Rehab hospitals face scrutiny over safety, profits

Editor's Note

Although for-profit rehab hospitals have become highly profitable, a recent KFF Health News report highlights serious safety violations, including patient deaths due to carbon monoxide poisoning, medication errors, and falls. 

Published July 15, the article delves into recent data and inspections of these facilities, particularly those run by the dominant company, Encompass Health, which accounted for one-third of all admissions to stand-alone rehab hospitals in 2023. Operating 168 hospitals and treating 248,000 patients in 2024, the company reported $597 million in net income on $5.4 billion in revenue, an 11% profit margin. This outpaces general hospitals, which average 6%, as well as nursing homes, which operate at less than 0.5%, according to the Medicare Payment Advisory Commission. Encompass plans to open 17 additional hospitals across nine states by 2027 and frequently enters new markets via joint ventures with nonprofit hospitals that agree to shut down their own rehab units and sign noncompete agreements.

Unlike nursing homes, Medicare does not fine rehab hospitals for safety violations, nor does it provide a five-star rating system, KFF reports. CMS’s only available enforcement action is to terminate Medicare and Medicaid reimbursement, a measure rarely used due to its severity. While Encompass facilities often perform well on Medicare’s “discharge to community” metric—owning 79 of 233 facilities rated above the national average—they also account for a disproportionate share of facilities with poor scores on potentially preventable readmissions.

According to the article, CMS identified 10 Encompass hospitals with “immediate jeopardy” violations from 2021 to 2024. None of the 31 nonprofit stand-alone rehab hospitals received such citations in the same timeframe. Due to federal limits on enforcement, only California has imposed a financial penalty—$75,000 in one case—under state law. Inspection records obtained through the Freedom of Information Act revealed additional violations, including misuse of antipsychotics and failure to manage wound care or medication tracking.

The full report offers multiple examples of specific patient harm incidents, as well as details on a 2003 accounting scandal when the company was known as HealthSouth. It also offers a more thorough breakdown of the data and the methodology the outlet used to analyze the medical rehabilitation hospital industry.