8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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): March 4, 2009

REHABCARE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	0-19294	51-0265872
(State or other jurisdiction	(Commission File Number)	(I.R.S. Employer
of incorporation)		Identification No.)

7733 Forsyth Boulevard
Suite 2300
St. Louis, Missouri	63105
(Address of principal executive offices)	(Zip Code)

(314) 863-7422

(Company’s telephone number, including area code)

Not applicable

(Former name or former address if changed since last report)

 o  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 communications 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 2.02		Results of Operations and Financial Condition
		The information in Exhibit 99.1 is incorporated herein by reference.
Item 7.01		Regulation FD Disclosure
		The information in Exhibit 99.2 is incorporated herein by reference.
Item 9.01		Financial Statements and Exhibits
(d)		Exhibits
		The following exhibits are furnished pursuant to Item 2.02 and 7.01 hereof and should not be deemed to be “filed” under the Securities Exchange Act of 1934:
	99.1	Press release dated March 4, 2009, announcing our fourth quarter revenues and results of operations.
	99.2	The script for a conference call held by the registrant on March 4, 2009

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.

Dated: March 4, 2009

REHABCARE GROUP, INC.

By: /s/	Jay W. Shreiner
	Jay W. Shreiner
	Executive Vice President and
	Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press release dated March 4, 2009, announcing our fourth quarter revenues and results of operations.
99.2	The script for a conference call held by the registrant on March 4, 2009

EX-99.1

Exhibit 99.1

    CONTACT: RehabCare Group, Inc.

     Financial: Jay W. Shreiner, Chief Financial Officer

     Press: Donna Lee, Office of the CEO

     (314) 863-7422 or

     FD, Gordon McCoun/Theresa Kelleher

     (212) 850-5600

FOR IMMEDIATE RELEASE

Wednesday, March 4, 2009

REHABCARE RESULTS FOR FOURTH QUARTER

AND FISCAL YEAR 2008 EXCEED PRIOR YEAR

·   Earnings per diluted share increases to $0.32 in the fourth quarter, including certain charges of $1.6 million after tax, or $0.09 per share

·   Fourth quarter consolidated operating revenues increase $22.4 million, or 13.1%, to $194.2 compared to the prior year quarter, driven by growth in each core operating division

·   Earnings per diluted share increases 43.8% in fiscal year 2008 from fiscal year 2007.  Excluding charges in both periods, the increase was 26.7%.

·   Operating cash flow and balance sheet remain strong, positioning Company for continued growth

·   Company provides outlook for 2009 of continued growth in operating revenues and earnings per diluted share

ST. LOUIS, MO, March 4, 2009--RehabCare Group, Inc. (NYSE:RHB) today reported financial results for the quarter and year ended December 31, 2008. Comparative results for the quarter and year follow.

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REHABCARE REPORTS FOURTH QUARTER 2008 RESULTS                                                    Page 2 

	Fourth			Third			Fourth			Year Ended
	Quarter			Quarter			Quarter			December 31,
Amounts in millions, except per share data	2008			2008			2007				2008			2007
Consolidated Operating Revenues	$	194.2		$	182.6		$	171.8		$	743.1		$	704.5
Consolidated Operating Earnings  (a), (b), (c)		9.4			7.0			9.1			32.7			28.6
Consolidated Earnings from Continuing Operations, Net of Tax		6.0			4.2			5.2			19.4			13.7
Loss from Discontinued Operations, Net of Tax		(0.3	)		(0.2	)		(0.1	)		(0.7	)		(1.0	)
Consolidated Net Earnings		5.7			4.0			5.1			18.7			12.7
Consolidated Diluted Earnings per Share		0.32			0.22			0.29			1.05			0.73
Minority Interests in Net Losses of Consolidated Affiliates		0.6			0.6			0.2			2.0			0.4
Contract Therapy Operating Revenues		110.7			105.6			99.4			426.8			400.8
Contract Therapy Operating Earnings		7.9			6.6			4.0			23.9			6.0
HRS Inpatient Operating Revenues		32.4			30.8			28.9			122.8			121.1
HRS Outpatient Operating Revenues		11.3			10.8			9.9			42.9			43.0
HRS Operating Revenues		43.7			41.6			38.8			165.7			164.1
HRS Operating Earnings (a)		5.8			6.2			6.0			22.0			22.9
Hospital Operating Revenues		30.3			27.5			23.8			112.5			96.0
Hospital Operating Revenues (b), (c)		(4.8	)		(5.5	)		(0.7	)		(13.9	)		(2.0	)
Other Operating Revenues		9.8			8.4			10.1			40.0			44.6
Other Operating Earnings (Loss)		0.4			(0.3	)		(0.2	)		0.7			1.7

(a) Includes a pretax charge arising from a bad debt write-down related to an outpatient transaction of $1.2 million, or $0.04 per diluted share after tax, in the quarter and year ended December 31, 2008

(b) Includes a pretax charge related to the cancellation of a planned acquisition in Providence, RI and a long-term acute care hospital development project in Kokomo, IN of $1.5 million, or $0.05 per diluted share after tax, in the quarter and year ended December 31, 2008

(c) Includes a pretax impairment charge on a Louisiana Specialty Hospital intangible asset of $4.9 million, or $0.17 per diluted share after tax, in the year ended December 31, 2007

John H. Short, Ph.D, RehabCare President and Chief Executive Officer, stated, “We are pleased with our fourth quarter 2008 performance, which marks the completion of a successful year for RehabCare.  From the outset of 2008 we have been in a growth mode, following our integration of the Symphony acquisition.  By year end, we achieved solid revenue growth, with each of our core operating divisions reporting double-digit percentage revenue gains over the fourth quarter of 2007.

“Contract Therapy (CT) continues to generate strong top line momentum, with year-over-year fourth quarter same store revenue growth of 13.8%, and outstanding earnings performance, realizing a 7.1% margin in the fourth quarter.  After three years of decline, our Hospital Rehabilitation Services (HRS) division experienced unit growth during 2008, a result of aggressive business development and retention efforts and long-awaited resolution to the 60% Rule.  HRS also maintained its upward trend in operating earnings margin, achieving a 16.2% margin in the fourth quarter when excluding a bad debt write-down.”

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REHABCARE REPORTS FOURTH QUARTER 2008 RESULTS                                                    Page 3

Dr. Short continued, “Our turnaround plan for the Hospital division began to take root in the fourth quarter, with increased total and same store revenue and improved earnings performance over the previous quarter. When factoring out the cancellation of a planned acquisition in Providence, RI and a long-term acute care hospital development project in Kokomo, IN, the division achieved a $2.2 million sequential improvement in operating earnings.”   

He added, “Against the backdrop of a challenging credit environment, we took diligent steps in 2008 to boost our liquidity and financial strength and concluded the year with a healthy balance sheet and robust platform for continued growth.”

Financial Overview of Fourth Quarter

Consolidated operating revenues for the fourth quarter of 2008 were $194.2 million, a 13.1% increase compared to $171.8 million in the fourth quarter of 2007.

Consolidated net earnings were $5.7 million in the fourth quarter of 2008 compared to $5.1 million in the fourth quarter of 2007.  Earnings per share on a fully diluted basis for the fourth quarter of 2008 were $0.32 compared to $0.29 in the fourth quarter of 2007.

The Contract Therapy division’s operating revenues increased $11.3 million, or 11.4%, from $99.4 million in the fourth quarter of 2007 to $110.7 million in the fourth quarter of 2008.  Same store revenues increased by 13.8% while average operating units were relatively flat.  At December 31, 2008, CT operated in 1,068 locations compared to 1,064 locations at December 31, 2007.  The Company signed contracts for 37 new client locations in the fourth quarter of 2008.  The number of signed but unopened contracts stood at 20 at the end of the quarter.

The division’s operating earnings were $7.9 million, or 7.1% of revenue, compared to $4.0 million, or 4.0% of revenue, in the fourth quarter of 2007.  The market basket adjustment for skilled nursing facilities (SNFs), which became effective October 1, 2008, contributed to both revenue and earnings during the fourth quarter of 2008.

The Hospital Rehabilitation Services division’s fourth quarter operating revenues increased 12.6% to $43.7 million, compared to $38.8 million in the fourth quarter of 2007.  Inpatient operating revenues improved 12.0% as the average number of programs operated in the current quarter increased by 1.4% and same store acute discharges increased 4.7%. Outpatient operating revenues increased 14.4%.

At December 31, 2008, HRS operated 157 programs compared to 154 programs at December 31, 2007.  During 2008, inpatient rehabilitation facility (IRF) contracts increased from 107 to 113.  The division had five IRF signings in the fourth quarter of 2008 and seven IRF openings.  At year end, the number of signed but unopened IRF contracts stood at three, all of which are expected to open in 2009.

HRS operating earnings decreased by $0.2 million to $5.8 million, or 13.3% of revenue, in the fourth quarter of 2008 compared to $6.0 million, or 15.5% of revenue, in the fourth quarter of 2007.

Operating revenues in the Hospital division for the fourth quarter of 2008 increased 27.5% to $30.3 million, compared to $23.8 million in the prior year quarter.  The increase in revenues reflects the December 2007 opening of Central Texas Rehabilitation Hospital in Austin, Texas, the 2008 opening of Northland LTAC Hospital in Kansas City, Missouri, the acquisition of The Specialty Hospital in Rome, Georgia and the opening of St. Luke’s Rehabilitation Hospital in St. Louis.  Same store revenue increased $0.8 million or 3.2% compared to a year ago.  The division operated a total of eleven hospitals at December 31, 2008, six IRFs and five long-term acute care hospitals (LTACHs).

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REHABCARE REPORTS FOURTH QUARTER 2008 RESULTS                                                    Page 4

The division incurred an operating loss of $4.8 million in the fourth quarter of 2008 compared to an operating loss of $0.7 million in the fourth quarter of 2007 and $5.5 million in the third quarter of 2008.  The $0.7 million improvement over the third quarter, which was impacted by the hurricanes, includes the negative impact of a $1.5 million charge related to the cancellation of a development project in Kokomo, IN and a planned acquisition in Providence, RI.  Other start-up and ramp-up losses in the fourth quarter of 2008 were $1.6 million.  Most of these losses relate to St. Luke’s Rehabilitation Hospital, which admitted its first patient on November 4, and Northland LTAC Hospital, which completed its Medicare demonstration period on December 1.

Balance Sheet and Liquidity

At December 31, 2008, the Company had approximately $27.4 million in cash and cash equivalents and $57.0 million in outstanding debt.  Net debt (outstanding debt less cash and cash equivalents) stood at $29.6 million at the end of fiscal 2008 compared to $64.2 million at December 31, 2007.  Days sales outstanding decreased 5.8 days to 66.0 days at December 31, 2008 from 71.8 days at the prior fiscal year end.

For the year ended December 31, 2008, the Company generated cash from operations of $48.7 million and expended approximately $18.5 million for capital expenditures, including $13.6 million in the Company’s Hospital division, primarily on developing joint ventures.  The remaining $4.9 million of capital expenditures was principally related to information systems.

Legislative Update

In 2009, the Company will continue its active engagement with the Centers for Medicare and Medicaid Services (CMS), Congressional leadership and national trade organizations in addressing upcoming issues critical to the industry, including the 2010 budget proposal from the Obama administration, MedPAC’s recommendations for fiscal year 2010 market baskets and the resumption of the Recovery Audit Contractor (RAC) program.  The Company also will be focused on approaching deadlines for the Medicare Part B therapy caps exception process and physician fee schedule, both of which expire December 31, 2009, and LTACH provisions contained within the Medicare, Medicaid, SCHIP Extension Act (MMSEA), which expire at the end of  2010.

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REHABCARE REPORTS FOURTH QUARTER 2008 RESULTS                                                    Page 5

Outlook

The Company will not be providing revenue and earnings per share guidance for 2009, but provides the following helpful hints:

·   The Company anticipates strong consolidated revenue and net earnings growth for the full year 2009.  Quarterly operating earnings will be impacted less by hospital start-up/ramp-up losses than in 2008.  The Company has one scheduled LTACH opening, Greater Peoria Specialty Hospital, early in the third quarter of 2009.

·   Consistent with prior years, the Company expects its first quarter 2009 operating results to be impacted by the resumption of normalized run rate costs, such as self-insurance and employee benefit programs, along with fewer calendar days.

·   The Contract Therapy division expects 5.5% to 6.5% operating earnings margins during 2009, driven by 4% to 6% year-over-year same store revenue growth and assuming no market basket increase for fiscal year 2010.  The division also expects stable to modest unit growth in 2009.

·     The HRS division expects 14% to 16% operating earnings margin, 3% to 5% year-over-year growth in acute same store discharges and a modest net increase in units during 2009.

·   The Hospital division expects sequential quarterly improvement in operating earnings performance with total year operating losses reduced by $3 - $4 million compared to total year 2008.  For full year 2009, revenue is expected to be $140 - $150 million, driven by strong growth in mature and de novo hospitals and assuming no market basket increase for LTACHs or IRFs.  Including announced expansion projects, the Company expects breakeven operating earnings in 2010.

·   The effective tax rate is anticipated to approximate 39% for 2009 after consideration of minority interests and equity income.

·   The Company expects continued strong operating cash flow with DSO of approximately 70 days.

·   Capital expenditures are anticipated to be approximately $14.0 million in 2009, of which $5.5 million relates to hospital strategic and maintenance capital and $8.5 million relates principally to information systems investments.  The Company is expecting to receive approximately $1.5 million from its minority partners to fund their respective shares of each joint venture hospital’s capital expenditure and working capital requirements.

Conclusion

Dr. Short concluded, “In 2009, we are primed for another year of growth and improved profitability.  Our unique business model and strong balance sheet position us well in a challenging market to assess growth opportunities that will enhance our competitive advantage.

“The current momentum of our CT and HRS divisions and the technology initiatives we’re rolling out this year to drive greater operating efficiencies, should translate into continued industry-leading earnings margins in these two divisions.  And, after spending several quarters fine-tuning our Hospital division, we believe we have the right leadership and strategies for sequential improvements in 2009.

“We will be assessing the impact of the 2010 healthcare budget proposal from the Obama Administration, released on February 26.  While details of the plan are pending, the proposed bundled or episodic payment to post-acute providers could produce cost savings and improved patient outcomes, especially if it results in more streamlined regulation.  For example, the need for some controls would be unnecessary, such as the 60% Rule, the 25-day LTACH length-of-stay rule and the three-day hospital admission criteria for SNFs.  Given that acute care hospitals and SNFs are our clients and joint venture partners, we believe we are more favorably positioned to adapt to a bundled payment system, should it become a reality over the next several years.

“Through economic uncertainties, our priorities remain unchanged, including continuing to create and protect value for our clients and shareholders and delivering life-changing, quality services to our patients.”

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REHABCARE REPORTS FOURTH QUARTER 2008 RESULTS                                                    Page 6

About RehabCare Group

Established in 1982 and headquartered in St. Louis, MO, RehabCare (www.rehabcare.com) is a leading provider of rehabilitation program management services in partnership with over 1,200 hospitals and skilled nursing facilities in 43 states.  The Company also operates freestanding rehabilitation hospitals and long-term acute care hospitals across the country.  RehabCare is included in the Russell 2000 and Standard and Poor’s Small Cap 600 Indices.

A listen-only simulcast of RehabCare’s fourth quarter conference call will be available on the Company’s web site at www.rehabcare.com, under For Our Investors, Webcasts, and online at www.earnings.com, beginning at 10:00 A.M. Eastern time today.  An online replay will be available until March 25, 2009. A telephonic replay of the call will be available beginning at approximately 1:00 p.m. Eastern Time today.  The dial-in number for the replay is (630) 652-3041 and the access code is 23907118.

This press release contains forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on the Company’s current expectations and could be affected by numerous factors, risks and uncertainties discussed in the Company’s filings with the Securities and Exchange Commission, including the Company’s most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. Do not rely on forward looking statements as the Company cannot predict or control many of the factors that ultimately may affect the Company’s ability to achieve the results estimated.  The Company makes no promise to update any forward looking statements whether as a result of changes in underlying factors, new information, future events or otherwise.

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REHABCARE REPORTS FOURTH QUARTER 2008 RESULTS                                                    Page 7

I. Condensed Consolidated Statements of Earnings
(Unaudited; amounts in thousands, except per share data)
	Three Months Ended									Year Ended
	Dec. 31,			Sep. 30,			Dec. 31,			Dec. 31,			Dec. 31,
		2008			2008			2007			2008			2007
Operating revenues	$	194,178		$	182,626		$	171,750		$	743,097		$	704,549
Costs & expenses
Operating		157,451			149,925			137,848			603,935			569,828
Selling, general & administrative:
Divisions		10,746			11,687			11,350			46,538			45,520
Corporate		12,879			10,430			9,184			45,311			39,078
Impairment of intangible asset		-			-			-			-			4,906
Depreciation & amortization		3,727			3,596			4,266			14,632			16,582
Total costs & expenses		184,803			175,638			162,648			710,416			675,914
Operating earnings, net		9,375			6,988			9,102			32,681			28,635
Interest income		39			29			50			143			830
Interest expense		(745	)		(847	)		(1,709	)		(3,897	)		(8,362	)
Other income (expense), net		(3	)		(4	)		80			21			37
Equity in net income of affiliates		30			143			119			471			287
Minority interests		647			612			220			1,986			377
Earnings from continuing operations before income taxes		9,343			6,921			7,862			31,405			21,804
Income tax expense		3,371			2,699			2,696			11,975			8,098
Earnings from continuing operations		5,972			4,222			5,166			19,430			13,706
Loss from discontinued operations		(269	)		(224	)		(65	)		(725	)		(1,047	)
Net earnings	$	5,703		$	3,998		$	5,101		$	18,705		$	12,659
Diluted earnings per share	$	0.32		$	0.22		$	0.29		$	1.05		$	0.73
Weighted average diluted shares		17,855			17,824			17,655			17,798			17,459

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REHABCARE REPORTS FOURTH QUARTER 2008 RESULTS                                                    Page 8 

II. Condensed Consolidated Balance Sheets
(Amounts in thousands)
	Unaudited
	December 31,		December 31,
	2008		2007
Assets
Cash and cash equivalents	$	27,373	$	10,265
Accounts receivable, net		139,197		135,194
Deferred tax assets		14,876		15,863
Other current assets		7,165		7,892
Total current assets		188,611		169,214
Property and equipment, net		37,851		29,705
Goodwill		171,365		168,517
Intangible assets		28,944		28,027
Investment in unconsolidated affiliate		4,772		4,701
Other assets		6,863		8,396
	$	438,406	$	408,560
Liabilities & Stockholders’ Equity
Current portion of long-term debt	$	-	$	9,500
Payables & accruals		91,327		79,429
Total current liabilities		91,327		88,929
Long-term debt, less current portion		57,000		65,000
Other non-current liabilities		12,279		9,342
Minority interest		10,028		1,267
Stockholders’ equity		267,772		244,022
	$	438,406	$	408,560

III. Condensed Consolidated Statements of Cash Flows
(Unaudited; amounts in thousands)
	Year Ended
	December 31,
	2008			2007
Net cash provided by operating activities	$	48,658		$	52,009
Net cash used in investing activities		(20,086	)		(10,944	)
Net cash provided used in financing activities		(11,464	)		(40,230	)
Net increase in cash and cash equivalents		17,108			835
Cash and cash equivalents at beginning of period		10,265			9,430
Cash and cash equivalents at end of period	$	27,373		$	10,265
Supplemental information:
Additions to property and equipment	$	(18,502	)	$	(9,989	)

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REHABCARE REPORTS FOURTH QUARTER 2008 RESULTS                                                    Page 9

IV. Operating Statistics(Unaudited; dollars in thousands)
		Fourth			Third			Fourth		Year Ended
		Quarter			Quarter			Quarter		December 31,
		2008			2008			2007			2008			2007
Contract Therapy
Operating revenues	$	110,665		$	105,572		$	99,380		$	426,821		$	400,761
Operating expenses		90,009			86,535			82,226			350,761			338,377
Division SG&A		5,454			5,304			5,678			22,729			23,308
Corporate SG&A		5,729			5,632			5,483			23,055			24,754
Depreciation and amortization		1,563			1,534			2,028			6,371			8,304
Operating earnings	$	7,910		$	6,567		$	3,965		$	23,905		$	6,018
Operating earnings margin		7.1	%		6.2	%		4.0	%		5.6	%		1.5	%
Average number of locations		1,076			1,071			1,081			1,066			1,125
End of period number of locations		1,068			1,075			1,064			1,068			1,064
Hospital Rehabilitation Services
Operating revenues
Acute	$	30,044		$	28,405		$	26,407		$	113,251		$	110,891
Subacute		2,327			2,395			2,483			9,559			10,192
Total Inpatient	$	32,371		$	30,800		$	28,890		$	122,810		$	121,083
Outpatient		11,291			10,791			9,869			42,848			43,019
Total HRS	$	43,662		$	41,591		$	38,759		$	165,658		$	164,102
Operating expenses		31,494			29,302			26,894			118,291			115,706
Division SG&A		2,996			3,419			3,109			13,441			13,552
Corporate SG&A		2,720			2,029			1,815			9,288			7,847
Depreciation and amortization		633			612			949			2,641			4,104
Operating earnings	$	5,819		$	6,229		$	5,992		$	21,997		$	22,893
Operating earnings margin		13.3	%		15.0	%		15.5	%		13.3	%		14.0	%
Average number of programs
Acute		112			109			108			109			111
Subacute		12			14			14			13			16
Total Inpatient		124			123			122			122			127
Outpatient		34			33			32			33			35
Total HRS		158			156			154			155			162
End of period number of programs
Acute		113			110			107			113			107
Subacute		9			13			14			9			14
Total Inpatient		122			123			121			122			121
Outpatient		35			33			33			35			33
Total HRS		157			156			154			157			154
Acute patient days		136,087			129,783			124,390			519,899			518,245
Subacute patient days		33,210			35,071			33,843			135,222			134,928
Total patient days		169,297			164,854			158,233			655,121			653,173
Acute discharges		11,152			10,569			10,190			42,306			42,242
Subacute discharges		908			870			758			3,307			3,187
Total discharges		12,060			11,439			10,948			45,613			45,429
Outpatient visits (in thousands)		263			239			228			983			1,006
Hospitals
Operating revenues	$	30,342		$	27,513		$	23,792		$	112,525		$	96,001
Operating expenses		28,617			28,095			20,790			105,649			81,618
Division SG&A		1,132			1,284			1,013			4,599			2,959
Corporate SG&A		3,966			2,334			1,497			11,086			4,833
Impairment of intangible asset		-			-			-			-			4,906
Depreciation and amortization		1,400			1,317			1,145			5,094			3,657
Operating earnings (loss)	$	(4,773	)	$	(5,517	)	$	(653	)	$	(13,903	)	$	(1,972	)
Operating earnings margin		-15.7	%		-20.1	%		-2.7	%		-12.4	%		-2.1	%
End of period number of facilities		11			10			8			11			8
Patient days		26,346			24,393			21,641			98,136			86,201
Discharges		1,568			1,492			1,369			6,019			5,070

-END-

EX-99.2

Exhibit 99.2

REHABCARE CONFERENCE CALL SCRIPT

March 4, 2009

INTRODUCTION BY CONFERENCE OPERATOR

INTRODUCTION OF MANAGEMENT BY FD

This conference call contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on the Company’s current expectations and could be affected by numerous factors, risks and uncertainties discussed in the Company’s filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q and current reports on Form 8-K. Do not rely on forward looking statements as the Company cannot predict or control many of the factors that ultimately may affect the Company’s ability to achieve the results estimated.  The Company makes no promise to update any forward looking statements whether as a result of changes in underlying factors, new information, future events or otherwise.

JOHN SHORT

INTRODUCTION AND WELCOME

Good morning and thank you for joining us today.  I’m John Short, President and CEO of the Company.  With me are Jay Shreiner, Chief Financial Officer, and the members of my executive management team, all of whom will be available to answer your questions at the conclusion of our remarks.

As you might remember, 2007 was a year in which we were focused on integrating the Symphony acquisition and raising our profitability.  In 2008, we shifted our focus to returning to growth in each of our business units, while continuing to improve operating earnings.  I’m pleased to report we accomplished that objective.

Our three core operating divisions achieved topline growth over 2007, driven by higher same store revenue and the opening of three new hospitals in our Hospital division.  During 2008, our Contract Therapy (CT) and Hospital Rehabilitation Services (HRS) divisions posted solid margins and their consistent performance helped deliver a gain of 32 cents in consolidated diluted earnings per share over the prior year.  This represents a 43.8% increase over fiscal year 2007.  Excluding charges in both periods, the increase was 26.7%.

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Permanent resolution of the 60% Rule also cleared the landscape for increased patient volume in our inpatient rehabilitation facilities (IRFs) and IRF unit growth in our HRS division.

For our Hospital division, it was a year spent reevaluating our growth strategy, centralizing our business functions, ramping up census development efforts and securing the right leadership.  Our fourth quarter results indicate that we are moving in the right direction.

Healthy cash flow and continued reduction of debt in 2008 also has given us an enviable liquidity position in a difficult credit environment.  Our financial strength will be key to continuing our growth strategy and reinvesting in our business in 2009.

Now let me discuss some of the highlights from the quarter as they pertain to our core operating divisions and share with you our helpful hints for 2009.

Operating revenues in our Contract Therapy division in the fourth quarter improved by 11.4% over the prior year quarter to 110.7 million dollars, a result of a 13.8% same store revenue increase.  The division had a net gain of four units over 2007, signing 37 new client locations in the fourth quarter.  At the end of the quarter, the number of signed but unopened contracts stood at 20.

We expect continued topline revenue growth in CT in 2009, with 4 to 6% year-over-year same store growth.  We believe the division will experience stable to modest unit growth for the year.  New business will be offset by lost contracts due to client ownership changes and consolidation in response to the current economic climate.

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Year-over-year operating earnings margins increased by 3.1 percentage points to 7.1% in the fourth quarter, above our targeted range of 5.5 to 6.5%.  The fourth quarter was favorably impacted by a 3.4% market basket increase for skilled nursing facilities (SNFs), which we were able to pass on, to some degree, to approximately half of our clients.  For planning purposes, we are assuming no market basket increase in the fourth quarter of this year.  We are maintaining our targeted range for CT operating earnings margin in 2009.

Fourth quarter operating revenues in our Hospital Rehabilitation Services division increased 12.6% over the fourth quarter of 2007 to 43.7 million dollars.  Fueling this was a 4.7% year-over-year increase in acute same store discharges.  For 2009, we expect growth in same store discharges to remain in the 3 to 5% range.

In 2008, the HRS division experienced its first year of unit growth in three years, improving its performance in both unit openings and closings.  At December 31, 2008 we operated 157 programs, compared to 154 at the end of 2007.  During the year, IRF contracts increased from 107 to 113.  In the fourth quarter, we signed five new IRF contracts and had seven openings.  For 2008, we opened 16 IRFs compared to seven in 2007 and experienced 10 closures (five of which ceased operation) compared to 15 in 2007.  The number of signed but unopened IRF contracts at year end stood at three, all of which are expected to open in 2009.  The division expects a continued modest net increase in units in 2009.

HRS operating earnings margin in the fourth quarter was 13.3%, down from 15.5% in the fourth quarter of 2007.  The fourth quarter of 2008 included a 1.2 million dollar pretax charge resulting from a bad debt write-down related to an outpatient transaction.  Excluding this charge, the division would have reported a 16.2% operating earnings margin in the fourth quarter.  Our outlook for operating earnings margin during 2009 is between 14 and 16%.

Revenue in our Hospital division in the fourth quarter increased 27.5% over the same period last year to 30.3 million dollars, reflecting a 3.2% same store revenue increase and the opening of three new hospitals during the year.  At the end of 2008, we were operating a total of 11 hospitals, six IRFs and five long-term acute care hospitals (LTACHs).

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In April 2008, we opened Northland LTAC Hospital, a 35-bed facility in North Kansas City, which completed its Medicare demonstration period on December 1.  On June 1, we completed our joint venture with Floyd Healthcare Resources, which gave us 80 percent ownership of The Specialty Hospital, a 24-bed LTACH in Rome, Georgia.  We are now in the process of developing a 45-bed replacement hospital in Rome, which is scheduled for completion in the second quarter of 2010.

St. Luke’s Rehabilitation Hospital, our new 35-bed IRF, admitted its first patient on November 4, 2008.  The hospital is a joint venture with St. Luke’s Hospital in St. Louis, Missouri.

Also contributing to revenue in 2008 was Central Texas Rehabilitation Hospital, which we opened in late 2007 with our partner, The Seton Family of Hospitals in Austin, Texas.  Together, we have begun an expansion and relocation of this hospital, which we expect to complete in the third quarter of next year.

In 2008, we reevaluated the risks and opportunities associated with our growth strategy for this division and determined that it was in our best interest to exit three scheduled projects in the fourth quarter.  They included our planned joint ventures in Kokomo, Indiana and Reading, Pennsylvania and our acquisition of the Rehabilitation Hospital of Rhode Island.  These decisions were a necessary part of a refined strategy for the future of our Hospital division.

We are on track to open Greater Peoria Specialty Hospital, a 50-bed LTACH we are developing in Peoria, Illinois with Methodist Medical Center, early in the third quarter of this year.

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The 700,000 dollar improvement in operating earnings we experienced over the third quarter, which was impacted by the hurricanes, includes the negative impact of a 1.5 million dollar charge related to the cancellation of our planned project in Kokomo and acquisition in Rhode Island.

Looking at 2009, we expect sequential improvement in operating earnings performance with total year operating losses reduced by 3 to 4 million dollars compared to the total year 2008.  For full year 2009, we expect revenue of between 140 and 150 million dollars, driven by strong growth in mature and de novo hospitals.  We are assuming no market basket increase for LTACHs or IRFs for fiscal year 2010. Including announced expansion projects, we expect breakeven operating earnings in 2010.

Turning to an update on the regulatory/legislative landscape, 2008 brought relief to our CT programs with the extension of the Medicare Part B therapy caps exception process and physician fee schedule.  However, both of these provisions are scheduled to expire on December 31, 2009.  So, while we enjoy a favorable regulatory landscape in the near term, we continue to be focused on securing a permanent solution to both of these issues.  We believe Congress will take action later this year in the form of Medicare or healthcare reform legislation.

While the economic stimulus plan contained very little on Medicare payment issues, we support the investments in health information technology and comparative-effectiveness research.  We also will be assessing the impact of the 2010 healthcare budget proposal from the Obama Administration, released on February 26.  While details of the plan are pending, the section covering bundled payments to post-acute providers will likely create much discussion.  A bundled or episodic payment could result in significant cost savings and improved patient outcomes, especially if it produces more streamlined regulation.  For example, the need for some controls would become unnecessary, such as the 60% Rule for IRFs, the 25-day LTACH length-of-stay rule and the three-day hospital admission criteria for SNFs.  Given that acute care hospitals and SNFs are our clients and joint venture partners, we believe we are more favorably positioned to adapt to a bundled payment system, should it become a reality over the next several years.  We will continue to measure the impact on our business as details are made available.

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I’ll now turn the call over to Jay Shreiner, who will review our consolidated financial results for the quarter and provide our outlook for 2009.

JAY SHREINER

Thank you, John.

Consolidated Results

Consolidated net revenues for the fourth quarter of 2008 were 194.2 million dollars, compared to 171.8 million dollars in the fourth quarter of 2007, a 13.1 percent increase.

Consolidated net earnings were 5.7 million dollars, or 32 cents per diluted share, in the fourth quarter of 2008, compared to 5.1 million dollars, or 29 cents per diluted share, in the fourth quarter of 2007.

For full year 2009, we anticipate strong consolidated revenue and net earnings growth.  Quarterly results will be impacted to a lesser extent by hospital start-up and ramp-up losses than in 2008.  However, consistent with 2008, operating results in the first quarter will be impacted by the resumption of normalized run rate costs, such as self-insurance and employee benefit programs, and fewer calendar days.

Balance Sheet

For the 12-month period ending December 31, 2008, we generated cash from operations of 48.7 million dollars. We spent 18.5 million dollars for capital expenditures, including 13.6 million dollars in our Hospital division, primarily on developing joint ventures. The remaining 4.9 million dollars of capital expenditures was principally related to information systems.

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Days sales outstanding in accounts receivable decreased to 66.0 days at the end of the fourth quarter 2008, compared to 71.8 days at the end of the fourth quarter 2007, and 70.1 days at the end of the third quarter of 2008.

At December 31, 2008, we had approximately 27.4 million dollars in cash and cash equivalents compared to 10.3 million dollars at December 31, 2007.  We built cash balances during the quarter in light of the challenging credit environment.

Total debt outstanding at the end of the year was 57 million dollars compared with 74.5 million dollars at the end of 2007.  Net debt (or outstanding debt less cash and cash equivalents) stood at 29.6 million dollars at the end of 2008 compared to 64.2 million dollars at December 31, 2007.

The effective tax rate for 2008 was 38.1%.  The effective tax rate for 2009 is projected to approximate 39%, after consideration of minority interests and equity income.

During 2009, we expect continued strong operating cash flow, with days sales outstanding of approximately 70 days.

We expect capital expenditures of approximately 14 million dollars, of which approximately 5.5 million dollars relates to hospital strategic and maintenance capital, with the remainder primarily related to information systems.

Now I will turn the call back over to John.

JOHN SHORT

Thank you, Jay.

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Closing Remarks

With sound results in our mature businesses, improving performance in our Hospital division and a healthy balance sheet, we are primed for continued growth and some exciting new initiatives in 2009.

One of those initiatives is our IT roadmap.  As technology takes a central role in emerging healthcare reform efforts, we continue to position ourselves at the forefront of technology in post-acute care.  In 2009, we will roll out the next generation in point-of-care technology in our CT and HRS divisions.  This technology will replace the current handheld devices used by our therapists to track patient care data.  We also will be implementing an upgraded, web-based application for our therapy management system that will offer important new functionalities, such as integrated labor management and an online patient scheduler.

The successes we enjoyed in 2008 are a testament to the skill and dedication of our greatest asset — our people.  I want to thank them for their daily commitment to building value in the RehabCare brand and to delivering the highest quality services that help people regain their lives.

I closed our fourth quarter 2007 conference call with the following: if you liked us in 2007, you will love us in 2008.  Well, stay tuned in 2009, because we’re just getting warmed up.  Thanks to each of you for your continued support.

With that, I would like to have our operator open the call for questions.

To be read following Questions and Answers –

As a reminder, this conference call is being webcast live on our web site, www.rehabcare.com and will be available for replay beginning at 1 PM Eastern time today.

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