specialty Hospital-Evansville, Evansville Physician Investment Corporation, Dr. Richard Sloan and Dr. Jeffrey Selby. The Amended Complaint, which was served on the Company on February 15, 2013, is a civil action filed under seal on September 28, 2012 in the United States District Court for the Southern District of Indiana by private plaintiff-relators on behalf of the United States and the state of Indiana under the federal False Claims Act and Indiana False Claims and Whistleblower Protection Act. Although the Amended Complaint identifies the relators by fictitious pseudonyms, on March 28, 2013, the relators filed a Notice identifying themselves as the former CEO at the Company's long term acute care hospital in Evansville, Indiana ("SSH-Evansville") and two former case managers at SSH-Evansville. The named defendants include the Company, SSH-Evansville, and two physicians who have practiced at SSH-Evansville. On March 26, 2013, the defendants, relators and the United States filed a joint motion seeking a stay of the proceedings, in which the United States notified the court that its investigation has not been completed and therefore it is not yet able to decide whether or not to intervene, and on March 29, 2013, the magistrate judge granted the motion and stayed all deadlines in the case for 90 days. The court has subsequently granted additional motions filed by the United States to continue the stay, and the current stay extends until March 17, 2014.

        In January 2014, representatives of the United States Attorney's Office for the Southern District of Indiana and the Office of Attorney General for the State of Indiana informed the Company that, while they have not yet decided whether to intervene in the case, their investigation is continuing concerning allegations that SSH-Evansville admitted patients for whom long-term acute care was not medically necessary, up-coded diagnoses at admission, discharged patients too early or held patients too long, readmitted patients discharged to short-stay acute care hospitals only after nine days to enable billing for two admissions, and allowed unnecessary bronchoscopies to be performed. The Company is involved in ongoing discussions with the government regarding this matter.

        As previously disclosed, beginning in April 2012, the Company and SSH-Evansville have received various subpoenas and demands for documents relating to SSH-Evansville, including a request for information and subpoenas from the Office of Inspector General of the U.S. Department of Health and Human Services and subpoenas from the Office of Attorney General for the State of Indiana, and the Evansville (Indiana) Police Department has executed a search warrant at SSH-Evansville. The Company has produced and will continue to produce documents in response to, and intends to fully cooperate with, these governmental investigations. At this time, the Company is unable to predict the timing and outcome of this matter.

F-37

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16.   Supplemental Disclosures of Cash Flow Information

        Non-cash investing and financing activities are comprised of the following for the years ended December 31, 2011, 2012 and 2013:

	Holdings
	For the Year Ended December 31,
	2011		2012		2013
	(in thousands)
Notes issued with acquisitions(1)	$	1,020	$	1,844	$	3,283
Liabilities assumed with acquisitions(1)		701		107		885
Contingent consideration related to acquisitions(1)		—		1,500		100
Notes related to investment in business		—		—		3,399

	Select
	For the Year Ended December 31,
	2011			2012			2013
	(in thousands)
Dividends declared to Holdings by Select(2)	$	(5,240	)	$	(5,240	)	$	—
Notes issued with acquisitions(1)		1,020			1,844			3,283
Liabilities assumed with acquisitions(1)		701			107			885
Contingent consideration related to acquisitions(1)		—			1,500			100
Notes related to investment in business		—			—			3,399

(1)

Refer to Footnote 2 — Acquisitions.

(2)

Recorded in accrued other liabilities on the consolidated balance sheet of Select.

17.   Subsequent Events

        On February 19, 2014, Select Medical's board of directors declared a cash dividend of $0.10 per share. The dividend will be payable on or about March 10, 2014 to stockholders of record as of the close of business on March 3, 2014.

18.   Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select's 6.375% Senior Notes

        Select's 6.375% senior notes are fully and unconditionally guaranteed, except for customary limitations, on a senior basis by all of Select's wholly-owned subsidiaries (the "Subsidiary Guarantors") which is defined as a subsidiary where Select or a subsidiary of Select holds all of the outstanding ownership interests. Certain of Select's subsidiaries did not guarantee the 6.375% senior notes (the "Non-Guarantor Subsidiaries").

        Select conducts a significant portion of its business through its subsidiaries. Presented below is consolidating financial information for Select, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at December 31, 2012 and 2013 and for the years ended December 31, 2011, 2012 and 2013.

F-38

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

        The equity method has been used by Select with respect to investments in subsidiaries. The equity method has been used by Subsidiary Guarantors with respect to investments in Non-Guarantor Subsidiaries. Separate financial statements for Subsidiary Guarantors are not presented.

        The consolidating balance sheets at December 2011 and the consolidating statement of cash flows for the year ended December 31, 2011 included in this footnote contain certain immaterial adjustments that were made to the December 31, 2011 consolidating balance sheet and the consolidating statement of cash flows for the year ended December 31, 2011 relating to the presentation of intercompany transactions. On the December 31, 2011 consolidating balance sheet, intercompany accounts that were previously reported as both asset and liability balances within the liability section of the balance sheet have been adjusted and presented separately as either an intercompany receivable within the current asset classification or as an intercompany payable within the current liability classification, based upon the account's attributes on each subsidiary's balance sheet. On the consolidating statement of cash flows for the year ended December 31, 2011, the changes in intercompany advances that were previously reported as a change in operating assets and liabilities in cash flow provided by operating activities has been adjusted as a financing activity. These adjustments had no impact on the total equity of the Guarantors, non-Guarantors or Parent Company. They did not alter the net increase or decrease in cash for the Guarantors, non-Guarantors or Parent Company.

F-39

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Select Medical Corporation Consolidating Balance Sheet December 31, 2013
	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors		Non-Guarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
Assets
Current Assets:
Cash and cash equivalents	$	71		$	3,098	$	1,150	$	—		$	4,319
Accounts receivable, net		—			337,517		54,452		(650)	(a)		391,319
Current deferred tax asset		7,965			5,214		4,445		—			17,624
Intercompany receivables		—			1,079,736		105,028		(1,184,764)	(b)		—
Other current assets		9,745			26,545		4,850		—			41,140
Total Current Assets		17,781			1,452,110		169,925		(1,185,414	)		454,402
Property and equipment, net		15,624			434,040		59,438		—			509,102
Investment in affiliates		3,059,581			83,012		—		(3,142,593)	(c)(d)		—
Goodwill		—			1,642,633		—		—			1,642,633
Non-current deferred tax asset		7,662			—		—		(7,662)	(e)		—
Other identifiable intangibles		—			71,907		—		—			71,907
Other assets		35,274			103,696		608		—			139,578
Total Assets	$	3,135,922		$	3,787,398	$	229,971	$	(4,335,669	)	$	2,817,622
Liabilities and Equity
Current Liabilities:
Bank overdrafts	$	12,506		$	—	$	—	$	—		$	12,506
Current portion of long-term debt and notes payable		9,107			7,317		1,141		—			17,565
Accounts payable		6,749			68,574		12,962		—			88,285
Intercompany payables		1,184,764			—		—		(1,184,764)	(b)		—
Accrued payroll		1,167			88,599		245		—			90,011
Accrued vacation		4,619			47,682		7,429		—			59,730
Accrued interest		11,076			1,221		—		—			12,297
Accrued other		59,249			23,493		7,729		—			90,471
Income taxes payable		622			—		—		—			622
Due to third party payors		—			1		686		(650)	(a)		37
Total Current Liabilities		1,289,859			236,887		30,192		(1,185,414	)		371,524
Long-term debt, net of current portion		1,006,201			364,060		57,449		—			1,427,710
Non-current deferred tax liability		—			96,111		7,838		(7,662)	(e)		96,287
Other non-current liabilities		53,628			33,123		5,124		—			91,875
Total Liabilities		2,349,688			730,181		100,603		(1,193,076	)		1,987,396
Redeemable non-controlling interests		—			—		11,584		—			11,584
Stockholder's Equity:
Common stock		0			—		—		—			0
Capital in excess of par		869,576			—		—		—			869,576
Retained earnings		(83,342	)		920,694		21,186		(941,880)	(d)		(83,342	)
Subsidiary investment		—			2,136,523		64,190		(2,200,713)	(c)		—
Total Select Medical Corporation Stockholder's Equity		786,234			3,057,217		85,376		(3,142,593	)		786,234
Non-controlling interests		—			—		32,408		—			32,408
Total Equity		786,234			3,057,217		117,784		(3,142,593	)		818,642
Total Liabilities and Equity	$	3,135,922		$	3,787,398	$	229,971	$	(4,335,669	)	$	2,817,622

(a)

Reclass portion of due to third party payor to accounts receivable net in consolidation.

(b)

Elimination of intercompany.

(c)

Elimination of investments in consolidated subsidiaries.

(d)

Elimination of investments in consolidated subsidiaries' earnings.

(e)

Reclass of non-current deferred tax assset to report net non-current deferred tax liability in consolidation.

F-40

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Select Medical Corporation Consolidating Statement of Operations For the Year Ended December 31, 2013
	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	350		$	2,553,505		$	421,793		$	—		$	2,975,648
Costs and expenses:
Cost of services		1,757			2,135,754			357,965			—			2,495,476
General and administrative		76,709			212			—			—			76,921
Bad debt expense		—			31,003			6,420			—			37,423
Depreciation and amortization		3,746			50,982			9,664			—			64,392
Total costs and expenses		82,212			2,217,951			374,049			—			2,674,212
Income (loss) from operations		(81,862	)		335,554			47,744			—			301,436
Other income and expense:
Intercompany interest and royalty fees		(1,326	)		1,339			(13	)		—			—
Intercompany management fees		144,447			(125,361	)		(19,086	)		—			—
Equity in earnings of unconsolidated subsidiaries		—			2,384			92			—			2,476
Loss on early retirement of debt		(17,788	)		—			—			—			(17,788	)
Interest expense		(58,100	)		(22,760	)		(4,094	)		—			(84,954	)
Income (loss) from operations before income taxes		(14,629	)		191,156			24,643			—			201,170
Income tax expense (benefit)		(1,238	)		76,870			339			—			75,971
Equity in earnings of subsidiaries		129,971			15,716			—			(145,687)	(a)		—
Net income		116,580			130,002			24,304			(145,687	)		125,199
Less: Net income attributable to non-controlling interests		—			—			8,619			—			8,619
Net income attributable to Select Medical Corporation	$	116,580		$	130,002		$	15,685		$	(145,687	)	$	116,580

(a)

Elimination of equity in earnings of subsidiaries.

F-41

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Select Medical Corporation
Consolidating Statement of Cash Flows
For the Year Ended December 31, 2013

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	116,580		$	130,002		$	24,304		$	(145,687	)(a)	$	125,199
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,746			50,982			9,664			—			64,392
Provision for bad debts		—			31,003			6,420			—			37,423
Equity in earnings of unconsolidated subsidiaires		—			(2,384	)		(92	)		—			(2,476	)
Loss on early retirement of debt		17,788			—			—			—			17,788
Gain from disposal or sale of assets		—			(463	)		(118	)		—			(581	)
Non-cash stock compensation expense		7,033			—			—			—			7,033
Amortization of debt discount and issuance costs		8,344			—			—			—			8,344
Deferred income taxes		7,032			—			—			—			7,032
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries		(129,971	)		(15,716	)		—			145,687	(a)		—
Accounts receivable		—			(59,804	)		(7,341	)		—			(67,145	)
Other current assets		(4,145	)		(5,735	)		1,713			—			(8,167	)
Other assets		(6,594	)		3,026			84			—			(3,484	)
Accounts payable		2,075			(3,660	)		302			—			(1,283	)
Due to third-party payors		—			996			(2,037	)		—			(1,041	)
Accrued expenses		(4,929	)		20,609			(612	)		—			15,068
Net cash provided by operating activities		16,959			148,856			32,287			—			198,102
Investing activities
Purchases of property and equipment		(3,024	)		(60,532	)		(10,104	)		—			(73,660	)
Investment in businesses, net of distributions		—			(34,893	)		—			—			(34,893	)
Acquisition of businesses, net of cash acquired		—			(1,665	)		—			—			(1,665	)
Proceeds from sale of assets		—			2,456			456			—			2,912
Net cash used in investing activities		(3,024	)		(94,634	)		(9,648	)		—			(107,306	)
Financing activities
Borrowings on revolving credit facility		690,000			—			—			—			690,000
Payments on revolving credit facility		(800,000	)		—			—			—			(800,000	)
Borrowings on credit facility term loans, net of discount		298,500			—			—			—			298,500
Payments on credit facility term loans		(596,720	)		—			—			—			(596,720	)
Issuance of 6.375% senior notes		600,000			—			—			—			600,000
Repurchase of 75/8% senior subordinated notes, net of premiums		(70,000	)		—			—			—			(70,000	)
Borrowings of other debt		8,923			5,303			1,084			—			15,310
Principal payments on other debt		(7,752	)		(873	)		(2,209	)		—			(10,834	)
Debt issuance costs		(18,914	)		—			—			—			(18,914	)
Repayments of bank overdrafts		(5,330	)		—			—			—			(5,330	)
Equity investment by Holdings		1,525			—			—			—			1,525
Dividends paid to Holdings		(226,621	)		—			—			—			(226,621	)
Intercompany		77,455			(59,288	)		(18,167	)		—			—
Distributions to non-controlling interests		—			—			(3,537	)		—			(3,537	)
Net cash used in financing activities		(48,934	)		(54,858	)		(22,829	)		—			(126,621	)
Net decrease in cash and cash equivalents		(34,999	)		(636	)		(190	)		—			(35,825	)
Cash and cash equivalents at beginning of period		35,070			3,734			1,340			—			40,144
Cash and cash equivalents at end of period	$	71		$	3,098		$	1,150		$	—		$	4,319

(a)

Elimination of equity in earnings of consolidated subsidiaries.

F-42

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Select Medical Corporation
Consolidating Balance Sheet
December 31, 2012

	Select Medical Corporation (Parent Company Only)		Subsidiary Guarantors		Non-Guarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
Assets
Current Assets:
Cash and cash equivalents	$	35,070	$	3,734	$	1,340	$	—		$	40,144
Accounts receivable, net		—		308,043		53,531		(1,645)	(a)		359,929
Current deferred tax asset		12,383		1,060		4,434		—			17,877
Prepaid income taxes		3,895		—		—		—			3,895
Intercompany receivables		—		1,021,479		102,694		(1,124,173	)(b)		—
Other current assets		5,600		19,655		6,563		—			31,818
Total Current Assets		56,948		1,353,971		168,562		(1,125,818	)		453,663
Property and equipment, net		16,344		425,677		59,531		—			501,552
Investment in affiliates		2,930,022		82,475		—		(3,012,497	)(c)(d)		—
Goodwill		—		1,640,534		—		—			1,640,534
Other identifiable intangibles		—		71,745		—		—			71,745
Non-current deferred tax asset		5,107		—		—		(5,107)	(e)		—
Other assets		28,680		63,447		692		—			92,819
Total Assets	$	3,037,101	$	3,637,849	$	228,785	$	(4,143,422	)	$	2,760,313
Liabilities and Equity
Current Liabilities:
Bank overdrafts	$	17,836	$	—	$	—	$	—		$	17,836
Current portion of long-term debt and notes payable		8,916		1,059		1,671		—			11,646
Accounts payable		4,674		72,213		12,660		—			89,547
Intercompany payables		1,124,173		—		—		(1,124,173)	(b)		—
Accrued payroll		186		88,096		304		—			88,586
Accrued vacation		4,249		44,508		6,957		—			55,714
Accrued interest		17,955		804		—		—			18,759
Accrued other		55,206		31,343		5,534		—			92,083
Due to third party payors		—		—		2,723		(1,645)	(a)		1,078
Total Current Liabilities		1,233,195		238,023		29,849		(1,125,818	)		375,249
Long-term debt, net of current portion		872,671		358,104		60,522		—			1,291,297
Non-current deferred tax liability		—		85,287		9,330		(5,107)	(e)		89,510
Other non-current liabilities		49,918		28,808		4,973		—			83,699
Total Liabilities		2,155,784		710,222		104,674		(1,130,925	)		1,839,755
Redeemable non-controlling interests		—		—		10,811		—			10,811
Stockholder's Equity:
Common stock		0		—		—		—			0
Capital in excess of par		859,839		—		—		—			859,839
Retained earnings		21,478		790,692		21,197		(811,889)	(d)		21,478
Subsidiary investment		—		2,136,935		63,673		(2,200,608)	(c)		—
Total Select Medical Corporation Stockholder's Equity		881,317		2,927,627		84,870		(3,012,497	)		881,317
Non-controlling interests		—		—		28,430		—			28,430
Total Equity		881,317		2,927,627		113,300		(3,012,497	)		909,747
Total Liabilities and Equity	$	3,037,101	$	3,637,849	$	228,785	$	(4,143,422	)	$	2,760,313

(a)

Reclass portion of due to third party payor to accounts receivable net in consolidation.

(b)

Elimination of intercompany.

(c)

Elimination of investments in consolidated subsidiaries.

(d)

Elimination of investments in consolidated subsidiaries' earnings.

(e)

Reclass of non-current deferred tax asset to report net non-current deferred tax liability in consolidation.

F-43

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Select Medical Corporation
Consolidating Statement of Operations
For the Year Ended December 31, 2012

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	123		$	2,549,896		$	398,950		$	—		$	2,948,969
Costs and expenses:
Cost of services		2,139			2,099,734			341,677			—			2,443,550
General and administrative		67,402			(1,208	)		—			—			66,194
Bad debt expense		—			33,595			5,460			—			39,055
Depreciation and amortization		3,267			50,734			9,310			—			63,311
Total costs and expenses		72,808			2,182,855			356,447			—			2,612,110
Income (loss) from operations		(72,685	)		367,041			42,503			—			336,859
Other income and expense:
Intercompany interest and royalty fees		(2,532	)		2,494			38			—			—
Intercompany management fees		120,276			(102,096	)		(18,180	)		—			—
Loss on early retirement of debt		(6,064	)		—			—			—			(6,064	)
Equity in earnings of unconsolidated subsidiaries		—			7,637			68			—			7,705
Interest expense		(54,167	)		(25,348	)		(4,244	)		—			(83,759	)
Income (loss) from operations before income taxes		(15,172	)		249,728			20,185			—			254,741
Income tax expense (benefit)		(8,206	)		101,795			(15	)		—			93,574
Equity in earnings of subsidiaries		162,470			15,639			—			(178,109	)(a)		—
Net income		155,504			163,572			20,200			(178,109	)		161,167
Less: Net income attributable to non-controlling interests		—			—			5,663			—			5,663
Net income attributable to Select Medical Corporation	$	155,504		$	163,572		$	14,537		$	(178,109	)	$	155,504

(a)

Elimination of equity in earnings of subsidiaries.

F-44

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Select Medical Corporation

Consolidating Statement of Cash Flows
For the Year Ended December 31, 2012

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	155,504		$	163,572		$	20,200		$	(178,109)	(a)	$	161,167
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,267			50,734			9,310			—			63,311
Provision for bad debts		—			33,595			5,460			—			39,055
Equity in earnings of unconsolidated subsidiaires		—			(7,637	)		(68	)		—			(7,705	)
Loss on early retirement of debt		6,064			—			—			—			6,064
Loss (gain) from disposal or sale of assets		—			(6,002	)		96			—			(5,906	)
Non-cash stock compensation expense		5,677			—			—			—			5,677
Amortization of debt discount and issuance costs		7,190			—			—			—			7,190
Deferred income taxes		7,909			—			—			—			7,909
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries		(162,470	)		(15,639	)		—			178,109	(a)		—
Accounts receivable		—			29,727			(14,569	)		—			15,158
Other current assets		740			141			(2,488	)		—			(1,607	)
Other assets		2,448			3,268			161			—			5,877
Accounts payable		(2,679	)		(4,040	)		602			—			(6,117	)
Due to third-party payors		—			(15,278	)		10,830			—			(4,448	)
Accrued expenses		25,350			(3,835	)		2,231			—			23,746
Net cash provided by operating activities		49,000			228,606			31,765			—			309,371
Investing activities
Purchases of property and equipment		(5,150	)		(49,160	)		(13,875	)		—			(68,185	)
Investment in businesses, net of distributions		—			(14,689	)		—			—			(14,689	)
Acquisition of businesses, net of cash acquired		—			(6,043	)		—			—			(6,043	)
Proceeds from sale of assets		—			16,511			—			—			16,511
Net cash used in investing activities		(5,150	)		(53,381	)		(13,875	)		—			(72,406	)
Financing activities
Borrowings on revolving credit facility		495,000			—			—			—			495,000
Payments on revolving credit facility		(405,000	)		—			—			—			(405,000	)
Borrowings on 2011 credit facility term loans, net of discount		266,750			—			—			—			266,750
Payments on 2011 credit facility term loans		(9,875	)		—			—			—			(9,875	)
Repurchase of 75/8% senior subordinated notes, net of premiums		(278,495	)		—			—			—			(278,495	)
Borrowings of other debt		8,003			—			278			—			8,281
Principal payments on other debt		(8,049	)		(433	)		(1,813	)		—			(10,295	)
Debt issuance costs		(6,527	)		—			—			—			(6,527	)
Proceeds from bank overdrafts		1,227			—			—			—			1,227
Equity investment by Holdings		1,817			—			—			—			1,817
Dividends paid to Holdings		(268,479	)		—			—			—			(268,479	)
Intercompany		183,421			(171,058	)		(12,363	)		—			—
Distributions to non-controlling interests		—			—			(3,268	)		—			(3,268	)
Net cash used in financing activities		(20,207	)		(171,491	)		(17,166	)		—			(208,864	)
Net increase in cash and cash equivalents		23,643			3,734			724			—			28,101
Cash and cash equivalents at beginning of period		11,427			—			616			—			12,043
Cash and cash equivalents at end of period	$	35,070		$	3,734		$	1,340		$	—		$	40,144

(a)

Elimination of equity in earnings of consolidated subsidiaries.

F-45

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Select Medical Corporation

Consolidating Statement of Operations
For the Year Ended December 31, 2011

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	121		$	2,436,177		$	368,209		$	—		$	2,804,507
Costs and expenses:
Cost of services		1,729			1,996,671			310,170			—			2,308,570
General and administrative		61,995			359			—			—			62,354
Bad debt expense		—			44,300			7,047			—			51,347
Depreciation and amortization		4,115			58,064			9,338			—			71,517
Total costs and expenses		67,839			2,099,394			326,555			—			2,493,788
Income (loss) from operations		(67,718	)		336,783			41,654			—			310,719
Other income and expense:
Intercompany interest and royalty fees		(3,408	)		3,382			26			—			—
Intercompany management fees		120,013			(102,970	)		(17,043	)		—			—
Loss on early retirement of debt		(20,385	)		—			—			—			(20,385	)
Equity in earnings of unconsolidated subsidiaries		—			2,870			53			—			2,923
Interest income		132			122			68			—			322
Interest expense		(41,817	)		(34,612	)		(4,803	)		—			(81,232	)
Income (loss) before income taxes		(13,183	)		205,575			19,955			—			212,347
Income tax expense (benefit)		(12,821	)		92,561			1,244			—			80,984
Equity in earnings of subsidiaries		126,809			13,406			—			(140,215)	(a)		—
Net income		126,447			126,420			18,711			(140,215	)		131,363
Less: Net income attributable to non-controlling interests		—			—			4,916			—			4,916
Net income attributable to Select Medical Corporation	$	126,447		$	126,420		$	13,795		$	(140,215	)	$	126,447

(a)

Elimination of equity in earnings of subsidiaries.

F-46

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Select Medical Corporation

Consolidating Statement of Cash Flows
For the Year Ended December 31, 2011

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	126,447		$	126,420		$	18,711		$	(140,215)	(a)	$	131,363
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,115			58,064			9,338			—			71,517
Provision for bad debts		—			44,300			7,047			—			51,347
Equity in earnings of unconsolidated subsidiaries		—			(2,870	)		(53	)		—			(2,923	)
Loss on early retirement of debt		20,385			—			—			—			20,385
Loss (gain) from disposal or sale of assets		13			(5,024	)		45			—			(4,966	)
Non-cash stock compensation expense		3,725			—			—			—			3,725
Amortization of debt discount and issuance costs		6,700			—			—			—			6,700
Deferred income taxes		35,305			—			—			—			35,305
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries		(126,809	)		(13,406	)		—			140,215	(a)		—
Accounts receivable		—			(98,966	)		(12,160	)		—			(111,126	)
Other current assets		(1,780	)		1,165			(586	)		—			(1,201	)
Other assets		(12,069	)		9,683			318			—			(2,068	)
Accounts payable		1,326			16,247			3,056			—			20,629
Due to third-party payors		—			1,408			(1,181	)		—			227
Accrued expenses		14,823			5,522			794			—			21,139
Net cash provided by operating activities		72,181			142,543			25,329			—			240,053
Investing activities
Purchases of property and equipment		(3,413	)		(37,759	)		(4,844	)		—			(46,016	)
Investment in businesses, net of distributions		—			(15,699	)		—			—			(15,699	)
Acquisition of businesses, net of cash acquired		—			(899	)		—			—			(899	)
Proceeds from sale of assets		—			7,879			—			—			7,879
Net cash used in investing activities		(3,413	)		(46,478	)		(4,844	)		—			(54,735	)
Financing activities
Borrowings on revolving credit facility		735,000			—			—			—			735,000
Payments on revolving credit facility		(720,000	)		—			—			—			(720,000	)
Borrowings on 2011 credit facility term loans, net of discount		841,500			—			—			—			841,500
Payments on 2011 credit facility term loans		(4,250	)		—			—			—			(4,250	)
Payments on 2005 credit facility term loans, net of call premium		(484,633	)		—			—			—			(484,633	)
Repurchase of 75/8% senior subordinated notes, net of premiums		(273,941	)		—			—			—			(273,941	)
Borrowings of other debt		6,100			955			—			—			7,055
Principal payments on other debt		(5,662	)		(755	)		(1,082	)		—			(7,499	)
Debt issuance costs		(18,556	)		—			—			—			(18,556	)
Repayments of bank overdrafts		(2,183	)		—			—			—			(2,183	)
Equity investment by Holdings		208			—			—			—			208
Dividends paid to Holdings		(245,729	)		—			—			—			(245,729	)
Intercompany		114,656			(99,832	)		(14,824	)		—			—
Distributions to non-controlling interests		—			—			(4,612	)		—			(4,612	)
Net cash used in financing activities		(57,490	)		(99,632	)		(20,518	)		—			(177,640	)
Net increase (decrease) in cash and cash equivalents		11,278			(3,567	)		(33	)		—			7,678
Cash and cash equivalents at beginning of period		149			3,567			649			—			4,365
Cash and cash equivalents at end of period	$	11,427		$	—		$	616		$	—		$	12,043

(a)

Elimination of equity in earnings of consolidated subsidiaries.

F-47

SELECT MEDICAL HOLDINGS CORPORATION AND SELECT MEDICAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

19.   Selected Quarterly Financial Data (Unaudited)

        The table below sets forth selected unaudited financial data for each quarter of the last two years.

	Holdings
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(in thousands, except per share amounts)
Year ended December 31, 2012
Net operating revenues	$	744,021	$	750,193	$	713,669	$	741,086
Income from operations		91,604		93,513		70,819		80,923
Net income attributable to Select Medical Holdings Corporation	$	41,542	$	43,172	$	24,110	$	39,406
Income per common share:
Basic	$	0.29	$	0.31	$	0.17	$	0.28
Diluted	$	0.29	$	0.31	$	0.17	$	0.28

	Select
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(in thousands)
Year ended December 31, 2012
Net operating revenues	$	744,021	$	750,193	$	713,669	$	741,086
Income from operations		91,604		93,513		70,819		80,923
Net income attributable to Select Medical Corporation	$	43,279	$	45,018	$	25,953	$	41,254

	Holdings
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(in thousands, except per share amounts)
Year ended December 31, 2013
Net operating revenues	$	749,955	$	756,673	$	722,845	$	746,175
Income from operations		82,530		88,263		62,399		68,244
Net income attributable to Select Medical Holdings Corporation	$	34,418	$	27,780	$	23,272	$	28,920
Income per common share:
Basic	$	0.25	$	0.20	$	0.17	$	0.21
Diluted	$	0.24	$	0.20	$	0.17	$	0.21

	Select
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(in thousands)
Year ended December 31, 2013
Net operating revenues	$	749,955	$	756,673	$	722,845	$	746,175
Income from operations		82,530		88,263		62,399		68,244
Net income attributable to Select Medical Corporation	$	36,608	$	27,780	$	23,272	$	28,920

F-48

        The following Financial Statement Schedule along with the report thereon of PricewaterhouseCoopers LLP dated February 25, 2014, should be read in conjunction with the consolidated financial statements. Financial Statement Schedules not included in this filing have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

Select Medical Holdings Corporation
Select Medical Corporation

Schedule II — Valuation and Qualifying Accounts

Description	Balance at Beginning of Year		Charged to Cost and Expenses			Acquisitions (A)		Deductions (B)			Balance at End of Year
	(in thousands)
Allowance for Doubtful Accounts
Year ended December 31, 2013	$	41,854	$	37,423		$	—	$	(38,462	)	$	40,815
Year ended December 31, 2012	$	47,469	$	39,055		$	—	$	(44,670	)	$	41,854
Year ended December 31, 2011	$	44,416	$	51,347		$	108	$	(48,402	)	$	47,469
Income Tax Valuation Allowance
Year ended December 31, 2013	$	13,341	$	(2,794	)	$	—	$	—		$	10,547
Year ended December 31, 2012	$	15,733	$	(2,392	)	$	—	$	—		$	13,341
Year ended December 31, 2011	$	16,622	$	(889	)	$	—	$	—		$	15,733

(A)

Represents opening balance sheet reserves resulting from purchase accounting entries.

(B)

Allowance for doubtful accounts deductions represent write-offs against the reserve for 2011, 2012 and 2013.

F-49

EX-10.83

Exhibit 10.83

CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT is made as of the 30th day of October, 2013, by and between SELECT MEDICAL CORPORATION, a Delaware corporation (the “Company”), and WILLIAM H. FRIST, an individual (“Consultant”).

WITNESSETH:

WHEREAS, the Company desires the services of Consultant, and Consultant is willing to be engaged by the Company in a consulting capacity as an independent contractor, upon and subject to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties hereto, intending to be legally bound hereby, agree as follows:

1.Engagement.  The Company hereby engages Consultant, and Consultant hereby accepts such engagement, on and subject to the terms and conditions set forth herein, to serve the Company in a consulting capacity.

2.Term.  The period of service of Consultant to the Company will be for a term of two years commencing on October 31, 2013 and ending on October 30, 2015 (the “Consulting Period”).  Notwithstanding the foregoing, Consultant may terminate this Agreement at any time, without cause, after giving the Company ten (10) days’ prior written notice of such decision.  The Company will be entitled to terminate this Agreement immediately, for cause, if any of the following events shall occur:

(a)Consultant dies or becomes disabled to such an extent that Consultant cannot perform his duties hereunder;

(b)Consultant engages in criminal, unethical, immoral or fraudulent conduct, in the good faith opinion of the Company, or Consultant is found guilty of such conduct by any court or governmental agency of competent jurisdiction; or

(c)Consultant’s gross negligence or willful misconduct in the performance of the duties and services required of Consultant.

3.Duties.

(a)  Subject to the terms and conditions hereinafter provided, the Company engages Consultant to provide consulting services related to government and regulatory matters and strategies, provided that Consultant shall not be asked to engage in any activity which would require Consultant to register as a lobbyist or otherwise be subject to the Lobbyist Disclosure Act of 1995.  During the term of this Agreement, Consultant shall report to either the Executive

Chairman or the Chief Executive Officer of the Company.  If agreed upon between the Company and Consultant, Consultant will perform such additional or different duties and services appropriate to Consultant’s abilities.  Consultant shall at all times comply with, and be subject to, such reasonable policies, procedures, rules and regulations as the Company may establish from time to time, provided that Consultant will only be required to comply with, or be subject to, those of such policies, procedures, rules and regulations as are provided to him.

(b)  During the Consulting Period, Consultant shall use his best efforts to preserve and promote the name, reputation and business of the Company.  Consultant agrees that at all times during and after the Consulting Period he shall take no action which would adversely affect the name, reputation or business of the Company.

(c)  The Company agrees to fully indemnify, defend and hold Consultant harmless with respect to any claim, lawsuit or cause of action brought against Consultant relating to Consultant’s provision of the consulting services hereunder; provided, however, that Consultant will be fully responsible for any claim, lawsuit or cause of action asserting that actions taken by him were impermissible (such as an allegation that he should have registered as a lobbyist), or violated laws or restrictions to which he was subject by reason of his prior government service or otherwise (any such claim, lawsuit or cause of action being an “Excluded Claim”), unless the Company’s Board of Directors decides, at the time of the assertion of an Excluded Claim, to indemnify, defend and hold Consultant harmless with respect to such Excluded Claim.

4.Compensation.  As compensation for the consulting services rendered hereunder, the Company agrees to cause 100,000 shares of restricted common stock of Select Medical Holdings Corporation (“Holdings”) to be issued to Consultant, such shares to vest 50% on October 30, 2014 and 50% on October 30, 2015, provided that this Agreement remains in effect on such date.  The terms and conditions of such grant of restricted common stock will be subject to the 2011 Equity Incentive Plan, as amended, and that certain Restricted Stock Award Agreement between Consultant and Holdings, dated of even date herewith.

5.Expenses. All reasonable and customary travel expenses incurred by Consultant in performance of the services required by this Agreement, including, but not by way of limitation, all related out-of-pocket expenses, shall be reimbursed promptly by the Company upon appropriate documentation by Consultant.

6.Confidentiality.  Consultant covenants and agrees that he will not, to the detriment of the Company, at any time during or after the termination of the Consulting Period, reveal, divulge or make known to any person (other than the Company or its officers, employees or agents who need to know such information, or as a result of legal process) or use for his own account or the account of any other person any confidential or proprietary records, data, trade secrets, customer lists or any other confidential or proprietary information whatsoever (the “Confidential Information”) used by the Company and made known (whether or not with the knowledge and permission of the Company, and whether or not developed, devised or otherwise created in whole or in part by the efforts of Consultant) to Consultant by reason of his

2

association with the Company. Consultant further covenants and agrees that he shall retain all such knowledge and information which he shall acquire or develop respecting such Confidential Information in trust for the sole benefit of the Company and its successors and assigns. Notwithstanding the foregoing or any other terms of this Agreement, Consultant may reference the Company and/or information regarding the Company in appearances, writings and/or speaking engagements, as long as such references and information are provided in advance by Consultant to the Company and Consultant is given permission by the Company for such use.

7.Independent Contractor; Limitations on Authority.  In the performance of the duties and obligations imposed under this Agreement, it is mutually understood and agreed that Consultant is at all times acting and performing as an independent contractor.  It is agreed by the parties hereto that no act or inaction of Consultant shall be construed to make or render Consultant the agent, employee or servant of the Company.  Consultant shall have no authority to bind the Company by or to any obligation, agreement, promise or representation without first obtaining the Company’s prior written approval.

8.Taxes.  Consultant will assume full responsibility for payment of federal, state and local taxes, contributions required under Social Security and any other taxes imposed with respect to his receipt of compensation hereunder.  Consultant agrees to fully indemnify, defend and hold the Company harmless with respect to any claims, assessments, suits, expenses (including, but not limited to reasonable attorneys’ fees) damages, settlements or losses incurred by or threatened against the Company which arise as a result of any taxing authority alleging liability on the part of the Company for any such taxes.

9.Entire Agreement. This agreement sets forth the entire agreement and understanding between the Company and you and shall supersede all prior agreements, documents or discussions with respect to the matters herein covered.

10.Section Headings. The Section headings of this Agreement are for convenience of reference only and shall not limit or define the text thereof.

11.Severability. In the event that any one or more of the provisions of this Agreement shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected thereby.

12.Notices.  All notices and other communications which are required or permitted hereunder shall be in writing and shall be sufficient if mailed by registered or certified mail, postage prepaid to the following addresses:

If to Consultant:

William H. Frist, MD

2525 West End Avenue

Suite 1250

3

Nashville, TN 37203

If to the Company:

Select Medical Corporation

4714 Gettysburg Road

Mechanicsburg, PA  17055

Attention: General Counsel

or such other address as any party hereto shall have specified by notice in writing to the other party hereto. All such notices and communications shall be deemed to have been received on the date of delivery thereof or the third business day after the mailing thereof, whichever is earlier.

13.Amendments and Waivers. This Agreement may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement or any such modification or amendment is sought.  Either party hereto may, by an instrument in writing, waive compliance by the other party with any term or provision of this Agreement on the part of such other party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent or other breach, whether or not similar to the breach waived.

14.Counterparts. This Agreement may be executed in one or more counterparts and all such counterparts so executed shall constitute an original agreement binding on all the parties but together shall constitute but one instrument.

15.Successors. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs and legal representatives.  Consultant may not assign Consultant’s rights or interest in this Agreement, and any purported assignment by Consultant in violation hereof shall be null and void.

16.Governing Law. This Agreement shall be construed and governed in accordance with the laws of the State Of Delaware, without giving effect to the conflicts of laws principles thereof.

IN WITNESS WHEREOF, Consultant and the Company have executed this Agreement

4

on the date first above set forth.

The Company:
SELECT MEDICAL CORPORATION, a Delaware corporation
By:	/s/ Robert A. Ortenzio
	Robert A. Ortenzio,
	Chief Executive Officer
Consultant:
/s/ William H. Frist
	William H. Frist

5

EX-10.84

Exhibit 10.84

CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT is made as of the 30th day of October, 2013, by and between SELECT MEDICAL CORPORATION, a Delaware corporation (the “Company”), and THOMAS A. SCULLY, an individual (“Consultant”).

WITNESSETH:

WHEREAS, the Company desires the services of Consultant, and Consultant is willing to be engaged by the Company in a consulting capacity as an independent contractor, upon and subject to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties hereto, intending to be legally bound hereby, agree as follows:

1.Engagement.  The Company hereby engages Consultant, and Consultant hereby accepts such engagement, on and subject to the terms and conditions set forth herein, to serve the Company in a consulting capacity.

2.Term.  The period of service of Consultant to the Company will be for a term of two years commencing on October 31, 2013 and ending on October 30, 2015 (the “Consulting Period”).  Notwithstanding the foregoing, either party hereto may terminate this Agreement at any time, without cause, after giving the other party hereto ten (10) days’ prior written notice of such decision.

3.Duties.

(a)  Subject to the terms and conditions hereinafter provided, the Company engages Consultant to provide consulting services related to government and regulatory matters and strategies.  During the term of this Agreement, Consultant shall report to either the Executive Chairman or the Chief Executive Officer of the Company.  If agreed upon between the Company and Consultant, Consultant will perform such additional or different duties and services appropriate to Consultant’s abilities.  Consultant shall at all times comply with, and be subject to, such reasonable policies, procedures, rules and regulations as the Company may establish from time to time.

(b)  During the Consulting Period, Consultant shall use his best efforts to preserve and promote the name, reputation and business of the Company.  Consultant agrees that at all times during and after the Consulting Period he shall take no action which would adversely affect the name, reputation or business of the Company.

4.Compensation.  As compensation for the consulting services rendered hereunder, the Company agrees to cause 100,000 shares of restricted common stock of Select Medical

Holdings Corporation (“Holdings”) to be issued to the Consultant, such shares to vest 50% on October 30, 2014 and 50% on October 30, 2015, provided that this Agreement remains in effect on such date.  The terms and conditions of such grant of restricted common stock will be subject to the 2011 Equity Incentive Plan, as amended, and that certain Restricted Stock Award Agreement between the Consultant and Holdings, dated of even date herewith.

5.Expenses. All reasonable and customary travel expenses incurred by Consultant in performance of the services required by this Agreement, including, but not by way of limitation, all related out-of-pocket expenses, shall be reimbursed promptly by the Company upon appropriate documentation by Consultant.

6.Confidentiality.  Consultant covenants and agrees that he will not, to the detriment of the Company, at any time during or after the termination of the Consulting Period, reveal, divulge or make known to any person (other than the Company or its officers, employees or agents who need to know such information, or as a result of legal process) or use for his own account or the account of any other person any confidential or proprietary records, data, trade secrets, customer lists or any other confidential or proprietary information whatsoever (the “Confidential Information”) used by the Company and made known (whether or not with the knowledge and permission of the Company, and whether or not developed, devised or otherwise created in whole or in part by the efforts of Consultant) to Consultant by reason of his association with the Company. Consultant further covenants and agrees that he shall retain all such knowledge and information which he shall acquire or develop respecting such Confidential Information in trust for the sole benefit of the Company and its successors and assigns.

7.Independent Contractor; Limitations on Authority.  In the performance of the duties and obligations imposed under this Agreement, it is mutually understood and agreed that Consultant is at all times acting and performing as an independent contractor.  It is agreed by the parties hereto that no act or inaction of Consultant shall be construed to make or render Consultant the agent, employee or servant of the Company.  Consultant shall have no authority to bind the Company by or to any obligation, agreement, promise or representation without first obtaining the Company’s prior written approval.

8.Taxes.  Consultant will assume full responsibility for payment of federal, state and local taxes, contributions required under Social Security and any other taxes imposed with respect to his receipt of compensation hereunder.  Consultant agrees to fully indemnify and hold the Company harmless with respect to any claims, assessments, suits, expenses (including, but not limited to reasonable attorneys’ fees) damages, settlements or losses incurred by or threatened against the Company which arise as a result of any taxing authority alleging liability on the part of the Company for any such taxes.

9.Entire Agreement. This agreement sets forth the entire agreement and understanding between the Company and you and shall supersede all prior agreements, documents or discussions with respect to the matters herein covered.

2

10.Section Headings. The Section headings of this Agreement are for convenience of reference only and shall not limit or define the text thereof.

11.Severability. In the event that any one or more of the provisions of this Agreement shall be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected thereby.

12.Notices.  All notices and other communications which are required or permitted hereunder shall be in writing and shall be sufficient if mailed by registered or certified mail, postage prepaid to the following addresses:

If to Consultant:

Thomas A. Scully

c/o Welsh Carson Anderson & Stowe

320 Park Avenue

25th Floor

New York, NY  10022-6815

If to the Company:

Select Medical Corporation

4714 Gettysburg Road

Mechanicsburg, PA  17055

Attention: General Counsel

or such other address as any party hereto shall have specified by notice in writing to the other party hereto. All such notices and communications shall be deemed to have been received on the date of delivery thereof or the third business day after the mailing thereof, whichever is earlier.

13.Amendments and Waivers. This Agreement may not be modified or amended except by an instrument or instruments in writing signed by the party against whom enforcement or any such modification or amendment is sought.  Either party hereto may, by an instrument in writing, waive compliance by the other party with any term or provision of this Agreement on the part of such other party hereto to be performed or complied with. The waiver by any party hereto of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent or other breach, whether or not similar to the breach waived.

14.Counterparts. This Agreement may be executed in one or more counterparts and all such counterparts so executed shall constitute an original agreement binding on all the parties but together shall constitute but one instrument.

15.Successors. This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors, assigns, heirs and legal representatives.

3

Consultant may not assign Consultant’s rights or interest in this Agreement, and any purported assignment by Consultant in violation hereof shall be null and void.

16.Governing Law. This Agreement shall be construed and governed in accordance with the laws of the Commonwealth of Pennsylvania, without giving effect to the conflicts of laws principles thereof.

IN WITNESS WHEREOF, Consultant and the Company have executed this Agreement on the date first above set forth.

The Company:
SELECT MEDICAL CORPORATION, a Delaware corporation
By:	/s/ Robert A. Ortenzio
	Robert A. Ortenzio,
	Chief Executive Officer
Consultant:
/s/ Thomas A. Scullt
	Thomas A. Scully

4

EX-10.85

Exhibit 10.85

SELECT MEDICAL HOLDINGS CORPORATION

RESTRICTED STOCK AWARD AGREEMENT UNDER THE

2011 EQUITY INCENTIVE PLAN

This Restricted Stock Award Agreement (this “Agreement”) is made as of October 30, 2013 (the “Effective Date”), between SELECT MEDICAL HOLDINGS CORPORATION, a Delaware corporation (the “Company”), and WILLIAM H. FRIST, an individual (the “Participant”).

WHEREAS, the Company has adopted the 2011 Equity Incentive Plan (the “Plan”), all of the terms and provisions of which are incorporated herein by reference and made a part hereof;

WHEREAS, the Participant serves as a member of the Board of Directors of the Company;

WHEREAS, in order to provide an incentive to the Participant to serve as a consultant under the that certain Consulting Agreement between the Company and the Participant, dated of even date herewith (the “Consulting Agreement”), the Company has approved and authorized the issuance of certain shares of the Common Stock of the Company, par value $.001 per share (the “Stock”), to the Participant, subject to the terms of the Plan and this Agreement; and

WHEREAS, all capitalized terms used but not defined herein shall have the meanings set forth in the Plan.

NOW, THEREFORE, in consideration of the services to be rendered by the Participant under the Consulting Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Participant agree to the terms and conditions set forth herein.

1.Award of Restricted Stock.  The Company hereby awards and issues to the Participant, effective as of the date hereof, 100,000 shares of Stock (the “Restricted Stock”).

2.Vesting Schedule. Subject to the further provisions of this Agreement, and the Participant’s continued service under the Consulting Agreement, 50% of the shares of Restricted Stock shall vest on October 30, 2014 and 50% of the shares of Restricted Stock shall vest on October 30, 2015.  The period beginning on the date hereof through and including the vesting date for any shares of Restricted Stock shall be referred to herein as the “Restricted Period” with respect to such shares of Restricted Stock.

3.Transferability.  Shares of Restricted Stock which have not vested may not be sold, assigned, transferred, pledged, or otherwise disposed of under any circumstances during the applicable Restricted Period, except that such shares may be transferred to a Permitted Transferee who agrees in writing (in a form satisfactory to the Company and its counsel) to be bound by this Agreement to the same extent as the Participant, and any such transferred shares shall continue to be subject to forfeiture upon the Participant’s termination of service under the Consulting Agreement as provided herein.  The Restricted Stock shall not be subject to

execution, attachment or similar process during the applicable Restricted Period.  Upon any attempt to transfer, assign, pledge, or otherwise dispose of the Restricted Stock during the applicable Restricted Period contrary to the provisions of the Plan or this Agreement, or upon the levy of any attachment or similar process upon the Restricted Stock during the applicable Restricted Period, the Restricted Stock shall immediately be forfeited to the Company and cease to be outstanding.

4.Forfeiture of Restricted Stock.  All unvested shares of Restricted Stock shall immediately be forfeited to the Company and cease to be outstanding upon the termination of the Participant’s service under the Consulting Agreement.  The Participant acknowledges that neither the Participant nor the Participant’s estate will have any claim whatsoever against the Company or any Subsidiary related to any forfeiture of the Restricted Stock.

5.Acceleration of Vesting Upon Change of Control.  Upon a Change of Control all Restricted Periods shall terminate and all outstanding shares of Restricted Stock shall be vested in full and all limitations on such Restricted Stock set forth in this Agreement shall automatically lapse.

6.Plan Governing.  The Participant hereby acknowledges receipt of a copy of the Plan and accepts and agrees to be bound by all of the terms and conditions of the Plan as if set out verbatim in this Agreement.  In the event of a conflict between the terms of the Plan and the terms of this Agreement, the terms of the Plan shall control.

7.Miscellaneous.  This Agreement may be amended only by written agreement of the Participant and the Company and may be amended without the consent of any other person.  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, representatives, heirs, descendants, distributees and permitted assigns.  This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the Effective Date.

Company:	SELECT MEDICAL HOLDINGS CORPORATION
	By:	/s/ Robert A. Ortenzio
	Name:	Robert A. Ortenzio
	Title:	Chief Executive Officer
Participant:	/s/ William H. Frist
		William H. Frist

2

EX-10.86

Exhibit 10.86

SELECT MEDICAL HOLDINGS CORPORATION

RESTRICTED STOCK AWARD AGREEMENT UNDER THE

2011 EQUITY INCENTIVE PLAN

This Restricted Stock Award Agreement (this “Agreement”) is made as of October 30, 2013 (the “Effective Date”), between SELECT MEDICAL HOLDINGS CORPORATION, a Delaware corporation (the “Company”), and THOMAS A. SCULLY, an individual (the “Participant”).

WHEREAS, the Company has adopted the 2011 Equity Incentive Plan (the “Plan”), all of the terms and provisions of which are incorporated herein by reference and made a part hereof;

WHEREAS, the Participant serves as a member of the Board of Directors of the Company;

WHEREAS, in order to provide an incentive to the Participant to serve as a consultant under the that certain Consulting Agreement between the Company and the Participant, dated of even date herewith (the “Consulting Agreement”), the Company has approved and authorized the issuance of certain shares of the Common Stock of the Company, par value $.001 per share (the “Stock”), to the Participant, subject to the terms of the Plan and this Agreement; and

WHEREAS, all capitalized terms used but not defined herein shall have the meanings set forth in the Plan.

NOW, THEREFORE, in consideration of the services to be rendered by the Participant under the Consulting Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Participant agree to the terms and conditions set forth herein.

1.Award of Restricted Stock.  The Company hereby awards and issues to the Participant, effective as of the date hereof, 100,000 shares of Stock (the “Restricted Stock”).

2.Vesting Schedule. Subject to the further provisions of this Agreement, and the Participant’s continued service under the Consulting Agreement, 50% of the shares of Restricted Stock shall vest on October 30, 2014 and 50% of the shares of Restricted Stock shall vest on October 30, 2015.  The period beginning on the date hereof through and including the vesting date for any shares of Restricted Stock shall be referred to herein as the “Restricted Period” with respect to such shares of Restricted Stock.

3.Transferability.  Shares of Restricted Stock which have not vested may not be sold, assigned, transferred, pledged, or otherwise disposed of under any circumstances during the applicable Restricted Period, except that such shares may be transferred to a Permitted Transferee who agrees in writing (in a form satisfactory to the Company and its counsel) to be bound by this Agreement to the same extent as the Participant, and any such transferred shares shall continue to be subject to forfeiture upon the Participant’s termination of service under the Consulting Agreement as provided herein.  The Restricted Stock shall not be subject to

execution, attachment or similar process during the applicable Restricted Period.  Upon any attempt to transfer, assign, pledge, or otherwise dispose of the Restricted Stock during the applicable Restricted Period contrary to the provisions of the Plan or this Agreement, or upon the levy of any attachment or similar process upon the Restricted Stock during the applicable Restricted Period, the Restricted Stock shall immediately be forfeited to the Company and cease to be outstanding.

4.Forfeiture of Restricted Stock.  All unvested shares of Restricted Stock shall immediately be forfeited to the Company and cease to be outstanding upon the termination of the Participant’s service under the Consulting Agreement.  The Participant acknowledges that neither the Participant nor the Participant’s estate will have any claim whatsoever against the Company or any Subsidiary related to any forfeiture of the Restricted Stock.

5.Acceleration of Vesting Upon Change of Control.  Upon a Change of Control all Restricted Periods shall terminate and all outstanding shares of Restricted Stock shall be vested in full and all limitations on such Restricted Stock set forth in this Agreement shall automatically lapse.

6.Plan Governing.  The Participant hereby acknowledges receipt of a copy of the Plan and accepts and agrees to be bound by all of the terms and conditions of the Plan as if set out verbatim in this Agreement.  In the event of a conflict between the terms of the Plan and the terms of this Agreement, the terms of the Plan shall control.

7.Miscellaneous.  This Agreement may be amended only by written agreement of the Participant and the Company and may be amended without the consent of any other person.  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, representatives, heirs, descendants, distributees and permitted assigns.  This Agreement may be executed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the Effective Date.

Company:	SELECT MEDICAL HOLDINGS CORPORATION
	By:	/s/ Robert A. Ortenzio
	Name:	Robert A. Ortenzio
	Title:	Chief Executive Officer
Participant:	/s/ Thomas A. Scully
		Thomas A. Scully

2

EX-12

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Exhibit 12

Select Medical Holdings Corporation
Ratio of Earnings to Fixed Charges
(unaudited)

	For the Year Ended December 31,
	2009		2010		2011		2012		2013
	(in thousands)
Pre-tax income from operations before adjustments for non-controlling interests in consolidated subsidiaries or earnings (loss) from equity investees	$	116,404	$	124,432	$	180,807	$	235,845	$	195,325
Fixed charges:
Interest expense and amortization of debt discount and premium on all indebtedness		132,469		112,337		99,216		94,950		87,364
Capitalized interest		427		767		304		153		242
Rentals:
Buildings — 33%(A)		38,644		39,033		39,070		40,973		40,815
Office and other equipment — 33%(A)		9,309		12,038		15,010		14,577		13,513
Preferred stock dividend requirements of consolidated subsidiaries		29,273		—		—		—		—
Total fixed charges	$	210,121	$	164,175	$	153,600	$	150,653	$	141,934
Pre-tax income from operations before adjustment for non-controlling interests in consolidated subsidiaries or earnings (loss) from equity investees plus fixed charges, less preferred stock dividend requirements of consolidated subsidiaries less capitalized interest	$	326,098	$	287,840	$	334,103	$	386,345	$	337,017
Ratio of earnings to fixed charges		1.55		1.75		2.18		2.56		2.37

(A)

The Company uses 33% to estimate the interest on its rentals. This percentage is a reasonable approximation of the interest factor.

Select Medical Corporation
Ratio of Earnings to Fixed Charges
(unaudited)

	For the Year Ended December 31,
	2009		2010		2011		2012		2013
	(dollars in thousands)
Pre-tax income from operations before adjustments for non-controlling interests in consolidated subsidiaries or earnings (loss) from equity investees	$	152,037	$	152,297	$	209,424	$	247,036	$	198,694
Fixed charges:
Interest expense and amortization of debt discount and premium on all indebtedness		99,543		84,472		81,232		83,759		84,954
Capitalized interest		427		767		304		153		242
Rentals:
Buildings — 33%(A)		38,644		39,033		39,070		40,973		40,815
Office and other equipment — 33%(A)		9,309		12,038		15,010		14,577		13,513
Total fixed charges	$	147,922	$	136,310	$	135,616	$	139,462	$	139,524
Pre-tax income from operations before adjustment for non-controlling interests in consolidated subsidiaries or earnings (loss) from equity investees plus fixed charges, less preferred stock dividend requirements of consolidated subsidiaries less capitalized interest	$	299,532	$	287,840	$	344,736	$	386,345	$	337,976
Ratio of earnings to fixed charges		2.02		2.11		2.54		2.77		2.42

(A)

The Company uses 33% to estimate the interest on its rentals. This percentage is a reasonable approximation of the interest factor.

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Exhibit 12

Select Medical Holdings Corporation Ratio of Earnings to Fixed Charges (unaudited)
Select Medical Corporation Ratio of Earnings to Fixed Charges (unaudited)

EX-21.1

Exhibit 21.1

SUBSIDIARIES

	JURISDICTION
NAME	OF ORGANIZATION
Allevant Solutions, LLC	Delaware
Advantage Rehabilitation Clinics, Inc.	Massachusetts
American Transitional Hospitals, Inc.	Delaware
Argosy Health, LLC	Delaware
Baseline Rehabilitation, Inc.	Florida
C.E.R.—West, Inc.	Michigan
Caritas Rehab Services, LLC	Kentucky
Community Rehab Centers of Massachusetts, Inc.	Massachusetts
Crowley Physical Therapy Clinic, Inc.	Louisiana
Dade Prosthetics & Orthotics, Inc.	Florida
Douglas Avery & Associates, Ltd.	Virginia
Eagle Rehab Corporation	Delaware
FC Select, LLC	Delaware
Fine, Bryant & Wah, Inc.	Maryland
Garrett Rehab Services, LLC	Maryland
Georgia Physical Therapy, Inc.	Georgia
GH General-San Antonio, LLC	Texas
GlobalRehab — San Antonio, LP	Texas
GP Therapy, L.L.C.	Georgia
GR General-Scottsdale, LLC	Texas
Great Lakes Specialty Hospital—Hackley, LLC	Delaware
Great Lakes Specialty Hospital—Oak, LLC	Delaware
GRSH ES, Inc.	Delaware
Gulf Breeze Physical Therapy, Inc.	Florida
Hospital Holdings Corporation	Delaware
Indianapolis Physical Therapy and Sports Medicine, Inc.	Indiana
Intensiva Healthcare Corporation	Delaware
Intensiva Hospital of Greater St. Louis, Inc.	Missouri
Jeffersontown Physical Therapy, LLC	Kentucky
Johnson Physical Therapy, Inc.	Ohio
Joyner Sportsmedicine Institute, Inc.	Pennsylvania
Kentucky Orthopedic Rehabilitation, LLC	Delaware
Kentucky Rehabilitation Services, Inc.	Kentucky
Kessler Institute for Rehabilitation, Inc.	New Jersey
Kessler Orthotic & Prosthetic Services, Inc.	Delaware
Kessler Professional Services, LLC	Delaware
Kessler Rehab Centers, Inc.	Delaware
Kessler Rehabilitation Corporation	Delaware
Kessler Rehabilitation Services, Inc.	New Jersey
KORT Rehabilitation at Home, LLC	Delaware
Madison Rehabilitation Center, Inc.	Connecticut
Metro Rehabilitation Services, Inc.	Michigan
Metro Therapy, Inc.	New York
New England Rehabilitation Center of Southern New Hampshire, Inc.	New Hampshire
NovaCare Occupational Health Services, Inc.	Delaware
NovaCare Outpatient Rehabilitation East, Inc.	Delaware
NovaCare Outpatient Rehabilitation, Inc.	Kansas
NovaCare Rehabilitation, Inc.	Minnesota
NovaCare Rehabilitation of Ohio, Inc.	Ohio
OHRH ES, Inc.	Delaware

Penn State Hershey Rehabilitation, LLC	Delaware
PR Acquisition Corporation	California
Pro Active Therapy, Inc.	North Carolina
Pro Active Therapy of North Carolina, Inc.	North Carolina
Pro Active Therapy of South Carolina, Inc.	South Carolina
Pro Active Therapy of Virginia, Inc.	Virginia
Professional Sports Care Management, Inc.	Delaware
Professional Therapeutic Services, Inc.	Ohio
Professional Therapy Systems, Inc.	Tennessee
PTSMA, Inc.	Connecticut
RCI (Michigan), Inc.	Delaware
RCI (WRS), Inc.	Delaware
Regency Hospitals, LLC	Delaware
Regency Hospital Company, L.L.C.	Delaware
Regency Hospital Company of Macon, LLC	Delaware
Regency Hospital Company of Meridian, L.L.C.	Delaware
Regency Hospital Company of South Atlanta, L.L.C.	Delaware
Regency Hospital Company of South Carolina, L.L.C.	Delaware
Regency Hospital of Cincinnati, LLC	Delaware
Regency Hospital of Columbus, LLC	Delaware
Regency Hospital of Covington, LLC	Delaware
Regency Hospital of Fort Worth Holdings, LLC	Delaware
Regency Hospital of Fort Worth, LLLP	Delaware
Regency Hospital of Greenville, LLC	Delaware
Regency Hospital of Jackson, LLC	Delaware
Regency Hospital of Minneapolis, LLC	Delaware
Regency Hospital of North Central Ohio, LLC	Delaware
Regency Hospital of North Dallas Holdings, LLC	Delaware
Regency Hospital of Northwest Arkansas, LLC	Delaware
Regency Hospital of Northwest Indiana, LLC	Delaware
Regency Hospital of Odessa Limited Partner, LLC	Delaware
Regency Hospital of Southern Mississippi, LLC	Delaware
Regency Hospital of Toledo, LLC	Delaware
Regency Management Company, Inc.	Delaware
RehabClinics, Inc.	Delaware
RehabClinics (GALAXY), Inc.	Illinois
RehabClinics (PTA), Inc.	Delaware
RehabClinics (SPT), Inc.	Delaware
Rehabilitation Center of Washington, D.C., Inc.	Delaware
Rehabilitation Institute of Denton, LLC	Delaware
Rehab Provider Network—East I, Inc.	Delaware
Rehab Provider Network—East II, Inc.	Maryland
Rehab Provider Network—Indiana, Inc.	Indiana
Rehab Provider Network—Michigan, Inc.	Michigan
Rehab Provider Network—New Jersey, Inc.	New Jersey
Rehab Provider Network—Ohio, Inc.	Ohio
Rehab Provider Network—Pennsylvania, Inc.	Pennsylvania
Rehab Provider Network of Colorado, Inc.	Colorado
Rehab Provider Network of Florida, Inc.	Florida
Rehab Provider Network of New Mexico, Inc.	New Mexico
Rehab Provider Network of North Carolina, Inc.	North Carolina
Rehab Provider Network of South Carolina, Inc.	Delaware
Rehab Provider Network of Texas, Inc.	Texas
Rehab Provider Network of Virginia, Inc.	Delaware
RPN of NC, Inc.	Delaware
S.T.A.R.T., Inc.	Massachusetts

Saco Bay Orthopedic and Sports Physical Therapy, Inc.	Maine
Select Employment Services, Inc.	Delaware
Select Hospital Investors, Inc.	Delaware
Select LifeCare Western Michigan, LLC	Delaware
SelectMark, Inc.	Delaware
Select Medical of Kentucky, Inc.	Delaware
Select Medical of Maryland, Inc.	Delaware
Select Medical of New York, Inc.	Delaware
Select Medical Property Ventures, LLC	Delaware
Select Medical Rehabilitation Clinics, Inc.	Delaware
Select Medical Rehabilitation Services, Inc.	Delaware
Select NovaCare—KOP, Inc.	Nevada
Select NovaCare—PBG, Inc.	New York
Select NovaCare—PIT, Inc.	Arizona
Select Physical Therapy Holdings, Inc.	Delaware
Select Physical Therapy Limited Partnership for Better Living	Delaware
Select Physical Therapy Network Services, Inc.	Delaware
Select Physical Therapy of Albuquerque, Ltd.	Alabama
Select Physical Therapy of Birmingham, Ltd.	Alabama
Select Physical Therapy of Blue Springs Limited Partnership	Alabama
Select Physical Therapy of Cave Springs Limited Partnership	Alabama
Select Physical Therapy of Chicago, Inc.	Illinois
Select Physical Therapy of Colorado Springs Limited Partnership	Alabama
Select Physical Therapy of Connecticut Limited Partnership	Alabama
Select Physical Therapy of Denver, Ltd.	Alabama
Select Physical Therapy of Green Bay Limited Partnership	Alabama
Select Physical Therapy of Illinois Limited Partnership	Alabama
Select Physical Therapy of Kendall, Ltd.	Alabama
Select Physical Therapy of Knoxville Limited Partnership	Alabama
Select Physical Therapy of Las Vegas Limited Partnership	Alabama
Select Physical Therapy of Lorain Limited Partnership	Alabama
Select Physical Therapy of Louisville, Ltd.	Alabama
Select Physical Therapy of Ohio Limited Partnership	Alabama
Select Physical Therapy of Portola Valley Limited Partnership	Alabama
Select Physical Therapy of Scottsdale Limited Partnership	Alabama
Select Physical Therapy of St. Louis Limited Partnership	Alabama
Select Physical Therapy of West Denver Limited Partnership	Alabama
Select Physical Therapy Orthopedic Services, Inc.	Delaware
Select Physical Therapy Texas Limited Partnership	Alabama
Select Provider Networks, Inc.	Delaware
Select Rehabilitation Hospital—Hershey, Inc.	Delaware
Select Software Ventures, LLC	Delaware
Select Specialty—Downriver, LLC	Delaware
Select Specialty Hospital—Akron, LLC	Delaware
Select Specialty Hospital—Ann Arbor, Inc.	Missouri
Select Specialty Hospital—Arizona, Inc.	Delaware
Select Specialty Hospital—Augusta, Inc.	Delaware
Select Specialty Hospital—Beech Grove, Inc.	Missouri
Select Specialty Hospital—Central Pennsylvania, L.P.	Delaware
Select Specialty Hospital—Charleston, Inc.	Delaware
Select Specialty Hospital—Cincinnati, Inc.	Missouri
Select Specialty Hospital—Colorado Springs, Inc.	Delaware
Select Specialty Hospital—Columbus, Inc.	Delaware
Select Specialty Hospital—Dallas, Inc.	Delaware
Select Specialty Hospital—Danville, Inc.	Delaware
Select Specialty Hospital — Daytona Beach, Inc.	Delaware

Select Specialty Hospital—Denver, Inc.	Delaware
Select Specialty Hospital—Des Moines, Inc.	Delaware
Select Specialty Hospital—Durham, Inc.	Delaware
Select Specialty Hospital—Erie, Inc.	Delaware
Select Specialty Hospital—Evansville, Inc.	Missouri
Select Specialty Hospital—Evansville, LLC	Delaware
Select Specialty Hospital—Flint, Inc.	Missouri
Select Specialty Hospital—Fort Smith, Inc.	Missouri
Select Specialty Hospital—Fort Wayne, Inc.	Missouri
Select Specialty Hospital—Gainesville, Inc.	Delaware
Select Specialty Hospital—Greensboro, Inc.	Delaware
Select Specialty Hospital—Grosse Pointe, Inc.	Delaware
Select Specialty Hospital—Gulf Coast, Inc.	Mississippi
Select Specialty Hospital—Houston, L.P.	Delaware
Select Specialty Hospital—Jackson, Inc.	Delaware
Select Specialty Hospital—Johnstown, Inc.	Missouri
Select Specialty Hospital—Kalamazoo, Inc.	Delaware
Select Specialty Hospital—Kansas City, Inc.	Missouri
Select Specialty Hospital—Knoxville, Inc.	Delaware
Select Specialty Hospital—Laurel Highlands, Inc.	Delaware
Select Specialty Hospital—Lexington, Inc.	Delaware
Select Specialty Hospital—Little Rock, Inc.	Delaware
Select Specialty Hospital—Longview, Inc.	Delaware
Select Specialty Hospital—Macomb County, Inc.	Missouri
Select Specialty Hospital—Madison, Inc.	Delaware
Select Specialty Hospital—McKeesport, Inc.	Delaware
Select Specialty Hospital — Melbourne, Inc.	Delaware
Select Specialty Hospital—Memphis, Inc.	Delaware
Select Specialty Hospital—Midland, Inc.	Delaware
Select Specialty Hospital—Milwaukee, Inc.	Delaware
Select Specialty Hospital—Nashville, Inc.	Delaware
Select Specialty Hospital—North Knoxville, Inc.	Missouri
Select Specialty Hospital—Northeast New Jersey, Inc.	Delaware
Select Specialty Hospital—Northeast Ohio, Inc.	Missouri
Select Specialty Hospital—Northern Kentucky, LLC	Delaware
Select Specialty Hospital—Northwest Detroit, Inc.	Delaware
Select Specialty Hospital—Oklahoma City, Inc.	Delaware
Select Specialty Hospital—Omaha, Inc.	Missouri
Select Specialty Hospital—Orlando, Inc.	Delaware
Select Specialty Hospital—Palm Beach, Inc.	Delaware
Select Specialty Hospital—Panama City, Inc.	Delaware
Select Specialty Hospital—Pensacola, Inc.	Delaware
Select Specialty Hospital—Phoenix, Inc.	Delaware
Select Specialty Hospital—Pittsburgh/UPMC, Inc.	Delaware
Select Specialty Hospital—Pontiac, Inc.	Missouri
Select Specialty Hospital—Quad Cities, Inc.	Delaware
Select Specialty Hospital—Saginaw, Inc.	Delaware
Select Specialty Hospital—San Antonio, Inc.	Delaware
Select Specialty Hospital—Savannah, Inc.	Delaware
Select Specialty Hospital—Sioux Falls, Inc.	Missouri
Select Specialty Hospital—South Dallas, Inc.	Delaware
Select Specialty Hospital—Springfield, Inc.	Delaware
Select Specialty Hospital—Tallahassee, Inc.	Delaware
Select Specialty Hospital—Topeka, Inc.	Missouri
Select Specialty Hospital—TriCities, Inc.	Delaware
Select Specialty Hospital—Tulsa, Inc.	Delaware
Select Specialty Hospital—Tulsa/Midtown, LLC	Delaware

Select Specialty Hospital—Western Michigan, Inc.	Missouri
Select Specialty Hospital—Western Missouri, Inc.	Delaware
Select Specialty Hospital—Wichita, Inc.	Missouri
Select Specialty Hospital—Wilmington, Inc.	Missouri
Select Specialty Hospital—Winston-Salem, Inc.	Delaware
Select Specialty Hospital—Youngstown, Inc.	Missouri
Select Specialty Hospital—Zanesville, Inc.	Delaware
Select Specialty Hospitals, Inc.	Delaware
Select Subsidiaries, Inc.	Pennsylvania
Select Synergos, Inc.	Delaware
Select Transport, Inc.	Delaware
Select Unit Management, Inc.	Delaware
SemperCare, Inc.	Delaware
SLMC Finance Corporation	Delaware
SSM Select Rehab St. Louis, LLC	Delaware
TheraWorks, Inc.	Texas
The Rehab Group, Inc.	Tennessee
The Rehab Group-Murfreesboro, LLC	Tennessee
TJ Corporation I, LLC	Delaware
Victoria Healthcare, Inc.	Florida
West Gables Rehabilitation Hospital, LLC	Delaware

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (File Nos. 333-162407 and 333-174393) of Select Medical Holdings Corporation of our report dated February 25, 2014, relating to the financial statements, financial statement schedule, and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. We also consent to the reference to us under the heading “Selected Financial Data” in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Philadelphia, PA

February 25, 2014

EX-31.1

EXHIBIT 31.1

SELECT MEDICAL HOLDINGS CORPORATION AND
SELECT MEDICAL CORPORATION
CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, David S. Chernow, certify that:

1.I have reviewed this annual report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 25, 2014	/s/ David S. Chernow
	David S. Chernow
	President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

SELECT MEDICAL HOLDINGS CORPORATION AND
SELECT MEDICAL CORPORATION
CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Martin F. Jackson, certify that:

1.I have reviewed this annual report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 25, 2014	/s/ Martin F. Jackson
	Martin F. Jackson
	Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Select Medical Holdings Corporation and Select Medical Corporation (the “Company”) for the period ended December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, David S. Chernow and Martin F. Jackson, Chief Executive Officer and Chief Financial Officer, respectively, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.

February 25, 2014

/s/ David S. Chernow

David S. Chernow

President and Chief Executive Officer

/s/ Martin F. Jackson

Martin F. Jackson

Executive Vice President and Chief Financial Officer

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies

Schedule of minimum future lease obligations on long-term non-cancelable operating leases

Minimum future lease obligations on long-term non-cancelable operating leases in effect at December 31, 2013 are approximately as follows (in thousands):

2014	$	125,611
2015		98,100
2016		77,724
2017		63,517
2018		51,104
Thereafter		364,253
	$	780,309

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Stockholders' Equity (Details) (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Stockholders' Equity
Maximum amount authorized to be repurchased under the common stock repurchase program	$ 350.0
Number of shares repurchased under the program	1,115,691	5,725,782	9,858,907
Value of shares repurchased under the program	$ 10.0	$ 46.8	$ 72.7
Shares of restricted stock granted	952,500	761,500	565,000
Shares of common stock related to the exercise of stock options issued	166,600	301,208	53,932
Shares of common stock forfeited	331,697	15,860	10,860

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Significant Transactions (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Significant transactions
Investment in cash	$ 34,893,000	$ 14,689,000	$ 15,699,000
Baylor Health Care System
Significant transactions
Gain on contribution of property to equity method investment			1,200,000
Investment in cash		7,800,000	13,500,000
Purchase of partnership units			7,600,000
Working capital investments			$ 5,900,000
Percentage of ownership	49.00%

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Commitments and Contingencies (Details 2) (Naming, promotional and sponsorship agreement, Subsidiary, USD $) In Millions, unless otherwise specified	Dec. 31, 2013
Naming, promotional and sponsorship agreement | Subsidiary
Commitments and Contingencies
Amount expected to be paid in next year	$ 2.9
Increase in successive annual payment (as a percent)	0.023

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Stock Option and Restricted Stock Plans (Details) (USD $)	12 Months Ended			0 Months Ended			12 Months Ended												12 Months Ended		12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Aug. 03, 2011 Options	May 13, 2011 Options	Mar. 03, 2011 Options	Dec. 31, 2013 Options	Dec. 31, 2012 Options	Dec. 31, 2011 Options	Dec. 31, 2013 Plans Options	Dec. 31, 2012 Plans Options	Dec. 31, 2013 Plans Options Minimum	Dec. 31, 2012 Plans Options Minimum	Dec. 31, 2013 Plans Options Maximum	Dec. 31, 2012 Plans Options Maximum	Dec. 31, 2012 Director Plan Options	Dec. 31, 2013 Director Plan Options	Aug. 12, 2009 Director Plan Options	Dec. 31, 2012 Director Plan Options Minimum	Dec. 31, 2013 Director Plan Options Minimum	Dec. 31, 2012 Director Plan Options Maximum	Dec. 31, 2013 Director Plan Options Maximum	Aug. 12, 2009 Director Plan Restricted stock awards
Stock option and restricted stock plans
Number of shares authorized																		75,000					150,000
Vesting period							5 years
Expiration term							10 years
Expected volatility (as a percent)									36.00%
Dividend yield (as a percent)									0.00%
Expected life									5 years
Risk free rate (as a percent)									3.30%
Fair Value of Common Stock (in dollars per share)				$ 7.14	$ 9.00	$ 7.66
Weighted Average Exercise Price
Balance at the beginning of the period (in dollars per share)										$ 8.40	$ 8.16	$ 3.33	$ 3.33	$ 10.00	$ 10.00	$ 7.62	$ 8.69		$ 3.33	$ 3.33	$ 10.00	$ 10.00
Granted (in dollars per share)				$ 7.14	$ 9.00	$ 7.66
Exercised (in dollars per share)										$ 9.15	$ 6.07	$ 7.14	$ 3.33	$ 10.00	$ 10.00	$ 5.47			$ 3.33		$ 8.33
Canceled (in dollars per share)										$ 9.13	$ 8.18	$ 8.33	$ 7.66	$ 10.00	$ 10.00
Balance at the end of the period (in dollars per share)										$ 8.22	$ 8.40	$ 3.33	$ 3.33	$ 10.00	$ 10.00	$ 8.69	$ 8.69		$ 3.33	$ 3.33	$ 10.00	$ 10.00
Shares
Balance at the beginning of the period (in shares)										2,423,000	2,730,000					63,000	42,000
Granted (in shares)				10,000	20,000	88,000	0	0
Exercised (in shares)	(166,600)	(301,208)	(53,932)							(167,000)	(280,000)					(21,000)
Canceled (in shares)										(316,000)	(27,000)
Balance at the end of the period (in shares)										1,940,000	2,423,000					42,000	42,000

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Selected Quarterly Financial Data (Unaudited) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Selected quarterly financial data (unaudited)
Net operating revenues	$ 746,175	$ 722,845	$ 756,673	$ 749,955	$ 741,086	$ 713,669	$ 750,193	$ 744,021	$ 2,975,648	$ 2,948,969	$ 2,804,507
Income from operations	68,244	62,399	88,263	82,530	80,923	70,819	93,513	91,604	301,436	336,859	310,719
Net income attributable to Select Medical Holdings Corporation	28,920	23,272	27,780	34,418	39,406	24,110	43,172	41,542	114,390	148,230	107,846
Income per common share:
Basic (in dollars per share)	$ 0.21	$ 0.17	$ 0.20	$ 0.25	$ 0.28	$ 0.17	$ 0.31	$ 0.29	$ 0.82	$ 1.05	$ 0.71
Diluted (in dollars per share)	$ 0.21	$ 0.17	$ 0.20	$ 0.24	$ 0.28	$ 0.17	$ 0.31	$ 0.29	$ 0.82	$ 1.05	$ 0.71
Select
Selected quarterly financial data (unaudited)
Net operating revenues	746,175	722,845	756,673	749,955	741,086	713,669	750,193	744,021	2,975,648	2,948,969	2,804,507
Income from operations	68,244	62,399	88,263	82,530	80,923	70,819	93,513	91,604	301,436	336,859	310,719
Net income attributable to Select Medical Holdings Corporation	$ 28,920	$ 23,272	$ 27,780	$ 36,608	$ 41,254	$ 25,953	$ 45,018	$ 43,279	$ 116,580	$ 155,504	$ 126,447

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Organization and Significant Accounting Policies (Details 4) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Non-Controlling Interests
Redeemable non-controlling interests	$ 11,584	$ 10,811
Non-controlling interests	32,408	28,430
Net income attributable to non-controlling interests	$ 8,619	$ 5,663	$ 4,916
Net operating revenues | Customer concentration | Medicare program
Revenue recognition
Percentage of concentration risk	46.00%	47.00%	48.00%
Accounts receivable | Customer concentration | Medicare program
Revenue recognition
Percentage of concentration risk	32.00%	29.00%

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Long-Term Debt and Notes Payable (Tables)

12 Months Ended

Dec. 31, 2013

Schedule of components of long-term debt and notes payable

	Holdings
	December 31,
	2012		2013
	(in thousands)
75/8% senior subordinated notes	$	70,000	$	—
6.375% senior notes		—		600,000
Senior secured credit facilities:
Revolving loan		130,000		20,000
Term loans(1)		1,096,641		807,815
Senior floating rate notes		167,300		—
Other		6,302		17,460
Total debt		1,470,243		1,445,275
Less: current maturities		11,646		17,565
Total long-term debt	$	1,458,597	$	1,427,710

Schedule of maturities of the Company's long-term debt

Maturities of the Company's long-term debt for the years after 2013 are approximately as follows and are presented net of the discount on the senior secured credit facility term loans (in thousands):

2014	$	17,565
2015		10,183
2016		296,232
2017		4,075
2018		515,820
2019 and beyond		601,400

Select

Schedule of components of long-term debt and notes payable

	Select
	December 31,
	2012		2013
	(in thousands)
75/8% senior subordinated notes	$	70,000	$	—
6.375% senior notes		—		600,000
Senior secured credit facilities:
Revolving loan		130,000		20,000
Term loans(1)		1,096,641		807,815
Other		6,302		17,460
Total debt		1,302,943		1,445,275
Less: current maturities		11,646		17,565
Total long-term debt	$	1,291,297	$	1,427,710

(1)

Presented net of unamortized discount of $14.2 million and $6.3 million at December 31, 2012 and 2013, respectively.

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Schedule II - Valuation and Qualifying Accounts (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Allowance for Doubtful Accounts
Changes in valuation and qualifying accounts
Balance at Beginning of Year	$ 41,854	$ 47,469	$ 44,416
Charged to Cost and Expenses	37,423	39,055	51,347
Acquisitions			108
Deductions	(38,462)	(44,670)	(48,402)
Balance at End of Year	40,815	41,854	47,469
Income Tax Valuation Allowance
Changes in valuation and qualifying accounts
Balance at Beginning of Year	13,341	15,733	16,622
Charged to Cost and Expenses	(2,794)	(2,392)	(889)
Balance at End of Year	$ 10,547	$ 13,341	$ 15,733

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Subsequent Events (Details) (Subsequent Event, Select, USD $)	0 Months Ended
	Feb. 19, 2014
Subsequent Event | Select
Subsequent Event
Cash dividend declared (in dollars per share)	$ 0.10

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Stock Option and Restricted Stock Plans (Details 3) (USD $) Share data in Thousands, except Per Share data, unless otherwise specified	12 Months Ended				0 Months Ended
	Dec. 31, 2013 Options Plans	Dec. 31, 2012 Options Plans	Dec. 31, 2011 Options Plans	Dec. 31, 2013 Options Director Plan	Oct. 30, 2013 Restricted stock awards	Aug. 07, 2013 Restricted stock awards	May 01, 2013 Restricted stock awards	Feb. 20, 2013 Restricted stock awards	Jan. 02, 2013 Restricted stock awards	Oct. 30, 2012 Restricted stock awards	Aug. 07, 2012 Restricted stock awards	May 02, 2012 Restricted stock awards	Mar. 26, 2012 Restricted stock awards	Dec. 15, 2011 Restricted stock awards	Nov. 03, 2011 Restricted stock awards	Aug. 03, 2011 Restricted stock awards	Dec. 31, 2013 Restricted stock awards
Stock option and restricted stock plans
Weighted average remaining contractual term for all outstanding options	4 years 5 months 1 day			4 years 2 months 26 days
Weighted average remaining contractual term of exercisable options	4 years 1 month 10 days			4 years 1 month 28 days
Total intrinsic value of options exercised (in dollars)	$ 200,000	$ 1,100,000	$ 200,000
Aggregate intrinsic value of options outstanding (in dollars)	6,600,000			122,700
Aggregate intrinsic value of options exercisable (in dollars)	5,800,000			118,800
Number of Shares Issued					760	38	115	35	5	530	38	129	65	350	190	25
Fair Value of Common Stock (in dollars per share)					$ 8.50	$ 8.89	$ 8.06	$ 8.80	$ 9.90	$ 10.75	$ 11.84	$ 8.67	$ 8.33	$ 8.57	$ 8.61	$ 7.14
Stock compensation expense for each of the next five years, based on restricted stock awards granted
2014																	7,740,000
2015																	6,057,000
2016																	3,061,000
2017																	581,000
2018																	$ 40,000

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Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select's 6.375% Senior Notes (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Condensed Consolidating Statement of Operations
Net operating revenues	$ 746,175	$ 722,845	$ 756,673	$ 749,955	$ 741,086	$ 713,669	$ 750,193	$ 744,021	$ 2,975,648	$ 2,948,969	$ 2,804,507
Costs and expenses:
Cost of services									2,495,476	2,443,550	2,308,570
General and administrative									76,921	66,194	62,354
Bad debt expense									37,423	39,055	51,347
Depreciation and amortization									64,392	63,311	71,517
Total costs and expenses									2,674,212	2,612,110	2,493,788
Income from operations	68,244	62,399	88,263	82,530	80,923	70,819	93,513	91,604	301,436	336,859	310,719
Other income and expense:
Equity in earnings (losses) of unconsolidated subsidiaries									2,476	7,705	2,923
Loss on early retirement of debt									(18,747)	(6,064)	(31,018)
Interest income											322
Interest expense									(87,364)	(94,950)	(99,216)
Income before income taxes									197,801	243,550	183,730
Income tax expense (benefit)									74,792	89,657	70,968
Net income									123,009	153,893	112,762
Less: Net income attributable to non-controlling interests									8,619	5,663	4,916
Net income attributable to Select Medical Holdings Corporation and Select Medical Corporation	28,920	23,272	27,780	34,418	39,406	24,110	43,172	41,542	114,390	148,230	107,846
Select Medical Corporation
Condensed Consolidating Statement of Operations
Net operating revenues	746,175	722,845	756,673	749,955	741,086	713,669	750,193	744,021	2,975,648	2,948,969	2,804,507
Costs and expenses:
Cost of services									2,495,476	2,443,550	2,308,570
General and administrative									76,921	66,194	62,354
Bad debt expense									37,423	39,055	51,347
Depreciation and amortization									64,392	63,311	71,517
Total costs and expenses									2,674,212	2,612,110	2,493,788
Income from operations	68,244	62,399	88,263	82,530	80,923	70,819	93,513	91,604	301,436	336,859	310,719
Other income and expense:
Equity in earnings (losses) of unconsolidated subsidiaries									2,476	7,705	2,923
Loss on early retirement of debt									(17,788)	(6,064)	(20,385)
Interest income											322
Interest expense									(84,954)	(83,759)	(81,232)
Income before income taxes									201,170	254,741	212,347
Income tax expense (benefit)									75,971	93,574	80,984
Net income									125,199	161,167	131,363
Less: Net income attributable to non-controlling interests									8,619	5,663	4,916
Net income attributable to Select Medical Holdings Corporation and Select Medical Corporation	28,920	23,272	27,780	36,608	41,254	25,953	45,018	43,279	116,580	155,504	126,447
Select Medical Corporation | Reportable legal entities | Select Medical Corporation (Parent Company Only)
Condensed Consolidating Statement of Operations
Net operating revenues									350	123	121
Costs and expenses:
Cost of services									1,757	2,139	1,729
General and administrative									76,709	67,402	61,995
Depreciation and amortization									3,746	3,267	4,115
Total costs and expenses									82,212	72,808	67,839
Income from operations									(81,862)	(72,685)	(67,718)
Other income and expense:
Intercompany interest and royalty fees									(1,326)	(2,532)	(3,408)
Intercompany management fees									144,447	120,276	120,013
Loss on early retirement of debt									(17,788)	(6,064)	(20,385)
Interest income											132
Interest expense									(58,100)	(54,167)	(41,817)
Income before income taxes									(14,629)	(15,172)	(13,183)
Income tax expense (benefit)									(1,238)	(8,206)	(12,821)
Equity in earnings of subsidiaries									129,971	162,470	126,809
Net income									116,580	155,504	126,447
Net income attributable to Select Medical Holdings Corporation and Select Medical Corporation									116,580	155,504	126,447
Select Medical Corporation | Reportable legal entities | Subsidiary Guarantors
Condensed Consolidating Statement of Operations
Net operating revenues									2,553,505	2,549,896	2,436,177
Costs and expenses:
Cost of services									2,135,754	2,099,734	1,996,671
General and administrative									212	(1,208)	359
Bad debt expense									31,003	33,595	44,300
Depreciation and amortization									50,982	50,734	58,064
Total costs and expenses									2,217,951	2,182,855	2,099,394
Income from operations									335,554	367,041	336,783
Other income and expense:
Intercompany interest and royalty fees									1,339	2,494	3,382
Intercompany management fees									(125,361)	(102,096)	(102,970)
Equity in earnings (losses) of unconsolidated subsidiaries									2,384	7,637	2,870
Interest income											122
Interest expense									(22,760)	(25,348)	(34,612)
Income before income taxes									191,156	249,728	205,575
Income tax expense (benefit)									76,870	101,795	92,561
Equity in earnings of subsidiaries									15,716	15,639	13,406
Net income									130,002	163,572	126,420
Net income attributable to Select Medical Holdings Corporation and Select Medical Corporation									130,002	163,572	126,420
Select Medical Corporation | Reportable legal entities | Non-Guarantor Subsidiaries
Condensed Consolidating Statement of Operations
Net operating revenues									421,793	398,950	368,209
Costs and expenses:
Cost of services									357,965	341,677	310,170
Bad debt expense									6,420	5,460	7,047
Depreciation and amortization									9,664	9,310	9,338
Total costs and expenses									374,049	356,447	326,555
Income from operations									47,744	42,503	41,654
Other income and expense:
Intercompany interest and royalty fees									(13)	38	26
Intercompany management fees									(19,086)	(18,180)	(17,043)
Equity in earnings (losses) of unconsolidated subsidiaries									92	68	53
Interest income											68
Interest expense									(4,094)	(4,244)	(4,803)
Income before income taxes									24,643	20,185	19,955
Income tax expense (benefit)									339	(15)	1,244
Net income									24,304	20,200	18,711
Less: Net income attributable to non-controlling interests									8,619	5,663	4,916
Net income attributable to Select Medical Holdings Corporation and Select Medical Corporation									15,685	14,537	13,795
Select Medical Corporation | Eliminations
Other income and expense:
Equity in earnings of subsidiaries									(145,687)	(178,109)	(140,215)
Net income									(145,687)	(178,109)	(140,215)
Net income attributable to Select Medical Holdings Corporation and Select Medical Corporation									$ (145,687)	$ (178,109)	$ (140,215)

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Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select's 6.375% Senior Notes (Details 4) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Operating activities
Net income	$ 123,009	$ 153,893	$ 112,762
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	64,392	63,311	71,517
Provision for bad debts	37,423	39,055	51,347
Equity in earnings of unconsolidated subsidiaries	(2,476)	(7,705)	(2,923)
Loss on early retirement of debt	18,747	6,064	31,018
Loss (gain) from disposal or sale of assets	(581)	(5,906)	(4,966)
Non-cash stock compensation expense	7,033	5,677	3,725
Amortization of debt discount and issuance costs	8,433	7,566	8,007
Deferred income taxes	7,032	7,909	35,305
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Accounts receivable	(67,145)	15,158	(111,126)
Other current assets	(8,167)	(1,607)	(1,201)
Other assets	(3,484)	5,862	(2,081)
Accounts payable	(1,283)	(6,117)	20,629
Due to third-party payors	(1,041)	(4,448)	227
Accrued expenses	10,631	19,970	4,888
Net cash provided by operating activities	192,523	298,682	217,128
Investing activities
Purchases of property and equipment	(73,660)	(68,185)	(46,016)
Investment in businesses, net of distributions	(34,893)	(14,689)	(15,699)
Acquisition of businesses, net of cash acquired	(1,665)	(6,043)	(899)
Proceeds from sale of assets	2,912	16,511	7,879
Net cash used in investing activities	(107,306)	(72,406)	(54,735)
Financing activities
Borrowings on revolving credit facility	690,000	495,000	735,000
Payments on revolving credit facility	(800,000)	(405,000)	(720,000)
Borrowings on credit facility term loans, net of discount	298,500	266,750	841,500
Payments on credit facility term loans	(596,720)	(9,875)	(4,250)
Payments on 2005 credit facility term loans, net of call premium			(484,633)
Repurchase of 7 5/8% senior subordinated notes, net of premiums	(70,000)	(278,495)	(273,941)
Borrowings of other debt	15,310	8,281	7,055
Principal payments on other debt	(10,834)	(10,295)	(7,499)
Debt issuance costs	(18,914)	(6,527)	(18,556)
Repayments of bank overdrafts	(5,330)	1,227	(2,183)
Dividends paid to Holdings	(41,961)	(210,888)
Distributions to non-controlling interests	(3,537)	(3,268)	(4,612)
Net cash used in financing activities	(121,042)	(198,175)	(154,715)
Net increase (decrease) in cash and cash equivalents	(35,825)	28,101	7,678
Cash and cash equivalents at beginning of period	40,144	12,043	4,365
Cash and cash equivalents at end of period	4,319	40,144	12,043
Select Medical Corporation
Operating activities
Net income	125,199	161,167	131,363
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	64,392	63,311	71,517
Provision for bad debts	37,423	39,055	51,347
Equity in earnings of unconsolidated subsidiaries	(2,476)	(7,705)	(2,923)
Loss on early retirement of debt	17,788	6,064	20,385
Loss (gain) from disposal or sale of assets	(581)	(5,906)	(4,966)
Non-cash stock compensation expense	7,033	5,677	3,725
Amortization of debt discount and issuance costs	8,344	7,190	6,700
Deferred income taxes	7,032	7,909	35,305
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Accounts receivable	(67,145)	15,158	(111,126)
Other current assets	(8,167)	(1,607)	(1,201)
Other assets	(3,484)	5,877	(2,068)
Accounts payable	(1,283)	(6,117)	20,629
Due to third-party payors	(1,041)	(4,448)	227
Accrued expenses	15,068	23,746	21,139
Net cash provided by operating activities	198,102	309,371	240,053
Investing activities
Purchases of property and equipment	(73,660)	(68,185)	(46,016)
Investment in businesses, net of distributions	(34,893)	(14,689)	(15,699)
Acquisition of businesses, net of cash acquired	(1,665)	(6,043)	(899)
Proceeds from sale of assets	2,912	16,511	7,879
Net cash used in investing activities	(107,306)	(72,406)	(54,735)
Financing activities
Borrowings on revolving credit facility	690,000	495,000	735,000
Payments on revolving credit facility	(800,000)	(405,000)	(720,000)
Borrowings on credit facility term loans, net of discount	298,500	266,750	841,500
Payments on credit facility term loans	(596,720)	(9,875)	(4,250)
Payments on 2005 credit facility term loans, net of call premium			(484,633)
Issuance of 6.375% senior notes	600,000
Repurchase of 7 5/8% senior subordinated notes, net of premiums	(70,000)	(278,495)	(273,941)
Borrowings of other debt	15,310	8,281	7,055
Principal payments on other debt	(10,834)	(10,295)	(7,499)
Debt issuance costs	(18,914)	(6,527)	(18,556)
Repayments of bank overdrafts	(5,330)	1,227	(2,183)
Equity investment by Holdings	1,525	1,817	208
Dividends paid to Holdings	(226,621)	(268,479)	(245,729)
Distributions to non-controlling interests	(3,537)	(3,268)	(4,612)
Net cash used in financing activities	(126,621)	(208,864)	(177,640)
Net increase (decrease) in cash and cash equivalents	(35,825)	28,101	7,678
Cash and cash equivalents at beginning of period	40,144	12,043	4,365
Cash and cash equivalents at end of period	4,319	40,144	12,043
Select Medical Corporation | Reportable legal entities | Select Medical Corporation (Parent Company Only)
Operating activities
Net income	116,580	155,504	126,447
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,746	3,267	4,115
Loss on early retirement of debt	17,788	6,064	20,385
Loss (gain) from disposal or sale of assets			13
Non-cash stock compensation expense	7,033	5,677	3,725
Amortization of debt discount and issuance costs	8,344	7,190	6,700
Deferred income taxes	7,032	7,909	35,305
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries	(129,971)	(162,470)	(126,809)
Other current assets	(4,145)	740	(1,780)
Other assets	(6,594)	2,448	(12,069)
Accounts payable	2,075	(2,679)	1,326
Accrued expenses	(4,929)	25,350	14,823
Net cash provided by operating activities	16,959	49,000	72,181
Investing activities
Purchases of property and equipment	(3,024)	(5,150)	(3,413)
Net cash used in investing activities	(3,024)	(5,150)	(3,413)
Financing activities
Borrowings on revolving credit facility	690,000	495,000	735,000
Payments on revolving credit facility	(800,000)	(405,000)	(720,000)
Borrowings on credit facility term loans, net of discount	298,500	266,750	841,500
Payments on credit facility term loans	(596,720)	(9,875)	(4,250)
Payments on 2005 credit facility term loans, net of call premium			(484,633)
Issuance of 6.375% senior notes	600,000
Repurchase of 7 5/8% senior subordinated notes, net of premiums	(70,000)	(278,495)	(273,941)
Borrowings of other debt	8,923	8,003	6,100
Principal payments on other debt	(7,752)	(8,049)	(5,662)
Debt issuance costs	(18,914)	(6,527)	(18,556)
Repayments of bank overdrafts	(5,330)	1,227	(2,183)
Equity investment by Holdings	1,525	1,817	208
Dividends paid to Holdings	(226,621)	(268,479)	(245,729)
Intercompany	77,455	183,421	114,656
Net cash used in financing activities	(48,934)	(20,207)	(57,490)
Net increase (decrease) in cash and cash equivalents	(34,999)	23,643	11,278
Cash and cash equivalents at beginning of period	35,070	11,427	149
Cash and cash equivalents at end of period	71	35,070	11,427
Select Medical Corporation | Reportable legal entities | Subsidiary Guarantors
Operating activities
Net income	130,002	163,572	126,420
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	50,982	50,734	58,064
Provision for bad debts	31,003	33,595	44,300
Equity in earnings of unconsolidated subsidiaries	(2,384)	(7,637)	(2,870)
Loss (gain) from disposal or sale of assets	(463)	(6,002)	(5,024)
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries	(15,716)	(15,639)	(13,406)
Accounts receivable	(59,804)	29,727	(98,966)
Other current assets	(5,735)	141	1,165
Other assets	3,026	3,268	9,683
Accounts payable	(3,660)	(4,040)	16,247
Due to third-party payors	996	(15,278)	1,408
Accrued expenses	20,609	(3,835)	5,522
Net cash provided by operating activities	148,856	228,606	142,543
Investing activities
Purchases of property and equipment	(60,532)	(49,160)	(37,759)
Investment in businesses, net of distributions	(34,893)	(14,689)	(15,699)
Acquisition of businesses, net of cash acquired	(1,665)	(6,043)	(899)
Proceeds from sale of assets	2,456	16,511	7,879
Net cash used in investing activities	(94,634)	(53,381)	(46,478)
Financing activities
Borrowings of other debt	5,303		955
Principal payments on other debt	(873)	(433)	(755)
Intercompany	(59,288)	(171,058)	(99,832)
Net cash used in financing activities	(54,858)	(171,491)	(99,632)
Net increase (decrease) in cash and cash equivalents	(636)	3,734	(3,567)
Cash and cash equivalents at beginning of period	3,734		3,567
Cash and cash equivalents at end of period	3,098	3,734
Select Medical Corporation | Reportable legal entities | Non-Guarantor Subsidiaries
Operating activities
Net income	24,304	20,200	18,711
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	9,664	9,310	9,338
Provision for bad debts	6,420	5,460	7,047
Equity in earnings of unconsolidated subsidiaries	(92)	(68)	(53)
Loss (gain) from disposal or sale of assets	(118)	96	45
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Accounts receivable	(7,341)	(14,569)	(12,160)
Other current assets	1,713	(2,488)	(586)
Other assets	84	161	318
Accounts payable	302	602	3,056
Due to third-party payors	(2,037)	10,830	(1,181)
Accrued expenses	(612)	2,231	794
Net cash provided by operating activities	32,287	31,765	25,329
Investing activities
Purchases of property and equipment	(10,104)	(13,875)	(4,844)
Proceeds from sale of assets	456
Net cash used in investing activities	(9,648)	(13,875)	(4,844)
Financing activities
Borrowings of other debt	1,084	278
Principal payments on other debt	(2,209)	(1,813)	(1,082)
Intercompany	(18,167)	(12,363)	(14,824)
Distributions to non-controlling interests	(3,537)	(3,268)	(4,612)
Net cash used in financing activities	(22,829)	(17,166)	(20,518)
Net increase (decrease) in cash and cash equivalents	(190)	724	(33)
Cash and cash equivalents at beginning of period	1,340	616	649
Cash and cash equivalents at end of period	1,150	1,340	616
Select Medical Corporation | Eliminations
Operating activities
Net income	(145,687)	(178,109)	(140,215)
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries	$ 145,687	$ 178,109	$ 140,215

XML

Commitments and Contingencies (Details 3) (USD $) In Millions, unless otherwise specified	0 Months Ended		1 Months Ended	12 Months Ended
	Mar. 29, 2013 SSH-Evansville Amended complaint	Jan. 08, 2013 SSH-Evansville Amended complaint item	Jan. 31, 2014 SSH-Evansville Amended complaint item	Dec. 31, 2013 Professional liability claims	Dec. 31, 2013 General liability claims
Commitments and Contingencies
Self insurance retention per occurrence				$ 2.0	$ 2.0
Number of case managers identified as plaintiff		2
Number of physicians named as defendants		2
Number of days the deadlines have been stayed from the Magistrate judge	90 days
Period after which patients were readmitted to short-stay acute care hospitals to enable billing for two admissions			9 days
Number of admissions into hospitals			2

XML

Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select's 6.375% Senior Notes

12 Months Ended

Dec. 31, 2013

Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select's 6.375% Senior Notes

Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select's 6.375% Senior Notes

18.   Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select's 6.375% Senior Notes

        Select's 6.375% senior notes are fully and unconditionally guaranteed, except for customary limitations, on a senior basis by all of Select's wholly-owned subsidiaries (the "Subsidiary Guarantors") which is defined as a subsidiary where Select or a subsidiary of Select holds all of the outstanding ownership interests. Certain of Select's subsidiaries did not guarantee the 6.375% senior notes (the "Non-Guarantor Subsidiaries").

        Select conducts a significant portion of its business through its subsidiaries. Presented below is consolidating financial information for Select, the Subsidiary Guarantors and the Non-Guarantor Subsidiaries at December 31, 2012 and 2013 and for the years ended December 31, 2011, 2012 and 2013.

        The equity method has been used by Select with respect to investments in subsidiaries. The equity method has been used by Subsidiary Guarantors with respect to investments in Non-Guarantor Subsidiaries. Separate financial statements for Subsidiary Guarantors are not presented.

        The consolidating balance sheets at December 2011 and the consolidating statement of cash flows for the year ended December 31, 2011 included in this footnote contain certain immaterial adjustments that were made to the December 31, 2011 consolidating balance sheet and the consolidating statement of cash flows for the year ended December 31, 2011 relating to the presentation of intercompany transactions. On the December 31, 2011 consolidating balance sheet, intercompany accounts that were previously reported as both asset and liability balances within the liability section of the balance sheet have been adjusted and presented separately as either an intercompany receivable within the current asset classification or as an intercompany payable within the current liability classification, based upon the account's attributes on each subsidiary's balance sheet. On the consolidating statement of cash flows for the year ended December 31, 2011, the changes in intercompany advances that were previously reported as a change in operating assets and liabilities in cash flow provided by operating activities has been adjusted as a financing activity. These adjustments had no impact on the total equity of the Guarantors, non-Guarantors or Parent Company. They did not alter the net increase or decrease in cash for the Guarantors, non-Guarantors or Parent Company.

	Select Medical Corporation Consolidating Balance Sheet December 31, 2013
	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors		Non-Guarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
Assets
Current Assets:
Cash and cash equivalents	$	71		$	3,098	$	1,150	$	—		$	4,319
Accounts receivable, net		—			337,517		54,452		(650)	(a)		391,319
Current deferred tax asset		7,965			5,214		4,445		—			17,624
Intercompany receivables		—			1,079,736		105,028		(1,184,764)	(b)		—
Other current assets		9,745			26,545		4,850		—			41,140
Total Current Assets		17,781			1,452,110		169,925		(1,185,414	)		454,402
Property and equipment, net		15,624			434,040		59,438		—			509,102
Investment in affiliates		3,059,581			83,012		—		(3,142,593)	(c)(d)		—
Goodwill		—			1,642,633		—		—			1,642,633
Non-current deferred tax asset		7,662			—		—		(7,662)	(e)		—
Other identifiable intangibles		—			71,907		—		—			71,907
Other assets		35,274			103,696		608		—			139,578
Total Assets	$	3,135,922		$	3,787,398	$	229,971	$	(4,335,669	)	$	2,817,622
Liabilities and Equity
Current Liabilities:
Bank overdrafts	$	12,506		$	—	$	—	$	—		$	12,506
Current portion of long-term debt and notes payable		9,107			7,317		1,141		—			17,565
Accounts payable		6,749			68,574		12,962		—			88,285
Intercompany payables		1,184,764			—		—		(1,184,764)	(b)		—
Accrued payroll		1,167			88,599		245		—			90,011
Accrued vacation		4,619			47,682		7,429		—			59,730
Accrued interest		11,076			1,221		—		—			12,297
Accrued other		59,249			23,493		7,729		—			90,471
Income taxes payable		622			—		—		—			622
Due to third party payors		—			1		686		(650)	(a)		37
Total Current Liabilities		1,289,859			236,887		30,192		(1,185,414	)		371,524
Long-term debt, net of current portion		1,006,201			364,060		57,449		—			1,427,710
Non-current deferred tax liability		—			96,111		7,838		(7,662)	(e)		96,287
Other non-current liabilities		53,628			33,123		5,124		—			91,875
Total Liabilities		2,349,688			730,181		100,603		(1,193,076	)		1,987,396
Redeemable non-controlling interests		—			—		11,584		—			11,584
Stockholder's Equity:
Common stock		0			—		—		—			0
Capital in excess of par		869,576			—		—		—			869,576
Retained earnings		(83,342	)		920,694		21,186		(941,880)	(d)		(83,342	)
Subsidiary investment		—			2,136,523		64,190		(2,200,713)	(c)		—
Total Select Medical Corporation Stockholder's Equity		786,234			3,057,217		85,376		(3,142,593	)		786,234
Non-controlling interests		—			—		32,408		—			32,408
Total Equity		786,234			3,057,217		117,784		(3,142,593	)		818,642
Total Liabilities and Equity	$	3,135,922		$	3,787,398	$	229,971	$	(4,335,669	)	$	2,817,622

(a)

Reclass portion of due to third party payor to accounts receivable net in consolidation.

(b)

Elimination of intercompany.

(c)

Elimination of investments in consolidated subsidiaries.

(d)

Elimination of investments in consolidated subsidiaries' earnings.

(e)

Reclass of non-current deferred tax assset to report net non-current deferred tax liability in consolidation.

	Select Medical Corporation Consolidating Statement of Operations For the Year Ended December 31, 2013
	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	350		$	2,553,505		$	421,793		$	—		$	2,975,648
Costs and expenses:
Cost of services		1,757			2,135,754			357,965			—			2,495,476
General and administrative		76,709			212			—			—			76,921
Bad debt expense		—			31,003			6,420			—			37,423
Depreciation and amortization		3,746			50,982			9,664			—			64,392
Total costs and expenses		82,212			2,217,951			374,049			—			2,674,212
Income (loss) from operations		(81,862	)		335,554			47,744			—			301,436
Other income and expense:
Intercompany interest and royalty fees		(1,326	)		1,339			(13	)		—			—
Intercompany management fees		144,447			(125,361	)		(19,086	)		—			—
Equity in earnings of unconsolidated subsidiaries		—			2,384			92			—			2,476
Loss on early retirement of debt		(17,788	)		—			—			—			(17,788	)
Interest expense		(58,100	)		(22,760	)		(4,094	)		—			(84,954	)
Income (loss) from operations before income taxes		(14,629	)		191,156			24,643			—			201,170
Income tax expense (benefit)		(1,238	)		76,870			339			—			75,971
Equity in earnings of subsidiaries		129,971			15,716			—			(145,687)	(a)		—
Net income		116,580			130,002			24,304			(145,687	)		125,199
Less: Net income attributable to non-controlling interests		—			—			8,619			—			8,619
Net income attributable to Select Medical Corporation	$	116,580		$	130,002		$	15,685		$	(145,687	)	$	116,580

(a)

Elimination of equity in earnings of subsidiaries.

Select Medical Corporation
Consolidating Statement of Cash Flows
For the Year Ended December 31, 2013

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	116,580		$	130,002		$	24,304		$	(145,687	)(a)	$	125,199
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,746			50,982			9,664			—			64,392
Provision for bad debts		—			31,003			6,420			—			37,423
Equity in earnings of unconsolidated subsidiaires		—			(2,384	)		(92	)		—			(2,476	)
Loss on early retirement of debt		17,788			—			—			—			17,788
Gain from disposal or sale of assets		—			(463	)		(118	)		—			(581	)
Non-cash stock compensation expense		7,033			—			—			—			7,033
Amortization of debt discount and issuance costs		8,344			—			—			—			8,344
Deferred income taxes		7,032			—			—			—			7,032
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries		(129,971	)		(15,716	)		—			145,687	(a)		—
Accounts receivable		—			(59,804	)		(7,341	)		—			(67,145	)
Other current assets		(4,145	)		(5,735	)		1,713			—			(8,167	)
Other assets		(6,594	)		3,026			84			—			(3,484	)
Accounts payable		2,075			(3,660	)		302			—			(1,283	)
Due to third-party payors		—			996			(2,037	)		—			(1,041	)
Accrued expenses		(4,929	)		20,609			(612	)		—			15,068
Net cash provided by operating activities		16,959			148,856			32,287			—			198,102
Investing activities
Purchases of property and equipment		(3,024	)		(60,532	)		(10,104	)		—			(73,660	)
Investment in businesses, net of distributions		—			(34,893	)		—			—			(34,893	)
Acquisition of businesses, net of cash acquired		—			(1,665	)		—			—			(1,665	)
Proceeds from sale of assets		—			2,456			456			—			2,912
Net cash used in investing activities		(3,024	)		(94,634	)		(9,648	)		—			(107,306	)
Financing activities
Borrowings on revolving credit facility		690,000			—			—			—			690,000
Payments on revolving credit facility		(800,000	)		—			—			—			(800,000	)
Borrowings on credit facility term loans, net of discount		298,500			—			—			—			298,500
Payments on credit facility term loans		(596,720	)		—			—			—			(596,720	)
Issuance of 6.375% senior notes		600,000			—			—			—			600,000
Repurchase of 75/8% senior subordinated notes, net of premiums		(70,000	)		—			—			—			(70,000	)
Borrowings of other debt		8,923			5,303			1,084			—			15,310
Principal payments on other debt		(7,752	)		(873	)		(2,209	)		—			(10,834	)
Debt issuance costs		(18,914	)		—			—			—			(18,914	)
Repayments of bank overdrafts		(5,330	)		—			—			—			(5,330	)
Equity investment by Holdings		1,525			—			—			—			1,525
Dividends paid to Holdings		(226,621	)		—			—			—			(226,621	)
Intercompany		77,455			(59,288	)		(18,167	)		—			—
Distributions to non-controlling interests		—			—			(3,537	)		—			(3,537	)
Net cash used in financing activities		(48,934	)		(54,858	)		(22,829	)		—			(126,621	)
Net decrease in cash and cash equivalents		(34,999	)		(636	)		(190	)		—			(35,825	)
Cash and cash equivalents at beginning of period		35,070			3,734			1,340			—			40,144
Cash and cash equivalents at end of period	$	71		$	3,098		$	1,150		$	—		$	4,319

(a)

Elimination of equity in earnings of consolidated subsidiaries.

Select Medical Corporation
Consolidating Balance Sheet
December 31, 2012

	Select Medical Corporation (Parent Company Only)		Subsidiary Guarantors		Non-Guarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
Assets
Current Assets:
Cash and cash equivalents	$	35,070	$	3,734	$	1,340	$	—		$	40,144
Accounts receivable, net		—		308,043		53,531		(1,645)	(a)		359,929
Current deferred tax asset		12,383		1,060		4,434		—			17,877
Prepaid income taxes		3,895		—		—		—			3,895
Intercompany receivables		—		1,021,479		102,694		(1,124,173	)(b)		—
Other current assets		5,600		19,655		6,563		—			31,818
Total Current Assets		56,948		1,353,971		168,562		(1,125,818	)		453,663
Property and equipment, net		16,344		425,677		59,531		—			501,552
Investment in affiliates		2,930,022		82,475		—		(3,012,497	)(c)(d)		—
Goodwill		—		1,640,534		—		—			1,640,534
Other identifiable intangibles		—		71,745		—		—			71,745
Non-current deferred tax asset		5,107		—		—		(5,107)	(e)		—
Other assets		28,680		63,447		692		—			92,819
Total Assets	$	3,037,101	$	3,637,849	$	228,785	$	(4,143,422	)	$	2,760,313
Liabilities and Equity
Current Liabilities:
Bank overdrafts	$	17,836	$	—	$	—	$	—		$	17,836
Current portion of long-term debt and notes payable		8,916		1,059		1,671		—			11,646
Accounts payable		4,674		72,213		12,660		—			89,547
Intercompany payables		1,124,173		—		—		(1,124,173)	(b)		—
Accrued payroll		186		88,096		304		—			88,586
Accrued vacation		4,249		44,508		6,957		—			55,714
Accrued interest		17,955		804		—		—			18,759
Accrued other		55,206		31,343		5,534		—			92,083
Due to third party payors		—		—		2,723		(1,645)	(a)		1,078
Total Current Liabilities		1,233,195		238,023		29,849		(1,125,818	)		375,249
Long-term debt, net of current portion		872,671		358,104		60,522		—			1,291,297
Non-current deferred tax liability		—		85,287		9,330		(5,107)	(e)		89,510
Other non-current liabilities		49,918		28,808		4,973		—			83,699
Total Liabilities		2,155,784		710,222		104,674		(1,130,925	)		1,839,755
Redeemable non-controlling interests		—		—		10,811		—			10,811
Stockholder's Equity:
Common stock		0		—		—		—			0
Capital in excess of par		859,839		—		—		—			859,839
Retained earnings		21,478		790,692		21,197		(811,889)	(d)		21,478
Subsidiary investment		—		2,136,935		63,673		(2,200,608)	(c)		—
Total Select Medical Corporation Stockholder's Equity		881,317		2,927,627		84,870		(3,012,497	)		881,317
Non-controlling interests		—		—		28,430		—			28,430
Total Equity		881,317		2,927,627		113,300		(3,012,497	)		909,747
Total Liabilities and Equity	$	3,037,101	$	3,637,849	$	228,785	$	(4,143,422	)	$	2,760,313

(a)

Reclass portion of due to third party payor to accounts receivable net in consolidation.

(b)

Elimination of intercompany.

(c)

Elimination of investments in consolidated subsidiaries.

(d)

Elimination of investments in consolidated subsidiaries' earnings.

(e)

Reclass of non-current deferred tax asset to report net non-current deferred tax liability in consolidation.

Select Medical Corporation
Consolidating Statement of Operations
For the Year Ended December 31, 2012

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	123		$	2,549,896		$	398,950		$	—		$	2,948,969
Costs and expenses:
Cost of services		2,139			2,099,734			341,677			—			2,443,550
General and administrative		67,402			(1,208	)		—			—			66,194
Bad debt expense		—			33,595			5,460			—			39,055
Depreciation and amortization		3,267			50,734			9,310			—			63,311
Total costs and expenses		72,808			2,182,855			356,447			—			2,612,110
Income (loss) from operations		(72,685	)		367,041			42,503			—			336,859
Other income and expense:
Intercompany interest and royalty fees		(2,532	)		2,494			38			—			—
Intercompany management fees		120,276			(102,096	)		(18,180	)		—			—
Loss on early retirement of debt		(6,064	)		—			—			—			(6,064	)
Equity in earnings of unconsolidated subsidiaries		—			7,637			68			—			7,705
Interest expense		(54,167	)		(25,348	)		(4,244	)		—			(83,759	)
Income (loss) from operations before income taxes		(15,172	)		249,728			20,185			—			254,741
Income tax expense (benefit)		(8,206	)		101,795			(15	)		—			93,574
Equity in earnings of subsidiaries		162,470			15,639			—			(178,109	)(a)		—
Net income		155,504			163,572			20,200			(178,109	)		161,167
Less: Net income attributable to non-controlling interests		—			—			5,663			—			5,663
Net income attributable to Select Medical Corporation	$	155,504		$	163,572		$	14,537		$	(178,109	)	$	155,504

(a)

Elimination of equity in earnings of subsidiaries.

Select Medical Corporation
Consolidating Statement of Cash Flows
For the Year Ended December 31, 2012

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	155,504		$	163,572		$	20,200		$	(178,109)	(a)	$	161,167
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,267			50,734			9,310			—			63,311
Provision for bad debts		—			33,595			5,460			—			39,055
Equity in earnings of unconsolidated subsidiaires		—			(7,637	)		(68	)		—			(7,705	)
Loss on early retirement of debt		6,064			—			—			—			6,064
Loss (gain) from disposal or sale of assets		—			(6,002	)		96			—			(5,906	)
Non-cash stock compensation expense		5,677			—			—			—			5,677
Amortization of debt discount and issuance costs		7,190			—			—			—			7,190
Deferred income taxes		7,909			—			—			—			7,909
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries		(162,470	)		(15,639	)		—			178,109	(a)		—
Accounts receivable		—			29,727			(14,569	)		—			15,158
Other current assets		740			141			(2,488	)		—			(1,607	)
Other assets		2,448			3,268			161			—			5,877
Accounts payable		(2,679	)		(4,040	)		602			—			(6,117	)
Due to third-party payors		—			(15,278	)		10,830			—			(4,448	)
Accrued expenses		25,350			(3,835	)		2,231			—			23,746
Net cash provided by operating activities		49,000			228,606			31,765			—			309,371
Investing activities
Purchases of property and equipment		(5,150	)		(49,160	)		(13,875	)		—			(68,185	)
Investment in businesses, net of distributions		—			(14,689	)		—			—			(14,689	)
Acquisition of businesses, net of cash acquired		—			(6,043	)		—			—			(6,043	)
Proceeds from sale of assets		—			16,511			—			—			16,511
Net cash used in investing activities		(5,150	)		(53,381	)		(13,875	)		—			(72,406	)
Financing activities
Borrowings on revolving credit facility		495,000			—			—			—			495,000
Payments on revolving credit facility		(405,000	)		—			—			—			(405,000	)
Borrowings on 2011 credit facility term loans, net of discount		266,750			—			—			—			266,750
Payments on 2011 credit facility term loans		(9,875	)		—			—			—			(9,875	)
Repurchase of 75/8% senior subordinated notes, net of premiums		(278,495	)		—			—			—			(278,495	)
Borrowings of other debt		8,003			—			278			—			8,281
Principal payments on other debt		(8,049	)		(433	)		(1,813	)		—			(10,295	)
Debt issuance costs		(6,527	)		—			—			—			(6,527	)
Proceeds from bank overdrafts		1,227			—			—			—			1,227
Equity investment by Holdings		1,817			—			—			—			1,817
Dividends paid to Holdings		(268,479	)		—			—			—			(268,479	)
Intercompany		183,421			(171,058	)		(12,363	)		—			—
Distributions to non-controlling interests		—			—			(3,268	)		—			(3,268	)
Net cash used in financing activities		(20,207	)		(171,491	)		(17,166	)		—			(208,864	)
Net increase in cash and cash equivalents		23,643			3,734			724			—			28,101
Cash and cash equivalents at beginning of period		11,427			—			616			—			12,043
Cash and cash equivalents at end of period	$	35,070		$	3,734		$	1,340		$	—		$	40,144

(a)

Elimination of equity in earnings of consolidated subsidiaries.

Select Medical Corporation
Consolidating Statement of Operations
For the Year Ended December 31, 2011

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	121		$	2,436,177		$	368,209		$	—		$	2,804,507
Costs and expenses:
Cost of services		1,729			1,996,671			310,170			—			2,308,570
General and administrative		61,995			359			—			—			62,354
Bad debt expense		—			44,300			7,047			—			51,347
Depreciation and amortization		4,115			58,064			9,338			—			71,517
Total costs and expenses		67,839			2,099,394			326,555			—			2,493,788
Income (loss) from operations		(67,718	)		336,783			41,654			—			310,719
Other income and expense:
Intercompany interest and royalty fees		(3,408	)		3,382			26			—			—
Intercompany management fees		120,013			(102,970	)		(17,043	)		—			—
Loss on early retirement of debt		(20,385	)		—			—			—			(20,385	)
Equity in earnings of unconsolidated subsidiaries		—			2,870			53			—			2,923
Interest income		132			122			68			—			322
Interest expense		(41,817	)		(34,612	)		(4,803	)		—			(81,232	)
Income (loss) before income taxes		(13,183	)		205,575			19,955			—			212,347
Income tax expense (benefit)		(12,821	)		92,561			1,244			—			80,984
Equity in earnings of subsidiaries		126,809			13,406			—			(140,215)	(a)		—
Net income		126,447			126,420			18,711			(140,215	)		131,363
Less: Net income attributable to non-controlling interests		—			—			4,916			—			4,916
Net income attributable to Select Medical Corporation	$	126,447		$	126,420		$	13,795		$	(140,215	)	$	126,447

(a)

Elimination of equity in earnings of subsidiaries.

Select Medical Corporation
Consolidating Statement of Cash Flows
For the Year Ended December 31, 2011

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	126,447		$	126,420		$	18,711		$	(140,215)	(a)	$	131,363
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,115			58,064			9,338			—			71,517
Provision for bad debts		—			44,300			7,047			—			51,347
Equity in earnings of unconsolidated subsidiaries		—			(2,870	)		(53	)		—			(2,923	)
Loss on early retirement of debt		20,385			—			—			—			20,385
Loss (gain) from disposal or sale of assets		13			(5,024	)		45			—			(4,966	)
Non-cash stock compensation expense		3,725			—			—			—			3,725
Amortization of debt discount and issuance costs		6,700			—			—			—			6,700
Deferred income taxes		35,305			—			—			—			35,305
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries		(126,809	)		(13,406	)		—			140,215	(a)		—
Accounts receivable		—			(98,966	)		(12,160	)		—			(111,126	)
Other current assets		(1,780	)		1,165			(586	)		—			(1,201	)
Other assets		(12,069	)		9,683			318			—			(2,068	)
Accounts payable		1,326			16,247			3,056			—			20,629
Due to third-party payors		—			1,408			(1,181	)		—			227
Accrued expenses		14,823			5,522			794			—			21,139
Net cash provided by operating activities		72,181			142,543			25,329			—			240,053
Investing activities
Purchases of property and equipment		(3,413	)		(37,759	)		(4,844	)		—			(46,016	)
Investment in businesses, net of distributions		—			(15,699	)		—			—			(15,699	)
Acquisition of businesses, net of cash acquired		—			(899	)		—			—			(899	)
Proceeds from sale of assets		—			7,879			—			—			7,879
Net cash used in investing activities		(3,413	)		(46,478	)		(4,844	)		—			(54,735	)
Financing activities
Borrowings on revolving credit facility		735,000			—			—			—			735,000
Payments on revolving credit facility		(720,000	)		—			—			—			(720,000	)
Borrowings on 2011 credit facility term loans, net of discount		841,500			—			—			—			841,500
Payments on 2011 credit facility term loans		(4,250	)		—			—			—			(4,250	)
Payments on 2005 credit facility term loans, net of call premium		(484,633	)		—			—			—			(484,633	)
Repurchase of 75/8% senior subordinated notes, net of premiums		(273,941	)		—			—			—			(273,941	)
Borrowings of other debt		6,100			955			—			—			7,055
Principal payments on other debt		(5,662	)		(755	)		(1,082	)		—			(7,499	)
Debt issuance costs		(18,556	)		—			—			—			(18,556	)
Repayments of bank overdrafts		(2,183	)		—			—			—			(2,183	)
Equity investment by Holdings		208			—			—			—			208
Dividends paid to Holdings		(245,729	)		—			—			—			(245,729	)
Intercompany		114,656			(99,832	)		(14,824	)		—			—
Distributions to non-controlling interests		—			—			(4,612	)		—			(4,612	)
Net cash used in financing activities		(57,490	)		(99,632	)		(20,518	)		—			(177,640	)
Net increase (decrease) in cash and cash equivalents		11,278			(3,567	)		(33	)		—			7,678
Cash and cash equivalents at beginning of period		149			3,567			649			—			4,365
Cash and cash equivalents at end of period	$	11,427		$	—		$	616		$	—		$	12,043

(a)

Elimination of equity in earnings of consolidated subsidiaries.

XML

Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified				12 Months Ended				12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013 Trademarks	Dec. 31, 2012 Trademarks	Dec. 31, 2013 Certificates of need	Dec. 31, 2012 Certificates of need	Dec. 31, 2013 Accreditations	Dec. 31, 2012 Accreditations
Indefinite-lived intangible assets:
Gross Carrying Amount of Goodwill	$ 1,642,633	$ 1,640,534	$ 1,631,716
Gross Carrying Amount	$ 1,714,540	$ 1,712,279		$ 57,709	$ 57,709	$ 12,115	$ 11,914	$ 2,083	$ 2,122
Weighted average time until next renewal				6 years 6 months				1 year 6 months

XML

Selected Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2013

Quarterly Financial Information

Schedule of selected unaudited quarterly financial data

	Holdings
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(in thousands, except per share amounts)
Year ended December 31, 2012
Net operating revenues	$	744,021	$	750,193	$	713,669	$	741,086
Income from operations		91,604		93,513		70,819		80,923
Net income attributable to Select Medical Holdings Corporation	$	41,542	$	43,172	$	24,110	$	39,406
Income per common share:
Basic	$	0.29	$	0.31	$	0.17	$	0.28
Diluted	$	0.29	$	0.31	$	0.17	$	0.28

	Holdings
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(in thousands, except per share amounts)
Year ended December 31, 2013
Net operating revenues	$	749,955	$	756,673	$	722,845	$	746,175
Income from operations		82,530		88,263		62,399		68,244
Net income attributable to Select Medical Holdings Corporation	$	34,418	$	27,780	$	23,272	$	28,920
Income per common share:
Basic	$	0.25	$	0.20	$	0.17	$	0.21
Diluted	$	0.24	$	0.20	$	0.17	$	0.21

Select

Quarterly Financial Information

Schedule of selected unaudited quarterly financial data

	Select
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(in thousands)
Year ended December 31, 2012
Net operating revenues	$	744,021	$	750,193	$	713,669	$	741,086
Income from operations		91,604		93,513		70,819		80,923
Net income attributable to Select Medical Corporation	$	43,279	$	45,018	$	25,953	$	41,254

	Select
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(in thousands)
Year ended December 31, 2013
Net operating revenues	$	749,955	$	756,673	$	722,845	$	746,175
Income from operations		82,530		88,263		62,399		68,244
Net income attributable to Select Medical Corporation	$	36,608	$	27,780	$	23,272	$	28,920

XML

Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select's 6.375% Senior Notes (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Current Assets:
Cash and cash equivalents	$ 4,319	$ 40,144	$ 12,043	$ 4,365
Accounts receivable, net	391,319	359,929
Current deferred tax asset	17,624	17,877
Prepaid income taxes		3,895
Other current assets	41,140	31,818
Total Current Assets	454,402	453,663
Property and equipment, net	509,102	501,552
Goodwill	1,642,633	1,640,534	1,631,716
Other identifiable intangibles	71,907	71,745
Other assets	139,578	93,867
Total Assets	2,817,622	2,761,361	2,772,147
Current Liabilities:
Bank overdrafts	12,506	17,836
Current portion of long-term debt and notes payable	17,565	11,646
Accounts payable	88,285	89,547
Accrued payroll	90,011	88,586
Accrued vacation	59,730	55,714
Accrued interest	12,297	22,016
Accrued other	90,471	86,843
Income taxes payable	622
Due to third party payors	37	1,078
Total Current Liabilities	371,524	373,266
Long-term debt, net of current portion	1,427,710	1,458,597
Non-current deferred tax liability	96,287	89,510
Other non-current liabilities	91,875	83,699
Total Liabilities	1,987,396	2,005,072
Redeemable non-controlling interest	11,584	10,811
Stockholder's Equity:
Common stock	140	141
Capital in excess of par	474,729	473,697
Retained earnings	311,365	243,210
Total Select Medical Holdings Corporation and Select Medical Corporation Stockholders' Equity	786,234	717,048
Non-controlling interests	32,408	28,430
Total Equity	818,642	745,478	846,338	807,176
Total Liabilities and Equity	2,817,622	2,761,361
Select Medical Corporation
Current Assets:
Cash and cash equivalents	4,319	40,144	12,043	4,365
Accounts receivable, net	391,319	359,929
Current deferred tax asset	17,624	17,877
Prepaid income taxes		3,895
Other current assets	41,140	31,818
Total Current Assets	454,402	453,663
Property and equipment, net	509,102	501,552
Goodwill	1,642,633	1,640,534
Other identifiable intangibles	71,907	71,745
Other assets	139,578	92,819
Total Assets	2,817,622	2,760,313	2,770,738
Current Liabilities:
Bank overdrafts	12,506	17,836
Current portion of long-term debt and notes payable	17,565	11,646
Accounts payable	88,285	89,547
Accrued payroll	90,011	88,586
Accrued vacation	59,730	55,714
Accrued interest	12,297	18,759
Accrued other	90,471	92,083
Income taxes payable	622
Due to third party payors	37	1,078
Total Current Liabilities	371,524	375,249
Long-term debt, net of current portion	1,427,710	1,291,297
Non-current deferred tax liability	96,287	89,510
Other non-current liabilities	91,875	83,699
Total Liabilities	1,987,396	1,839,755
Redeemable non-controlling interest	11,584	10,811
Stockholder's Equity:
Common stock	0	0
Capital in excess of par	869,576	859,839
Retained earnings	(83,342)	21,478
Total Select Medical Holdings Corporation and Select Medical Corporation Stockholders' Equity	786,234	881,317
Non-controlling interests	32,408	28,430
Total Equity	818,642	909,747	1,010,105	1,107,890
Total Liabilities and Equity	2,817,622	2,760,313
Select Medical Corporation | Reportable legal entities | Select Medical Corporation (Parent Company Only)
Current Assets:
Cash and cash equivalents	71	35,070	11,427	149
Current deferred tax asset	7,965	12,383
Prepaid income taxes		3,895
Other current assets	9,745	5,600
Total Current Assets	17,781	56,948
Property and equipment, net	15,624	16,344
Investment in affiliates	3,059,581	2,930,022
Non-current deferred tax asset	7,662	5,107
Other assets	35,274	28,680
Total Assets	3,135,922	3,037,101
Current Liabilities:
Bank overdrafts	12,506	17,836
Current portion of long-term debt and notes payable	9,107	8,916
Accounts payable	6,749	4,674
Intercompany payables	1,184,764	1,124,173
Accrued payroll	1,167	186
Accrued vacation	4,619	4,249
Accrued interest	11,076	17,955
Accrued other	59,249	55,206
Income taxes payable	622
Total Current Liabilities	1,289,859	1,233,195
Long-term debt, net of current portion	1,006,201	872,671
Other non-current liabilities	53,628	49,918
Total Liabilities	2,349,688	2,155,784
Stockholder's Equity:
Common stock	0	0
Capital in excess of par	869,576	859,839
Retained earnings	(83,342)	21,478
Total Select Medical Holdings Corporation and Select Medical Corporation Stockholders' Equity	786,234	881,317
Total Equity	786,234	881,317
Total Liabilities and Equity	3,135,922	3,037,101
Select Medical Corporation | Reportable legal entities | Subsidiary Guarantors
Current Assets:
Cash and cash equivalents	3,098	3,734		3,567
Accounts receivable, net	337,517	308,043
Current deferred tax asset	5,214	1,060
Intercompany receivables	1,079,736	1,021,479
Other current assets	26,545	19,655
Total Current Assets	1,452,110	1,353,971
Property and equipment, net	434,040	425,677
Investment in affiliates	83,012	82,475
Goodwill	1,642,633	1,640,534
Other identifiable intangibles	71,907	71,745
Other assets	103,696	63,447
Total Assets	3,787,398	3,637,849
Current Liabilities:
Current portion of long-term debt and notes payable	7,317	1,059
Accounts payable	68,574	72,213
Accrued payroll	88,599	88,096
Accrued vacation	47,682	44,508
Accrued interest	1,221	804
Accrued other	23,493	31,343
Due to third party payors	1
Total Current Liabilities	236,887	238,023
Long-term debt, net of current portion	364,060	358,104
Non-current deferred tax liability	96,111	85,287
Other non-current liabilities	33,123	28,808
Total Liabilities	730,181	710,222
Stockholder's Equity:
Retained earnings	920,694	790,692
Subsidiary investment	2,136,523	2,136,935
Total Select Medical Holdings Corporation and Select Medical Corporation Stockholders' Equity	3,057,217	2,927,627
Total Equity	3,057,217	2,927,627
Total Liabilities and Equity	3,787,398	3,637,849
Select Medical Corporation | Reportable legal entities | Non-Guarantor Subsidiaries
Current Assets:
Cash and cash equivalents	1,150	1,340	616	649
Accounts receivable, net	54,452	53,531
Current deferred tax asset	4,445	4,434
Intercompany receivables	105,028	102,694
Other current assets	4,850	6,563
Total Current Assets	169,925	168,562
Property and equipment, net	59,438	59,531
Other assets	608	692
Total Assets	229,971	228,785
Current Liabilities:
Current portion of long-term debt and notes payable	1,141	1,671
Accounts payable	12,962	12,660
Accrued payroll	245	304
Accrued vacation	7,429	6,957
Accrued other	7,729	5,534
Due to third party payors	686	2,723
Total Current Liabilities	30,192	29,849
Long-term debt, net of current portion	57,449	60,522
Non-current deferred tax liability	7,838	9,330
Other non-current liabilities	5,124	4,973
Total Liabilities	100,603	104,674
Redeemable non-controlling interest	11,584	10,811
Stockholder's Equity:
Retained earnings	21,186	21,197
Subsidiary investment	64,190	63,673
Total Select Medical Holdings Corporation and Select Medical Corporation Stockholders' Equity	85,376	84,870
Non-controlling interests	32,408	28,430
Total Equity	117,784	113,300
Total Liabilities and Equity	229,971	228,785
Select Medical Corporation | Eliminations
Current Assets:
Accounts receivable, net	(650)	(1,645)
Intercompany receivables	(1,184,764)	(1,124,173)
Total Current Assets	(1,185,414)	(1,125,818)
Investment in affiliates	(3,142,593)	(3,012,497)
Non-current deferred tax asset	(7,662)	(5,107)
Total Assets	(4,335,669)	(4,143,422)
Current Liabilities:
Intercompany payables	(1,184,764)	(1,124,173)
Due to third party payors	(650)	(1,645)
Total Current Liabilities	(1,185,414)	(1,125,818)
Non-current deferred tax liability	(7,662)	(5,107)
Total Liabilities	(1,193,076)	(1,130,925)
Stockholder's Equity:
Retained earnings	(941,880)	(811,889)
Subsidiary investment	(2,200,713)	(2,200,608)
Total Select Medical Holdings Corporation and Select Medical Corporation Stockholders' Equity	(3,142,593)	(3,012,497)
Total Equity	(3,142,593)	(3,012,497)
Total Liabilities and Equity	$ (4,335,669)	$ (4,143,422)

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Income per Share (Tables)

12 Months Ended

Dec. 31, 2013

Income per Share

Schedule of computation of basic and diluted income per common share

	For the Year Ended December 31,
	2011		2012		2013
	(in thousands, except per share amounts)
Numerator:
Net income attributable to Select Medical Holdings Corporation	$	107,846	$	148,230	$	114,390
Less: Earnings allocated to unvested restricted stockholders		1,205		2,514		2,450
Net income available to common stockholders	$	106,641	$	145,716	$	111,940
Denominator:
Weighted average shares — basic		150,501		138,767		136,879
Effect of dilutive securities:
Stock options		224		275		168
Weighted average shares — diluted		150,725		139,042		137,047
Basic income per common share:	$	0.71	$	1.05	$	0.82
Diluted income per common share:	$	0.71	$	1.05	$	0.82

Schedule of anti-dilutive shares excluded from computation

	For the Year Ended December 31,
	2011		2012		2013
	(in thousands)
Stock options		2,414		1,654		1,474

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Intangible Assets (Details 3) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Goodwill
Balance at the beginning of the period	$ 1,640,534	$ 1,631,716
Goodwill acquired during year	2,232	9,151
Other		(333)
Purchase price adjustment	(133)
Balance at the end of the period	1,642,633	1,640,534
Specialty Hospitals
Goodwill
Balance at the beginning of the period	1,333,220	1,333,553
Goodwill acquired during year	1,395
Other		(333)
Balance at the end of the period	1,334,615	1,333,220
Outpatient Rehabilitation
Goodwill
Balance at the beginning of the period	307,314	298,163
Goodwill acquired during year	837	9,151
Purchase price adjustment	(133)
Balance at the end of the period	$ 308,018	$ 307,314

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Fair Value (Details) (USD $)	Dec. 31, 2013	Dec. 31, 2012
Fair Value
Carrying value	$ 1,445,275,000	$ 1,470,243,000
Select
Fair Value
Carrying value	1,445,275,000	1,302,943,000
Senior secured credit facility | Select
Fair Value
Carrying value	827,800,000	1,226,600,000
Fair value	828,300,000	1,216,200,000
6.375% senior notes
Fair Value
Carrying value	600,000,000
Interest rate of debt (as a percent)	6.375%
6.375% senior notes | Select
Fair Value
Carrying value	600,000,000
Fair value	$ 586,500,000
Interest rate of debt (as a percent)	6.375%

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Income Taxes (Details 3) (State, USD $)	Dec. 31, 2013
State
Net operating loss carry forwards
Net operating losses	$ 512,300,000
State Net Operating Losses
2014	5,427,000
2015	8,333,000
2016	11,238,000
2017	12,834,000
Thereafter through 2033	473,034,000
Gross Valuation Allowance
2014	5,401,000
2015	7,980,000
2016	9,728,000
2017	11,092,000
Thereafter through 20xx	$ 355,392,000

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Acquisitions (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Cost of acquired entity
Cash paid net of cash acquired	$ 1,665,000	$ 6,043,000	$ 899,000
Notes issued	3,283,000	1,844,000	1,020,000
Total purchase price	4,948,000	7,887,000	1,919,000
Contingent consideration	100,000	1,500,000
Liabilities assumed	885,000	107,000	701,000
Total cost of acquisitions and liabilities assumed	5,933,000	9,494,000	2,620,000
Fair value of assets acquired
Accounts receivable and property and equipment	3,487,000	1,313,000	767,000
Non-controlling interests	347,000	(970,000)	(602,000)
Cost in excess of fair value of net assets acquired (goodwill)	2,099,000	9,151,000	2,455,000
Other additional information
Non-controlling interests purchased in cash	600,000	100,000	500,000
Regency Hospital Company, L.L.C.
Other additional information
Cash received on settlement of net working capital			3,900,000
Outpatient rehabilitation business
Cost of acquired entity
Cash paid net of cash acquired	900,000	5,900,000	2,300,000
Notes issued	300,000	1,800,000	1,000,000
Inpatient rehabilitation hospital
Cost of acquired entity
Cash paid net of cash acquired	200,000		2,000,000
Notes issued	$ 3,000,000
Other additional information
Number of long term acute care hospitals exchanged			1

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Acquisitions

12 Months Ended

Dec. 31, 2013

Acquisitions

Acquisitions

2.     Acquisitions

For the Year Ended December 31, 2011

        The Company exchanged one of its long term acute care hospitals and paid $2.0 million in cash for an entity that operates an inpatient rehabilitation hospital. The Company also paid $2.3 million in cash and issued a $1.0 million note for an outpatient rehabilitation business. In addition, the Company purchased non-controlling interests for $0.5 million in cash. The Company completed the post-closing settlement of net working capital with the seller of Regency Hospital Company, L.L.C. resulting in the receipt of $3.9 million in cash.

For the Year Ended December 31, 2012

        The Company paid $5.9 million in cash and issued $1.8 million in notes for the purchase of several outpatient rehabilitation businesses. In addition, the Company purchased non-controlling interests for $0.1 million in cash.

For the Year Ended December 31, 2013

        The Company paid $0.9 million in cash and issued $0.3 million in notes for the purchase of several outpatient rehabilitation businesses and paid $0.2 million in cash and issued a $3.0 million note for the purchase of an inpatient rehabilitation hospital. In addition, the Company purchased non-controlling interests for $0.6 million in cash.

        Information with respect to all businesses acquired in purchase transactions is as follows:

	For the Year Ended December 31,
	2011			2012			2013
	(in thousands)
Cash paid (net of cash acquired)	$	899		$	6,043		$	1,665
Notes issued		1,020			1,844			3,283
		1,919			7,887			4,948
Contingent consideration		—			1,500			100
Liabilities assumed		701			107			885
		2,620			9,494			5,933
Fair value of assets acquired, principally accounts receivable and property and equipment		767			1,313			3,487
Non-controlling interests		(602	)		(970	)		347
Cost in excess of fair value of net assets acquired (goodwill)	$	2,455		$	9,151		$	2,099

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Income Taxes (Details 4) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Reconciliation of the Company's unrecognized tax benefits
Gross tax contingencies at the beginning of the period	$ 13,890,000	$ 15,656,000	$ 22,310,000
Reductions for tax positions taken in prior periods due primarily to statute expiration	(2,299,000)	(2,516,000)	(2,706,000)
Reductions for tax positions taken in prior periods due to change in estimate			(7,012,000)
Additions for existing tax positions taken	435,000	750,000	3,064,000
Gross tax contingencies at the end of the period	12,026,000	13,890,000	15,656,000
Income tax benefits recognized based on new information discovered			7,000,000
Unrecognized tax benefits, if fully recognized, would affect effective income tax rate	12,000,000	13,900,000
Accrued interest related to income taxes	1,600,000	1,500,000
Interest recognized	$ 500,000	$ 500,000	$ 400,000

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Organization and Significant Accounting Policies (Details)	12 Months Ended
	Dec. 31, 2013 item	Dec. 31, 2012 item	Dec. 31, 2011 item
Business Description
Number of specialty hospitals operated by the entity	123	122	119
Number of outpatient clinics operated by the entity	1,006	979	954
Number of states in which the entity had facilities	39	39	39
Accounts Receivable and Allowance for Doubtful Accounts
Deductibles, co-payments and self-insured amounts as a percentage of net accounts receivable balance before doubtful accounts	0.30%	0.20%
Minimum period from date of discharge that outstanding governmental accounts are reserved as uncollectible	365 days
Minimum period from date of discharge that outstanding non-governmental accounts are reserved as uncollectible	180 days

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Organization and Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2013

Organization and Significant Accounting Policies

Schedule of general range of useful lives of property and equipment

Leasehold improvements	5 – 15 years
Furniture and equipment	3 – 20 years
Buildings	40 years
Building Improvements	5 – 25 years
Land Improvements	2 – 25 years

Schedule of approximate useful life of each class of intangible assets

Trademarks	Indefinite
Certificates of need	Indefinite
Accreditations	Indefinite

XML

Organization and Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2013

Organization and Significant Accounting Policies

Reclassifications

Reclassifications

        Certain reclassifications have been made to prior-year amounts in order to conform to the current-year presentation.

Principles of Consolidation

Principles of Consolidation

        The consolidated financial statements include the accounts of the Company, its majority owned subsidiaries, limited liability companies and limited partnerships the Company and its subsidiaries control through ownership of general and limited partnership or membership interests. All significant intercompany balances and transactions are eliminated in consolidation.

Use of Estimates

Use of Estimates

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents

        The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are stated at cost which approximates market value.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable and Allowance for Doubtful Accounts

        The Company reports accounts receivable at estimated net realizable values. Substantially all of the Company's accounts receivable are related to providing healthcare services to patients whose costs are primarily paid by federal and state governmental authorities, managed care health plans, commercial insurance companies and workers' compensation programs. Collection of these accounts receivable is the Company's primary source of cash and is critical to its operating performance. The Company's primary collection risks relate to non-governmental payors who insure these patients and deductibles, co-payments and amounts owed by the patient. Deductibles, co-payments and amounts owed by the patient are an immaterial portion of the Company's net accounts receivable balance and accounted for approximately 0.2% and 0.3% of the net accounts receivable balance before doubtful accounts at December 31, 2012 and 2013, respectively. The Company's general policy is to verify insurance coverage prior to the date of admission for a patient admitted to the Company's hospitals or in the case of the Company's outpatient rehabilitation clinics, the Company verifies insurance coverage prior to their first therapy visit. The Company's estimate for the allowance for doubtful accounts is calculated by providing a reserve allowance based upon the age of an account balance. Generally the Company has reserved as uncollectible all governmental accounts over 365 days and non-governmental accounts over 180 days from discharge. This method is monitored based on historical cash collections experience. Collections are impacted by the effectiveness of the Company's collection efforts with non-governmental payors and regulatory or administrative disruptions with the fiscal intermediaries that pay the Company's governmental receivables.

        The Company has historically collected substantially all of its third-party insured receivables (net of contractual allowances) which include receivables from governmental agencies. The Company reviews its overall reserve adequacy by monitoring historical cash collections as a percentage of net revenue less the provision for bad debts.

        Uncollected accounts are written off the balance sheet when they are turned over to an outside collection agency, or when management determines that the balance is uncollectible, whichever occurs first.

Property and Equipment

Property and Equipment

        Property and equipment are stated at cost net of accumulated depreciation. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or the term of the lease, as appropriate. The general range of useful lives is as follows:

Leasehold improvements	5 – 15 years
Furniture and equipment	3 – 20 years
Buildings	40 years
Building Improvements	5 – 25 years
Land Improvements	2 – 25 years

        The Company reviews the realizability of long-lived assets whenever events or circumstances occur which indicate recorded costs may not be recoverable. Gains or losses related to the retirement or disposal of property and equipment are reported as a component of income from operations.

Concentration of Credit Risk

Concentration of Credit Risk

        Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash balances and trade receivables. The Company invests its excess cash with large financial institutions. The Company grants unsecured credit to its patients, most of who reside in the service area of the Company's facilities and are insured under third-party payor agreements. Because of the geographic diversity of the Company's facilities and non-governmental third-party payors, Medicare represents the Company's only significant concentration of credit risk.

Income Taxes

Income Taxes

        Deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. As part of the process of preparing its consolidated financial statements, the Company estimates income taxes based on its actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for book and tax purposes. The Company also recognizes as deferred tax assets the future tax benefits from net operating loss carry forwards. The Company evaluates the realizability of these deferred tax assets by assessing their valuation allowances and by adjusting the amount of such allowances, if necessary. Among the factors used to assess the likelihood of realization are projections of future taxable income streams, the expected timing of the reversals of existing temporary differences, and the impact of tax planning strategies that could be implemented to avoid the potential loss of future tax benefits.

        Reserves for uncertain tax positions are established for exposure items related to various federal and state tax matters. Income tax reserves are recorded when an exposure is identified and when, in the opinion of management, it is more likely than not that a tax position will not be sustained and the amount of the liability can be estimated.

Intangible Assets

Intangible Assets

        Goodwill and certain other indefinite-lived intangible assets are not amortized, but instead are subject to periodic impairment evaluations. In performing the quantitative periodic impairment tests, the fair value of the reporting unit is compared to its carrying value, including goodwill and other intangible assets. If the carrying value exceeds the fair value, an impairment condition exists, which results in an impairment loss equal to the excess carrying value.

        To determine the fair value of its reporting units, the Company uses a discounted cash flow approach. Included in this analysis are assumptions regarding revenue growth rate, future Adjusted EBITDA margin estimates, future general and administrative expense rates and the industry's weighted average cost of capital and industry specific market comparable Adjusted EBITDA multiples. The Company also must estimate residual values at the end of the forecast period and future capital expenditure requirements. Each of these assumptions requires the Company to use its knowledge of (1) its industry, (2) its recent transactions, and (3) reasonable performance expectations for its operations. If any one of the above assumptions changes or fails to materialize, the resulting decline in the Company's estimated fair value could result in a material impairment charge to the goodwill associated with any one of the reporting units.

        Impairment tests are required to be conducted at least annually, or when events or conditions occur that might suggest a possible impairment. These events or conditions include, but are not limited to, a significant adverse change in the business environment, regulatory environment or legal factors; a current period operating or cash flow loss combined with a history of such losses or a projection of continuing losses; or a sale or disposition of a significant portion of a reporting unit. The occurrence of one of these events or conditions could significantly impact an impairment assessment, necessitating an impairment charge. For purposes of goodwill impairment assessment, the Company has defined its reporting units as specialty hospitals, outpatient rehabilitation clinics and contract therapy with goodwill having been allocated among reporting units based on the relative fair value of those divisions when the Merger occurred in 2005 and based on subsequent acquisitions and dispositions. The Company's most recent impairment assessment was completed during the fourth quarter of 2013 utilizing financial information as of October 1, 2013 and indicated that there was no impairment with respect to goodwill or other recorded intangible assets.

        Identifiable assets and liabilities acquired in connection with business combinations accounted for under the purchase method are recorded at their respective fair values. Deferred income taxes have been recorded to the extent of differences between the fair value and the tax basis of the assets acquired and liabilities assumed. Company management has allocated the intangible assets between identifiable intangibles and goodwill. At December 31, 2013, intangible assets other than goodwill consist of the values assigned to trademarks, certificates of need and accreditations. Management believes that the estimated useful lives established are reasonable based on the economic factors applicable to each of the intangible assets.

        The approximate useful life of each class of intangible assets is as follows:

Trademarks	Indefinite
Certificates of need	Indefinite
Accreditations	Indefinite

        The Company reviews the realizability of intangible assets whenever events or circumstances occur which indicate recorded amounts may not be recoverable.

        If the expected future cash flows (undiscounted) are less than the carrying amount of such assets, the Company recognizes an impairment loss for the difference between the carrying amount of the assets and their estimated fair value.

Due to Third-Party Payors

Due to Third-Party Payors

        Due to third-party payors represents the difference between amounts received under interim payment plans from Medicare and Medicaid for services rendered and amounts estimated to be reimbursed by those third-party payors upon settlement of cost reports.

Insurance Risk Programs

Insurance Risk Programs

        Under a number of the Company's insurance programs, which include the Company's employee health insurance program, its workers' compensation, professional malpractice liability insurance programs and certain components under its property and casualty insurance program, the Company is liable for a portion of its losses. In these situations the Company accrues for its losses under an occurrence-based approach whereby the Company estimates the losses that will be incurred in a respective accounting period and accrues that estimated liability. Where the Company has substantial exposure, actuarial methods are utilized in estimating the losses. In cases where the Company has minimal exposure, losses are estimated by analyzing historical trends. These programs are monitored quarterly and estimates are revised as necessary to take into account additional information. Provisions for losses for professional liability risks retained by the Company at December 31, 2012 and 2013 have been discounted at 3%. At December 31, 2012 and 2013, respectively, the Company had recorded a liability of $92.5 million and $103.4 million related to these programs. If the Company did not discount the provisions for losses for professional liability risks, the aggregate liability for all of the insurance risk programs would be approximately $95.6 million and $106.8 million at December 31, 2012 and 2013, respectively.

Equity Method Investments

Equity Method Investments

        Investments in equity method investees are accounted for using the equity method based upon the level of ownership and/or the Company's ability to exercise significant influence over the operating and financial policies of the investee. Investments of this nature are recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income or losses after the date of investment. When net losses from an investment accounted for under the equity method exceeds its carrying amount, the investment balance is reduced to zero. The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company's share of that net income exceeds the share of the net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred. The Company evaluates its investments in companies accounted for using the equity method for impairment when there is evidence or indicators that a decrease in value may be other than temporary.

Non-Controlling Interests

Non-Controlling Interests

        The interests held by other parties in subsidiaries, limited liability companies and limited partnerships owned and controlled by the Company are generally reported as a component of stockholders' equity. Some of those minority ownership interests consist of outside owners that have certain "put rights," that are currently exercisable, and that, if exercised, require the Company to purchase the minority member's interest. These redeemable non-controlling interests that are currently redeemable or considered probable of becoming redeemable have been adjusted to their approximate redemption values and are reported outside of the stockholders' equity section. As of December 31, 2012 and 2013, the Company believes the redemption values of the non-controlling ownership interests approximates the fair value of those interests classified as redeemable non-controlling interests. The redeemable non-controlling interests' balances reported on our consolidated balance sheets were $10.8 million and $11.6 million as of December 31, 2012 and 2013, respectively. The non-controlling interests' balances reported in the stockholders' equity section of our consolidated balance sheets were $28.4 million and $32.4 million as of December 31, 2012 and 2013, respectively.

        Net income attributable to non-controlling interests was $4.9 million, $5.7 million and $8.6 million for the years ended December 31, 2011, 2012, and 2013, respectively. Non-controlling interests reported in the consolidated statement of operations and comprehensive income reflect the respective interests in the income or loss of the subsidiaries, attributable to the other parties, the effect of which is removed from the Company's consolidated statement of operations and comprehensive income.

Revenue Recognition

Revenue Recognition

        Net operating revenues consists primarily of patient service revenues and revenues generated from therapy services provided to healthcare institutions under contractual arrangements and are recognized as services are rendered.

        Patient service revenue is reported net of provisions for contractual allowances from third-party payors and patients. The Company has agreements with third-party payors that provide for payments to the Company at amounts different from its established billing rates. The differences between the estimated program reimbursement rates and the standard billing rates are accounted for as contractual adjustments, which are deducted from gross revenues to arrive at net operating revenues. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges, per diem and per visit payments. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. Accounts receivable resulting from such payment arrangements are recorded net of contractual allowances.

        A significant portion of the Company's net operating revenues are generated directly from the Medicare program. Net operating revenues generated directly from the Medicare program represented approximately 48%, 47% and 46% of the Company's net operating revenues for the years ended December 31, 2011, 2012 and 2013, respectively. Approximately 29% and 32% of the Company's accounts receivable (after allowances for contractual adjustments but before doubtful accounts) at December 31, 2012 and 2013, respectively, are from Medicare. As a provider of services to the Medicare program, the Company is subject to extensive regulations. The inability of any of the Company's specialty hospitals or clinics to comply with regulations can result in significant changes in that specialty hospital's or clinic's net operating revenues generated from the Medicare program.

        Revenues generated under contractual arrangements are comprised primarily of billings for services rendered to nursing homes, hospitals, schools and other third parties.

Stock Based Compensation

Stock Based Compensation

        The Company measures the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognizes the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements comprise both stock options and restricted share plans. Employee stock options are valued using the Black-Scholes option valuation method which uses assumptions that relate to the expected volatility of the Company's common stock, the expected dividend yield of the Company's stock, the expected life of the options and the risk free interest rate. Such compensation amounts, if any, are amortized over the respective vesting periods or periods of service of the option grant. The Company values restricted stock grants by using the closing market price of its stock on the date of grant.

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Stock Option and Restricted Stock Plans (Details 2) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013
$ 3.00 - 4.00 | Plans
Additional information with respect to the outstanding options
Exercise price, low end of range (in dollars per share)	$ 3.00
Exercise price, high end of range (in dollars per share)	$ 4.00
Number Outstanding (in shares)	220
Weighted Average Remaining Contractual Life	1 year 1 month 24 days
Number Exercisable (in shares)	220
$ 6.00 - 7.00 | Plans
Additional information with respect to the outstanding options
Exercise price, low end of range (in dollars per share)	$ 6.00
Exercise price, high end of range (in dollars per share)	$ 7.00
Number Outstanding (in shares)	9
Weighted Average Remaining Contractual Life	6 years 7 months 10 days
Number Exercisable (in shares)	3
$ 7.01 - 8.00 | Plans
Additional information with respect to the outstanding options
Exercise price, low end of range (in dollars per share)	$ 7.01
Exercise price, high end of range (in dollars per share)	$ 8.00
Number Outstanding (in shares)	75
Weighted Average Remaining Contractual Life	7 years 2 months 12 days
Number Exercisable (in shares)	28
$ 8.01 - 9.00 | Plans
Additional information with respect to the outstanding options
Exercise price, low end of range (in dollars per share)	$ 8.01
Exercise price, high end of range (in dollars per share)	$ 9.00
Number Outstanding (in shares)	585
Weighted Average Remaining Contractual Life	3 years 3 months 22 days
Number Exercisable (in shares)	557
$ 9.01 - 10.00 | Plans
Additional information with respect to the outstanding options
Exercise price, low end of range (in dollars per share)	$ 9.01
Exercise price, high end of range (in dollars per share)	$ 10.00
Number Outstanding (in shares)	1,051
Weighted Average Remaining Contractual Life	5 years 6 months 4 days
Number Exercisable (in shares)	848
Exercise price range six | Director Plan
Additional information with respect to the outstanding options
Exercise price, low end of range (in dollars per share)	$ 3.00
Exercise price, high end of range (in dollars per share)	$ 4.00
Number Outstanding (in shares)	6
Weighted Average Remaining Contractual Life	1 year 7 months 10 days
Number Exercisable (in shares)	6
Exercise price range seven | Director Plan
Additional information with respect to the outstanding options
Exercise price, low end of range (in dollars per share)	$ 8.00
Exercise price, high end of range (in dollars per share)	$ 9.00
Number Outstanding (in shares)	9
Weighted Average Remaining Contractual Life	3 years 4 months 13 days
Number Exercisable (in shares)	9
Exercise price range eight | Director Plan
Additional information with respect to the outstanding options
Exercise price, low end of range (in dollars per share)	$ 9.01
Exercise price, high end of range (in dollars per share)	$ 10.00
Number Outstanding (in shares)	27
Weighted Average Remaining Contractual Life	5 years 1 month 13 days
Number Exercisable (in shares)	25

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Organization and Significant Accounting Policies (Details 2)	12 Months Ended
	Dec. 31, 2013
Leasehold improvements | Minimum
Property and equipment
Estimated useful lives	5 years
Leasehold improvements | Maximum
Property and equipment
Estimated useful lives	15 years
Furniture and equipment | Minimum
Property and equipment
Estimated useful lives	3 years
Furniture and equipment | Maximum
Property and equipment
Estimated useful lives	20 years
Buildings
Property and equipment
Estimated useful lives	40 years
Building Improvements | Minimum
Property and equipment
Estimated useful lives	5 years
Building Improvements | Maximum
Property and equipment
Estimated useful lives	25 years
Land Improvements | Minimum
Property and equipment
Estimated useful lives	2 years
Land Improvements | Maximum
Property and equipment
Estimated useful lives	25 years

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Acquisitions (Tables)

12 Months Ended

Dec. 31, 2013

Acquisitions

Schedule of all businesses acquired in purchase transactions

	For the Year Ended December 31,
	2011			2012			2013
	(in thousands)
Cash paid (net of cash acquired)	$	899		$	6,043		$	1,665
Notes issued		1,020			1,844			3,283
		1,919			7,887			4,948
Contingent consideration		—			1,500			100
Liabilities assumed		701			107			885
		2,620			9,494			5,933
Fair value of assets acquired, principally accounts receivable and property and equipment		767			1,313			3,487
Non-controlling interests		(602	)		(970	)		347
Cost in excess of fair value of net assets acquired (goodwill)	$	2,455		$	9,151		$	2,099

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Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2013

Property and Equipment

Schedule of components of property and equipment

	December 31,
	2012		2013
	(in thousands)
Land	$	68,573	$	68,492
Leasehold improvements		128,468		146,117
Buildings		352,677		368,968
Furniture and equipment		246,858		256,079
Construction-in-progress		21,648		26,639
		818,224		866,295
Less: accumulated depreciation		316,672		357,193
Total property and equipment	$	501,552	$	509,102

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Organization and Significant Accounting Policies

12 Months Ended

Dec. 31, 2013

Organization and Significant Accounting Policies

Organization and Significant Accounting Policies

1.     Organization and Significant Accounting Policies

Business Description

        Select Medical Corporation ("Select") was formed in December 1996 and commenced operations during February 1997 upon the completion of its first acquisition. Select Medical Holdings Corporation ("Holdings") was formed in October 2004 for the purpose of affecting a leveraged buyout of Select, which was a publicly traded entity. On February 24, 2005, Select merged with a subsidiary of Holdings, which resulted in Select becoming a wholly-owned subsidiary of Holdings (the "Merger"). On September 30, 2009 Holdings completed its initial public offering of common stock. Generally accepted accounting principles ("GAAP") require that any amounts recorded or incurred (such as goodwill and compensation expense) by the parent as a result of the Merger or for the benefit of the subsidiary be "pushed down" and recorded in Select's consolidated financial statements. Holdings and Select and their subsidiaries are collectively referred to as the "Company." The consolidated financial statements of Holdings include the accounts of its wholly-owned subsidiary Select. Holdings conducts substantially all of its business through Select and its subsidiaries.

        The Company provides long term acute care hospital services and inpatient acute rehabilitative hospital care through its specialty hospital segment and provides physical, occupational and speech rehabilitation services through its outpatient rehabilitation segment. The Company's specialty hospital segment consists of hospitals designed to serve the needs of long term stay acute patients and hospitals designed to serve patients that require intensive medical rehabilitation care. Patients are typically admitted to the Company's specialty hospitals from general acute care hospitals. These patients have specialized needs, and serious and often complex medical conditions such as respiratory failure, neuromuscular disorders, traumatic brain and spinal cord injuries, strokes, non-healing wounds, cardiac disorders, renal disorders and cancer. The Company's outpatient rehabilitation segment consists of clinics and contract services that provide physical, occupational and speech rehabilitation services. The Company's outpatient rehabilitation patients are typically diagnosed with musculoskeletal impairments that restrict their ability to perform normal activities of daily living. The Company operated 119, 122 and 123 specialty hospitals at December 31, 2011, 2012 and 2013, respectively. At December 31, 2011, 2012 and 2013, the Company operated 954, 979, and 1,006 outpatient clinics, respectively. At December 31, 2011, 2012 and 2013, the Company had facilities in the District of Columbia and 39 states.

Reclassifications

        Certain reclassifications have been made to prior-year amounts in order to conform to the current-year presentation.

Principles of Consolidation

        The consolidated financial statements include the accounts of the Company, its majority owned subsidiaries, limited liability companies and limited partnerships the Company and its subsidiaries control through ownership of general and limited partnership or membership interests. All significant intercompany balances and transactions are eliminated in consolidation.

Use of Estimates

        The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

Cash and Cash Equivalents

        The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are stated at cost which approximates market value.

Accounts Receivable and Allowance for Doubtful Accounts

        The Company reports accounts receivable at estimated net realizable values. Substantially all of the Company's accounts receivable are related to providing healthcare services to patients whose costs are primarily paid by federal and state governmental authorities, managed care health plans, commercial insurance companies and workers' compensation programs. Collection of these accounts receivable is the Company's primary source of cash and is critical to its operating performance. The Company's primary collection risks relate to non-governmental payors who insure these patients and deductibles, co-payments and amounts owed by the patient. Deductibles, co-payments and amounts owed by the patient are an immaterial portion of the Company's net accounts receivable balance and accounted for approximately 0.2% and 0.3% of the net accounts receivable balance before doubtful accounts at December 31, 2012 and 2013, respectively. The Company's general policy is to verify insurance coverage prior to the date of admission for a patient admitted to the Company's hospitals or in the case of the Company's outpatient rehabilitation clinics, the Company verifies insurance coverage prior to their first therapy visit. The Company's estimate for the allowance for doubtful accounts is calculated by providing a reserve allowance based upon the age of an account balance. Generally the Company has reserved as uncollectible all governmental accounts over 365 days and non-governmental accounts over 180 days from discharge. This method is monitored based on historical cash collections experience. Collections are impacted by the effectiveness of the Company's collection efforts with non-governmental payors and regulatory or administrative disruptions with the fiscal intermediaries that pay the Company's governmental receivables.

        The Company has historically collected substantially all of its third-party insured receivables (net of contractual allowances) which include receivables from governmental agencies. The Company reviews its overall reserve adequacy by monitoring historical cash collections as a percentage of net revenue less the provision for bad debts.

        Uncollected accounts are written off the balance sheet when they are turned over to an outside collection agency, or when management determines that the balance is uncollectible, whichever occurs first.

Property and Equipment

        Property and equipment are stated at cost net of accumulated depreciation. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets or the term of the lease, as appropriate. The general range of useful lives is as follows:

Leasehold improvements	5 – 15 years
Furniture and equipment	3 – 20 years
Buildings	40 years
Building Improvements	5 – 25 years
Land Improvements	2 – 25 years

        The Company reviews the realizability of long-lived assets whenever events or circumstances occur which indicate recorded costs may not be recoverable. Gains or losses related to the retirement or disposal of property and equipment are reported as a component of income from operations.

Concentration of Credit Risk

        Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash balances and trade receivables. The Company invests its excess cash with large financial institutions. The Company grants unsecured credit to its patients, most of who reside in the service area of the Company's facilities and are insured under third-party payor agreements. Because of the geographic diversity of the Company's facilities and non-governmental third-party payors, Medicare represents the Company's only significant concentration of credit risk.

Income Taxes

        Deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. As part of the process of preparing its consolidated financial statements, the Company estimates income taxes based on its actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for book and tax purposes. The Company also recognizes as deferred tax assets the future tax benefits from net operating loss carry forwards. The Company evaluates the realizability of these deferred tax assets by assessing their valuation allowances and by adjusting the amount of such allowances, if necessary. Among the factors used to assess the likelihood of realization are projections of future taxable income streams, the expected timing of the reversals of existing temporary differences, and the impact of tax planning strategies that could be implemented to avoid the potential loss of future tax benefits.

        Reserves for uncertain tax positions are established for exposure items related to various federal and state tax matters. Income tax reserves are recorded when an exposure is identified and when, in the opinion of management, it is more likely than not that a tax position will not be sustained and the amount of the liability can be estimated.

Intangible Assets

        Goodwill and certain other indefinite-lived intangible assets are not amortized, but instead are subject to periodic impairment evaluations. In performing the quantitative periodic impairment tests, the fair value of the reporting unit is compared to its carrying value, including goodwill and other intangible assets. If the carrying value exceeds the fair value, an impairment condition exists, which results in an impairment loss equal to the excess carrying value.

        To determine the fair value of its reporting units, the Company uses a discounted cash flow approach. Included in this analysis are assumptions regarding revenue growth rate, future Adjusted EBITDA margin estimates, future general and administrative expense rates and the industry's weighted average cost of capital and industry specific market comparable Adjusted EBITDA multiples. The Company also must estimate residual values at the end of the forecast period and future capital expenditure requirements. Each of these assumptions requires the Company to use its knowledge of (1) its industry, (2) its recent transactions, and (3) reasonable performance expectations for its operations. If any one of the above assumptions changes or fails to materialize, the resulting decline in the Company's estimated fair value could result in a material impairment charge to the goodwill associated with any one of the reporting units.

        Impairment tests are required to be conducted at least annually, or when events or conditions occur that might suggest a possible impairment. These events or conditions include, but are not limited to, a significant adverse change in the business environment, regulatory environment or legal factors; a current period operating or cash flow loss combined with a history of such losses or a projection of continuing losses; or a sale or disposition of a significant portion of a reporting unit. The occurrence of one of these events or conditions could significantly impact an impairment assessment, necessitating an impairment charge. For purposes of goodwill impairment assessment, the Company has defined its reporting units as specialty hospitals, outpatient rehabilitation clinics and contract therapy with goodwill having been allocated among reporting units based on the relative fair value of those divisions when the Merger occurred in 2005 and based on subsequent acquisitions and dispositions. The Company's most recent impairment assessment was completed during the fourth quarter of 2013 utilizing financial information as of October 1, 2013 and indicated that there was no impairment with respect to goodwill or other recorded intangible assets.

        Identifiable assets and liabilities acquired in connection with business combinations accounted for under the purchase method are recorded at their respective fair values. Deferred income taxes have been recorded to the extent of differences between the fair value and the tax basis of the assets acquired and liabilities assumed. Company management has allocated the intangible assets between identifiable intangibles and goodwill. At December 31, 2013, intangible assets other than goodwill consist of the values assigned to trademarks, certificates of need and accreditations. Management believes that the estimated useful lives established are reasonable based on the economic factors applicable to each of the intangible assets.

        The approximate useful life of each class of intangible assets is as follows:

Trademarks	Indefinite
Certificates of need	Indefinite
Accreditations	Indefinite

        The Company reviews the realizability of intangible assets whenever events or circumstances occur which indicate recorded amounts may not be recoverable.

        If the expected future cash flows (undiscounted) are less than the carrying amount of such assets, the Company recognizes an impairment loss for the difference between the carrying amount of the assets and their estimated fair value.

Due to Third-Party Payors

        Due to third-party payors represents the difference between amounts received under interim payment plans from Medicare and Medicaid for services rendered and amounts estimated to be reimbursed by those third-party payors upon settlement of cost reports.

Insurance Risk Programs

        Under a number of the Company's insurance programs, which include the Company's employee health insurance program, its workers' compensation, professional malpractice liability insurance programs and certain components under its property and casualty insurance program, the Company is liable for a portion of its losses. In these situations the Company accrues for its losses under an occurrence-based approach whereby the Company estimates the losses that will be incurred in a respective accounting period and accrues that estimated liability. Where the Company has substantial exposure, actuarial methods are utilized in estimating the losses. In cases where the Company has minimal exposure, losses are estimated by analyzing historical trends. These programs are monitored quarterly and estimates are revised as necessary to take into account additional information. Provisions for losses for professional liability risks retained by the Company at December 31, 2012 and 2013 have been discounted at 3%. At December 31, 2012 and 2013, respectively, the Company had recorded a liability of $92.5 million and $103.4 million related to these programs. If the Company did not discount the provisions for losses for professional liability risks, the aggregate liability for all of the insurance risk programs would be approximately $95.6 million and $106.8 million at December 31, 2012 and 2013, respectively.

Equity Method Investments

        Investments in equity method investees are accounted for using the equity method based upon the level of ownership and/or the Company's ability to exercise significant influence over the operating and financial policies of the investee. Investments of this nature are recorded at original cost and adjusted periodically to recognize the Company's proportionate share of the investees' net income or losses after the date of investment. When net losses from an investment accounted for under the equity method exceeds its carrying amount, the investment balance is reduced to zero. The Company resumes accounting for the investment under the equity method if the entity subsequently reports net income and the Company's share of that net income exceeds the share of the net losses not recognized during the period the equity method was suspended. Investments are written down only when there is clear evidence that a decline in value that is other than temporary has occurred. The Company evaluates its investments in companies accounted for using the equity method for impairment when there is evidence or indicators that a decrease in value may be other than temporary.

Non-Controlling Interests

        The interests held by other parties in subsidiaries, limited liability companies and limited partnerships owned and controlled by the Company are generally reported as a component of stockholders' equity. Some of those minority ownership interests consist of outside owners that have certain "put rights," that are currently exercisable, and that, if exercised, require the Company to purchase the minority member's interest. These redeemable non-controlling interests that are currently redeemable or considered probable of becoming redeemable have been adjusted to their approximate redemption values and are reported outside of the stockholders' equity section. As of December 31, 2012 and 2013, the Company believes the redemption values of the non-controlling ownership interests approximates the fair value of those interests classified as redeemable non-controlling interests. The redeemable non-controlling interests' balances reported on our consolidated balance sheets were $10.8 million and $11.6 million as of December 31, 2012 and 2013, respectively. The non-controlling interests' balances reported in the stockholders' equity section of our consolidated balance sheets were $28.4 million and $32.4 million as of December 31, 2012 and 2013, respectively.

        Net income attributable to non-controlling interests was $4.9 million, $5.7 million and $8.6 million for the years ended December 31, 2011, 2012, and 2013, respectively. Non-controlling interests reported in the consolidated statement of operations and comprehensive income reflect the respective interests in the income or loss of the subsidiaries, attributable to the other parties, the effect of which is removed from the Company's consolidated statement of operations and comprehensive income.

Revenue Recognition

        Net operating revenues consists primarily of patient service revenues and revenues generated from therapy services provided to healthcare institutions under contractual arrangements and are recognized as services are rendered.

        Patient service revenue is reported net of provisions for contractual allowances from third-party payors and patients. The Company has agreements with third-party payors that provide for payments to the Company at amounts different from its established billing rates. The differences between the estimated program reimbursement rates and the standard billing rates are accounted for as contractual adjustments, which are deducted from gross revenues to arrive at net operating revenues. Payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges, per diem and per visit payments. Retroactive adjustments are accrued on an estimated basis in the period the related services are rendered and adjusted in future periods as final settlements are determined. Accounts receivable resulting from such payment arrangements are recorded net of contractual allowances.

        A significant portion of the Company's net operating revenues are generated directly from the Medicare program. Net operating revenues generated directly from the Medicare program represented approximately 48%, 47% and 46% of the Company's net operating revenues for the years ended December 31, 2011, 2012 and 2013, respectively. Approximately 29% and 32% of the Company's accounts receivable (after allowances for contractual adjustments but before doubtful accounts) at December 31, 2012 and 2013, respectively, are from Medicare. As a provider of services to the Medicare program, the Company is subject to extensive regulations. The inability of any of the Company's specialty hospitals or clinics to comply with regulations can result in significant changes in that specialty hospital's or clinic's net operating revenues generated from the Medicare program.

        Revenues generated under contractual arrangements are comprised primarily of billings for services rendered to nursing homes, hospitals, schools and other third parties.

Stock Based Compensation

        The Company measures the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognizes the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements comprise both stock options and restricted share plans. Employee stock options are valued using the Black-Scholes option valuation method which uses assumptions that relate to the expected volatility of the Company's common stock, the expected dividend yield of the Company's stock, the expected life of the options and the risk free interest rate. Such compensation amounts, if any, are amortized over the respective vesting periods or periods of service of the option grant. The Company values restricted stock grants by using the closing market price of its stock on the date of grant.

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Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2013

Intangible Assets

Schedule of gross carrying amounts of the Company's indefinite-lived intangible assets

	December 31,
	2012		2013
	(in thousands)
Goodwill	$	1,640,534	$	1,642,633
Trademarks		57,709		57,709
Certificates of need		11,914		12,115
Accreditations		2,122		2,083
Total	$	1,712,279	$	1,714,540

Schedule of amortization expenses for intangible assets with finite lives

	For the Year Ended December 31
	2011		2012		2013
	(in thousands)
Amortization expense	$	1,306	$	340	$	—

Schedule of changes in the carrying amount of goodwill for the Company's reportable segments

	Specialty Hospitals			Outpatient Rehabilitation			Total
	(in thousands)
Balance as of January 1, 2012	$	1,333,553		$	298,163		$	1,631,716
Goodwill acquired during year		—			9,151			9,151
Other		(333	)		—			(333	)
Balance as of December 31, 2012	$	1,333,220		$	307,314		$	1,640,534
Goodwill acquired during year		1,395			837			2,232
Purchase price adjustment		—			(133	)		(133	)
Balance as of December 31, 2013	$	1,334,615		$	308,018		$	1,642,633

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Supplemental Disclosures of Cash Flow Information (Tables)

12 Months Ended

Dec. 31, 2013

Schedule of non-cash investing and financing activities

	Holdings
	For the Year Ended December 31,
	2011		2012		2013
	(in thousands)
Notes issued with acquisitions(1)	$	1,020	$	1,844	$	3,283
Liabilities assumed with acquisitions(1)		701		107		885
Contingent consideration related to acquisitions(1)		—		1,500		100
Notes related to investment in business		—		—		3,399

Select

Schedule of non-cash investing and financing activities

	Select
	For the Year Ended December 31,
	2011			2012			2013
	(in thousands)
Dividends declared to Holdings by Select(2)	$	(5,240	)	$	(5,240	)	$	—
Notes issued with acquisitions(1)		1,020			1,844			3,283
Liabilities assumed with acquisitions(1)		701			107			885
Contingent consideration related to acquisitions(1)		—			1,500			100
Notes related to investment in business		—			—			3,399

(1)

Refer to Footnote 2 — Acquisitions.

(2)

Recorded in accrued other liabilities on the consolidated balance sheet of Select.

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Long-Term Debt and Notes Payable (Details) (USD $)	12 Months Ended								12 Months Ended			12 Months Ended		12 Months Ended				12 Months Ended								12 Months Ended		12 Months Ended			12 Months Ended			12 Months Ended									12 Months Ended						12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2013 Select	Dec. 31, 2012 Select	Dec. 31, 2011 Select	Dec. 31, 2012 7 5/8% senior subordinated notes	Dec. 31, 2011 7 5/8% senior subordinated notes	Dec. 31, 2012 7 5/8% senior subordinated notes Select	Dec. 31, 2011 7 5/8% senior subordinated notes Select	Dec. 31, 2013 6.375% senior notes	Dec. 31, 2013 6.375% senior notes Select	May 28, 2013 6.375% senior notes Select	Dec. 31, 2013 6.375% senior notes Select Prior to June 1, 2016	Dec. 31, 2013 6.375% senior notes Select Maximum Prior to June 1, 2016	Dec. 31, 2013 Senior secured credit facility Select	Jun. 01, 2011 Senior secured credit facility Select	Dec. 31, 2013 Senior secured credit facility Select Leverage ratio greater than 3.75 to 1.00	Dec. 31, 2013 Senior secured credit facility Select Leverage ratio less than or equal to 3.75 to 1.00 but greater than 3.25 to 1.00	Dec. 31, 2013 Senior secured credit facility Select Leverage ratio equal to 3.91 to 1.00	Dec. 31, 2013 Senior secured credit facility Select Maximum	Dec. 31, 2013 Senior secured credit facility Select Maximum Leverage ratio greater than 3.75 to 1.00	Dec. 31, 2013 Senior secured credit facility Select Minimum Leverage ratio less than or equal to 3.25 to 1.00	Dec. 31, 2013 Term loans	Dec. 31, 2012 Term loans	Dec. 31, 2013 Term loans Select	Dec. 31, 2012 Term loans Select	Dec. 31, 2013 Series B Term Loan Adjusted LIBO	Dec. 31, 2013 Series B Term Loan Alternate base rate	Dec. 31, 2013 Series B Term Loan Select	Dec. 31, 2013 Series C Term Loan Adjusted LIBO	Dec. 31, 2013 Series C Term Loan Alternate base rate	Dec. 31, 2013 Series C Term Loan Select	Dec. 31, 2013 Series C Term Loan Select Minimum Adjusted LIBO	Dec. 31, 2012 Senior floating rate notes	Dec. 31, 2013 Other	Dec. 31, 2012 Other	Dec. 31, 2013 Other Select	Dec. 31, 2012 Other Select	Dec. 31, 2013 Letters of credit Select	Dec. 31, 2013 Revolving loan	Dec. 31, 2012 Revolving loan	Dec. 31, 2013 Revolving loan Adjusted LIBO	Dec. 31, 2013 Revolving loan Alternate base rate	Dec. 31, 2013 Revolving loan Select	Dec. 31, 2012 Revolving loan Select	Dec. 31, 2013 Revolving credit facility that matures on March 1, 2018 Select	Dec. 31, 2013 Revolving credit facility that matures on June 1, 2016 Select	Dec. 31, 2011 10% senior subordinated notes	Dec. 31, 2013 10% senior subordinated notes
Long-term debt and notes payable
Interest rate of debt (as a percent)							7.625%	7.625%	7.625%	7.625%	6.375%	6.375%																																					10.00%	10.00%
Total debt	$ 1,445,275,000	$ 1,470,243,000		$ 1,445,275,000	$ 1,302,943,000		$ 70,000,000		$ 70,000,000		$ 600,000,000	$ 600,000,000												$ 807,815,000	$ 1,096,641,000	$ 807,815,000	$ 1,096,641,000			$ 295,900,000			$ 511,900,000		$ 167,300,000	$ 17,460,000	$ 6,302,000	$ 17,460,000	$ 6,302,000		$ 20,000,000	$ 130,000,000			$ 20,000,000	$ 130,000,000
Less: current maturities	17,565,000	11,646,000		17,565,000	11,646,000
Total long-term debt	1,427,710,000	1,458,597,000		1,427,710,000	1,291,297,000
Unamortized discounts																								6,300,000	14,200,000	6,300,000	14,200,000
Maximum borrowing capacity																	1,150,000,000																												300,000,000		293,300,000	6,700,000
Loss on early retirement of debt	18,747,000	6,064,000	31,018,000	17,788,000	6,064,000	20,385,000	(6,100,000)		(6,100,000)	20,400,000																																							31,000,000
Aggregate principal amount													600,000,000													814,200,000
Periodic payment in equal quarterly installments																										2,100,000
Variable rate basis																												Adjusted LIBO	Alternate base rate		Adjusted LIBO	Alternate base rate											Adjusted LIBO	Alternate base rate
Interest rate margin (as a percent)																												3.25%	2.25%		3.00%	2.00%		1.00%									3.75%	2.75%
Availability under revolving loan facility																																													237,700,000
Outstanding letters of credit																																								42,300,000
Pro forma ratio of total indebtedness to Consolidated EBITDA																				3.91		3.75	3.25
Percentage of net cash proceeds received from non-ordinary course asset sales or other dispositions, or as a result of a casualty or condemnation to be used for prepayment of debt																100.00%
Percentage of net proceeds received from the issuance of debt obligations other than certain permitted debt obligations to be used for prepayment of debt																100.00%
Percentage of excess cash flow to be used for prepayment of debt																		50.00%	25.00%	50.00%
Prepayment of debt required unless a specified leverage ratio is met																				34,000,000
Annual capital expenditure permitted under the covenants																					125,000,000
Percentage of the amount permitted for capital expenditures in previous fiscal year which can carry-over																50.00%
Percentage of principal amount at which notes may be required to be repurchased in event of change of control by the entity												101.00%
Percentage of the principal amount of the debt instrument which the entity may redeem with the proceeds from certain equity offerings															35.00%
Percentage of the principal amount representing the redemption price of notes which may be redeemed with proceeds from certain equity offerings														106.375%
Maturities of Long-Term Debt and Notes Payable
2014	17,565,000
2015	10,183,000
2016	296,232,000
2017	4,075,000
2018	515,820,000
2019 and beyond	601,400,000
Principal amount of debt repurchased and retired									$ 275,000,000	$ 266,500,000																																							$ 150,000,000

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Supplemental Disclosures of Cash Flow Information (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Notes issued with acquisitions	$ 3,283	$ 1,844	$ 1,020
Liabilities assumed with acquisitions	885	107	701
Contingent consideration related to acquisitions	100	1,500
Notes related to investment in business	3,399
Select
Dividends declared to Holdings		(5,240)	(5,240)
Notes issued with acquisitions	3,283	1,844	1,020
Liabilities assumed with acquisitions	885	107	701
Contingent consideration related to acquisitions	100	1,500
Notes related to investment in business	$ 3,399

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Current Assets:
Cash and cash equivalents	$ 4,319	$ 40,144	$ 12,043	$ 4,365
Accounts receivable, net of allowance for doubtful accounts of $41,854 and $40,815 in 2012 and 2013, respectively	391,319	359,929
Current deferred tax asset	17,624	17,877
Prepaid income taxes		3,895
Other current assets	41,140	31,818
Total Current Assets	454,402	453,663
Property and equipment, net	509,102	501,552
Goodwill	1,642,633	1,640,534	1,631,716
Other identifiable intangibles	71,907	71,745
Other assets	139,578	93,867
Total Assets	2,817,622	2,761,361	2,772,147
Current Liabilities:
Bank overdrafts	12,506	17,836
Current portion of long-term debt and notes payable	17,565	11,646
Accounts payable	88,285	89,547
Accrued payroll	90,011	88,586
Accrued vacation	59,730	55,714
Accrued interest	12,297	22,016
Accrued other	90,471	86,843
Income taxes payable	622
Due to third party payors	37	1,078
Total Current Liabilities	371,524	373,266
Long-term debt, net of current portion	1,427,710	1,458,597
Non-current deferred tax liability	96,287	89,510
Other non-current liabilities	91,875	83,699
Total Liabilities	1,987,396	2,005,072
Redeemable non-controlling interests	11,584	10,811
Stockholders' Equity:
Common stock	140	141
Capital in excess of par	474,729	473,697
Retained earnings (accumulated deficit)	311,365	243,210
Total Select Medical Holdings Corporation and Select Medical Corporation Stockholders' Equity	786,234	717,048
Non-controlling interests	32,408	28,430
Total Equity	818,642	745,478	846,338	807,176
Total Liabilities and Equity	2,817,622	2,761,361
Select
Current Assets:
Cash and cash equivalents	4,319	40,144	12,043	4,365
Accounts receivable, net of allowance for doubtful accounts of $41,854 and $40,815 in 2012 and 2013, respectively	391,319	359,929
Current deferred tax asset	17,624	17,877
Prepaid income taxes		3,895
Other current assets	41,140	31,818
Total Current Assets	454,402	453,663
Property and equipment, net	509,102	501,552
Goodwill	1,642,633	1,640,534
Other identifiable intangibles	71,907	71,745
Other assets	139,578	92,819
Total Assets	2,817,622	2,760,313	2,770,738
Current Liabilities:
Bank overdrafts	12,506	17,836
Current portion of long-term debt and notes payable	17,565	11,646
Accounts payable	88,285	89,547
Accrued payroll	90,011	88,586
Accrued vacation	59,730	55,714
Accrued interest	12,297	18,759
Accrued other	90,471	92,083
Income taxes payable	622
Due to third party payors	37	1,078
Total Current Liabilities	371,524	375,249
Long-term debt, net of current portion	1,427,710	1,291,297
Non-current deferred tax liability	96,287	89,510
Other non-current liabilities	91,875	83,699
Total Liabilities	1,987,396	1,839,755
Redeemable non-controlling interests	11,584	10,811
Stockholders' Equity:
Common stock	0	0
Capital in excess of par	869,576	859,839
Retained earnings (accumulated deficit)	(83,342)	21,478
Total Select Medical Holdings Corporation and Select Medical Corporation Stockholders' Equity	786,234	881,317
Non-controlling interests	32,408	28,430
Total Equity	818,642	909,747	1,010,105	1,107,890
Total Liabilities and Equity	$ 2,817,622	$ 2,760,313

XML

Organization and Significant Accounting Policies (Details 3) (USD $) In Millions, unless otherwise specified	3 Months Ended	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2013 Insurance Risk Programs	Dec. 31, 2012 Insurance Risk Programs
Intangible Assets
Impairment to goodwill or other recorded intangible assets	$ 0
Insurance risk programs
Discount rate for provisions for losses for professional liability (as a percent)		3.00%	3.00%
Liability recorded after discounting		103.4	92.5
Value of aggregate liability, if the entity did not discount the provisions for losses		$ 106.8	$ 95.6

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Operating activities
Net income	$ 123,009	$ 153,893	$ 112,762
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	64,392	63,311	71,517
Provision for bad debts	37,423	39,055	51,347
Equity in earnings of unconsolidated subsidiaries	(2,476)	(7,705)	(2,923)
Loss on early retirement of debt	18,747	6,064	31,018
Gain from disposal or sale of assets	(581)	(5,906)	(4,966)
Non-cash stock compensation expense	7,033	5,677	3,725
Amortization of debt discount and issuance costs	8,433	7,566	8,007
Deferred income taxes	7,032	7,909	35,305
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Accounts receivable	(67,145)	15,158	(111,126)
Other current assets	(8,167)	(1,607)	(1,201)
Other assets	(3,484)	5,862	(2,081)
Accounts payable	(1,283)	(6,117)	20,629
Due to third-party payors	(1,041)	(4,448)	227
Accrued expenses	10,631	19,970	4,888
Net cash provided by operating activities	192,523	298,682	217,128
Investing activities
Purchases of property and equipment	(73,660)	(68,185)	(46,016)
Investment in businesses, net of distributions	(34,893)	(14,689)	(15,699)
Acquisition of businesses, net of cash acquired	(1,665)	(6,043)	(899)
Proceeds from sale of assets	2,912	16,511	7,879
Net cash used in investing activities	(107,306)	(72,406)	(54,735)
Financing activities
Borrowings on revolving credit facilities	690,000	495,000	735,000
Payments on revolving credit facilities	(800,000)	(405,000)	(720,000)
Borrowings on 2011 credit facility term loans, net of discount	298,500	266,750	841,500
Payments on 2011 credit facility term loans	(596,720)	(9,875)	(4,250)
Issuance of 6.375% senior subordinated notes	600,000
Payments on 2005 credit facility term loans, net of premium			(484,633)
Repurchase of 10% senior subordinated notes			(150,000)
Repurchase of senior floating rate notes	(167,300)
Repurchase of 7 5/8% senior subordinated notes, net of premiums	(70,000)	(278,495)	(273,941)
Borrowings of other debt	15,310	8,281	7,055
Principal payments on other debt	(10,834)	(10,295)	(7,499)
Debt issuance costs	(18,914)	(6,527)	(18,556)
Proceeds from (repayment of) bank overdrafts	(5,330)	1,227	(2,183)
Dividends paid	(41,961)	(210,888)
Repurchase of common stock	(11,781)	(46,902)	(72,804)
Proceeds from issuance of common stock	1,525	1,817	208
Distributions to non-controlling interests	(3,537)	(3,268)	(4,612)
Net cash used in financing activities	(121,042)	(198,175)	(154,715)
Net increase (decrease) in cash and cash equivalents	(35,825)	28,101	7,678
Cash and cash equivalents at beginning of period	40,144	12,043	4,365
Cash and cash equivalents at end of period	4,319	40,144	12,043
Supplemental Cash Flow Information
Cash paid for interest	89,061	80,722	107,488
Cash paid for taxes	64,963	77,614	39,000
Select
Operating activities
Net income	125,199	161,167	131,363
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	64,392	63,311	71,517
Provision for bad debts	37,423	39,055	51,347
Equity in earnings of unconsolidated subsidiaries	(2,476)	(7,705)	(2,923)
Loss on early retirement of debt	17,788	6,064	20,385
Gain from disposal or sale of assets	(581)	(5,906)	(4,966)
Non-cash stock compensation expense	7,033	5,677	3,725
Amortization of debt discount and issuance costs	8,344	7,190	6,700
Deferred income taxes	7,032	7,909	35,305
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Accounts receivable	(67,145)	15,158	(111,126)
Other current assets	(8,167)	(1,607)	(1,201)
Other assets	(3,484)	5,877	(2,068)
Accounts payable	(1,283)	(6,117)	20,629
Due to third-party payors	(1,041)	(4,448)	227
Accrued expenses	15,068	23,746	21,139
Net cash provided by operating activities	198,102	309,371	240,053
Investing activities
Purchases of property and equipment	(73,660)	(68,185)	(46,016)
Investment in businesses, net of distributions	(34,893)	(14,689)	(15,699)
Acquisition of businesses, net of cash acquired	(1,665)	(6,043)	(899)
Proceeds from sale of assets	2,912	16,511	7,879
Net cash used in investing activities	(107,306)	(72,406)	(54,735)
Financing activities
Borrowings on revolving credit facilities	690,000	495,000	735,000
Payments on revolving credit facilities	(800,000)	(405,000)	(720,000)
Borrowings on 2011 credit facility term loans, net of discount	298,500	266,750	841,500
Payments on 2011 credit facility term loans	(596,720)	(9,875)	(4,250)
Issuance of 6.375% senior subordinated notes	600,000
Payments on 2005 credit facility term loans, net of premium			(484,633)
Repurchase of 7 5/8% senior subordinated notes, net of premiums	(70,000)	(278,495)	(273,941)
Borrowings of other debt	15,310	8,281	7,055
Principal payments on other debt	(10,834)	(10,295)	(7,499)
Debt issuance costs	(18,914)	(6,527)	(18,556)
Proceeds from (repayment of) bank overdrafts	(5,330)	1,227	(2,183)
Equity investment by Holdings	1,525	1,817	208
Dividends paid	(226,621)	(268,479)	(245,729)
Distributions to non-controlling interests	(3,537)	(3,268)	(4,612)
Net cash used in financing activities	(126,621)	(208,864)	(177,640)
Net increase (decrease) in cash and cash equivalents	(35,825)	28,101	7,678
Cash and cash equivalents at beginning of period	40,144	12,043	4,365
Cash and cash equivalents at end of period	4,319	40,144	12,043
Supplemental Cash Flow Information
Cash paid for interest	83,482	70,047	84,575
Cash paid for taxes	$ 64,963	$ 77,614	$ 39,000

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Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Current:
Federal	$ 55,847	$ 70,159	$ 29,991
State and local	11,913	11,589	5,672
Total current	67,760	81,748	35,663
Deferred	7,032	7,909	35,305
Total income tax provision	74,792	89,657	70,968
Differences between the expected income tax provision and income taxes computed at the federal statutory rate
Expected federal tax rate (as a percent)	35.00%	35.00%	35.00%
State and local taxes, net of federal benefit (as a percent)	4.60%	4.20%	4.50%
Other permanent differences (as a percent)	1.10%	0.60%	1.00%
Valuation allowance (as a percent)	(0.70%)	(0.60%)	(0.50%)
Uncertain tax positions (as a percent)	(0.60%)	(0.50%)	(3.60%)
IRS audit settlements (as a percent)		(0.60%)
Non-controlling interest (as a percent)	(1.70%)	(0.90%)	(1.10%)
Sale of entities (as a percent)			3.10%
Other (as a percent)	0.10%	(0.40%)	0.20%
Total (as a percent)	37.80%	36.80%	38.60%
Select
Current:
Federal	57,026	74,076	40,007
State and local	11,913	11,589	5,672
Total current	68,939	85,665	45,679
Deferred	7,032	7,909	35,305
Total income tax provision	$ 75,971	$ 93,574	$ 80,984
Differences between the expected income tax provision and income taxes computed at the federal statutory rate
Expected federal tax rate (as a percent)	35.00%	35.00%	35.00%
State and local taxes, net of federal benefit (as a percent)	4.50%	4.00%	3.90%
Other permanent differences (as a percent)	1.10%	0.60%	0.90%
Valuation allowance (as a percent)	(0.60%)	(0.60%)	(0.40%)
Uncertain tax positions (as a percent)	(0.60%)	(0.50%)	(3.10%)
IRS audit settlements (as a percent)		(0.50%)
Non-controlling interest (as a percent)	(1.70%)	(0.90%)	(0.90%)
Sale of entities (as a percent)			2.70%
Other (as a percent)	0.10%	(0.40%)
Total (as a percent)	37.80%	36.70%	38.10%

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2013

Income Taxes

Schedule of significant components of the Company's tax provision

	Holdings						Select
	For the Year Ended December 31,						For the Year Ended December 31,
	2011		2012		2013		2011		2012		2013
	(in thousands)						(in thousands)
Current:
Federal	$	29,991	$	70,159	$	55,847	$	40,007	$	74,076	$	57,026
State and local		5,672		11,589		11,913		5,672		11,589		11,913
Total current		35,663		81,748		67,760		45,679		85,665		68,939
Deferred		35,305		7,909		7,032		35,305		7,909		7,032
Total income tax provision	$	70,968	$	89,657	$	74,792	$	80,984	$	93,574	$	75,971

Schedule of differences between the expected income tax provision and income taxes computed at the federal statutory rate

	Holdings									Select
	For the Year Ended December 31,									For the Year Ended December 31,
	2011			2012			2013			2011			2012			2013
Expected federal tax rate		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%
State and local taxes, net of federal benefit		4.5			4.2			4.6			3.9			4.0			4.5
Other permanent differences		1.0			0.6			1.1			0.9			0.6			1.1
Valuation allowance		(0.5	)		(0.6	)		(0.7	)		(0.4	)		(0.6	)		(0.6	)
Uncertain tax positions		(3.6	)		(0.5	)		(0.6	)		(3.1	)		(0.5	)		(0.6	)
IRS audit settlements		—			(0.6	)		—			—			(0.5	)		—
Non-controlling interest		(1.1	)		(0.9	)		(1.7	)		(0.9	)		(0.9	)		(1.7	)
Sale of entities		3.1			—			—			2.7			—			—
Other		0.2			(0.4	)		0.1			—			(0.4	)		0.1
Total		38.6	%		36.8	%		37.8	%		38.1	%		36.7	%		37.8	%

Summary of deferred tax assets and liabilities for Holdings and Select

	December 31, 2012									December 31, 2013
	Total			Current			Non-Current			Total			Current			Non-Current
	(in thousands)
Deferred tax assets
Allowance for doubtful accounts	$	1,496		$	1,496		$	—		$	1,484		$	1,484		$	—
Compensation and benefit related accruals		45,784			38,254			7,530			45,147			35,706			9,441
Professional malpractice liability insurance		17,005			5,003			12,002			20,333			6,382			13,951
Restructuring reserve		679			679			—			441			441			—
Net operating loss carryforwards		24,543			777			23,766			22,686			422			22,264
Other		1,025			996			29			630			630			—
Stock options		4,089			—			4,089			4,392			—			4,392
Uncertain tax positions		2,661			—			2,661			2,107			—			2,107
Total deferred tax assets		97,282			47,205			50,077			97,220			45,065			52,155
Deferred tax liabilities
Deferred income		(33,188	)		(26,253	)		(6,935	)		(31,832	)		(24,897	)		(6,935	)
Other		(1,311	)		(118	)		(1,193	)		(2,620	)		(230	)		(2,390	)
Depreciation and amortization		(121,075	)		—			(121,075	)		(130,884	)		—			(130,884	)
Total deferred tax liabilities		(155,574	)		(26,371	)		(129,203	)		(165,336	)		(25,127	)		(140,209	)
Net deferred taxes before valuation allowance		(58,292	)		20,834			(79,126	)		(68,116	)		19,938			(88,054	)
Valuation allowance		(13,341	)		(2,957	)		(10,384	)		(10,547	)		(2,314	)		(8,233	)
Net deferred taxes	$	(71,633	)	$	17,877		$	(89,510	)	$	(78,663	)	$	17,624		$	(96,287	)

Schedule of state net operating loss carry forwards

	State Net Operating Losses		Gross Valuation Allowance
	(in thousands)
2014	$	5,427	$	5,401
2015		8,333		7,980
2016		11,238		9,728
2017		12,834		11,092
Thereafter through 2033		473,034		355,392

Schedule of reconciliation of the Company's unrecognized tax benefits

The reconciliation of the Company's unrecognized tax benefits is as follows (in thousands):

Gross tax contingencies — January 1, 2011	$	22,310
Reductions for tax positions taken in prior periods due primarily to statute expiration		(2,706	)
Reductions for tax positions taken in prior periods due to change in estimate		(7,012	)
Additions for existing tax positions taken		3,064
Gross tax contingencies — December 31, 2011		15,656
Reductions for tax positions taken in prior periods due primarily to statute expiration		(2,516	)
Additions for existing tax positions taken		750
Gross tax contingencies — December 31, 2012		13,890
Reductions for tax positions taken in prior periods due primarily to statute expiration		(2,299	)
Additions for existing tax positions taken		435
Gross tax contingencies — December 31, 2013	$	12,026

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Segment Information (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Segment information
Adjusted EBITDA									$ 372,861	$ 405,847	$ 385,961
Depreciation and amortization									(64,392)	(63,311)	(71,517)
Stock compensation expense									(7,033)	(5,677)	(3,725)
Income from operations	68,244	62,399	88,263	82,530	80,923	70,819	93,513	91,604	301,436	336,859	310,719
Loss on early retirement of debt									(18,747)	(6,064)	(31,018)
Equity in earnings of unconsolidated subsidiaries									2,476	7,705	2,923
Interest expense, net									(87,364)	(94,950)	(98,894)
Income before income taxes									197,801	243,550	183,730
Select
Segment information
Depreciation and amortization									(64,392)	(63,311)	(71,517)
Income from operations	68,244	62,399	88,263	82,530	80,923	70,819	93,513	91,604	301,436	336,859	310,719
Loss on early retirement of debt									(17,788)	(6,064)	(20,385)
Equity in earnings of unconsolidated subsidiaries									2,476	7,705	2,923
Interest expense, net									(84,954)	(83,759)	(80,910)
Income before income taxes									201,170	254,741	212,347
Operating Segments | Specialty Hospitals
Segment information
Adjusted EBITDA									353,843	381,354	362,334
Depreciation and amortization									(48,621)	(46,836)	(50,629)
Income from operations									305,222	334,518	311,705
Operating Segments | Outpatient Rehabilitation
Segment information
Adjusted EBITDA									90,313	87,024	83,864
Depreciation and amortization									(12,024)	(13,208)	(16,487)
Income from operations									78,289	73,816	67,377
Other
Segment information
Adjusted EBITDA									(71,295)	(62,531)	(60,237)
Depreciation and amortization									(3,747)	(3,267)	(4,401)
Stock compensation expense									(7,033)	(5,677)	(3,725)
Income from operations									$ (82,075)	$ (71,475)	$ (68,363)

XML

Commitments and Contingencies

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies

Commitments and Contingencies

15.   Commitments and Contingencies

Leases

        The Company leases facilities and equipment from unrelated parties under operating leases. Minimum future lease obligations on long-term non-cancelable operating leases in effect at December 31, 2013 are approximately as follows (in thousands):

2014	$	125,611
2015		98,100
2016		77,724
2017		63,517
2018		51,104
Thereafter		364,253
	$	780,309

        Total rent expense for operating leases, including cancelable leases, for the years ended December 31, 2011, 2012 and 2013 was $163.9 million, $168.3 million and $164.6 million, respectively.

        Property rent expense to unrelated parties for the years ended December 31, 2011, 2012 and 2013 was $114.8 million, $118.1 million and $119.5 million, respectively.

Construction Commitments

        At December 31, 2013, the Company had outstanding commitments under construction contracts related to new construction, improvements and renovations at the Company's long term acute care properties and inpatient rehabilitation facilities totaling approximately $22.8 million.

Other

        A subsidiary of the Company has entered into a naming, promotional and sponsorship agreement with an NFL team for the team's headquarters complex that requires a payment of $2.9 million in 2014. Each successive annual payment increases by 2.3% through 2025. The naming, promotional and sponsorship agreement is in effect until 2025.

Litigation

        The Company is a party to various legal actions, proceedings and claims (some of which are not insured), and regulatory and other governmental audits and investigations in the ordinary course of its business. The Company cannot predict the ultimate outcome of pending litigation, proceedings and regulatory and other governmental audits and investigations. These matters could potentially subject the Company to sanctions, damages, recoupments, fines and other penalties. The Department of Justice, Centers for Medicare & Medicaid Services ("CMS") or other federal and state enforcement and regulatory agencies may conduct additional investigations related to the Company's businesses in the future that may, either individually or in the aggregate, have a material adverse effect on the Company's business, financial position, results of operations and liquidity.

        To address claims arising out of the operations of the Company's specialty hospitals and outpatient rehabilitation facilities, the Company maintains professional malpractice liability insurance and general liability insurance, subject to self-insured retention of $2.0 million per medical incident for professional liability claims and $2.0 million per occurrence for general liability claims. The Company also maintains umbrella liability insurance covering claims which, due to their nature or amount, are not covered by or not fully covered by the Company's other insurance policies. These insurance policies also do not generally cover punitive damages and are subject to various deductibles and policy limits. Significant legal actions, as well as the cost and possible lack of available insurance, could subject the Company to substantial uninsured liabilities. In the Company's opinion, the outcome of these actions, individually or in the aggregate, will not have a material adverse effect on its financial position, results of operations, or cash flows.

        Healthcare providers are subject to lawsuits under the qui tam provisions of the federal False Claims Act. Qui tam lawsuits typically remain under seal (hence, usually unknown to the defendant) for some time while the government decides whether or not to intervene on behalf of a private qui tam plaintiff (known as a relator) and take the lead in the litigation. These lawsuits can involve significant monetary damages and penalties and award bounties to private plaintiffs who successfully bring the suits. The Company has been a defendant in these cases in the past, and may be named as a defendant in similar cases from time to time in the future.

        On January 8, 2013, a federal magistrate judge unsealed an Amended Complaint in United States of America and the State of Indiana, ex rel. Doe I, Doe II and Doe III v. Select Medical Corporation, Select Specialty Hospital-Evansville, Evansville Physician Investment Corporation, Dr. Richard Sloan and Dr. Jeffrey Selby. The Amended Complaint, which was served on the Company on February 15, 2013, is a civil action filed under seal on September 28, 2012 in the United States District Court for the Southern District of Indiana by private plaintiff-relators on behalf of the United States and the state of Indiana under the federal False Claims Act and Indiana False Claims and Whistleblower Protection Act. Although the Amended Complaint identifies the relators by fictitious pseudonyms, on March 28, 2013, the relators filed a Notice identifying themselves as the former CEO at the Company's long term acute care hospital in Evansville, Indiana ("SSH-Evansville") and two former case managers at SSH-Evansville. The named defendants include the Company, SSH-Evansville, and two physicians who have practiced at SSH-Evansville. On March 26, 2013, the defendants, relators and the United States filed a joint motion seeking a stay of the proceedings, in which the United States notified the court that its investigation has not been completed and therefore it is not yet able to decide whether or not to intervene, and on March 29, 2013, the magistrate judge granted the motion and stayed all deadlines in the case for 90 days. The court has subsequently granted additional motions filed by the United States to continue the stay, and the current stay extends until March 17, 2014.

        In January 2014, representatives of the United States Attorney's Office for the Southern District of Indiana and the Office of Attorney General for the State of Indiana informed the Company that, while they have not yet decided whether to intervene in the case, their investigation is continuing concerning allegations that SSH-Evansville admitted patients for whom long-term acute care was not medically necessary, up-coded diagnoses at admission, discharged patients too early or held patients too long, readmitted patients discharged to short-stay acute care hospitals only after nine days to enable billing for two admissions, and allowed unnecessary bronchoscopies to be performed. The Company is involved in ongoing discussions with the government regarding this matter.

        As previously disclosed, beginning in April 2012, the Company and SSH-Evansville have received various subpoenas and demands for documents relating to SSH-Evansville, including a request for information and subpoenas from the Office of Inspector General of the U.S. Department of Health and Human Services and subpoenas from the Office of Attorney General for the State of Indiana, and the Evansville (Indiana) Police Department has executed a search warrant at SSH-Evansville. The Company has produced and will continue to produce documents in response to, and intends to fully cooperate with, these governmental investigations. At this time, the Company is unable to predict the timing and outcome of this matter.

XML

Segment Information (Tables)

12 Months Ended

Dec. 31, 2013

Segment Information

Schedule of selected financial data for the Company's reportable segments

	Year Ended December 31, 2011
	Specialty Hospitals		Outpatient Rehabilitation		Other			Total
	(in thousands)
Net revenue	$	2,095,519	$	708,867	$	121		$	2,804,507
Adjusted EBITDA		362,334		83,864		(60,237	)		385,961
Total assets(1):
Select		2,187,767		486,589		96,382			2,770,738
Holdings		2,187,767		486,589		97,791			2,772,147
Capital expenditures		30,464		12,135		3,417			46,016

	Year Ended December 31, 2012
	Specialty Hospitals		Outpatient Rehabilitation		Other			Total
	(in thousands)
Net revenue	$	2,197,529	$	751,317	$	123		$	2,948,969
Adjusted EBITDA		381,354		87,024		(62,531	)		405,847
Total assets(1):
Select		2,143,906		491,920		124,487			2,760,313
Holdings		2,143,906		491,920		125,535			2,761,361
Capital expenditures		50,005		13,209		4,971			68,185

	Year Ended December 31, 2013
	Specialty Hospitals		Outpatient Rehabilitation		Other			Total
	(in thousands)
Net revenue	$	2,198,121	$	777,177	$	350		$	2,975,648
Adjusted EBITDA		353,843		90,313		(71,295	)		372,861
Total assets(1):
Select		2,205,921		512,539		99,162			2,817,622
Holdings		2,205,921		512,539		99,162			2,817,622
Capital expenditures		56,523		14,113		3,024			73,660

(1)

The specialty hospital segment includes $2.7 million in real estate assets held for sale on December 31, 2011, 2012 and 2013.

Schedule of reconciliation of Adjusted EBITDA to income before income taxes

	Year Ended December 31, 2011
	Specialty Hospitals			Outpatient Rehabilitation			Other
							(in thousands)
Adjusted EBITDA	$	362,334		$	83,864		$	(60,237	)
Depreciation and amortization		(50,629	)		(16,487	)		(4,401	)
Stock compensation expense		—			—			(3,725	)
										Holdings			Select
Income (loss) from operations	$	311,705		$	67,377		$	(68,363	)	$	310,719		$	310,719
Loss on early retirement of debt											(31,018	)		(20,385	)
Equity in earnings of unconsolidated subsidiaries											2,923			2,923
Interest expense, net											(98,894	)		(80,910	)
Income before income taxes										$	183,730		$	212,347

	Year Ended December 31, 2012
	Specialty Hospitals			Outpatient Rehabilitation			Other
							(in thousands)
Adjusted EBITDA	$	381,354		$	87,024		$	(62,531	)
Depreciation and amortization		(46,836	)		(13,208	)		(3,267	)
Stock compensation expense		—			—			(5,677	)
										Holdings			Select
Income (loss) from operations	$	334,518		$	73,816		$	(71,475	)	$	336,859		$	336,859
Loss on early retirement of debt											(6,064	)		(6,064	)
Equity in earnings of unconsolidated subsidiaries											7,705			7,705
Interest expense, net											(94,950	)		(83,759	)
Income before income taxes										$	243,550		$	254,741

	Year Ended December 31, 2013
	Specialty Hospitals			Outpatient Rehabilitation			Other
							(in thousands)
Adjusted EBITDA	$	353,843		$	90,313		$	(71,295	)
Depreciation and amortization		(48,621	)		(12,024	)		(3,747	)
Stock compensation expense		—			—			(7,033	)
										Holdings			Select
Income (loss) from operations	$	305,222		$	78,289		$	(82,075	)	$	301,436		$	301,436
Loss on early retirement of debt											(18,747	)		(17,788	)
Equity in earnings of unconsolidated subsidiaries											2,476			2,476
Interest expense, net											(87,364	)		(84,954	)
Income before income taxes										$	197,801		$	201,170

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Subsequent Events

12 Months Ended

Dec. 31, 2013

Subsequent Events

Subsequent Events

17.   Subsequent Events

        On February 19, 2014, Select Medical's board of directors declared a cash dividend of $0.10 per share. The dividend will be payable on or about March 10, 2014 to stockholders of record as of the close of business on March 3, 2014.

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Related Party Transactions (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Related party transactions
Net operating revenues from contracted services and management fees to related parties	$ 111,670,000	$ 100,783,000	$ 60,751,000
Future rental commitments under outstanding agreements
2014	125,611,000
2015	98,100,000
2016	77,724,000
2017	63,517,000
2018	51,104,000
Thereafter	364,253,000
Total	780,309,000
Affiliated companies
Related party transactions
Payments for office rent, leasehold improvements and miscellaneous expenses	4,200,000	4,000,000	4,000,000
Future rental commitments under outstanding agreements
2014	3,758,000
2015	3,792,000
2016	3,828,000
2017	3,865,000
2018	3,950,000
Thereafter	17,047,000
Total	36,240,000
BIR JV, LLP
Related party transactions
Net operating revenues from contracted services and management fees to related parties	96,465,000	92,205,000	53,309,000
Rehabilitation Institute of Denton, LLC
Related party transactions
Net operating revenues from contracted services and management fees to related parties	7,163,000	8,133,000	7,292,000
OHRH, LLC
Related party transactions
Net operating revenues from contracted services and management fees to related parties	2,069,000
Global Rehab - Scottsdale, LLC
Related party transactions
Net operating revenues from contracted services and management fees to related parties	4,129,000
Amplion Clinical Communications, Inc
Related party transactions
Net operating revenues from contracted services and management fees to related parties	1,534,000	305,000
Other
Related party transactions
Net operating revenues from contracted services and management fees to related parties	$ 310,000	$ 140,000	$ 150,000

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Consolidated Statements of Cash Flows (Parenthetical)	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
6.375% senior subordinated notes
Long-term debt and notes payable
Interest rate of debt (as a percent)	6.375%
10% senior subordinated notes
Long-term debt and notes payable
Interest rate of debt (as a percent)	10.00%	10.00%	10.00%
7 5/8% senior subordinated notes
Long-term debt and notes payable
Interest rate of debt (as a percent)		7.625%	7.625%

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 40,815	$ 41,854
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	700,000,000	700,000,000
Common stock, shares issued	140,260,968	140,589,256
Common stock, shares outstanding	140,260,968	140,589,256
Select
Accounts receivable, allowance for doubtful accounts (in dollars)	$ 40,815	$ 41,854
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares issued	100	100
Common stock, shares outstanding	100	100

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Retirement Savings Plan

12 Months Ended

Dec. 31, 2013

Retirement Savings Plan

Retirement Savings Plan

10.    Retirement Savings Plan

        The Company sponsors a defined contribution retirement savings plan for substantially all of its employees. Employees who are not classified as HCE's (highly compensated employees) may contribute up to 30% of their salary; HCE's may contribute up to 6% of their salary. The Plan provides a discretionary company match which is determined annually. Currently, the Company matches 25% of the first 6% of compensation employees contribute to the plan. The employees vest in the employer contributions over a three-year period beginning on the employee's hire date. The expense incurred by the Company related to this plan was $7.6 million, $8.2 million and $8.7 million during the years ended December 31, 2011, 2012 and 2013, respectively.

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Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2013	Feb. 01, 2014	Jun. 28, 2013
Document and Entity Information
Entity Registrant Name	SELECT MEDICAL HOLDINGS CORP
Entity Central Index Key	0001320414
Document Type	10-K
Document Period End Date	Dec. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 518,721,725
Entity Common Stock, Shares Outstanding		140,286,867
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	FY

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Segment Information

12 Months Ended

Dec. 31, 2013

Segment Information

Segment Information

11.    Segment Information

        The Company's reportable segments consist of (i) specialty hospitals and (ii) outpatient rehabilitation. Other activities include the Company's corporate services and certain other non-consolidating joint ventures and minority investments in other healthcare related businesses. The outpatient rehabilitation reportable segment has two operating segments: outpatient rehabilitation clinics and contract therapy. These operating segments are aggregated for reporting purposes as they have common economic characteristics and provide a similar service to a similar patient base. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance of the segments based on Adjusted EBITDA. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation and amortization, gain (loss) on early retirement of debt, stock compensation expense, equity in earnings (losses) of unconsolidated subsidiaries and other income (expense).

        The following tables summarize selected financial data for the Company's reportable segments. The segment results of Holdings are identical to those of Select with the exception of total assets.

	Year Ended December 31, 2011
	Specialty Hospitals		Outpatient Rehabilitation		Other			Total
	(in thousands)
Net revenue	$	2,095,519	$	708,867	$	121		$	2,804,507
Adjusted EBITDA		362,334		83,864		(60,237	)		385,961
Total assets(1):
Select		2,187,767		486,589		96,382			2,770,738
Holdings		2,187,767		486,589		97,791			2,772,147
Capital expenditures		30,464		12,135		3,417			46,016

	Year Ended December 31, 2012
	Specialty Hospitals		Outpatient Rehabilitation		Other			Total
	(in thousands)
Net revenue	$	2,197,529	$	751,317	$	123		$	2,948,969
Adjusted EBITDA		381,354		87,024		(62,531	)		405,847
Total assets(1):
Select		2,143,906		491,920		124,487			2,760,313
Holdings		2,143,906		491,920		125,535			2,761,361
Capital expenditures		50,005		13,209		4,971			68,185

	Year Ended December 31, 2013
	Specialty Hospitals		Outpatient Rehabilitation		Other			Total
	(in thousands)
Net revenue	$	2,198,121	$	777,177	$	350		$	2,975,648
Adjusted EBITDA		353,843		90,313		(71,295	)		372,861
Total assets(1):
Select		2,205,921		512,539		99,162			2,817,622
Holdings		2,205,921		512,539		99,162			2,817,622
Capital expenditures		56,523		14,113		3,024			73,660

(1)

The specialty hospital segment includes $2.7 million in real estate assets held for sale on December 31, 2011, 2012 and 2013.

        A reconciliation of Adjusted EBITDA to income before income taxes is as follows:

	Year Ended December 31, 2011
	Specialty Hospitals			Outpatient Rehabilitation			Other
							(in thousands)
Adjusted EBITDA	$	362,334		$	83,864		$	(60,237	)
Depreciation and amortization		(50,629	)		(16,487	)		(4,401	)
Stock compensation expense		—			—			(3,725	)
										Holdings			Select
Income (loss) from operations	$	311,705		$	67,377		$	(68,363	)	$	310,719		$	310,719
Loss on early retirement of debt											(31,018	)		(20,385	)
Equity in earnings of unconsolidated subsidiaries											2,923			2,923
Interest expense, net											(98,894	)		(80,910	)
Income before income taxes										$	183,730		$	212,347

	Year Ended December 31, 2012
	Specialty Hospitals			Outpatient Rehabilitation			Other
							(in thousands)
Adjusted EBITDA	$	381,354		$	87,024		$	(62,531	)
Depreciation and amortization		(46,836	)		(13,208	)		(3,267	)
Stock compensation expense		—			—			(5,677	)
										Holdings			Select
Income (loss) from operations	$	334,518		$	73,816		$	(71,475	)	$	336,859		$	336,859
Loss on early retirement of debt											(6,064	)		(6,064	)
Equity in earnings of unconsolidated subsidiaries											7,705			7,705
Interest expense, net											(94,950	)		(83,759	)
Income before income taxes										$	243,550		$	254,741

	Year Ended December 31, 2013
	Specialty Hospitals			Outpatient Rehabilitation			Other
							(in thousands)
Adjusted EBITDA	$	353,843		$	90,313		$	(71,295	)
Depreciation and amortization		(48,621	)		(12,024	)		(3,747	)
Stock compensation expense		—			—			(7,033	)
										Holdings			Select
Income (loss) from operations	$	305,222		$	78,289		$	(82,075	)	$	301,436		$	301,436
Loss on early retirement of debt											(18,747	)		(17,788	)
Equity in earnings of unconsolidated subsidiaries											2,476			2,476
Interest expense, net											(87,364	)		(84,954	)
Income before income taxes										$	197,801		$	201,170

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Consolidated Statements of Operations and Comprehensive Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Net operating revenues	$ 746,175	$ 722,845	$ 756,673	$ 749,955	$ 741,086	$ 713,669	$ 750,193	$ 744,021	$ 2,975,648	$ 2,948,969	$ 2,804,507
Costs and expenses:
Cost of services									2,495,476	2,443,550	2,308,570
General and administrative									76,921	66,194	62,354
Bad debt expense									37,423	39,055	51,347
Depreciation and amortization									64,392	63,311	71,517
Total costs and expenses									2,674,212	2,612,110	2,493,788
Income from operations	68,244	62,399	88,263	82,530	80,923	70,819	93,513	91,604	301,436	336,859	310,719
Other income and expense:
Loss on early retirement of debt									(18,747)	(6,064)	(31,018)
Equity in earnings of unconsolidated subsidiaries									2,476	7,705	2,923
Interest income											322
Interest expense									(87,364)	(94,950)	(99,216)
Income before income taxes									197,801	243,550	183,730
Income tax expense									74,792	89,657	70,968
Net income									123,009	153,893	112,762
Less: Net income attributable to non-controlling interests									8,619	5,663	4,916
Net income attributable to Select Medical Holdings Corporation and Select Medical Corporation	28,920	23,272	27,780	34,418	39,406	24,110	43,172	41,542	114,390	148,230	107,846
Income per common share:
Basic (in dollars per share)	$ 0.21	$ 0.17	$ 0.20	$ 0.25	$ 0.28	$ 0.17	$ 0.31	$ 0.29	$ 0.82	$ 1.05	$ 0.71
Diluted (in dollars per share)	$ 0.21	$ 0.17	$ 0.20	$ 0.24	$ 0.28	$ 0.17	$ 0.31	$ 0.29	$ 0.82	$ 1.05	$ 0.71
Select
Net operating revenues	746,175	722,845	756,673	749,955	741,086	713,669	750,193	744,021	2,975,648	2,948,969	2,804,507
Costs and expenses:
Cost of services									2,495,476	2,443,550	2,308,570
General and administrative									76,921	66,194	62,354
Bad debt expense									37,423	39,055	51,347
Depreciation and amortization									64,392	63,311	71,517
Total costs and expenses									2,674,212	2,612,110	2,493,788
Income from operations	68,244	62,399	88,263	82,530	80,923	70,819	93,513	91,604	301,436	336,859	310,719
Other income and expense:
Loss on early retirement of debt									(17,788)	(6,064)	(20,385)
Equity in earnings of unconsolidated subsidiaries									2,476	7,705	2,923
Interest income											322
Interest expense									(84,954)	(83,759)	(81,232)
Income before income taxes									201,170	254,741	212,347
Income tax expense									75,971	93,574	80,984
Net income									125,199	161,167	131,363
Less: Net income attributable to non-controlling interests									8,619	5,663	4,916
Net income attributable to Select Medical Holdings Corporation and Select Medical Corporation	$ 28,920	$ 23,272	$ 27,780	$ 36,608	$ 41,254	$ 25,953	$ 45,018	$ 43,279	$ 116,580	$ 155,504	$ 126,447

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Intangible Assets

12 Months Ended

Dec. 31, 2013

Intangible Assets

Intangible Assets

5.     Intangible Assets

        The gross carrying amounts of the Company's indefinite-lived intangible assets consist of the following:

	December 31,
	2012		2013
	(in thousands)
Goodwill	$	1,640,534	$	1,642,633
Trademarks		57,709		57,709
Certificates of need		11,914		12,115
Accreditations		2,122		2,083
Total	$	1,712,279	$	1,714,540

        The Company's accreditations and trademarks have renewal terms. The costs to renew these intangibles are expensed as incurred. At December 31, 2013, the accreditations and trademarks have a weighted average time until next renewal of 1.5 years and 6.5 years, respectively.

        Amortization expense for intangible assets with finite lives follows:

	For the Year Ended December 31
	2011		2012		2013
	(in thousands)
Amortization expense	$	1,306	$	340	$	—

        Amortization expense for the Company's intangible assets primarily relates to the amortization of the value associated with the non-compete agreements entered into in connection with the acquisitions of the outpatient rehabilitation division of HealthSouth Corporation and SemperCare Inc. During 2011 the non-compete agreement related to the acquisition of SemperCare Inc. was fully amortized and during 2012 the non-compete agreement related to the acquisition of substantially all of the outpatient rehabilitation division of HealthSouth Corporation was fully amortized.

        The changes in the carrying amount of goodwill for the Company's reportable segments for the years ended December 31, 2012 and 2013 are as follows:

	Specialty Hospitals			Outpatient Rehabilitation			Total
	(in thousands)
Balance as of January 1, 2012	$	1,333,553		$	298,163		$	1,631,716
Goodwill acquired during year		—			9,151			9,151
Other		(333	)		—			(333	)
Balance as of December 31, 2012	$	1,333,220		$	307,314		$	1,640,534
Goodwill acquired during year		1,395			837			2,232
Purchase price adjustment		—			(133	)		(133	)
Balance as of December 31, 2013	$	1,334,615		$	308,018		$	1,642,633

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Property and Equipment

12 Months Ended

Dec. 31, 2013

Property and Equipment

Property and Equipment

4.     Property and Equipment

        Property and equipment consists of the following:

	December 31,
	2012		2013
	(in thousands)
Land	$	68,573	$	68,492
Leasehold improvements		128,468		146,117
Buildings		352,677		368,968
Furniture and equipment		246,858		256,079
Construction-in-progress		21,648		26,639
		818,224		866,295
Less: accumulated depreciation		316,672		357,193
Total property and equipment	$	501,552	$	509,102

        Depreciation expense was $69.8 million, $62.5 million and $63.9 million for the years ended December 31, 2011, 2012 and 2013, respectively.

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Supplemental Disclosures of Cash Flow Information

12 Months Ended

Dec. 31, 2013

Supplemental Disclosures of Cash Flow Information

Supplemental Disclosures of Cash Flow Information

16.   Supplemental Disclosures of Cash Flow Information

        Non-cash investing and financing activities are comprised of the following for the years ended December 31, 2011, 2012 and 2013:

	Holdings
	For the Year Ended December 31,
	2011		2012		2013
	(in thousands)
Notes issued with acquisitions(1)	$	1,020	$	1,844	$	3,283
Liabilities assumed with acquisitions(1)		701		107		885
Contingent consideration related to acquisitions(1)		—		1,500		100
Notes related to investment in business		—		—		3,399

	Select
	For the Year Ended December 31,
	2011			2012			2013
	(in thousands)
Dividends declared to Holdings by Select(2)	$	(5,240	)	$	(5,240	)	$	—
Notes issued with acquisitions(1)		1,020			1,844			3,283
Liabilities assumed with acquisitions(1)		701			107			885
Contingent consideration related to acquisitions(1)		—			1,500			100
Notes related to investment in business		—			—			3,399

(1)

Refer to Footnote 2 — Acquisitions.

(2)

Recorded in accrued other liabilities on the consolidated balance sheet of Select.

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Income per Share

12 Months Ended

Dec. 31, 2013

Income per Share

Income per Share

12.   Income per Share

        The Company applies the two-class method for calculating and presenting income per common share. The two-class method is an earnings allocation formula that determines earnings per share for each class of stock participation rights in undistributed earnings. Under the two class method:

• (a)

  Net income attributable to Select Medical Holdings Corporation is reduced by any contractual amount of dividends in the current period for each class of stock. There were no contractual dividends for the years ended December 31, 2011, 2012 and 2013.
  
  

  (b)

  The remaining income is allocated to common stock and unvested restricted stock to the extent that each security may share in income, as if all of the earnings for the period had been distributed. The total income allocated to each security is determined by adding together the amount allocated for dividends in (a) above and the amount allocated for participation features.
  
  

  (c)

  The income allocated to common stock is then divided by the weighted average number of outstanding shares to which the earnings are allocated to determine the income per share for common stock.

        In applying the two-class method, the Company determined that undistributed earnings should be allocated equally on a per share basis between the common stock and unvested restricted stock due to the equal participation rights of the common stock and unvested restricted stock (i.e., the voting conversion rights).

        The following table sets forth for the periods indicated the calculation of income per share in the Company's Consolidated Statement of Operations and the differences between basic weighted average shares outstanding and diluted weighted average shares outstanding used to compute basic and diluted earnings per share, respectively:

	For the Year Ended December 31,
	2011		2012		2013
	(in thousands, except per share amounts)
Numerator:
Net income attributable to Select Medical Holdings Corporation	$	107,846	$	148,230	$	114,390
Less: Earnings allocated to unvested restricted stockholders		1,205		2,514		2,450
Net income available to common stockholders	$	106,641	$	145,716	$	111,940
Denominator:
Weighted average shares — basic		150,501		138,767		136,879
Effect of dilutive securities:
Stock options		224		275		168
Weighted average shares — diluted		150,725		139,042		137,047
Basic income per common share:	$	0.71	$	1.05	$	0.82
Diluted income per common share:	$	0.71	$	1.05	$	0.82

        The following amounts are shown here for informational and comparative purposes only since their inclusion would be anti-dilutive:

	For the Year Ended December 31,
	2011		2012		2013
	(in thousands)
Stock options		2,414		1,654		1,474

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Stock Option and Restricted Stock Plans

12 Months Ended

Dec. 31, 2013

Stock Option and Restricted Stock Plans

Stock Option and Restricted Stock Plans

8.     Stock Option and Restricted Stock Plans

        On February 25, 2005, Holdings adopted the Select Medical Holdings Corporation 2005 Equity Incentive Plan. On May 13, 2011, the Select Medical Holdings Corporation 2005 Equity Incentive Plan was frozen and Holdings adopted the 2011 Select Medical Holdings Corporation 2011 Equity Incentive Plan. The Select Medical Holdings Corporation 2005 Equity Incentive Plan and the Select Medical Holdings Corporation 2011 Equity Incentive Plan are referred to as the "Plans." The Plans provide for grants of restricted stock and stock options of Holdings. On November 8, 2005 the board of directors of Holdings adopted a director equity incentive plan ("Director Plan") and on August 12, 2009, the board of directors and stockholders of Holdings approved an amendment and restatement of the Director Plan. This amendment authorized Holdings to issue under the Director Plan options to purchase up to 75,000 shares of its common stock and restricted stock awards covering up to 150,000 shares of its common stock.

        The options under the Plans and Director Plan generally vest over five years and have an option term not to exceed ten years. The fair value of the options granted was estimated using the Black-Scholes option pricing model assuming an expected volatility of 36%, no dividend yield, an expected life of five years and a risk free rate of 3.3% for 2011. There were no options granted under the Plans or Director Plan during the years ended December 31, 2012 and 2013.

        The following is a summary of stock option grants under the Plans and Director Plan from January 1, 2011 through December 31, 2013:

	Number of Options Granted		Exercise Price		Fair Value of Common Stock
	(share amounts in thousands)
March 3, 2011		88		7.66		7.66
May 13, 2011		20		9.00		9.00
August 3, 2011		10		7.14		7.14

        Stock option transactions and other information related to the Plans are as follows:

	Price Per Share		Shares			Weighted Average Exercise Price
	(share amounts in thousands)
Balance, January 1, 2012	$	3.33 - 10.00		2,730		$	8.16
Granted		—		—			—
Exercised		3.33 - 10.00		(280	)		6.07
Canceled		7.66 - 10.00		(27	)		8.18
Balance, December 31, 2012	$	3.33 - 10.00		2,423		$	8.40
Granted		—		—			—
Exercised		7.14 - 10.00		(167	)		9.15
Canceled		8.33 - 10.00		(316	)		9.13
Balance, December 31, 2013	$	3.33 - 10.00		1,940		$	8.22

        Additional information with respect to the outstanding options as of December 31, 2013 for the Plans is as follows:

Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life		Number Exercisable
	(share amounts in thousands)
$  3.00 – 4.00		220		1.15		220
6.00 – 7.00		9		6.61		3
7.01 – 8.00		75		7.20		28
8.01 – 9.00		585		3.31		557
9.01 – 10.00		1,051		5.51		848

        The weighted average remaining contractual term for all outstanding options is 4.42 years and the weighted average remaining contractual term of exercisable options is 4.11 years.

        The total intrinsic value of options exercised for the years ended December 31, 2013, 2012, and 2011 was $0.2 million, $1.1 million and $0.2 million respectively. The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2013 was $6.6 million and $5.8 million, respectively.

        Transactions and other information related to the Director Plan are as follows:

	Price Per Share		Shares			Weighted Average Exercise Price
	(share amounts in thousands)
Balance, January 1, 2012	$	3.33 - 10.00		63		$	7.62
Granted		—		—			—
Exercised		3.33 - 8.33		(21	)		5.47
Balance, December 31, 2012	$	3.33 - 10.00		42		$	8.69
Granted		—		—			—
Exercised		—		—			—
Balance, December 31, 2013	$	3.33 - 10.00		42		$	8.69

        Additional information with respect to the outstanding options as of December 31, 2013 for the Director Plan is as follows:

Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life		Number Exercisable
		(share amounts in thousands)
$	3.00 – 4.00		6		1.61		6
	8.00 – 9.00		9		3.37		9
	9.01 – 10.00		27		5.12		25

        The weighted average remaining contractual term for all outstanding options is 4.24 years and the weighted average remaining contractual term of exercisable options is 4.16 years.

        The aggregate intrinsic value of options outstanding and options exercisable at December 31, 2013 was $122.7 thousand and $118.8 thousand, respectively.

        The following is a summary of restricted stock issuances from January 1, 2011 through December 31, 2013:

	Number of Shares Issued		Fair Value of Common Stock
	(share amounts in thousands)
August 3, 2011		25		7.14
November 3, 2011		190		8.61
December 15, 2011		350		8.57
March 26, 2012		65		8.33
May 2, 2012		129		8.67
August 7, 2012		38		11.84
October 30, 2012		530		10.75
January 2, 2013		5		9.90
February 20, 2013		35		8.80
May 1, 2013		115		8.06
August 7, 2013		38		8.89
October 30, 2013		760		8.50

        Stock compensation expense for each of the next five years, based on restricted stock awards granted as of December 31, 2013, is estimated to be as follows:

	2014		2015		2016		2017		2018
	(in thousands)
Stock compensation expense	$	7,740	$	6,057	$	3,061	$	581	$	40

        The Company recognized the following stock compensation expense related to restricted stock and stock option awards:

	For the Year Ended December 31,
	2011		2012		2013
	(in thousands)
Stock compensation expense:
Included in general and administrative	$	1,996	$	3,538	$	5,276
Included in cost of services		1,729		2,139		1,757
Total	$	3,725	$	5,677	$	7,033

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Income Taxes (Details 2) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Deferred tax assets
Allowance for doubtful accounts, Total	$ 1,484	$ 1,496
Allowance for doubtful accounts, Current	1,484	1,496
Compensation and benefit related accruals, Total	45,147	45,784
Compensation and benefit related accruals, Current	35,706	38,254
Compensation and benefit related accruals, Non-Current	9,441	7,530
Professional malpractice liability insurance, Total	20,333	17,005
Professional malpractice liability insurance, Current	6,382	5,003
Professional malpractice liability insurance, Non-Current	13,951	12,002
Restructuring reserve, Total	441	679
Restructuring reserve, Current	441	679
Net operating loss carryforwards, Total	22,686	24,543
Net operating loss carryforwards, Current	422	777
Net operating loss carryforwards, Non-Current	22,264	23,766
Other, Total	630	1,025
Other, Current	630	996
Other, Non-Current		29
Stock options, Total	4,392	4,089
Stock options, Non-Current	4,392	4,089
Uncertain tax positions, Total	2,107	2,661
Uncertain tax positions, Non-Current	2,107	2,661
Total deferred tax assets, Total	97,220	97,282
Total deferred tax assets, Current	45,065	47,205
Total deferred tax assets, Non-Current	52,155	50,077
Deferred tax liabilities
Deferred income, Total	(31,832)	(33,188)
Deferred income, Current	(24,897)	(26,253)
Deferred income, Non-Current	(6,935)	(6,935)
Other, Total	(2,620)	(1,311)
Other, Current	(230)	(118)
Other, Non-Current	(2,390)	(1,193)
Depreciation and amortization, Total	(130,884)	(121,075)
Depreciation and amortization, Non-Current	(130,884)	(121,075)
Total deferred tax liabilities, Total	(165,336)	(155,574)
Total deferred tax liabilities, Current	(25,127)	(26,371)
Total deferred tax liabilities, Non-Current	(140,209)	(129,203)
Net deferred taxes before valuation allowance, Total	(68,116)	(58,292)
Net deferred taxes before valuation allowance, Current	19,938	20,834
Net deferred taxes before valuation allowance, Non-Current	(88,054)	(79,126)
Valuation allowance, Total	(10,547)	(13,341)
Valuation allowance, Current	(2,314)	(2,957)
Valuation allowance, Non-Current	(8,233)	(10,384)
Net deferred taxes, Total	(78,663)	(71,633)
Net deferred taxes, Current	17,624	17,877
Net deferred taxes, Non-Current	$ (96,287)	$ (89,510)
Additional information related to valuation allowance
Period of review for assessment of deferred tax assets	3 years

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Long-Term Debt and Notes Payable

12 Months Ended

Dec. 31, 2013

Long-Term Debt and Notes Payable

Long-Term Debt and Notes Payable

6.     Long-Term Debt and Notes Payable

        The components of long-term debt and notes payable are shown in the following tables:

	Holdings
	December 31,
	2012		2013
	(in thousands)
75/8% senior subordinated notes	$	70,000	$	—
6.375% senior notes		—		600,000
Senior secured credit facilities:
Revolving loan		130,000		20,000
Term loans(1)		1,096,641		807,815
Senior floating rate notes		167,300		—
Other		6,302		17,460
Total debt		1,470,243		1,445,275
Less: current maturities		11,646		17,565
Total long-term debt	$	1,458,597	$	1,427,710

	Select
	December 31,
	2012		2013
	(in thousands)
75/8% senior subordinated notes	$	70,000	$	—
6.375% senior notes		—		600,000
Senior secured credit facilities:
Revolving loan		130,000		20,000
Term loans(1)		1,096,641		807,815
Other		6,302		17,460
Total debt		1,302,943		1,445,275
Less: current maturities		11,646		17,565
Total long-term debt	$	1,291,297	$	1,427,710

(1)

Presented net of unamortized discount of $14.2 million and $6.3 million at December 31, 2012 and 2013, respectively.

Senior Secured Credit Facilities

        On June 1, 2011, Select entered into a senior secured credit agreement that provided $1.15 billion in senior secured credit facilities. Subsequently, the Company has amended its senior secured credit agreement and at December 31, 2013, it consists of the following:

• •

  A $300.0 million revolving credit facility of which $293.3 million matures on March 1, 2018 and $6.7 million matures on June 1, 2016. Select had $237.7 million of availability under its revolving loan facility (after giving effect to $42.3 million of outstanding letters of credit) at December 31, 2013.

  •

  An aggregate $814.2 million principle amount ($807.8 million net of discounts) term loan facility consisting of a series B term loan in the amount of $295.9 million, net of discount, and a series C term loan in the amount of $511.9 million, net of discount. The term loans amortize in equal quarterly installments on the last day of each March, June, September and December in aggregate amounts equal to $2.1 million. The balance of the series B term loan and series C term loans will be payable on February 20, 2016 and June 1, 2018, respectively.

        As of December 31, 2013, borrowings under the senior secured credit facilities bear interest at a rate equal to:

• •

  in the case of the series B term loans, Adjusted LIBO plus 3.25%, or Alternate Base Rate plus 2.25%;

  •

  in the case of the series C term loans, Adjusted LIBO plus 3.00%, or Alternate Base Rate plus 2.00%; and

  •

  in the case of the revolving loans, Adjusted LIBO plus 3.75%, or Alternate Base Rate plus 2.75%,

        "Adjusted LIBO" (as defined in the senior secured credit agreement) shall at no time be less than 1.00% with respect to borrowings under the series C term loans. Adjusted LIBO and Alternate Base Rate with respect to the revolving loans may vary, in each case based on Select's leverage ratio (the ratio of indebtedness to consolidated EBITDA, as defined in the senior secured credit agreement) for the most recently reported period.

        Select will be required to prepay borrowings under the senior secured credit facilities with (1) 100% of the net cash proceeds received from non-ordinary course asset sales or other dispositions, or as a result of a casualty or condemnation, subject to reinvestment provisions and other customary carveouts and the payment of certain indebtedness secured by liens subject to a first lien intercreditor agreement, (2) 100% of the net cash proceeds received from the issuance of debt obligations other than certain permitted debt obligations, and (3) 50% of excess cash flow (as defined in the senior secured credit agreement) if Select's leverage ratio is greater than 3.75 to 1.00 and 25% of excess cash flow if Select's leverage ratio is less than or equal to 3.75 to 1.00 and greater than 3.25 to 1.00, in each case, reduced by the aggregate amount of term loans optionally prepaid during the applicable fiscal year. Select will not be required to prepay borrowings with excess cash flow if Select's leverage ratio is less than or equal to 3.25 to 1.00. At December 31, 2013, Select's leverage ratio was 3.91 to 1.00 which will require a prepayment of borrowings under the senior secured credit facilities of 50% of excess cash flow (as defined in the senior secured credit agreement), or approximately $34.0 million. Select expects to have the borrowing capacity and intends to use borrowings under its revolving credit facility to make the required prepayment during the first quarter ended March 31, 2014. Therefore, outstanding borrowings subject to required prepayment as of December 31, 2013 under the senior secured credit facilities are classified as long-term on our Consolidated Balance Sheet as of December 31, 2013.

        The senior secured credit facilities require Select to maintain a leverage ratio, which is tested quarterly and prohibits Select from making capital expenditures in excess of $125.0 million in any fiscal year (subject to a 50% carry-over provision). Failure to comply with these financial covenants would result in an event of default under the senior secured credit facilities and, absent a waiver or an amendment from the lenders, preclude Select from making further borrowings under the revolving credit facility and permit the lenders to accelerate all outstanding borrowings under the senior secured credit facilities. As of December 31, 2013, Select was in compliance with all financial covenants related to the senior secured credit facilities.

        The senior secured credit facilities also contain a number of affirmative and restrictive covenants, including limitations on mergers, consolidations and dissolutions; sales of assets; investments and acquisitions; indebtedness; liens; affiliate transactions; and dividends and restricted payments. The senior secured credit facilities contain events of default for non-payment of principal and interest when due, cross-default and cross-acceleration provisions and an event of default that would be triggered by a change of control.

Senior Notes

        On May 28, 2013, Select issued and sold $600.0 million aggregate principal amount of its 6.375% senior notes due 2021. On May 28, 2013, Select used the proceeds of the senior notes to pay a portion of the amounts then outstanding on the original term loan and the series A term loan, and to pay related fees and expenses.

        Interest on the senior notes accrues at the rate of 6.375% per annum and is payable semi-annually in cash in arrears on June 1 and December 1 of each year, commencing on December 1, 2013. The senior notes are Select's senior unsecured obligations and rank equally in right of payment with all of its other existing and future senior unsecured indebtedness and senior in right of payment to all of its existing and future subordinated indebtedness. The senior notes are unconditionally guaranteed by all of Select's wholly-owned subsidiaries. The senior notes are guaranteed, jointly and severally, by Select's direct or indirect existing and future domestic restricted subsidiaries other than certain non-guarantor subsidiaries.

        Select may redeem some or all of the senior notes prior to June 1, 2016 by paying a "make-whole" premium. Select may redeem some or all of the senior notes on or after June 1, 2016 at specified redemption prices. In addition, prior to June 1, 2016, Select may redeem up to 35% of the senior notes with the net proceeds of certain equity offerings at a price of 106.375% plus accrued and unpaid interest, if any. Select is obligated to offer to repurchase the senior notes at a price of 101% of their principal amount plus accrued and unpaid interest, if any, as a result of certain change of control events. These restrictions and prohibitions are subject to certain qualifications and exceptions.

        The Indenture relating to the senior notes contains covenants that, among other things, limit Select's ability and the ability of certain of its subsidiaries to (i) grant liens on its assets, (ii) make dividend payments, other distributions or other restricted payments, (iii) incur restrictions on the ability of Select's restricted subsidiaries to pay dividends or make other payments, (iv) enter into sale and leaseback transactions, (v) merge, consolidate, transfer or dispose of substantially all of their assets, (vi) incur additional indebtedness, (vii) make investments, (viii) sell assets, including capital stock of subsidiaries, (ix) use the proceeds from sales of assets, including capital stock of restricted subsidiaries, and (x) enter into transactions with affiliates. In addition, the Indenture requires, among other things, Select to provide financial and current reports to holders of the senior notes or file such reports electronically with the U.S. Securities and Exchange Commission (the "SEC"). These covenants are subject to a number of exceptions, limitations and qualifications set forth in the Indenture.

Maturities of Long-Term Debt and Notes Payable

        Maturities of the Company's long-term debt for the years after 2013 are approximately as follows and are presented net of the discount on the senior secured credit facility term loans (in thousands):

2014	$	17,565
2015		10,183
2016		296,232
2017		4,075
2018		515,820
2019 and beyond		601,400

Loss on Early Retirement of Debt

        During the year ended December 31, 2011, the Company refinanced its senior secured credit facility, repurchased and retired $266.5 million principal amount of Select's 7⁵/8% senior subordinated notes, and repurchased and retired $150.0 million principal amount of Holdings 10% senior subordinated notes. A loss on early retirement of debt of $31.0 million and $20.4 million for Holdings and Select, respectively, was recognized for the year ended December 31, 2011, which included the write-off of unamortized debt issuance costs, tender premiums and original issue discount.

        During the year ended December 31, 2012, the Company repurchased and retired an aggregate of $275.0 million principal amount of Select's outstanding 7⁵/8% senior subordinated notes. A loss on early retirement of debt of $6.1 million was recognized by Holdings and Select for the year ended December 31, 2012, which included the write-off of unamortized debt issuance costs and call premiums.

        During the year ended December 31, 2013, Select entered into a credit extension amendment on February 20, 2013, the proceeds of which were used to redeem all of its outstanding 7⁵/8% senior subordinated notes, to finance Holdings' redemption of all of its 10% senior floating rate, and to repay a portion of the balance outstanding under Select's revolving credit facility. Additionally, on May 28, 2013, Select issued and sold $600.0 million aggregate principal amount of its 6.375% senior notes due 2021, the proceeds of which were used to pay a portion of the senior secured credit facility term loans then outstanding and to pay related fees and expenses. A loss on early retirement of debt of $18.7 million and $17.8 million for Holdings and Select, respectively, was recognized for the year ended December 31, 2013, which included the write-off of unamortized debt issuance costs.

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Stockholders' Equity

12 Months Ended

Dec. 31, 2013

Stockholders' Equity

Stockholders' Equity

7.     Stockholders' Equity

Common Stock

        Holdings' board of directors has authorized a common stock repurchase program to repurchase up to $350.0 million worth of shares of its common stock. The program will remain in effect until March 31, 2015, unless extended by the board of directors. Stock repurchases under this program may be made in the open market or through privately negotiated transactions, and at times and in such amounts as Holdings deems appropriate. Holdings is funding this program with cash on hand and borrowings under its revolving credit facility. For the years ended December 31, 2011, 2012 and 2013, respectively, Holdings repurchased 9,858,907 shares at a cost of $72.7 million, 5,725,782 shares at a cost of $46.8 million and 1,115,691 shares at a cost of $10.0 million which includes transaction costs.

        Holdings granted 565,000 shares, 761,500 shares and 952,500 shares of restricted stock for the years ended December 31, 2011, 2012 and 2013, respectively and issued 53,932 shares, 301,208 shares and 166,600 shares of common stock related to the exercise of stock options and for the years ended December 31, 2011, 2012 and 2013, respectively. Also, 10,860 shares, 15,860 shares and 331,697 shares of stock were forfeited for the years ended December 31, 2011, 2012 and 2013, respectively.

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Income Taxes

12 Months Ended

Dec. 31, 2013

Income Taxes

Income Taxes

9.     Income Taxes

        Significant components of the Company's tax provision for the years ended December 31, 2011, 2012, and 2013 are as follows:

	Holdings						Select
	For the Year Ended December 31,						For the Year Ended December 31,
	2011		2012		2013		2011		2012		2013
	(in thousands)						(in thousands)
Current:
Federal	$	29,991	$	70,159	$	55,847	$	40,007	$	74,076	$	57,026
State and local		5,672		11,589		11,913		5,672		11,589		11,913
Total current		35,663		81,748		67,760		45,679		85,665		68,939
Deferred		35,305		7,909		7,032		35,305		7,909		7,032
Total income tax provision	$	70,968	$	89,657	$	74,792	$	80,984	$	93,574	$	75,971

        The differences between the expected income tax provision and income taxes computed at the federal statutory rate of 35% were as follows:

	Holdings									Select
	For the Year Ended December 31,									For the Year Ended December 31,
	2011			2012			2013			2011			2012			2013
Expected federal tax rate		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%
State and local taxes, net of federal benefit		4.5			4.2			4.6			3.9			4.0			4.5
Other permanent differences		1.0			0.6			1.1			0.9			0.6			1.1
Valuation allowance		(0.5	)		(0.6	)		(0.7	)		(0.4	)		(0.6	)		(0.6	)
Uncertain tax positions		(3.6	)		(0.5	)		(0.6	)		(3.1	)		(0.5	)		(0.6	)
IRS audit settlements		—			(0.6	)		—			—			(0.5	)		—
Non-controlling interest		(1.1	)		(0.9	)		(1.7	)		(0.9	)		(0.9	)		(1.7	)
Sale of entities		3.1			—			—			2.7			—			—
Other		0.2			(0.4	)		0.1			—			(0.4	)		0.1
Total		38.6	%		36.8	%		37.8	%		38.1	%		36.7	%		37.8	%

        A summary of deferred tax assets and liabilities for Holdings and Select is as follows:

	December 31, 2012									December 31, 2013
	Total			Current			Non-Current			Total			Current			Non-Current
	(in thousands)
Deferred tax assets
Allowance for doubtful accounts	$	1,496		$	1,496		$	—		$	1,484		$	1,484		$	—
Compensation and benefit related accruals		45,784			38,254			7,530			45,147			35,706			9,441
Professional malpractice liability insurance		17,005			5,003			12,002			20,333			6,382			13,951
Restructuring reserve		679			679			—			441			441			—
Net operating loss carryforwards		24,543			777			23,766			22,686			422			22,264
Other		1,025			996			29			630			630			—
Stock options		4,089			—			4,089			4,392			—			4,392
Uncertain tax positions		2,661			—			2,661			2,107			—			2,107
Total deferred tax assets		97,282			47,205			50,077			97,220			45,065			52,155
Deferred tax liabilities
Deferred income		(33,188	)		(26,253	)		(6,935	)		(31,832	)		(24,897	)		(6,935	)
Other		(1,311	)		(118	)		(1,193	)		(2,620	)		(230	)		(2,390	)
Depreciation and amortization		(121,075	)		—			(121,075	)		(130,884	)		—			(130,884	)
Total deferred tax liabilities		(155,574	)		(26,371	)		(129,203	)		(165,336	)		(25,127	)		(140,209	)
Net deferred taxes before valuation allowance		(58,292	)		20,834			(79,126	)		(68,116	)		19,938			(88,054	)
Valuation allowance		(13,341	)		(2,957	)		(10,384	)		(10,547	)		(2,314	)		(8,233	)
Net deferred taxes	$	(71,633	)	$	17,877		$	(89,510	)	$	(78,663	)	$	17,624		$	(96,287	)

        The valuation allowance as of December 31, 2013 is primarily attributable to the uncertainty regarding the realization of state net operating losses and other net deferred tax assets of loss entities. The net deferred tax liabilities at December 31, 2012 and 2013 of approximately $71.6 million and $78.7 million, respectively, consist of items which have been recognized for tax reporting purposes, but which will increase tax on returns to be filed in the future, and include the use of net operating loss carryforwards. The Company has performed the required assessment of positive and negative evidence regarding the realization of the deferred tax assets. This assessment included a review of legal entities with three years of cumulative losses, estimates of projected future taxable income and the impact of tax-planning strategies that management plans to implement. Although realization is not assured, based on the Company's assessment, it has concluded that it is more likely than not that such assets, net of the determined valuation allowance, will be realized.

        The total state net operating losses are approximately $512.3 million. State net operating loss carry forwards expire and are subject to gross valuation allowances as follows:

	State Net Operating Losses		Gross Valuation Allowance
	(in thousands)
2014	$	5,427	$	5,401
2015		8,333		7,980
2016		11,238		9,728
2017		12,834		11,092
Thereafter through 2033		473,034		355,392

Reserves for Uncertain Tax Positions:

        The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. Significant judgment is required in evaluating the Company's tax positions and determining its provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when it is believed that certain positions might be challenged despite the Company's belief that its tax return positions are fully supportable. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of a tax audit. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.

        The reconciliation of the Company's unrecognized tax benefits is as follows (in thousands):

Gross tax contingencies — January 1, 2011	$	22,310
Reductions for tax positions taken in prior periods due primarily to statute expiration		(2,706	)
Reductions for tax positions taken in prior periods due to change in estimate		(7,012	)
Additions for existing tax positions taken		3,064
Gross tax contingencies — December 31, 2011		15,656
Reductions for tax positions taken in prior periods due primarily to statute expiration		(2,516	)
Additions for existing tax positions taken		750
Gross tax contingencies — December 31, 2012		13,890
Reductions for tax positions taken in prior periods due primarily to statute expiration		(2,299	)
Additions for existing tax positions taken		435
Gross tax contingencies — December 31, 2013	$	12,026

        In 2011, the Company recognized $7.0 million of income tax benefits based on new information discovered by the Company which substantiates previously unrecognized tax benefits from an acquisition which occurred in 1999.

        As of December 31, 2012 and 2013, the Company had $13.9 million and $12.0 million of unrecognized tax benefits, respectively, all of which, if fully recognized, would affect the Company's effective income tax rate.

        As of December 31, 2013, changes to the Company's gross unrecognized tax benefits that the Company believes are reasonably possible in the next 12 months are not material. The Company's policy is to include interest related to income taxes in income tax expense. As of December 31, 2012 and December 31, 2013, the Company had accrued interest related to income taxes of $1.5 million and $1.6 million, net of federal income taxes, respectively. Interest recognized for the years ended December 31, 2011, 2012 and 2013 was $0.4 million, $0.5 million, and $0.5 million, net of federal income tax benefits, respectively.

        The Company has substantially concluded all U.S. federal income tax matters for years through 2005. Substantially all material state, local and foreign income tax matters have been concluded for years through 2008.

XML

Segment Information (Details) (USD $)	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Summary of selected financial data
Net revenue	$ 746,175,000	$ 722,845,000	$ 756,673,000	$ 749,955,000	$ 741,086,000	$ 713,669,000	$ 750,193,000	$ 744,021,000	$ 2,975,648,000	$ 2,948,969,000	$ 2,804,507,000
Adjusted EBITDA									372,861,000	405,847,000	385,961,000
Total assets:	2,817,622,000				2,761,361,000				2,817,622,000	2,761,361,000	2,772,147,000
Capital expenditures									73,660,000	68,185,000	46,016,000
Select
Summary of selected financial data
Net revenue	746,175,000	722,845,000	756,673,000	749,955,000	741,086,000	713,669,000	750,193,000	744,021,000	2,975,648,000	2,948,969,000	2,804,507,000
Total assets:	2,817,622,000				2,760,313,000				2,817,622,000	2,760,313,000	2,770,738,000
Capital expenditures									73,660,000	68,185,000	46,016,000
Specialty Hospitals
Summary of selected financial data
Real estate assets held for sale	2,700,000				2,700,000				2,700,000	2,700,000	2,700,000
Operating Segments | Specialty Hospitals
Summary of selected financial data
Net revenue									2,198,121,000	2,197,529,000	2,095,519,000
Adjusted EBITDA									353,843,000	381,354,000	362,334,000
Total assets:	2,205,921,000				2,143,906,000				2,205,921,000	2,143,906,000	2,187,767,000
Capital expenditures									56,523,000	50,005,000	30,464,000
Operating Segments | Specialty Hospitals | Select
Summary of selected financial data
Total assets:	2,205,921,000				2,143,906,000				2,205,921,000	2,143,906,000	2,187,767,000
Operating Segments | Outpatient Rehabilitation
Segment information
Number of operating segments									2
Summary of selected financial data
Net revenue									777,177,000	751,317,000	708,867,000
Adjusted EBITDA									90,313,000	87,024,000	83,864,000
Total assets:	512,539,000				491,920,000				512,539,000	491,920,000	486,589,000
Capital expenditures									14,113,000	13,209,000	12,135,000
Operating Segments | Outpatient Rehabilitation | Select
Summary of selected financial data
Total assets:	512,539,000				491,920,000				512,539,000	491,920,000	486,589,000
Other
Summary of selected financial data
Net revenue									350,000	123,000	121,000
Adjusted EBITDA									(71,295,000)	(62,531,000)	(60,237,000)
Total assets:	99,162,000				125,535,000				99,162,000	125,535,000	97,791,000
Capital expenditures									3,024,000	4,971,000	3,417,000
Other | Select
Summary of selected financial data
Total assets:	$ 99,162,000				$ 124,487,000				$ 99,162,000	$ 124,487,000	$ 96,382,000

XML

Income per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Income per Share
Contractual dividends									$ 0	$ 0	$ 0
Numerator:
Net income attributable to Select Medical Holdings Corporation	28,920	23,272	27,780	34,418	39,406	24,110	43,172	41,542	114,390	148,230	107,846
Less: Earnings allocated to unvested restricted stockholders									2,450	2,514	1,205
Net income available to common stockholders									$ 111,940	$ 145,716	$ 106,641
Denominator:
Weighted average shares - basic									136,879	138,767	150,501
Effect of dilutive securities: Stock options (in shares)									168	275	224
Weighted average shares - diluted									137,047	139,042	150,725
Income per common share
Basic income per common share: (in dollars per share)	$ 0.21	$ 0.17	$ 0.20	$ 0.25	$ 0.28	$ 0.17	$ 0.31	$ 0.29	$ 0.82	$ 1.05	$ 0.71
Diluted income per common share: (in dollars per share)	$ 0.21	$ 0.17	$ 0.20	$ 0.24	$ 0.28	$ 0.17	$ 0.31	$ 0.29	$ 0.82	$ 1.05	$ 0.71
Anti-dilutive securities excluded from computation of earnings per share
Stock options (in shares)									1,474	1,654	2,414

XML

Retirement Savings Plan (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Retirement savings plan
Matching contribution by the employer (as a percent)	25.00%
Matching contribution of the employees (as a percent)	6.00%
Vesting period	3 years
Expense incurred	$ 8.7	$ 8.2	$ 7.6
Employees who are not classified as HCE's | Maximum
Retirement savings plan
Contribution by employees (as a percent)	30.00%
HCE | Maximum
Retirement savings plan
Contribution by employees (as a percent)	6.00%

XML

Stock Option and Restricted Stock Plans (Tables)

12 Months Ended

Dec. 31, 2013

Stock option and restricted stock plans

Summary of stock option grants

The following is a summary of stock option grants under the Plans and Director Plan from January 1, 2011 through December 31, 2013:

	Number of Options Granted		Exercise Price		Fair Value of Common Stock
	(share amounts in thousands)
March 3, 2011		88		7.66		7.66
May 13, 2011		20		9.00		9.00
August 3, 2011		10		7.14		7.14

Summary of restricted stock issuances

The following is a summary of restricted stock issuances from January 1, 2011 through December 31, 2013:

	Number of Shares Issued		Fair Value of Common Stock
	(share amounts in thousands)
August 3, 2011		25		7.14
November 3, 2011		190		8.61
December 15, 2011		350		8.57
March 26, 2012		65		8.33
May 2, 2012		129		8.67
August 7, 2012		38		11.84
October 30, 2012		530		10.75
January 2, 2013		5		9.90
February 20, 2013		35		8.80
May 1, 2013		115		8.06
August 7, 2013		38		8.89
October 30, 2013		760		8.50

Schedule of stock compensation expense for each of the next five years

Stock compensation expense for each of the next five years, based on restricted stock awards granted as of December 31, 2013, is estimated to be as follows:

	2014		2015		2016		2017		2018
	(in thousands)
Stock compensation expense	$	7,740	$	6,057	$	3,061	$	581	$	40

Schedule of stock compensation expense recognized related to restricted stock and stock option awards

	For the Year Ended December 31,
	2011		2012		2013
	(in thousands)
Stock compensation expense:
Included in general and administrative	$	1,996	$	3,538	$	5,276
Included in cost of services		1,729		2,139		1,757
Total	$	3,725	$	5,677	$	7,033

Plans

Stock option and restricted stock plans

Schedule of stock option transactions and other information

	Price Per Share		Shares			Weighted Average Exercise Price
	(share amounts in thousands)
Balance, January 1, 2012	$	3.33 - 10.00		2,730		$	8.16
Granted		—		—			—
Exercised		3.33 - 10.00		(280	)		6.07
Canceled		7.66 - 10.00		(27	)		8.18
Balance, December 31, 2012	$	3.33 - 10.00		2,423		$	8.40
Granted		—		—			—
Exercised		7.14 - 10.00		(167	)		9.15
Canceled		8.33 - 10.00		(316	)		9.13
Balance, December 31, 2013	$	3.33 - 10.00		1,940		$	8.22

Schedule of additional information with respect to the outstanding options

Additional information with respect to the outstanding options as of December 31, 2013 for the Plans is as follows:

Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life		Number Exercisable
	(share amounts in thousands)
$  3.00 – 4.00		220		1.15		220
6.00 – 7.00		9		6.61		3
7.01 – 8.00		75		7.20		28
8.01 – 9.00		585		3.31		557
9.01 – 10.00		1,051		5.51		848

Director Plan

Stock option and restricted stock plans

Schedule of stock option transactions and other information

	Price Per Share		Shares			Weighted Average Exercise Price
	(share amounts in thousands)
Balance, January 1, 2012	$	3.33 - 10.00		63		$	7.62
Granted		—		—			—
Exercised		3.33 - 8.33		(21	)		5.47
Balance, December 31, 2012	$	3.33 - 10.00		42		$	8.69
Granted		—		—			—
Exercised		—		—			—
Balance, December 31, 2013	$	3.33 - 10.00		42		$	8.69

Schedule of additional information with respect to the outstanding options

Additional information with respect to the outstanding options as of December 31, 2013 for the Director Plan is as follows:

Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life		Number Exercisable
		(share amounts in thousands)
$	3.00 – 4.00		6		1.61		6
	8.00 – 9.00		9		3.37		9
	9.01 – 10.00		27		5.12		25

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Intangible Assets (Details 2) (Non-compete agreements, Outpatient rehabilitation division of HealthSouth Corporation, USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Non-compete agreements | Outpatient rehabilitation division of HealthSouth Corporation
Finite-lived intangible assets
Amortization expense	$ 340	$ 1,306

XML

Related Party Transactions

12 Months Ended

Dec. 31, 2013

Related Party Transactions

Related Party Transactions

14.   Related Party Transactions

        The Company rents its corporate office space from related parties affiliated through common ownership or management. The Company made payments for office rent, leasehold improvements and miscellaneous expenses aggregating $4.0 million during both the years ended December 31, 2011 and 2012 and $4.2 million during the year ended December 31, 2013 to the affiliated companies.

        As of December 31, 2013, future rental commitments under outstanding agreements with the affiliated companies are approximately as follows (in thousands):

2014	$	3,758
2015		3,792
2016		3,828
2017		3,865
2018		3,950
Thereafter		17,047
	$	36,240

        The Company provides contracted services, principally employee leasing services and charges management fees to related parties affiliated through its equity investments. Net operating revenues generated from the provision of contracted services and management fees to related parties through equity investments are as follows:

	For the Year Ended December 31,
	2011		2012		2013
	(in thousands)
BIR JV, LLP	$	53,309	$	92,205	$	96,465
Rehabilitation Institute of Denton, LLC		7,292		8,133		7,163
OHRH, LLC		—		—		2,069
Global Rehab — Scottsdale, LLC.		—		—		4,129
Amplion Clinical Communications, Inc.		—		305		1,534
Other		150		140		310
Total	$	60,751	$	100,783	$	111,670

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Selected Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2013

Selected Quarterly Financial Data (Unaudited)

Selected Quarterly Financial Data (Unaudited)

19.   Selected Quarterly Financial Data (Unaudited)

        The table below sets forth selected unaudited financial data for each quarter of the last two years.

	Holdings
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(in thousands, except per share amounts)
Year ended December 31, 2012
Net operating revenues	$	744,021	$	750,193	$	713,669	$	741,086
Income from operations		91,604		93,513		70,819		80,923
Net income attributable to Select Medical Holdings Corporation	$	41,542	$	43,172	$	24,110	$	39,406
Income per common share:
Basic	$	0.29	$	0.31	$	0.17	$	0.28
Diluted	$	0.29	$	0.31	$	0.17	$	0.28

	Select
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(in thousands)
Year ended December 31, 2012
Net operating revenues	$	744,021	$	750,193	$	713,669	$	741,086
Income from operations		91,604		93,513		70,819		80,923
Net income attributable to Select Medical Corporation	$	43,279	$	45,018	$	25,953	$	41,254

	Holdings
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(in thousands, except per share amounts)
Year ended December 31, 2013
Net operating revenues	$	749,955	$	756,673	$	722,845	$	746,175
Income from operations		82,530		88,263		62,399		68,244
Net income attributable to Select Medical Holdings Corporation	$	34,418	$	27,780	$	23,272	$	28,920
Income per common share:
Basic	$	0.25	$	0.20	$	0.17	$	0.21
Diluted	$	0.24	$	0.20	$	0.17	$	0.21

	Select
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter
	(in thousands)
Year ended December 31, 2013
Net operating revenues	$	749,955	$	756,673	$	722,845	$	746,175
Income from operations		82,530		88,263		62,399		68,244
Net income attributable to Select Medical Corporation	$	36,608	$	27,780	$	23,272	$	28,920

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Property and Equipment (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Property and equipment
Property and equipment, gross	$ 866,295,000	$ 818,224,000
Less: accumulated depreciation	357,193,000	316,672,000
Total property and equipment	509,102,000	501,552,000
Depreciation expense	63,900,000	62,500,000	69,800,000
Land
Property and equipment
Property and equipment, gross	68,492,000	68,573,000
Leasehold improvements
Property and equipment
Property and equipment, gross	146,117,000	128,468,000
Buildings
Property and equipment
Property and equipment, gross	368,968,000	352,677,000
Furniture and equipment
Property and equipment
Property and equipment, gross	256,079,000	246,858,000
Construction-in-progress
Property and equipment
Property and equipment, gross	$ 26,639,000	$ 21,648,000

XML

Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select's 6.375% Senior Notes (Tables)

12 Months Ended

Dec. 31, 2013

Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select's 6.375% Senior Notes

Schedule of Condensed Consolidating Balance Sheet

	Select Medical Corporation Consolidating Balance Sheet December 31, 2013
	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors		Non-Guarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
Assets
Current Assets:
Cash and cash equivalents	$	71		$	3,098	$	1,150	$	—		$	4,319
Accounts receivable, net		—			337,517		54,452		(650)	(a)		391,319
Current deferred tax asset		7,965			5,214		4,445		—			17,624
Intercompany receivables		—			1,079,736		105,028		(1,184,764)	(b)		—
Other current assets		9,745			26,545		4,850		—			41,140
Total Current Assets		17,781			1,452,110		169,925		(1,185,414	)		454,402
Property and equipment, net		15,624			434,040		59,438		—			509,102
Investment in affiliates		3,059,581			83,012		—		(3,142,593)	(c)(d)		—
Goodwill		—			1,642,633		—		—			1,642,633
Non-current deferred tax asset		7,662			—		—		(7,662)	(e)		—
Other identifiable intangibles		—			71,907		—		—			71,907
Other assets		35,274			103,696		608		—			139,578
Total Assets	$	3,135,922		$	3,787,398	$	229,971	$	(4,335,669	)	$	2,817,622
Liabilities and Equity
Current Liabilities:
Bank overdrafts	$	12,506		$	—	$	—	$	—		$	12,506
Current portion of long-term debt and notes payable		9,107			7,317		1,141		—			17,565
Accounts payable		6,749			68,574		12,962		—			88,285
Intercompany payables		1,184,764			—		—		(1,184,764)	(b)		—
Accrued payroll		1,167			88,599		245		—			90,011
Accrued vacation		4,619			47,682		7,429		—			59,730
Accrued interest		11,076			1,221		—		—			12,297
Accrued other		59,249			23,493		7,729		—			90,471
Income taxes payable		622			—		—		—			622
Due to third party payors		—			1		686		(650)	(a)		37
Total Current Liabilities		1,289,859			236,887		30,192		(1,185,414	)		371,524
Long-term debt, net of current portion		1,006,201			364,060		57,449		—			1,427,710
Non-current deferred tax liability		—			96,111		7,838		(7,662)	(e)		96,287
Other non-current liabilities		53,628			33,123		5,124		—			91,875
Total Liabilities		2,349,688			730,181		100,603		(1,193,076	)		1,987,396
Redeemable non-controlling interests		—			—		11,584		—			11,584
Stockholder's Equity:
Common stock		0			—		—		—			0
Capital in excess of par		869,576			—		—		—			869,576
Retained earnings		(83,342	)		920,694		21,186		(941,880)	(d)		(83,342	)
Subsidiary investment		—			2,136,523		64,190		(2,200,713)	(c)		—
Total Select Medical Corporation Stockholder's Equity		786,234			3,057,217		85,376		(3,142,593	)		786,234
Non-controlling interests		—			—		32,408		—			32,408
Total Equity		786,234			3,057,217		117,784		(3,142,593	)		818,642
Total Liabilities and Equity	$	3,135,922		$	3,787,398	$	229,971	$	(4,335,669	)	$	2,817,622

(a)

Reclass portion of due to third party payor to accounts receivable net in consolidation.

(b)

Elimination of intercompany.

(c)

Elimination of investments in consolidated subsidiaries.

(d)

Elimination of investments in consolidated subsidiaries' earnings.

(e)

Reclass of non-current deferred tax assset to report net non-current deferred tax liability in consolidation.

Select Medical Corporation
Consolidating Balance Sheet
December 31, 2012

	Select Medical Corporation (Parent Company Only)		Subsidiary Guarantors		Non-Guarantor Subsidiaries		Eliminations			Consolidated
	(in thousands)
Assets
Current Assets:
Cash and cash equivalents	$	35,070	$	3,734	$	1,340	$	—		$	40,144
Accounts receivable, net		—		308,043		53,531		(1,645)	(a)		359,929
Current deferred tax asset		12,383		1,060		4,434		—			17,877
Prepaid income taxes		3,895		—		—		—			3,895
Intercompany receivables		—		1,021,479		102,694		(1,124,173	)(b)		—
Other current assets		5,600		19,655		6,563		—			31,818
Total Current Assets		56,948		1,353,971		168,562		(1,125,818	)		453,663
Property and equipment, net		16,344		425,677		59,531		—			501,552
Investment in affiliates		2,930,022		82,475		—		(3,012,497	)(c)(d)		—
Goodwill		—		1,640,534		—		—			1,640,534
Other identifiable intangibles		—		71,745		—		—			71,745
Non-current deferred tax asset		5,107		—		—		(5,107)	(e)		—
Other assets		28,680		63,447		692		—			92,819
Total Assets	$	3,037,101	$	3,637,849	$	228,785	$	(4,143,422	)	$	2,760,313
Liabilities and Equity
Current Liabilities:
Bank overdrafts	$	17,836	$	—	$	—	$	—		$	17,836
Current portion of long-term debt and notes payable		8,916		1,059		1,671		—			11,646
Accounts payable		4,674		72,213		12,660		—			89,547
Intercompany payables		1,124,173		—		—		(1,124,173)	(b)		—
Accrued payroll		186		88,096		304		—			88,586
Accrued vacation		4,249		44,508		6,957		—			55,714
Accrued interest		17,955		804		—		—			18,759
Accrued other		55,206		31,343		5,534		—			92,083
Due to third party payors		—		—		2,723		(1,645)	(a)		1,078
Total Current Liabilities		1,233,195		238,023		29,849		(1,125,818	)		375,249
Long-term debt, net of current portion		872,671		358,104		60,522		—			1,291,297
Non-current deferred tax liability		—		85,287		9,330		(5,107)	(e)		89,510
Other non-current liabilities		49,918		28,808		4,973		—			83,699
Total Liabilities		2,155,784		710,222		104,674		(1,130,925	)		1,839,755
Redeemable non-controlling interests		—		—		10,811		—			10,811
Stockholder's Equity:
Common stock		0		—		—		—			0
Capital in excess of par		859,839		—		—		—			859,839
Retained earnings		21,478		790,692		21,197		(811,889)	(d)		21,478
Subsidiary investment		—		2,136,935		63,673		(2,200,608)	(c)		—
Total Select Medical Corporation Stockholder's Equity		881,317		2,927,627		84,870		(3,012,497	)		881,317
Non-controlling interests		—		—		28,430		—			28,430
Total Equity		881,317		2,927,627		113,300		(3,012,497	)		909,747
Total Liabilities and Equity	$	3,037,101	$	3,637,849	$	228,785	$	(4,143,422	)	$	2,760,313

(a)

Reclass portion of due to third party payor to accounts receivable net in consolidation.

(b)

Elimination of intercompany.

(c)

Elimination of investments in consolidated subsidiaries.

(d)

Elimination of investments in consolidated subsidiaries' earnings.

(e)

Reclass of non-current deferred tax asset to report net non-current deferred tax liability in consolidation.

Schedule of Condensed Consolidating Statement of Operations

	Select Medical Corporation Consolidating Statement of Operations For the Year Ended December 31, 2013
	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	350		$	2,553,505		$	421,793		$	—		$	2,975,648
Costs and expenses:
Cost of services		1,757			2,135,754			357,965			—			2,495,476
General and administrative		76,709			212			—			—			76,921
Bad debt expense		—			31,003			6,420			—			37,423
Depreciation and amortization		3,746			50,982			9,664			—			64,392
Total costs and expenses		82,212			2,217,951			374,049			—			2,674,212
Income (loss) from operations		(81,862	)		335,554			47,744			—			301,436
Other income and expense:
Intercompany interest and royalty fees		(1,326	)		1,339			(13	)		—			—
Intercompany management fees		144,447			(125,361	)		(19,086	)		—			—
Equity in earnings of unconsolidated subsidiaries		—			2,384			92			—			2,476
Loss on early retirement of debt		(17,788	)		—			—			—			(17,788	)
Interest expense		(58,100	)		(22,760	)		(4,094	)		—			(84,954	)
Income (loss) from operations before income taxes		(14,629	)		191,156			24,643			—			201,170
Income tax expense (benefit)		(1,238	)		76,870			339			—			75,971
Equity in earnings of subsidiaries		129,971			15,716			—			(145,687)	(a)		—
Net income		116,580			130,002			24,304			(145,687	)		125,199
Less: Net income attributable to non-controlling interests		—			—			8,619			—			8,619
Net income attributable to Select Medical Corporation	$	116,580		$	130,002		$	15,685		$	(145,687	)	$	116,580

(a)

Elimination of equity in earnings of subsidiaries.

Consolidating Statement of Operations
For the Year Ended December 31, 2012

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	123		$	2,549,896		$	398,950		$	—		$	2,948,969
Costs and expenses:
Cost of services		2,139			2,099,734			341,677			—			2,443,550
General and administrative		67,402			(1,208	)		—			—			66,194
Bad debt expense		—			33,595			5,460			—			39,055
Depreciation and amortization		3,267			50,734			9,310			—			63,311
Total costs and expenses		72,808			2,182,855			356,447			—			2,612,110
Income (loss) from operations		(72,685	)		367,041			42,503			—			336,859
Other income and expense:
Intercompany interest and royalty fees		(2,532	)		2,494			38			—			—
Intercompany management fees		120,276			(102,096	)		(18,180	)		—			—
Loss on early retirement of debt		(6,064	)		—			—			—			(6,064	)
Equity in earnings of unconsolidated subsidiaries		—			7,637			68			—			7,705
Interest expense		(54,167	)		(25,348	)		(4,244	)		—			(83,759	)
Income (loss) from operations before income taxes		(15,172	)		249,728			20,185			—			254,741
Income tax expense (benefit)		(8,206	)		101,795			(15	)		—			93,574
Equity in earnings of subsidiaries		162,470			15,639			—			(178,109	)(a)		—
Net income		155,504			163,572			20,200			(178,109	)		161,167
Less: Net income attributable to non-controlling interests		—			—			5,663			—			5,663
Net income attributable to Select Medical Corporation	$	155,504		$	163,572		$	14,537		$	(178,109	)	$	155,504

(a)

Elimination of equity in earnings of subsidiaries.

Consolidating Statement of Operations
For the Year Ended December 31, 2011

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Net operating revenues	$	121		$	2,436,177		$	368,209		$	—		$	2,804,507
Costs and expenses:
Cost of services		1,729			1,996,671			310,170			—			2,308,570
General and administrative		61,995			359			—			—			62,354
Bad debt expense		—			44,300			7,047			—			51,347
Depreciation and amortization		4,115			58,064			9,338			—			71,517
Total costs and expenses		67,839			2,099,394			326,555			—			2,493,788
Income (loss) from operations		(67,718	)		336,783			41,654			—			310,719
Other income and expense:
Intercompany interest and royalty fees		(3,408	)		3,382			26			—			—
Intercompany management fees		120,013			(102,970	)		(17,043	)		—			—
Loss on early retirement of debt		(20,385	)		—			—			—			(20,385	)
Equity in earnings of unconsolidated subsidiaries		—			2,870			53			—			2,923
Interest income		132			122			68			—			322
Interest expense		(41,817	)		(34,612	)		(4,803	)		—			(81,232	)
Income (loss) before income taxes		(13,183	)		205,575			19,955			—			212,347
Income tax expense (benefit)		(12,821	)		92,561			1,244			—			80,984
Equity in earnings of subsidiaries		126,809			13,406			—			(140,215)	(a)		—
Net income		126,447			126,420			18,711			(140,215	)		131,363
Less: Net income attributable to non-controlling interests		—			—			4,916			—			4,916
Net income attributable to Select Medical Corporation	$	126,447		$	126,420		$	13,795		$	(140,215	)	$	126,447

(a)

Elimination of equity in earnings of subsidiaries.

Schedule of Condensed Consolidating Statement of Cash Flows

Consolidating Statement of Cash Flows
For the Year Ended December 31, 2013

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	116,580		$	130,002		$	24,304		$	(145,687	)(a)	$	125,199
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,746			50,982			9,664			—			64,392
Provision for bad debts		—			31,003			6,420			—			37,423
Equity in earnings of unconsolidated subsidiaires		—			(2,384	)		(92	)		—			(2,476	)
Loss on early retirement of debt		17,788			—			—			—			17,788
Gain from disposal or sale of assets		—			(463	)		(118	)		—			(581	)
Non-cash stock compensation expense		7,033			—			—			—			7,033
Amortization of debt discount and issuance costs		8,344			—			—			—			8,344
Deferred income taxes		7,032			—			—			—			7,032
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries		(129,971	)		(15,716	)		—			145,687	(a)		—
Accounts receivable		—			(59,804	)		(7,341	)		—			(67,145	)
Other current assets		(4,145	)		(5,735	)		1,713			—			(8,167	)
Other assets		(6,594	)		3,026			84			—			(3,484	)
Accounts payable		2,075			(3,660	)		302			—			(1,283	)
Due to third-party payors		—			996			(2,037	)		—			(1,041	)
Accrued expenses		(4,929	)		20,609			(612	)		—			15,068
Net cash provided by operating activities		16,959			148,856			32,287			—			198,102
Investing activities
Purchases of property and equipment		(3,024	)		(60,532	)		(10,104	)		—			(73,660	)
Investment in businesses, net of distributions		—			(34,893	)		—			—			(34,893	)
Acquisition of businesses, net of cash acquired		—			(1,665	)		—			—			(1,665	)
Proceeds from sale of assets		—			2,456			456			—			2,912
Net cash used in investing activities		(3,024	)		(94,634	)		(9,648	)		—			(107,306	)
Financing activities
Borrowings on revolving credit facility		690,000			—			—			—			690,000
Payments on revolving credit facility		(800,000	)		—			—			—			(800,000	)
Borrowings on credit facility term loans, net of discount		298,500			—			—			—			298,500
Payments on credit facility term loans		(596,720	)		—			—			—			(596,720	)
Issuance of 6.375% senior notes		600,000			—			—			—			600,000
Repurchase of 75/8% senior subordinated notes, net of premiums		(70,000	)		—			—			—			(70,000	)
Borrowings of other debt		8,923			5,303			1,084			—			15,310
Principal payments on other debt		(7,752	)		(873	)		(2,209	)		—			(10,834	)
Debt issuance costs		(18,914	)		—			—			—			(18,914	)
Repayments of bank overdrafts		(5,330	)		—			—			—			(5,330	)
Equity investment by Holdings		1,525			—			—			—			1,525
Dividends paid to Holdings		(226,621	)		—			—			—			(226,621	)
Intercompany		77,455			(59,288	)		(18,167	)		—			—
Distributions to non-controlling interests		—			—			(3,537	)		—			(3,537	)
Net cash used in financing activities		(48,934	)		(54,858	)		(22,829	)		—			(126,621	)
Net decrease in cash and cash equivalents		(34,999	)		(636	)		(190	)		—			(35,825	)
Cash and cash equivalents at beginning of period		35,070			3,734			1,340			—			40,144
Cash and cash equivalents at end of period	$	71		$	3,098		$	1,150		$	—		$	4,319

(a)

Elimination of equity in earnings of consolidated subsidiaries.

Consolidating Statement of Cash Flows
For the Year Ended December 31, 2012

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	155,504		$	163,572		$	20,200		$	(178,109)	(a)	$	161,167
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,267			50,734			9,310			—			63,311
Provision for bad debts		—			33,595			5,460			—			39,055
Equity in earnings of unconsolidated subsidiaires		—			(7,637	)		(68	)		—			(7,705	)
Loss on early retirement of debt		6,064			—			—			—			6,064
Loss (gain) from disposal or sale of assets		—			(6,002	)		96			—			(5,906	)
Non-cash stock compensation expense		5,677			—			—			—			5,677
Amortization of debt discount and issuance costs		7,190			—			—			—			7,190
Deferred income taxes		7,909			—			—			—			7,909
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries		(162,470	)		(15,639	)		—			178,109	(a)		—
Accounts receivable		—			29,727			(14,569	)		—			15,158
Other current assets		740			141			(2,488	)		—			(1,607	)
Other assets		2,448			3,268			161			—			5,877
Accounts payable		(2,679	)		(4,040	)		602			—			(6,117	)
Due to third-party payors		—			(15,278	)		10,830			—			(4,448	)
Accrued expenses		25,350			(3,835	)		2,231			—			23,746
Net cash provided by operating activities		49,000			228,606			31,765			—			309,371
Investing activities
Purchases of property and equipment		(5,150	)		(49,160	)		(13,875	)		—			(68,185	)
Investment in businesses, net of distributions		—			(14,689	)		—			—			(14,689	)
Acquisition of businesses, net of cash acquired		—			(6,043	)		—			—			(6,043	)
Proceeds from sale of assets		—			16,511			—			—			16,511
Net cash used in investing activities		(5,150	)		(53,381	)		(13,875	)		—			(72,406	)
Financing activities
Borrowings on revolving credit facility		495,000			—			—			—			495,000
Payments on revolving credit facility		(405,000	)		—			—			—			(405,000	)
Borrowings on 2011 credit facility term loans, net of discount		266,750			—			—			—			266,750
Payments on 2011 credit facility term loans		(9,875	)		—			—			—			(9,875	)
Repurchase of 75/8% senior subordinated notes, net of premiums		(278,495	)		—			—			—			(278,495	)
Borrowings of other debt		8,003			—			278			—			8,281
Principal payments on other debt		(8,049	)		(433	)		(1,813	)		—			(10,295	)
Debt issuance costs		(6,527	)		—			—			—			(6,527	)
Proceeds from bank overdrafts		1,227			—			—			—			1,227
Equity investment by Holdings		1,817			—			—			—			1,817
Dividends paid to Holdings		(268,479	)		—			—			—			(268,479	)
Intercompany		183,421			(171,058	)		(12,363	)		—			—
Distributions to non-controlling interests		—			—			(3,268	)		—			(3,268	)
Net cash used in financing activities		(20,207	)		(171,491	)		(17,166	)		—			(208,864	)
Net increase in cash and cash equivalents		23,643			3,734			724			—			28,101
Cash and cash equivalents at beginning of period		11,427			—			616			—			12,043
Cash and cash equivalents at end of period	$	35,070		$	3,734		$	1,340		$	—		$	40,144

(a)

Elimination of equity in earnings of consolidated subsidiaries.

Consolidating Statement of Cash Flows
For the Year Ended December 31, 2011

	Select Medical Corporation (Parent Company Only)			Subsidiary Guarantors			Non-Guarantor Subsidiaries			Eliminations			Consolidated
	(in thousands)
Operating activities
Net income	$	126,447		$	126,420		$	18,711		$	(140,215)	(a)	$	131,363
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,115			58,064			9,338			—			71,517
Provision for bad debts		—			44,300			7,047			—			51,347
Equity in earnings of unconsolidated subsidiaries		—			(2,870	)		(53	)		—			(2,923	)
Loss on early retirement of debt		20,385			—			—			—			20,385
Loss (gain) from disposal or sale of assets		13			(5,024	)		45			—			(4,966	)
Non-cash stock compensation expense		3,725			—			—			—			3,725
Amortization of debt discount and issuance costs		6,700			—			—			—			6,700
Deferred income taxes		35,305			—			—			—			35,305
Changes in operating assets and liabilities, net of effects from acquisition of businesses:
Equity in earnings of subsidiaries		(126,809	)		(13,406	)		—			140,215	(a)		—
Accounts receivable		—			(98,966	)		(12,160	)		—			(111,126	)
Other current assets		(1,780	)		1,165			(586	)		—			(1,201	)
Other assets		(12,069	)		9,683			318			—			(2,068	)
Accounts payable		1,326			16,247			3,056			—			20,629
Due to third-party payors		—			1,408			(1,181	)		—			227
Accrued expenses		14,823			5,522			794			—			21,139
Net cash provided by operating activities		72,181			142,543			25,329			—			240,053
Investing activities
Purchases of property and equipment		(3,413	)		(37,759	)		(4,844	)		—			(46,016	)
Investment in businesses, net of distributions		—			(15,699	)		—			—			(15,699	)
Acquisition of businesses, net of cash acquired		—			(899	)		—			—			(899	)
Proceeds from sale of assets		—			7,879			—			—			7,879
Net cash used in investing activities		(3,413	)		(46,478	)		(4,844	)		—			(54,735	)
Financing activities
Borrowings on revolving credit facility		735,000			—			—			—			735,000
Payments on revolving credit facility		(720,000	)		—			—			—			(720,000	)
Borrowings on 2011 credit facility term loans, net of discount		841,500			—			—			—			841,500
Payments on 2011 credit facility term loans		(4,250	)		—			—			—			(4,250	)
Payments on 2005 credit facility term loans, net of call premium		(484,633	)		—			—			—			(484,633	)
Repurchase of 75/8% senior subordinated notes, net of premiums		(273,941	)		—			—			—			(273,941	)
Borrowings of other debt		6,100			955			—			—			7,055
Principal payments on other debt		(5,662	)		(755	)		(1,082	)		—			(7,499	)
Debt issuance costs		(18,556	)		—			—			—			(18,556	)
Repayments of bank overdrafts		(2,183	)		—			—			—			(2,183	)
Equity investment by Holdings		208			—			—			—			208
Dividends paid to Holdings		(245,729	)		—			—			—			(245,729	)
Intercompany		114,656			(99,832	)		(14,824	)		—			—
Distributions to non-controlling interests		—			—			(4,612	)		—			(4,612	)
Net cash used in financing activities		(57,490	)		(99,632	)		(20,518	)		—			(177,640	)
Net increase (decrease) in cash and cash equivalents		11,278			(3,567	)		(33	)		—			7,678
Cash and cash equivalents at beginning of period		149			3,567			649			—			4,365
Cash and cash equivalents at end of period	$	11,427		$	—		$	616		$	—		$	12,043

(a)

Elimination of equity in earnings of consolidated subsidiaries.

XML

Consolidated Statement of Changes in Equity and Income (USD $) In Thousands, except Share data, unless otherwise specified	Total	Select	Comprehensive Income	Comprehensive Income Select	Common Stock	Common Stock Select	Capital in Excess of Par	Capital in Excess of Par Select	Retained Earnings (Accumulated Deficit)	Retained Earnings (Accumulated Deficit) Select	Non-controlling Interests	Non-controlling Interests Select
Balance at Dec. 31, 2010	$ 807,176	$ 1,107,890			$ 155	$ 0	$ 535,628	$ 834,894	$ 245,164	$ 246,767	$ 26,229	$ 26,229
Balance (in shares) at Dec. 31, 2010					154,519,000	0
Increase (Decrease) in Stockholders' Equity
Net income	111,197	129,798	111,197	129,798					107,846	126,447	3,351	3,351
Net income - attributable to redeemable non-controlling interests			1,565	1,565
Total comprehensive income	111,197	129,798	112,762	131,363
Issuance and vesting of restricted stock	2,527				0		2,527
Issuance and vesting of restricted stock (in shares)	565,000				565,000
Repurchase of common shares	(72,804)				(10)		(45,733)		(27,061)
Repurchase of common shares (in shares)					(9,870,000)
Stock option expense	1,198						1,198
Exercise of stock options	208				0		208
Exercise of stock options (in shares)	53,932				54,000
Federal tax benefit of losses contributed by Holdings		10,016						10,016
Additional investment by Holdings		208						208
Net change in dividends payable to Holdings		7,360								7,360
Dividends declared and paid		(245,729)								(245,729)
Contribution related to restricted stock awards and stock option issuances by Holdings		3,726						3,726
Distributions to non-controlling interests	(2,688)	(2,688)									(2,688)	(2,688)
Other	(476)	(476)							(243)	(243)	(233)	(233)
Balance at Dec. 31, 2011	846,338	1,010,105			145	0	493,828	848,844	325,706	134,602	26,659	26,659
Balance (in shares) at Dec. 31, 2011					145,268,000	0
Increase (Decrease) in Stockholders' Equity
Net income	151,948	159,222	151,948	159,222					148,230	155,504	3,718	3,718
Net income - attributable to redeemable non-controlling interests			1,945	1,945
Total comprehensive income	151,948	159,222	153,893	161,167
Issuance and vesting of restricted stock	4,472						4,472
Issuance and vesting of restricted stock (in shares)	761,500				746,000
Repurchase of common shares	(46,902)				(5)		(27,208)		(19,689)
Repurchase of common shares (in shares)					(5,726,000)
Stock option expense	1,205						1,205
Exercise of stock options	1,817				1		1,816
Exercise of stock options (in shares)	301,208				301,000
Federal tax benefit of losses contributed by Holdings		3,917						3,917
Additional investment by Holdings		1,817						1,817
Dividends declared and paid	(210,888)	(268,479)							(210,888)	(268,479)
Contribution related to restricted stock awards and stock option issuances by Holdings		5,677						5,677
Distributions to non-controlling interests	(1,884)	(1,884)									(1,884)	(1,884)
Purchase of non-controlling interests	(479)	(479)					(416)	(416)			(63)	(63)
Other	(149)	(149)							(149)	(149)
Balance at Dec. 31, 2012	745,478	909,747			141	0	473,697	859,839	243,210	21,478	28,430	28,430
Balance (in shares) at Dec. 31, 2012					140,589,000	0
Increase (Decrease) in Stockholders' Equity
Net income	119,946	122,136	119,946	122,136					114,390	116,580	5,556	5,556
Net income - attributable to redeemable non-controlling interests			3,063	3,063
Total comprehensive income		122,136	123,009	125,199
Issuance and vesting of restricted stock	6,220						6,220
Issuance and vesting of restricted stock (in shares)	952,500				953,000
Repurchase of common shares	(11,781)				(1)		(7,524)		(4,256)
Repurchase of common shares (in shares)					(1,447,000)
Stock option expense	811						811
Exercise of stock options	1,525						1,525
Exercise of stock options (in shares)	166,600				166,000
Federal tax benefit of losses contributed by Holdings		1,179						1,179
Additional investment by Holdings		1,525						1,525
Net change in dividends payable to Holdings		5,239								5,239
Dividends declared and paid	(41,961)	(226,621)							(41,961)	(226,621)
Contribution related to restricted stock awards and stock option issuances by Holdings		7,033						7,033
Distributions to non-controlling interests	(1,839)	(1,839)									(1,839)	(1,839)
Purchase of non-controlling interests	261	261									261	261
Other	(18)	(18)							(18)	(18)
Balance at Dec. 31, 2013	$ 818,642	$ 818,642			$ 140	$ 0	$ 474,729	$ 869,576	$ 311,365	$ (83,342)	$ 32,408	$ 32,408
Balance (in shares) at Dec. 31, 2013					140,261,000	0

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Significant Transactions

12 Months Ended

Dec. 31, 2013

Significant Transactions

Significant Transactions

3.     Significant Transactions

        On April 1, 2011, the Company entered into a joint venture with Baylor Health Care System. The joint venture consists of a partnership between Baylor Institute for Rehabilitation and a wholly-owned subsidiary of the Company. The Company contributed several businesses to the joint venture, including its Frisco inpatient rehabilitation hospital and certain Texas-based outpatient rehabilitation clinics. A gain of $1.2 million was recognized on this contribution and is included in the general and administrative line item on the consolidated statement of operations for the year ended December 31, 2011. In 2011, the Company invested $13.5 million in cash which consisted of the purchase of partnership units for $7.6 million and working capital investments of $5.9 million and in 2012, the Company invested an additional $7.8 million. The Company owns a 49.0% non-controlling interest in the partnership and is accounting for the investment using the equity method.

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Stock Option and Restricted Stock Plans (Details 4) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Stock compensation expense:
Total	$ 7,033	$ 5,677	$ 3,725
Included in general and administrative
Stock compensation expense:
Total	5,276	3,538	1,996
Included in cost of services
Stock compensation expense:
Total	$ 1,757	$ 2,139	$ 1,729

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Commitments and Contingencies (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Future rental commitments under outstanding agreements
2014	$ 125,611,000
2015	98,100,000
2016	77,724,000
2017	63,517,000
2018	51,104,000
Thereafter	364,253,000
Total	780,309,000
Total rent expense for operating leases	164,600,000	168,300,000	163,900,000
Property rent expense to unrelated parties	119,500,000	118,100,000	114,800,000
Construction Commitments
Outstanding commitments under construction contracts	$ 22,800,000

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Schedule II - Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2013

Schedule II - Valuation and Qualifying Accounts

Schedule II - Valuation and Qualifying Accounts

Select Medical Holdings Corporation
Select Medical Corporation

Schedule II — Valuation and Qualifying Accounts

Description	Balance at Beginning of Year		Charged to Cost and Expenses			Acquisitions (A)		Deductions (B)			Balance at End of Year
	(in thousands)
Allowance for Doubtful Accounts
Year ended December 31, 2013	$	41,854	$	37,423		$	—	$	(38,462	)	$	40,815
Year ended December 31, 2012	$	47,469	$	39,055		$	—	$	(44,670	)	$	41,854
Year ended December 31, 2011	$	44,416	$	51,347		$	108	$	(48,402	)	$	47,469
Income Tax Valuation Allowance
Year ended December 31, 2013	$	13,341	$	(2,794	)	$	—	$	—		$	10,547
Year ended December 31, 2012	$	15,733	$	(2,392	)	$	—	$	—		$	13,341
Year ended December 31, 2011	$	16,622	$	(889	)	$	—	$	—		$	15,733

(A)

Represents opening balance sheet reserves resulting from purchase accounting entries.

(B)

Allowance for doubtful accounts deductions represent write-offs against the reserve for 2011, 2012 and 2013.

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Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under Select's 6.375% Senior Notes (Details) (6.375% senior notes)	Dec. 31, 2013
Financial information for subsidiary guarantors and non-guarantor subsidiaries under select's 6.375% senior notes
Interest rate of debt (as a percent)	6.375%
Select
Financial information for subsidiary guarantors and non-guarantor subsidiaries under select's 6.375% senior notes
Interest rate of debt (as a percent)	6.375%

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Related Party Transactions (Tables)

12 Months Ended

Dec. 31, 2013

Related Party Transactions

Schedule of future rental commitments under outstanding agreements with the affiliated companies

As of December 31, 2013, future rental commitments under outstanding agreements with the affiliated companies are approximately as follows (in thousands):

2014	$	3,758
2015		3,792
2016		3,828
2017		3,865
2018		3,950
Thereafter		17,047
	$	36,240

Schedule of net operating revenues generated from the provision of contracted services and management fees to related parties

	For the Year Ended December 31,
	2011		2012		2013
	(in thousands)
BIR JV, LLP	$	53,309	$	92,205	$	96,465
Rehabilitation Institute of Denton, LLC		7,292		8,133		7,163
OHRH, LLC		—		—		2,069
Global Rehab — Scottsdale, LLC.		—		—		4,129
Amplion Clinical Communications, Inc.		—		305		1,534
Other		150		140		310
Total	$	60,751	$	100,783	$	111,670

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Fair Value

12 Months Ended

Dec. 31, 2013

Fair Value

Fair Value

13.   Fair Value

        Financial instruments include cash and cash equivalents, notes payable and long-term debt. The carrying amount of cash and cash equivalents approximates fair value because of the short-term maturity of these instruments.

        The carrying value of Select's senior secured credit facility was $1,226.6 million and $827.8 million at December 31, 2012 and 2013, respectively. The fair value of Select's senior secured credit facility was $1,216.2 million and $828.3 million at December 31, 2012 and 2013, respectively. The fair value of Select's senior secured credit facility was based on quoted market prices for this debt in the syndicated loan market.

        The carrying value of Select's 6.375% senior notes was $600.0 million at December 31, 2013. The fair value of Select's 6.375% senior notes was $586.5 million at December 31, 2013. The fair value of this debt was based on quoted market prices.

        The Company considers the inputs in the valuation process of its senior secured credit facility and 6.375% senior notes to be Level 2 in the fair value hierarchy. Level 2 in the fair value hierarchy is defined as inputs that are observable for the asset or liability, either directly or indirectly which includes quoted prices for identical assets or liabilities in markets that are not active.