8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (date of earliest event reported): January 7, 2011

HealthSouth Corporation

(Exact Name of Registrant as Specified in its Charter)

Delaware

(State or Other Jurisdiction of Incorporation)

001-10315	63-0860407
(Commission File Number)	(IRS Employer Identification No.)

3660 Grandview Parkway, Suite 200, Birmingham, Alabama 35243

(Address of Principal Executive Offices, Including Zip Code)

(205) 967-7116

(Registrant’s Telephone Number, Including Area Code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o           Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o           Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 7.01. Regulation FD Disclosure.

HealthSouth Corporation (the “Company”) will participate in the 29th Annual J.P. Morgan Healthcare Conference in San Francisco on January 10-13, 2011. HealthSouth President and Chief Executive Officer, Jay Grinney, will make a presentation on Monday, January 10th, at 4:30 p.m. PT using the slides attached to this Current Report on Form 8-K as Exhibit 99.1. The presentation will address, among other things, the Company’s strategy and financial performance and discuss industry trends and dynamics. The presentation will be webcast live and will be available at http://investor.healthsouth.comby clicking on an available link.

While the format of certain slides may have changed, the slide presentation attached to this Current Report on Form 8-K as Exhibit 99.1 contains substantially the same information as previously provided in a Current Report on Form 8-K dated November 10, 2010.

While the Company has not closed its books for the quarter or year ended December 31, 2010, the Company will share its initial observations on the quarter and year ended December 31, 2010 in the slide presentation attached to this Current Report on Form 8-K as Exhibit 99.1. These initial observations are:

·   Volume: The Company continued to experience positive discharge growth and expects to report 5.3% and 2.8% discharge growth period over period for the quarter and year ended December 31, 2010, respectively. In addition, the Company expects to report 2.9% and 1.2% same store discharge growth period over period for the quarter and year ended December 31, 2010, respectively.

·   Pricing: The Company expects a 2.5% to 2.7% increase in net revenue per discharge for the quarter ended December 31, 2010 compared to the same quarter of 2009.

·   Expenses: Consistent with the Company’s previously communicated expectations, salaries and benefits are expected to be less than 50.0% of net operating revenues. Bad debt expense as a percent of net revenue appears to be better than expected and consistent with the third quarter of 2010.

·   Adjusted Earnings per Share: Due to the October 2010 refinancing transactions, adjusted income from continuing operations and adjusted earnings per share will include an approximate $12.0 million, or $0.11 per diluted share, loss on early extinguishment of debt and a $3.4 million, or $0.03 per diluted share, increase in interest expense in the fourth quarter of 2010.

The Company uses “same store” comparisons to explain the changes in certain performance metrics and line items within its financial statements. Same store comparisons are calculated based on hospitals open throughout both the full current periods and throughout the full prior periods presented. These comparisons include the financial results of market consolidation transactions in existing markets, as it is difficult to determine, with precision, the incremental impact of these transactions on the Company’s results of operations.

Based on its initial observations of continued strong operating results for the year ended December 31, 2010, the Company announced it is increasing previously provided Adjusted Consolidated EBITDA and adjusted earnings per share guidance for 2010. Adjusted Consolidated EBITDA guidance for 2010 has been increased from a range of $407 million to $412 million to a range of $418 million to $421 million. Adjusted earnings per share guidance for 2010 has been increased from a range of $1.57 to $1.62 per diluted share to a range of $1.67 to $1.70 per diluted share.

The results for the quarter and year ended December 31, 2010, as well as guidance for 2011, will be provided during the Company’s earnings conference call scheduled for 9:30 a.m. ET on February 18, 2011.

The information in this Current Report on Form 8-K, including the information set forth in Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Note Regarding Presentation of Non-GAAP Financial Measures

The financial data contained in the slide presentation attached as Exhibit 99.1 includes non-GAAP financial measures, including the Company’s leverage ratio and Adjusted Consolidated EBITDA. The Company’s leverage ratio is defined in its credit agreement as the ratio of consolidated total debt to Adjusted Consolidated EBITDA for the trailing four quarters. The Company believes its leverage ratio and Adjusted Consolidated EBITDA are measures of its ability to service its debt and its ability to make capital expenditures.

The Company uses Adjusted Consolidated EBITDA on a consolidated basis as a liquidity measure. The Company believes this financial measure on a consolidated basis is important in analyzing its liquidity because it is the key component of certain material covenants contained within the Company’s credit agreement, which is discussed in more detail in Note 8, Long-term Debt, to the consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2009 (the “2009 Form 10-K”) and Note 4, Long-term Debt, to the condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010 (th e “September 2010 Form 10-Q”). These covenants are material terms of the credit agreement. Non-compliance with these financial covenants under the credit agreement – its interest coverage ratio and its leverage ratio – could result in the Company’s lenders requiring the Company to immediately repay all amounts borrowed. If the Company anticipated a potential covenant violation, it would seek relief from its lenders, which would have some cost to the Company, and such relief might not be on terms favorable to those in the Company’s existing credit agreement. In addition, if the Company cannot satisfy these financial covenants, it would be prohibited under the credit agreement from engaging in certain activities, such as incurring additional indebtedness, making certain payments, and acquiring and disposing of assets. Consequently, Adjusted Consolidated EBITDA is critical to the Company’s assessment of its liquidity.

In general terms, the definition of Adjusted Consolidated EBITDA, per the credit agreement, allows the Company to add back to or subtract from consolidated net income unusual non-cash or non-recurring items. These items include, but may not be limited to, (1) amounts associated with government, class action, and related settlements, (2) amounts related to discontinued operations and closed locations, (3) charges in respect of professional fees for reconstruction and restatement of financial statements, including fees paid to outside professional firms for matters related to internal controls and legal fees for continued litigation and support matters discussed in Note 22, Settlements, and Note 23, Contingencies and Ot her Commitments, to the consolidated financial statements accompanying the 2009 Form 10-K and Note 10, Contingencies, to the condensed consolidated financial statements included in the September 2010 Form 10-Q, (4) stock-based compensation expense, (5) net investment and other income (including interest income), and (6) fees associated with the Company’s divestiture activities.

In accordance with the credit agreement, the Company is allowed to add certain other items to the calculation of Adjusted Consolidated EBITDA, and there may also be certain other deductions required. This includes the interest income associated with income tax recoveries, as discussed in Note 19, Income Taxes, to the consolidated financial statements included in the 2009 Form 10-K. In addition, the Company is allowed to add non-recurring cash gains, such as the cash proceeds from the UBS Settlement (see Note 22, Settlements, to the consolidated financial statements included in the 2009 Form 10-K) to the calculation of Adjusted Consolidated EBITDA. As these adjustments may not be indicative of the Company’s ongoing perfo rmance, they have been excluded from Adjusted Consolidated EBITDA presented herein and in the slide presentation attached as Exhibit 99.1.

However, Adjusted Consolidated EBITDA is not a measure of financial performance under generally accepted accounting principles in the United States of America (“GAAP”), and the items excluded from Adjusted Consolidated EBITDA are significant components in understanding and assessing financial performance. Therefore, Adjusted Consolidated EBITDA should not be considered a substitute for net income or cash flows from operating, investing, or financing activities. The Company reconciles Adjusted Consolidated EBITDA to net income, which reconciliation is set forth in the slide presentation attached as Exhibit 99.1, and to net cash provided by operating activities, which reconciliation is set forth below. Because Adjusted Consolidated EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to va rying calculations, Adjusted Consolidated EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. Revenues and expenses are measured in accordance with the policies and procedures described in the 2009 Form 10-K.

The Company also uses adjusted income from continuing operations and the related per share amounts, which amounts are also referred to as “adjusted earnings per share,” as analytical indicators to assess its performance. Management believes the presentation of adjusted income from continuing operations and the related per share amounts provides useful information to management and investors about the Company’s operating business before taking into account certain items that are non-operational or infrequent in nature. These measures are not defined measures of financial performance under GAAP and should not be considered as alternatives to net income and net income per share attributable to HealthSouth common shareholders. Because these measures are not measures determined in accordance with GAAP and are susceptible to varying calculations, they may not be comparable to other similarly titled measures presented by other companies. See the consolidated statements of operations included in the 2009 Form 10-K and the condensed consolidated statements of operations included in the September 2010 Form 10-Q for the GAAP measures of net income, income from continuing operations, and basic and diluted earnings per common share. A reconciliation of net income to adjusted income from continuing operations, and the related per share amounts, is included in the slide presentation attached as Exhibit 99.1.

The Company also uses adjusted free cash flow as an analytical indicator to assess its performance. Management believes the presentation of adjusted free cash flow provides investors an efficient means by which they can evaluate the Company’s capacity to reduce debt and pursue development activities. The calculation of adjusted free cash flow is included in the slide presentation attached as Exhibit 99.1. This measure is not a defined measure of financial performance under GAAP and should not be considered as an alternative to net cash provided by operating activities. Our definition of adjusted free cash flow is limited and does not represent residual cash flows available for discretionary spending. Because this measure is not determined in accordance with GAAP and is susceptible to varying calculations, it may not be comparable t o other similarly titled measures presented by other companies. See the consolidated statements of cash flows included in the 2009 Form 10-K and the condensed consolidated statements of cash flows included in the September 2010 Form 10-Q for the GAAP measures of cash flows from operating, investing, and financing activities. A reconciliation of net cash provided by operating activities to adjusted free cash flow is presented below.

Reconciliation of Net Cash Provided by Operating Activities to Adjusted Consolidated EBITDA

	For the Nine			For the Trailing
	Months Ended			Four Quarters Ended			For the Year Ended December 31,
	September 30, 2010			September 30, 2010			2009			2008			2007
	(In Millions)
Net cash provided by operating
activities	$	269.5		$	313.5		$	406.1		$	227.2		$	230.6
Provision for doubtful accounts		(17.1	)		(24.9	)		(33.1	)		(27.0	)		(33.2	)
Professional fees—accounting,
tax, and legal		13.8			17.6			8.8			44.4			51.6
Interest expense and amortization
of debt discounts and fees		91.4			122.2			125.8			159.5			229.4
Gain (loss) on sale of investments,
excluding impairments		1.3			1.5			0.8			(1.4	)		12.3
UBS Settlement proceeds, gross		-			-			(100.0	)		-			-
Equity in net income of
nonconsolidated affiliates		7.5			9.3			4.6			10.6			10.3
Net income in noncontrolling
interests in continuing
operations		(30.1	)		(38.3	)		(33.4	)		(29.8	)		(31.4	)
Amortization of debt discounts
and fees		(5.1	)		(6.8	)		(6.6	)		(6.5	)		(7.8	)
Distributions from nonconsolidated
affiliates		(4.7	)		(6.8	)		(8.6	)		(10.9	)		(5.3	)
Current portion of income tax benefit		(2.8	)		(6.9	)		(7.3	)		(73.8	)		(330.4	)
Change in assets and liabilities		(19.8	)		13.5			0.8			53.1			8.0
Change in government, class action,
and related settlements liability		0.8			1.0			11.2			7.4			171.4
Other operating cash used in
(provided by) discontinued
operations		5.5			9.6			13.5			(11.4	)		10.5
Other		0.4			0.8			0.4			(0.2	)		2.3
Adjusted Consolidated EBITDA	$	310.6		$	405.3		$	383.0		$	341.2		$	318.3

Reconciliation of Net Cash Provided by Operating Activities to Adjusted Free Cash Flow

	For the Trailing
	Four Quarters Ended			For the Year Ended December 31,
	September 30, 2010			2009			2008			2007
	(In Millions)
Net cash provided by operating
activities	$	313.5		$	406.1		$	227.2		$	230.6
Impact of discontinued operations		9.6			13.5			(11.4	)		10.5
Net cash provided by operating
activities of continuing operations		323.1			419.6			215.8			241.1
Capital expenditures for maintenance		(35.6	)		(34.1	)		(42.6	)		(24.6	)
Net settlements on interest rate swaps		(45.6	)		(42.2	)		(20.7	)		0.1
Dividends paid on convertible
perpetual preferred stock		(26.0	)		(26.0	)		(26.0	)		(26.0	)
Distributions paid to noncontrolling
interest of consolidated affiliates		(36.2	)		(32.7	)		(33.4	)		(23.1	)
Non-recurring items:
UBS Settlement proceeds, less fees
to derivative plaintiffs' attorneys		-			(73.8	)		-			-
Income tax refunds related to
prior periods		(16.1	)		(63.7	)		(90.4	)		(457.8	)
Cash paid for professional fees -
accounting, tax, and legal		17.6			15.3			18.2			51.6
Cash paid for government, class
action, and related settlements		1.0			11.2			7.4			171.4
Adjusted free cash flow	$	182.2		$	173.6		$	28.3		$	(67.3	)

For the nine months ended September 30, 2010, net cash used in investing activities was $96.4 million and resulted primarily from capital expenditures, acquisitions of businesses, net settlement payments related to interest rate swaps, and net purchases of restricted investments offset by a decrease in restricted cash and proceeds from the sale of our hospital in Baton Rouge, Louisiana. Net cash used in financing activities during the nine months ended September 30, 2010 was $63.6 million and resulted primarily from distributions paid to noncontrolling interests of consolidated affiliates, dividends paid on the Company’s convertible perpetual preferred stock, and net debt payments.

For the three months ended December 31, 2009, net cash used in investing activities was $8.6 million and resulted primarily from capital expenditures and net settlement payments related to interest rate swaps offset by a decrease in restricted cash. Net cash used in financing activities during the three months ended December 31, 2009 was $71.6 million and resulted primarily from net debt payments, debt amendment and issuance costs, distributions paid to noncontrolling interests of consolidated affiliates, and dividends paid on the Company’s convertible perpetual preferred stock.

For the year ended December 31, 2009, net cash used in investing activities was $133.0 million and resulted primarily from capital expenditures and net settlement payments related to interest rate swaps. Net cash used in financing activities during the year ended December 31, 2009 was $224.3 million and resulted primarily from net debt payments made during the period, as well as distributions paid to noncontrolling interests of consolidated affiliates, dividends paid on the Company’s convertible perpetual preferred stock, and debt amendment and issuance costs.

For the year ended December 31, 2008, net cash used in investing activities was $40.0 million and resulted primarily from capital expenditures, including expenditures associated with development activities, and net settlement payments related to an interest rate swap offset by proceeds from asset disposals, including our corporate campus. Net cash used in financing activities during the year ended December 31, 2008 was $176.0 million and resulted primarily from net debt payments made during the period, as well as distributions paid to noncontrolling

interests of consolidated affiliates and dividends paid on the Company’s perpetual preferred stock, offset by proceeds from the issuance of common stock.

For the year ended December 31, 2007, net cash provided by investing activities was $1,184.5 million and resulted primarily from the proceeds from the divestitures of the Company’s surgery centers, outpatient, and diagnostic divisions. Net cash used in financing activities during the year ended December 31, 2007 was $1,436.6 million and resulted primarily from net debt payments primarily using the net proceeds from the divestitures discussed above.

Forward-Looking Statements

The information contained in this Current Report on Form 8-K and the slide presentation attached as Exhibit 99.1 includes certain estimates, projections, and other forward-looking information that reflect the Company’s current views with respect to future events and financial performance. These estimates, projections, and other forward-looking information are based on assumptions the Company believes, as of the date hereof, are reasonable. Inevitably, there will be differences between such estimates and actual results, and those differences may be material.

There can be no assurance that any estimates, projections, or forward-looking information will be realized.

All such estimates, projections, and forward-looking information speak only as of the date hereof. The Company undertakes no duty to publicly update or revise the information contained herein or in the presentation.

You are cautioned not to place undue reliance on the estimates, projections, and other forward-looking information in this Current Report on Form 8-K or the presentation as they are based on current expectations and general assumptions and are subject to various risks, uncertainties, and other factors, many of which are beyond the Company’s control. These factors may cause actual results to differ materially from the views, beliefs, and estimates expressed herein. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, but are not limited to, the following:

•   each of the factors discussed in Item 1A, Risk Factors, of the 2009 Form 10-K, the September 2010 Form 10-Q, the Company’s Quarterly Reports on Form 10-Q for the quarterly periods ended June 30, 2010 and March 31, 2010, and in its other filings from time to time with the United States Securities and Exchange Commission, or in materials incorporated therein by reference;

•   changes in the regulations of the healthcare industry at either or both of the federal and state levels;

•   changes or delays in, or suspension of, reimbursement for the Company’s services by governmental or private payors, including its ability to obtain and retain favorable arrangements with third-party payors;

•   the Company’s ability to attract and retain nurses, therapists, and other healthcare professionals in a highly competitive environment with often severe staffing shortages and the impact on its labor expenses from potential union activity and staffing shortages;

•   competitive pressures in the healthcare industry and the Company’s response to those pressures;

•   the Company’s ability to successfully complete and integrate acquisitions, investments, and joint ventures consistent with its growth strategy; and

•   general conditions in the economy and capital markets.

ITEM 9.01. Financial Statements and Exhibits

(d)           Exhibits

99.1 Slide presentation of HealthSouth Corporation used in connection with its January 10, 2011 presentation at the 29th Annual J.P. Morgan Healthcare Conference in San Francisco.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized.

HEALTHSOUTH Corporation
By:	/s/   JOHN P. WHITTINGTON
	Name:  John P. Whittington
	Title:    Executive Vice President, General Counsel, and Corporate Secretary

Dated: January 7, 2011

EX-99.1

29th Annual JP Morgan Healthcare Conference
San Francisco | January 10, 2011

Jay Grinney, President and Chief Executive Officer

1

Exhibit 99.1

The information contained in this presentation includes certain estimates, projections and other
forward-looking information that reflect our current views with respect to future events and financial
performance. These estimates, projections and other forward-looking information are based on
assumptions that HealthSouth believes, as of the date hereof, are reasonable. Inevitably, there will
be differences between such estimates and actual results, and those differences may be material.

There can be no assurance that any estimates, projections or forward-looking information will be
realized.

All such estimates, projections and forward-looking information speak only as of the date hereof.
HealthSouth undertakes no duty to publicly update or revise the information contained herein.

You are cautioned not to place undue reliance on the estimates, projections and other forward-
looking information in this presentation as they are based on current expectations and general
assumptions and are subject to various risks, uncertainties and other factors, including those set
forth in the Form 10-K for the year ended December 31, 2009, our Form 10-Q for the quarters ended
March 31, 2010, June 30, 2010, and September 30, 2010, and in other documents we previously filed
with the SEC, many of which are beyond our control, that may cause actual results to differ
materially from the views, beliefs and estimates expressed herein.

Note Regarding Presentation of Non-GAAP Financial Measures
The following presentation includes certain “non-GAAP financial measures” as defined in
Regulation G under the Securities Exchange Act of 1934. Schedules are attached that reconcile
the non-GAAP financial measures included in the following presentation to the most directly
comparable financial measures calculated and presented in accordance with Generally
Accepted Accounting Principles in the United States. Our Form 8-K, dated January 10, 2011, to
which the following supplemental slides are attached as Exhibit 99.1, provides further explanation
and disclosure regarding our use of non-GAAP financial measures and should be read in
conjunction with these supplemental slides.

Forward-Looking Statements

2

Exhibit 99.1

Inpatient Rehabilitation Hospitals (“IRF”)

Outpatient Rehabilitation Satellite Clinics

Long-Term Acute Care Hospitals (“LTCH”)

Hospital-Based Home Health Agencies

Employees

Revenue in 2009

Inpatient Discharges in 2009

Outpatient Visits in 2009

Number of States

Exchange (Symbol)

3

Largest Provider of Inpatient Rehabilitative Healthcare Services in the U.S.

Our Company

Marketshare

~ 8% of IRFs
~ 17% of Licensed Beds
~ 22% of Patients Served

Exhibit 99.1

Our Hospitals

Major Services

•Rehabilitation Physicians:manage and treat medical needs of patients

•RehabilitationNurses:oversee treatment programs of patients

•Physical Therapists:address physical function, mobility, safety

•Occupational Therapists:promote independence and re-integration

•Speech-Language Therapists:treat communication & swallowing disorders

•Case Managers:coordinate care plan with physician, caregivers and family

•Post-discharge services:outpatient therapy and home health

4

Exhibit 99.1

Our Patients

5

Most Common Conditions (Q3 2010)

1.Stroke17.6%

2.Neurological15.3%

3.Fractureofthelowerextremity         11.1%

4.Debility11.0%

5.Knee/Hipreplacement                          9.4%

6.Otherorthopedicconditions9.3%

7.Braininjury7.4%

8.Cardiacconditions4.3%

9.Spinalcordinjury3.6%

10.Allother11.0%

Referral Sources

94% Acute Care Hospitals

  5% PhysicianOffices

  1% SkilledNursingFacilities

Admission to an IRF

•Physicians and acute care
hospital case managers are key
decision-makers.

•All IRF patients must meet
reasonable and necessary criteria
and must be admitted by a
physician.

•All IRF patients must be medically
stable and have potential to
tolerate three hours of therapy per
day (minimum).

•IRF patients receive 24-hour, 7
days a week nursing care.

•Average length of stay (ALOS) =
14.3 days

Exhibit 99.1

Our Quality

FIM Gain

Change in
Functional
Independence
Measurement
(based on an 18
point assessment)
from admission to
discharge

LOS Efficiency

Functional gain
divided by length
of stay

6

(1) Average = Expected, Risk-adjusted

Exhibit 99.1

(1) The 1,171 total and the 91 for HLS do not include HealthSouth Rehabilitation Hospital of Northern Virginia; Rehabilitation Hospital of Southwest Virginia;
Rehabilitation Hospital of Mesa, AZ; and Rehabilitation Hospital of Fredericksburg, VA. that were opened after the data collection. Desert Canyon
Rehabilitation Hospital and HealthSouth Sugar Land Rehabilitation Hospital, currently owned by HLS, were included in the 139 non-HLS freestanding.

(2) In 2009, HealthSouth averaged 1,177 total Medicare and non-Medicare discharges in its 90 consolidated hospitals and 6 long-term acute care hospitals.

Sources:FY 2011 CMS Rate Setting File - see slide 30.

7

Total Inpatient Rehabilitation Facilities (IRFs): 1,171(1)

Our Cost-Effectiveness

Exhibit 99.1

Our Payors

Prospective Payment System (“PPS”)

•Payments based on Case Mix Groups
(“CMGs”)

–Diagnosis of patient’s illness

•Fixed payment per CMG adjusted for:

–Acuity/severity

–Regional wage differential

•Per diems for “short stays”

Per Diem or CMG

•Negotiated rate

•Some are “tiered” for acuity/severity

Variety of methodologies

Varies by state

Variety of methodologies

Medicare

Managed Care

•Includes managed
Medicare

Other Third-Party Payors

Medicaid

Workers’ Comp./
Patients/Other

Payment Methodology

Payor Source

8

70.1%

21.8%

2.3%

4.0%

1.8%

Exhibit 99.1

Note:These numbers are program spending only and do not include beneficiary copayments.

Source:Centers for Medicare and Medicaid Services, Office of the Actuary (MedPAC June 2010 Data Book - Page 130), 2009 and 2010
Medical Trustee Report

Medicare Spending on Post-Acute Services

Skilled nursing
facilities18.1%

Home health
agencies17.7%

Inpatient

rehabilitation

hospitals8.4%

Long-term acute

care hospitals5.7%

9

2009
Medicare
Margin

Post-Acute Settings

Inpatient rehabilitation
spending (% of total
Medicare spending)

Exhibit 99.1

Future Regulatory Risk	Inpatient Rehabilitation Facility	Skilled Nursing Facility	Long-Term Acute Care Hospital	Home Health
1.Re-basing payment system	No	Yes; RUGS IV and MDS 3.0 being implemented FY 2011/2012	No	Yes; would be required as part of PPACA starting in 2014
2.Major outlier payment adjustments	No	No	Yes; will occur when MMSEA relief expires (short stay outliers)	Yes; 10% cap per agency; 2.5% taken out of outlier pool (per PPACA)
3.Upcoding adjustments	No	Yes; occurring in FY 2010	Yes; occurring in FY 2010 and proposed (2.5%) for FY 2011	Yes; occurring in CYs 2010 (-2.75%), and proposed (-3.79%) for 2011 and 2012
4.Patient criteria	No; 60% Rule already in place	No	Study dictated as part of MMSEA	PPACA requires a patient - physician “face-to-face” encounter; new therapy coverage proposed
5.Healthcare Reform
•Market basket update reductions	•Known	•Known	•Known	•Known
•Productivity adjustments	•Begins FY 2012	•Begins FY 2012	•Begins FY 2012	•Begins FY 2015
•Bundling	•Pilot to be established by 2013	•Pilot to be established by 2013	•Pilot to be established by 2013	•Pilot to beestablished by 2013
•Independent Payment Advisory Board	•FY 2019	•FY 2015	•FY 2019	•CY 2015
•New quality reporting requirements	•Begins FY 2014	•N/A	•Begins FY 2014	•N/A
•Value based purchasing	•Pilot begins 2016	•Post 2012	•Pilot begins 2016	•Post 2012
6.Other	N/A	Forecast error being implemented in FY 2011	25% Rule regulatory relief expires in 2012/2013; prohibition on new LTCHs through 2012	Limits on transfer of ownership

Post-Acute Regulatory Risks

Sources:Healthcare Reform Bill (PPACA, HERA),CMS Regulatory published rules and MMSEA

10

Exhibit 99.1

Our Track Record

11

Revenue

($ in millions, except adjusted EPS)

Adjusted EBITDA

Adjusted Net Income

Adjusted EPS

(1) Reconciliation to GAAP provided on slides 27, 31-35.

(1)

(1)

(1)

(1)

Exhibit 99.1

Our Track Record (cont’d)

12

Leverage Ratio(1)

(billions)

(1)Reconciliation to GAAP provided on slides 27-29, 31-35.

Interest Expense

$229

$126

(1)

Exhibit 99.1

•Volume:

–5.3% discharge growth vs. Q4 2009 (2.8% for FY 2010 vs. FY 2009)

–2.9% same store discharge growth vs. Q4 2009 (1.2% for FY 2010 vs. FY
2009)

•Pricing:

–2.5%-2.7% increase in net revenue per discharge vs. Q4 2009

•Expense Management:

–SWB as a percent of net revenue < 50.0%

–Bad debt as a percent of net revenue better than expected and
consistent with Q3 2010

•Adjusted EPS: (1)

–October refinancing will result in approximately $12.0 million, or $0.11
per diluted share, loss on early extinguishment of debt and $3.4 million,
or $0.03 per diluted share, higher interest expense in Q4 2010.

Q4 2010 Initial Observations

13

(1) Adjusted income from continuing operations per share; reconciliation to GAAP provided on slides 31-35.

Exhibit 99.1

Future Adjusted EPS(1) Guidance Considerations

•Refinancing activities significantly impact adjusted EPS.

–Loss on early extinguishment of debt (many companies
exclude)

–Valuation allowance is assessed quarterly.

•Historical adjustments to EPS are expected to roll-off during
2011.

–Loss/gain on interest rate swaps

–Government, class action and related settlements
expense

–Professional fees - accounting, tax and legal

14

These
factors
may
warrant a
change in
our
definition
of adjusted
EPS.

(1) Adjusted income from continuing operations per share; reconciliation to GAAP provided on slides 31-35.

Exhibit 99.1

Updated 2010 Guidance

15

Adjusted Consolidated EBITDA (1)$418 million to $421 million

Adjusted Earnings per Share (1)$1.67 to $1.70

(1) Adjusted income from continuing operations per share; reconciliation to GAAP provided on slides 27, 31-35.

•The Company has not yet closed its books for
Q4 and YE 2010. 

•Q4 2010 and YE 2010 results and 2011 guidance
will be provided after market close on Feb. 17,
2011, and discussed during an investor
conference call at 9:30 a.m. EST on
Feb. 18, 2011.

Exhibit 99.1

Our Business Outlook: 2011 to 2013

Business Model

•Adjusted Consolidated EBITDA CAGR: 5-8% (1)

•Adjusted Free Cash Flow CAGR: 12-17% (1)

Strategy

2010

2011

2012

2013

Deleveraging
(2)

Goal: < 4.0x
debt to EBITDA

Goal: ~ 3.5x
debt to EBITDA

Longer-Term Goal: ~ 3.0x
debt to EBITDA

Growth

Organic growth (includes capacity expansions)

De novos (~ 2-3/year)

IRF acquisitions (~ 2-3/year)

Opportunistic, disciplined acquisitions
of complementary post-acute services

Key Operational
Initiatives

•Labor / outcomes / quality optimization

•TeamWorks = Care Management

•“CPR” (Comfort, Professionalism, Respect) Initiative

16

(1)Reconciliation to GAAP provided on slides 27-29, 31-35.

(2)Exclusive of any E&Y recovery.

Exhibit 99.1

Deleveraging: Remains a Top Priority

•The 10.75% notes have an initial call date of June 2011 and represent
our most attractive debt repayment/refinancing opportunity.

•We have at least three potential funding sources for reducing the
10.75% notes:

Free Cash Flow

―Benefiting in 2011 from the expiration of the interest rate swaps

―Also will be used to fund growth opportunities

―Capital allocation based predominately on economic returns

Revolving Credit Facility

―Capacity determined by liquidity considerations

New Debt Issuances

―Interest rate arbitrage opportunity determined by prevailing debt
market conditions

17

Exhibit 99.1

Revenue Assumptions

18

Revenue

Volume

• 2.5% to 3.5% annual growth (excludes
  acquisitions)

• Includes bed expansions, de novos
  and unit consolidations

Medicare

Managed
Care

Other

(1) We believe based on the 2011 Medicare rule for IRFs, HealthSouth should realize an increase of approximately 2.1%
annually.

(2) Management estimates

Exhibit 99.1

(1)Data provided by UDSMR, a data gathering and analysis organization for the rehabilitation industry; represents ~ 65-70% of industry,
including HealthSouth sites.

(2)Includes consolidated HealthSouth inpatient rehabilitation hospitals and long-term acute care hospitals classified as same store during
that time period.

Historic Discharge Growth vs. Industry

•HealthSouth’s
volume growth has
outpaced
competitors’.

•TeamWorks =
standardized and
enhanced sales &
marketing

•Bed additions will
help facilitate
continued organic
growth:

―Anticipate ~100
beds/year

(+/- 20 beds)

UDS Industry Sites(1)

HLS Same Store(2)

19

est.

Exhibit 99.1

Expense Assumptions

20

Expense

Salaries & Benefits (1)

Hospital Expenses

•Other operating and supplies
tracking with inflation

4.5% of revenue

(excludes stock-based compensation)

Salaries

& Benefits

Hospital
Expenses

(1) ~85% Salary; ~15% Benefits

Exhibit 99.1

Portfolio Growth

Cash Payback Period

Year 1Year 2Year 3Year 4Year 5Year 6Year
7

Acquisitions

De novos(1)

(1)Assumes average investment per bed:~ $450K.

21

•Target: 2-3 de novos and acquisitions/yr

•All projects have minimum IRR of 15%.

•Longer payback on de novos versus
acquisitions is attributable to:

-12-15 month construction period

-Initial ramp-up of operations on de novos

Exhibit 99.1

22

Acute Care
Hospital

Discharge

Hospice

Inpatient
Rehabilitation
Facility (1)

Skilled
Nursing
Facility

Home
Health (1)

(Highest Acuity)

(Lowest Acuity)

Future Growth: Complementary Post-Acute Care Services

Source: MedPac, CMS and Wall Street research

(1) For information on HealthSouth’s hospital portfolio, see slide 3.

Exhibit 99.1

•Growth strategies will complement deleveraging priority.

-“Highest and best use” of FCF will determine where to invest.

•The company continues to have excellent organic growth opportunities.

-Locations in above-average “Rehab CAGR” markets

-Non-discretionary nature of many conditions served

-Track record of consistent market share gains

•De novos and targeted IRF acquisitions will allow entry to, and growth in,
new markets.

-Disciplined evaluation process

-Proven track record of success

•Longer-term consideration of acquiring complementary post-acute
services predicated on:

-Achieving deleveraging objective

-Obtaining regulatory clarity

-Favorable market conditions

Growth: Summary

23

Exhibit 99.1

Free Cash Flow Reinvestment

24

•$500 million of 10.75% notes callable June 2011

•Growth in core business

•Bed expansions

•Hospital acquisitions

•Acute care IRF unit acquisition/consolidation

•De novo hospitals

•Lower capital cost

•Share repurchase

•Offset shares underlying convertible preferred
shares

•Offset shares issued in settlement of securities
litigation

Adjusted free cash flow CAGR: 12-17%

•Acquisitions of complementary business

Exhibit 99.1

(1)Reconciliation to GAAP provided on slides 27-29, 31-35.

The HealthSouth Value Proposition

Poised for Growth

Financial Strength/Strong
Cash Flow Generation

Industry Leading Position

Attractive Healthcare Sector

25

Exhibit 99.1

Appendix

26

Exhibit 99.1

(1)Notes on page 35.

Net Cash Provided by Operating Activities

27

Exhibit 99.1

Adjusted Free Cash Flow (2010 vs. 2009)

(1) Q3 2009 working capital benefited as a result of $19 million for working capital related to the interest payment accrual timing and $28
million in receivables due to suspension of Medicare denials and enhanced collections.

28

Exhibit 99.1

29

Exhibit 99.1

CMS Fiscal Year 2011 IRF Rate Setting File Analysis

Notes:

(1) All data provided was filtered and compiled from the Centers for Medicare and
Medicaid Services (CMS) Fiscal Year 2011 IRF rate setting Final Rule file found at
http://www.cms.hhs.gov/InpatientRehabFacPPS/07_DataFiles.asp#TopOfPage. The
data presented was developed entirely by CMS and is based on its definitions
which are different in form and substance from the criteria HealthSouth uses for
external reporting purposes. Because CMS does not provide its detailed
methodology, HealthSouth is not able to reconstruct the CMS projections or the
calculation.

(2) The CMS file contains data for each of the 1,171 inpatient rehabilitation facilities
used to estimate the policy updates for the FY 2011 IRF-PPS Final Rule. Most of the
data represents historical information from the CMS fiscal year 2009 period and
does not reflect the same HealthSouth hospitals in operation today. The data
presented was separated into three categories: Freestanding, Units, and
HealthSouth. HealthSouth is a subset of Freestanding and the Total.

30

Exhibit 99.1

(1) (2) (3) (4) - Notes on page 35.

31

Exhibit 99.1

32

(1) (2) (3) (4) - Notes on page 35.

Exhibit 99.1

33

(1) (2) (3) (4) - Notes on page 35.

Exhibit 99.1

34

(1) (2) (3) (4) - Notes on page 35.

Exhibit 99.1

Reconciliation Notes

1.Adjusted income from continuing operations and Adjusted Consolidated EBITDA are
non-GAAP financial measures. The Company’s leverage ratio (total consolidated debt
to Adjusted Consolidated EBITDA for the trailing four quarters) is, likewise, a non-GAAP
financial measure. Management and some members of the investment community
utilize adjusted income from continuing operations as a financial measure and
Adjusted Consolidated EBITDA and the leverage ratio as liquidity measures on an
ongoing basis. These measures are not recognized in accordance with GAAP and
should not be viewed as an alternative to GAAP measures of performance or liquidity.
In evaluating these adjusted measures, the reader should be aware that in the future
HealthSouth may incur expenses similar to the adjustments set forth above.

2.Per share amounts for each period presented are based on basic weighted average
common shares outstanding for all amounts except adjusted income from continuing
operations per diluted share, which is based on diluted weighted average shares
outstanding. The difference in shares between the basic and diluted shares
outstanding is primarily related to our convertible perpetual preferred stock.

3.Adjusted income from continuing operations per diluted share and Adjusted
Consolidated EBITDA are two components of our guidance.

4.The Company’s credit agreement allows certain other items to be added to arrive at
Adjusted Consolidated EBITDA, and there may be certain other deductions required.

35

Exhibit 99.1