Investor Presentation

J.P. Morgan Healthcare Conference

January 11, 2011
Investment Highlights

 Leading provider of post-acute care

 Largest contract manager of rehabilitation services
 Fourth largest post-acute hospital operator, third largest long-term acute care hospital provider

 Large, growing and highly fragmented market provides multiple organic and acquisitive
growth opportunities

 Positioned to leverage continuum capabilities and real-time technology under

healthcare reform

 Strong financial model

 Diversified business lines
 Track record of strong earnings
and operating cash flow

 Experienced management team with successful track record of adapting to change

1
Post-Acute Market Overview

 Positive demographic trends, with first wave of Baby Boomers entering Medicare
this year; ≈ 72% of RehabCare patients are Medicare
 Medicare expenditures for post-acute services (excluding home health) projected
to increase 96% from 2009 to 2021

Patient Discharge Destination1 Medicare Post-Acute Spending (in billions)

$ 100

Actual2 Projected3
80
70.7

65% 22%
60 54.2

Acute care LTACH / SNF 39.3

40 36.1
No post- hospital IRF
acute care
20
13%

0
2009 2012 2017 2021
Hospice/Home Health

LTACHs = Long-Term Acute Care Hospitals 1“Examining Post-Acute Care Relationships in an Integrated Hospital System,” Dept. of
IRFs = Inpatient Rehabilitation Facilities
Health and Human Services, Feb. 2009
SNFs = Skilled Nursing Facilities
2MedPAC Data Book, June 2010; does not include Home Health or Medicare Advantage 2
3Avalere Health LLC, Apr. 2009; does not include Home Health or Medicare Advantage
Division Overviews

$1.3 billion pro forma1 operating revenues for LTM 9/30/10

Skilled Nursing Hospital

Hospital Division
Rehabilitation Services Rehabilitation Services

 $629 mm – 47% of pro forma  $514 mm – 39% of pro forma  $179 mm – 14% of pro forma
revenue revenue revenue

 29 LTACHs, 6 IRFs; 13 states  1,131 SNF/long-term care  147 hospital-based programs

programs in 38 states in 34 states
 23 FS LTACHs, 6 HIHs; 4 FS
 8.2 mm annual patient visits
IRFs, 2 HIHs  42,000 IRF discharges/year
 Polaris Group – consulting for
 1,605 licensed LTACH beds;  1.1 mm annual outpatient
long-term care facilities
243 IRF beds visits
 VTA Management Services –
 431,000 annual patient days therapy and nurse staffing for
New York

FS = Freestanding
HIH = Hospital in Hospital
1Reflects acquisition of Triumph HealthCare on Nov. 24, 2009
3
Hospital Division
Overview

 Owns and operates 35 LTACHs and IRFs

 LTACHs represent the earliest discharge option from the short-term acute care setting
for medically complex patients; IRFs provide intensive rehabilitation with a ≈ 75%
return to community rate
 RehabCare pursues joint venture hospital partnerships (nine currently, representing
15 locations) with market-leading acute care providers and physician groups, in
addition to our wholly owned facilities
Competitive Landscape
117

100
6
892
LTACHs Market Size1: 221 IRFs
IRFs
Market Size1: 386 LTACHs
(FS and HIHs)
111

94
89
35

20 19 18
29 15 15 14
12
19 8
18 15 14
6 6 8 7

1MedPAC, Mar. 2010 Report to the Congress Source: Information available from public filings or
2Includes
acquisition of five LTACHs from Vista Healthcare completed on Nov. 1, 2010 and company websites
new hospital opened in Dec. 4
 Hospital Division
Performance

 In 3Q ’10, completed integration of Triumph; 2011 annualized run rate of synergies expected
to be upper end of $5 to $7 mm
 Volumes grew with the addition of new clinical programs and costs/patient day declined
 Legacy RehabCare hospitals improved same store operating performance by $2.4 mm²
sequentially; now expected to achieve positive operating earnings for full year 2010
 Sequential decline in Triumph EBITDA due to operational issues at four hospitals, which
should improve by year end, in addition to slower progress with start-ups in Philadelphia and
Houston Heights
 Focused on census development and expense control to drive margin expansion

Adjusted Revenue¹ ($mm) Adjusted EBITDA¹ ($mm)

$157.8 $160.1 $166.2 EBITDA EBITDA M argin 13.1% 12.3% 13.0%

3.2% $21.6
$83.8 $20.6 $19.7
$39.7
-9.4% $2.7

Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 $(3.7)

Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010

1See Appendix for Reconciliation to GAAP

² Excludes a $1.7 mm unfavorable cost report adjustment in Q2’10
5
Note: Triumph acquired on Nov. 24, 2009
Hospital Division
Key operating metrics

 Labor
 Avg. daily census Financial  Contract labor
 Admission
Performance  Drugs
volumes
 Commercial mix
 Avg. length of stay

 Case mix index

 Window %
 Unpaid days
 Commercial rates

Census development and expense control will drive future margin expansion
6
Hospital Division
Growth strategy

 Continue to improve margins across division

 Expand post-acute services in key markets

 Exchanging 60-bed IRF (Miami, FL) for Select 70-bed LTACH (Northwest IN) – closed Jan. 1,
2011
 Entering 40-bed IRF joint venture with Saint Joseph Regional Medical Center (South Bend, IN) –
closing Q1 ’11
 Building 46-bed IRF (Northeast Houston, TX) – opening beginning of 2012
 Evaluating several projects that develop our IRF services in continuum markets

 Complete two planned expansion projects

 The Specialty Hospital (Rome, GA) – opening Jan. ’11
 Central Texas Rehabilitation Hospital (Austin, TX) – opening Q1 ’12

 Invest in quality upgrades and new clinical programs and services

7
Hospital Division
Financial and regulatory outlook

Financial (Q4 ’10)

 Combined revenue of $163 - $168 mm

 EBITDA margin of ≈ 14% driven by sequential improvement in Triumph hospitals

 Beginning in 2011, reported results and outlook will be for the consolidated division
rather than legacy groups and on a year-over-year basis

Regulatory

 Rate Year (RY) 2011 rule for LTACHs, effective Oct. 1, 2010, results in a negative 1%
adjustment for our LTACHs

 IRF rule increases payments by a net 2.4% for our owned IRFs

 Healthcare reform legislation extended LTACH provisions contained in the Medicare,

Medicaid and SCHIP Extension Act (MMSEA) through the end of 2012 (see Appendix for
summary of healthcare reform impact)

8
Skilled Nursing Rehabilitation Services
Division overview

 Manages 1,131 rehab programs for SNFs

 Each Medicare-certified SNF is required to provide physical, speech and occupational therapy,
but many lack the know-how and/or scale to effectively manage a program

 RehabCare provides a compelling value proposition to our SNF partners

 Access to advanced technology platform
 Broader array of clinical programming
 Better access to scarce therapist labor pool
 Reimbursement expertise and denials management

Competitive Landscape — # of facilities served

11,000+

Third party Affiliated

Market Size1: 15,000+
Medicare-certified SNFs

1,131
1,000
900
300 200
567
1131 471 450
226 108 300
700 700 179
341 471 342 300 79

Self-
operated Golden Living

Source: Information available from public filings or from company websites

¹Source: MedPAC Report to Congress, Mar. 2010 9
 Skilled Nursing Rehabilitation Services
Performance

 In Q3 ’10, achieved 7.9% operating earnings margin while preparing for Oct. 1
regulatory changes and implementing new information system technologies
 Reduced concurrent therapy utilization to less than 1% at end of Oct.
 Sales were strong, but closures were ahead of projections
 Same store revenue has begun to moderate as smaller, less profitable units have been
culled from the portfolio and benefit of IRF 60% Rule to patient mix has been realized

Revenue ($ mm) Operating Earnings ($ mm)

$38
$32
4.8% $29
$26

$433 $457 $496 $370 $388

$7

2007 2008 2009 Q1-Q3 2009 Q1-Q3 2010

2007 2008 2009 Q1-Q3 2009 Q1-Q3 2010

YOY growth: 24.4% 5.6% 8.5% 9.2% 4.8% % Margin: 1.7% 5.6% 7.6% 7.9% 8.2%

Same store: 7.1%1 12.4% 8.8% 10.3% 1.7%

Note: Includes Symphony HealthCare acquisition as of July 1, 2006

1Same store analysis does not include Symphony
10
Skilled Nursing Rehabilitation Services
Advanced technology platform

 Completing rollout of iTouch technology and

upgraded therapy management platform to all
programs by the beginning of Q2 ’11

 Increases speed and accuracy of data input to

maximize therapist productivity, reduce billing errors
and subsequent denials

 Tracks real-time patient outcome data, including

discharge location and hospital readmissions

 Resource Utilization Group (RUG) planner ensures

appropriate RUG category placement and payment

 Benchmarking reports provide national comparative

data on key metrics

 Collaboration with Apple enables data sharing across

the post-acute continuum, providing the basis for
more evidence-based care

http://www.apple.com/ipad/business/profiles/rehabcare/

11
Skilled Nursing Rehabilitation Services
Financial and regulatory outlook

Financial (Q4 ’10)

 5.5% - 6.0% operating earnings margin, which reflects the estimated impact of:
 Regulatory changes
 Concurrent therapy

 Minimum Data Set 3.0 / RUGs IV

 Rollout of new technologies

 Relatively flat unit growth

Regulatory
 SNF payment update provides a net 1.7% increase in RY2011

 Beginning in 2011, Multiple Procedure Payment Reduction rule will cut reimbursement
for Part B therapy services by ≈ $5 to $6 mm annually
 Net impact after mitigation expected to be ≈ $2 to $3 mm annually

 Part B therapy cap exceptions process and current Medicare payment rates for
physicians extended through Dec. 31, 2011

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Hospital Rehabilitation Services
Division overview

 Manages 147 hospital-based IRFs, subacute and outpatient therapy programs on a

contract basis, providing our partners with:
 Improved internal patient flow
 Ability to attract ≈ 30% admissions from external sources
 Successful clinical outcomes and broader clinical programming (brain, stroke, spinal dysfunction)
 Regulatory compliance (60% rule, Recovery Audit Contractor review, 3-hour rule)
 Recruiting and labor management

IRF Competitive Landscape

Milestone
16%
Have IRF
981
Outsourced TherEx 16%
19%
RehabCare
56%
No IRF
HealthSouth
2,878 2%

Horizon
Self- Health 10%
operated 190 outsourced
81%

3,859¹ short-term acute

Market Size²: 981 Source: Information available from public filings, company

care hospitals hospital-based IRFs websites and RehabCare estimates

1American Hospital Directory

²MedPAC Mar. 2010 Report to Congress 13

 Hospital Rehabilitation Services
Performance

 In Q3 ’10, inpatient and outpatient same store revenues improved 3.3% and 8%,
respectively, year over year

 Better leveraging of SG&A resulted in an 18.7% operating earnings margin in Q3 ’10

 Ended quarter with six signed but unopened contracts, including three IRFs

Revenue ($ mm) Operating Earnings ($ mm)

0.3%
$164 $166 $178
$133 $134
5.4%
$29
$23 $22 $22 $23

2007 2008 2009 Q1-Q3 2009 Q1-Q3 2010

1
2007 2008 2009 Q1-Q3 2009 Q1-Q3 2010

YOY growth: (8.7%) 0.9% 7.6% 9.2% 0.3% % Margin: 14.0% 13.3% 16.6% 16.6% 17.5%

IRFs: 107 113 106 110 106

¹Includes $1.2 mm pretax charge from a bad debt write-down related to an

outpatient transaction 14
 Hospital Rehabilitation Services
Growth strategy and outlook

Growth Strategy
 Increase market share through:
 Targeted market focus – e.g., small systems
 Product development – e.g., centers of excellence
 Second product sales

 Invest in enabling technology

 Electronic pre-screen to increase speed of admissions,
drive volumes
 Point-of-service technology to improve productivity
 Integration with eRehabData for national benchmarking
capabilities
 Opportunity to upsell therapy management services

Outlook (Q4 ’10)

 ≈ 18% operating earnings margin
 Greater than 6% growth in IRF same store discharges compared to Q4’09
 Net one less IRF program
15
Consolidated Financial Summary

Revenue ($ mm) Adjusted EBITDA² ($mm)

$1,004 EBITDA EBITDA Margin 12.4%

12.1% 12.1%
$869 ¹
$735 7.9% 8.4%
$693 $40 $41 $42
$615

$21
$16

Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010

2007 2008 2009 Q1-Q3 Q1-Q3
2009 2010

Net Earnings ($ mm) 1RehabCare 2009 historical includes $39.7 mm in revenue generated by Triumph
2See Appendix for Reconciliation to GAAP
3Includes $0.17 per diluted share impairment charge on an intangible asset
$45
4Includes $0.09 per diluted share in charges related to a bad debt write-down of an
outpatient transaction and cancellation of a planned acquisition and development
project

$23 $22 5Includes transaction and severance related charges of $0.07 in Q3 ’09 and $0.41 per
$19
diluted share in 2009
$13

2007 2008 2009 Q1-Q3 Q1-Q3

2009 2010

EPS: $0.73 3 $1.05 4 $ 1.22 5 $1.24 5 $1.84 16

Consolidated Balance Sheet

 Cash flow from operations was $68.7 mm for nine months ended Sept. 30, 2010
compared with $46.6 mm in the prior year period
 Days sales outstanding was 61.9 days at Sept. 30 compared to 62.1 days at June 30
 Expect DSO of approximately 60 to 63 days
 Capital expenditures anticipated to be $9 mm in Q4 ’10, consisting of information
system investments, expansion projects and maintenance
 Paying down debt is a priority before next significant acquisition

9/30/10 Total Debt ($mm)

($mm)
Cash and Cash Equivalents $ 22.5
Total Assets 1,122.5 $455.3 $453.8 $444.0
$413.2
Total Debt 413.2 $390.9

Stockholders’ Equity 484.5

12/31/09 03/31/10 06/30/10 09/30/10 12/31/10
Noncontrolling Interests 20.9
Percent of Debt to Total Capital¹ 45%

1Total capital represents the sum of debt, stockholders’ equity and noncontrolling interests

17
Safe Harbor

Forward-looking statements have been provided 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 report on Form
10-K, subsequent 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
factors that affect its 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.

18
Appendix

19
Impact of Healthcare Reform

 Extends LTACH provisions of MMSEA through Dec 2012

 Maintains existing status related to 25% Rule and short-stay outliers
 Delays one-time budget neutrality adjustment (estimated at 3.75%)
 Continues moratorium on new LTACH beds while facility criteria is established

 Establishes reductions in market basket updates for IRFs and LTACHs

Apr. 1, 2010 RY 2011 RY 2012-13 RY 2014 RY 2015-16 RY 2017-19

IRF 0.25 0.25 0.10 0.30 0.20 0.75

LTACH 0.25 0.50 0.10 0.30 0.20 0.75

 Productivity (negative) adjustments for SNFs, IRFs and LTACHs beginning in 2012

 Prohibits physician ownership of hospitals and creates new transparency, reporting

and expansion requirements for “grandfathered” hospitals

 Beginning in 2012, allows providers organized as Accountable Care Organizations

that voluntarily meet quality thresholds to share in cost savings achieved in
Medicare program

20
Impact of Healthcare Reform

 Establishes a national pilot program by 2013 to study effectiveness of bundled

payment system for hospital+physician+post-acute services delivered three days
prior to hospitalization through 30 days post-discharge

 Continuing Care Hospital (CCH) is one of the suggested models to study under
required Innovation Center
 CCH is a post-acute, capitative hospital model that would serve complex rehabilitation
and medical patients by providing patient-specific levels of care for a 30-day period

 In 2015, establishes Medicare Independent Payment Advisory Board (IPAB); IRFs

and LTACHs exempt from any binding proposals of IPAB

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Primary Post-Acute Settings
Overview

Long-Term Acute Care Hospitals Skilled Nursing Facilities Inpatient Rehab Facilities

Medicare $25.5 billion

$4.9 billion $5.7 billion
Spending 2009 (est. $6 billion rehab)

Patients Served
130,869 Medicare discharges 2.6 million Medicare admissions 370,048 Medicare discharges
2008

Low to moderate acuity, may High acuity, requires extensive

Type of Patient High acuity
require some rehab rehab (min 3 hrs/day)

Avg. Length of
At least 25 days (Medicare patients) 27 days 13.2 days
Stay

LTACH PPS - Receive a single payment SNF PPS - Receive a per diem IRF PPS- Receive a single
Medicare when Medicare beneficiary is discharged payment under both Medicare payment when Medicare
Reimbursement for all services rendered Part A and state Medicaid beneficiary is discharged for all
programs services rendered

• Average length of stay of all Medicare Medicare covers up to 100 days 60% Rule: 60% of patients
patients must be >25 days of SNF care following an acute must satisfy one of 13 defined
hospital stay of at least 3 days conditions
• 25% rule: no more than 25% of
Medicare patients may be referred from a single
Requirements source (HIHs fixed at 50% through
2012, no cap on FS or co-located)

• Moratorium on new LTACH beds until

2013

Source: MedPAC
FS = Freestanding
HIH = Hospital in Hospital 22
Q3 ’10 and Q2 ’10 Adjusted EBITDA
Reconciliations

Q3 ’10 Adjusted EBITDA Reconciliation

($ in millions)
Hospital Division
Legacy Total
Q3’10 Adjusted EBITDA Reconciliation Hospital Hospital Total
SRS HRS Division Triumph Division Company

Operating earnings (loss) $ 10.353 $ 8.548 $ 2.844 $ 12.857 $ 15.701 $ 34.602

Depreciation & amortization 1.385 0.543 1.881 4.057 5.938 7.866

Adjusted EBITDA $ 11.738 $ 9.091 $ 4.725 $ 16.914 $ 21.639 $ 42.468

Operating revenues $ 130.943 $ 45.601 $ 54.680 $ 111.506 $ 166.186 $ 342.730

Adjusted EBITDA margin 9.0% 19.9% 8.6% 15.2% 13.0% 12.4%

Q2 ’10 Adjusted EBITDA Reconciliation

($ in millions)
Hospital Division
Legacy Total
Q2’10 Adjusted EBITDA Reconciliation Hospital Hospital Total
SRS HRS Division Triumph Division Company

Operating earnings (loss) $ 11.114 $ 7.877 ($ 2.360) $ 14.647 $ 12.287 $ 31.278

Depreciation & amortization 1.365 0.556 1.875 3.846 5.721 7.642

EBITDA $ 12.479 $ 8.433 ($ 0.485) $ 18.493 $ 18.008 $ 38.920

Unfavorable prior year cost report - - 1.696 - 1.696 1.696

Adjusted EBITDA $ 12.479 $ 8.433 $ 1.211 $ 18.493 $ 19.704 $ 40.616

Operating revenues $ 130.851 $ 44.734 $ 47.676 $ 110.772 $ 158.448 $ 334.033

Unfavorable prior year cost report - - 1.696 - 1.696 1.696

Adjusted operating revenue $ 130.851 $ 44.734 $ 49.372 $ 110.772 $ 160.144 $ 335.729

Adjusted EBITDA margin 9.5% 18.9% 2.5% 16.7% 12.3% 12.1% 23

Q1 ’10 and Q4 ’09 Adjusted EBITDA
Reconciliation

Q1 ’10 Adjusted EBITDA Reconciliation

($ in millions)
Hospital Division
Legacy Total
Q1’10 Adjusted EBITDA Reconciliation Hospital Hospital Total
SRS HRS Division Triumph Division Company

Operating earnings (loss) $ 10.345 $ 6.921 ($ 1.032) $ 16.242 $ 15.210 $ 32.476

Depreciation & amortization 1.307 0.537 1.752 3.684 5.436 7.280

Adjusted EBITDA $ 11.652 $ 7.458 $ 0.720 $ 19.926 $ 20.646 $ 39.756

Operating revenues $ 126.352 $ 43.240 $ 45.147 $ 112.622 $ 157.769 $ 327.361

Adjusted EBITDA margin 9.2% 17.2% 1.6% 17.7% 13.1% 12.1%

Q4 ’09 Adjusted EBITDA Reconciliation

($ in millions)
Hospital Division
Legacy Total
Q4’09 Adjusted EBITDA Reconciliation Hospital Hospital Total
SRS HRS Division Triumph Division Company

Operating earnings (loss) $ 8.356 $ 7.335 ($ 12.509) $ 3.690 ($ 8.819) $ 6.872

Depreciation & amortization 1.463 0.592 1.658 1.407 3.065 5.120

EBITDA $ 9.819 $ 7.927 ($ 10.851) $ 5.097 ($ 5.754) $ 11.992

Transaction and severance costs 0.648 0.322 8.405 - 8.405 9.375

Adjusted EBITDA $ 10.467 $ 8.249 ($ 2.446) $ 5.097 $ 2.651 $ 21.367

Operating revenues $ 125.965 $ 44.966 $ 44.059 $ 39.702 $ 83.761 $ 254.692

Adjusted EBITDA margin 8.3% 18.3% (5.5%) 12.8% 3.2% 8.4%

24
Q3 ’09 Adjusted EBITDA Reconciliation

Q3 ’09 Adjusted EBITDA Reconciliation

($ in millions)
Hospital Division
Legacy Total
Q3’09 Adjusted EBITDA Reconciliation Hospital Hospital Total
SRS HRS Division Triumph Division Company

Operating earnings (loss) $ 9.834 $ 8.196 ($ 7.550) $ - ($ 7.550) $ 10.480

Depreciation & amortization 1.564 0.561 1.602 - 1.602 3.727

EBITDA $ 11.398 $ 8.757 ($ 5.948) $ - ($ 5.948) $ 14.207

Transaction costs - - 2.227 - 2.227 2.227

Adjusted EBITDA $ 11.398 $ 8.757 ($ 3.721) $ - ($ 3.721) $ 16.434

Operating revenues $ 123.350 $ 45.039 $ 39.651 $ - $ 39.651 $ 208.040

Adjusted EBITDA margin 9.2% 19.4% (9.4%) - (9.4%) 7.9%

25