EXHIBIT 99.1

Contact:	Richard A. Lechleiter
	Executive Vice President and
	Chief Financial Officer
	(502) 596-7734

KINDRED HEALTHCARE ANNOUNCES FOURTH QUARTER RESULTS

Fourth Quarter Net Income from Continuing Operations – $24.3 million or $0.56 per Diluted Share

Fiscal Year Net Income from Continuing Operations – $128.6 million or $2.84 per Diluted Share

LOUISVILLE, Ky. (February 27, 2006) – Kindred Healthcare, Inc. (the “Company”) (NYSE:KND) today announced its operating results for the fourth quarter and year ended December 31, 2005. All financial and statistical information included in this press release reflects the continuing operations of the Company’s businesses for all periods presented unless otherwise indicated.

Fourth Quarter Results

Continuing Operations

Consolidated revenues for the fourth quarter ended December 31, 2005 increased 11% to $989 million from $893 million in the same period last year. Net income from continuing operations for the fourth quarter of 2005 totaled $24.3 million or $0.56 per diluted share compared to $26.6 million or $0.63 per diluted share in the fourth quarter last year.

Operating results for the fourth quarter of 2005 included certain items that, in the aggregate, increased net income by approximately $2.2 million or $0.05 per diluted share. These items included pretax income of $2.8 million related to a favorable bad debt adjustment in the Company’s pharmacy business, pretax income of $1.7 million related to favorable settlements of prior year hospital Medicare cost reports, pretax income of $0.5 million from the dissolution of a pharmacy partnership interest, pretax income of $0.5 million from insurance recoveries related to hurricane losses, a pretax charge of $2.6 million for investment banking services and consulting fees, and a $0.2 million favorable pretax adjustment related to accrued reorganization costs.

Operating results for the fourth quarter of 2004 included certain items that, in the aggregate, increased net income by approximately $1.5 million or $0.04 per diluted share. These items included pretax income of $5.7 million for professional liability costs and a pretax charge of $3.3 million related to the write-off of a clinical information systems project.

Discontinued Operations

During 2004 and 2005, the Company completed several transactions related to the divestiture of unprofitable businesses, including the divestiture of three nursing centers in the fourth quarter of 2005. For accounting purposes, the historical operating results of these businesses and losses associated with these operations have been classified as discontinued operations in the Company’s condensed consolidated statement of operations for all historical periods.

For the fourth quarter of 2005, the Company reported net income from discontinued operations totaling $2.2 million or $0.05 per diluted share compared to breakeven results in the fourth quarter of 2004. Operating results for discontinued operations in both periods included favorable pretax adjustments resulting from a change in estimate for professional liability reserves related primarily to the Company’s Florida and Texas nursing centers that were substantially divested in 2003. These pretax adjustments aggregated $5.6 million ($3.4 million net of income taxes or $0.08 per diluted share) in the fourth quarter of 2005 and $7.0 million ($4.3 million net of income taxes or $0.10 per diluted share) in the fourth quarter of 2004.

The Company reported a net loss of $0.9 million or $0.02 per diluted share related to the divestiture of discontinued operations in the fourth quarter of 2005 compared to a net loss of $7.2 million or $0.17 per diluted share in the fourth quarter of 2004.

At December 31, 2005, the Company held for sale two hospitals and one nursing center. Assets not sold at December 31, 2005 have been measured at the lower of carrying value or estimated fair value less costs of disposal and have been classified as held for sale in the Company’s condensed consolidated balance sheet. The Company expects sales proceeds from these divestitures to approximate $12 million in 2006.

Other Fourth Quarter Information

The Company announced in December 2005 that it had obtained lender approval to increase the amount of available credit under its revolving credit agreement from $300 million to $400 million and to increase the amount of permitted acquisitions from $400 million to $500 million, among other things. The Company obtained lender commitments for the increased credit capacity and closed the transaction in February 2006. At December 31, 2005, the remaining permitted acquisition amount aggregated $352 million.

During the fourth quarter of 2005, the Company repurchased approximately 1,753,000 shares of its common stock at an aggregate cost of approximately $48 million.

Fiscal Year Results

Continuing Operations

Consolidated revenues for the year ended December 31, 2005 increased 12% to $3.9 billion from $3.5 billion in 2004. Net income from continuing operations totaled $128.6 million or $2.84 per diluted share in 2005 compared to $87.3 million or $2.06 per diluted share in 2004.

Operating results for 2005 included certain items that, in the aggregate, increased net income by approximately $37.8 million or $0.83 per diluted share. In addition to the items reported in the fourth quarter, these items related primarily to favorable settlements of prior year hospital Medicare cost reports, a special employee recognition payment to non-executive caregivers and employees, a charitable donation, a retroactive nursing center Medicaid rate increase related to a prior year, hurricane related costs and a favorable adjustment related to accrued reorganization costs.

Operating results for 2004 included certain items that, in the aggregate, increased net income by approximately $2.3 million or $0.06 per diluted share.

Discontinued Operations

In 2005, the Company reported net income from discontinued operations totaling $17.7 million or $0.39 per diluted share compared to a net loss of $0.9 million or $0.02 per diluted share in 2004. Favorable pretax adjustments related to changes in estimates for professional liability reserves totaled $42.3 million ($26.0 million net of income taxes or $0.58 per diluted share) for the year ended December 31, 2005 and $18.0 million ($11.1 million net of income taxes or $0.26 per diluted share) for the same period of 2004.

Net losses related to the divestiture of discontinued operations for the year ended December 31, 2005 aggregated $1.4 million or $0.03 per diluted share compared to $15.8 million or $0.37 per diluted share for the same period of 2004.

Management Commentary

“We are pleased with our fourth quarter results, with each of our operating divisions contributing to our success,” remarked Paul J. Diaz, President and Chief Executive Officer of the Company. “Our hospitals reported 7% same-store admissions growth compared to last year, while continued growth in commercial and managed care revenues and improved operating efficiencies contributed to a solid quarter for this division. Our nursing centers rebounded well in the quarter, with stronger Medicare volumes and reduced contract labor costs from third quarter levels. Our KPS pharmacy business completed its third acquisition of 2005 during the fourth quarter while also reporting organic customer growth in its same-store operations. We also gained momentum in Peoplefirst rehabilitation through enhanced recruiting and reduced contract labor from the third quarter.”

Commenting on the Company’s full-year results, Mr. Diaz remarked, “Our results for fiscal 2005 reflect solid performance on a number of fronts. Our overall revenue growth of 12% reflected continued growth in each of our four divisions. In our hospital division, 5% growth in same-store admissions, along with improvements in our clinical, customer service and quality measures, led the way to another successful year. Fiscal 2005 also marked an exciting year of growth and expansion in our KPS pharmacy business. The successful integration of three acquisitions, organic customer growth at our existing pharmacies and significant investments in preparation for the new Medicare prescription drug benefit in 2006 all made for a highly productive year for our KPS team. While our nursing center financial results were somewhat disappointing in 2005, we significantly improved the quality of care delivered to our residents as we continue to reposition this business to care for more Medicare and managed care patients in the future. Our Peoplefirst rehabilitation business also made progress in building its recruiting capabilities, filling open positions, reducing contract labor and positioning itself for anticipated future external customer growth.”

Mr. Diaz commented on the Company’s acquisition and development activities, noting, “In addition to our pharmacy acquisitions, we opened two pharmacies and added two hospitals to our portfolio in 2005. We are continuing to make progress toward the completion of the Commonwealth acquisition, a transaction that will provide growth opportunities in each of our four business lines. In addition, we recently expanded both our revolving credit capacity and acquisition capabilities by $100 million. As in the past, we will continue to seek acquisition and strategic opportunities to enhance shareholder value.”

Mr. Diaz also commented on the Company’s overall financial position and cash flows, noting, “As a result of a strong fourth quarter, we reported cash flows from operations totaling $263 million for all of 2005. Our cash balances at the end of the year increased to $83 million and there were no outstanding borrowings under our revolving credit facility at the end of the year. Our operating cash flows during 2005 were primarily used to finance $126 million in capital expenditures to maintain and improve our existing facilities, $115 million in acquisitions and $48 million toward the fourth quarter repurchase of our common stock.”

Mr. Diaz further commented, “Fiscal 2005 also was a year highlighted by the remarkable commitment of our employees to our patients and their families. Among the many accomplishments across the Company, the examples of selfless acts of heroism by our people during the Hurricane Katrina and Hurricane Rita disasters made us all feel proud to be part of Kindred.”

Proposed Regulatory Changes

On January 19, 2006, the Centers for Medicare and Medicaid Services (“CMS”) issued proposed regulatory changes regarding Medicare reimbursement to long-term acute care hospitals (the “Proposed Hospital Rule”). As previously disclosed, based upon the Company’s historical Medicare patient volumes, the Company expects that the Proposed Hospital Rule would reduce Medicare revenues to the Company’s hospitals associated with short stay outliers and high cost outliers between $115 million and $120 million on an annual basis. This estimate does not include the negative impact resulting from the elimination of the annual market basket adjustment to the Medicare payment rates that also is contained in the Proposed Hospital Rule. The annual market basket adjustment has typically ranged between 3% and 4%, or approximately $25 million to $30 million in annual revenues. The Proposed Hospital Rule would be effective for discharges occurring on or after July 1, 2006 through June 30, 2007. The Proposed Hospital Rule is subject to a 60-day public comment period, and as such, is subject to change.

Mr. Diaz commented, “We are working in consultation with our trade associations and other advocacy groups during the 60-day public comment period to demonstrate the significant negative impact that the Proposed Hospital Rule would have on our shared goal with CMS of ensuring that Medicare beneficiaries who need long-term acute care hospital services receive high quality care in the most appropriate setting. We believe this goal is best achieved by developing certification criteria to ensure that the most medically complex patients are treated in long-term acute care hospitals and that these facilities have the resources and capabilities to treat those patients.”

Nursing Center Divestitures

In December 2005, the Company announced an agreement to acquire ten unprofitable leased nursing centers for resale in exchange for two owned hospitals. The agreement provided for the Company to lease the two hospitals for approximately the same annual rents that are currently paid for the ten nursing centers.

As a result of the Proposed Hospital Rule, the parties have agreed to postpone the proposed transaction pending the final outcome of the Proposed Hospital Rule. This transaction is subject to certain approvals and other conditions to closing. There can be no assurance that the transaction will close or will not be modified based upon the final outcome of the Proposed Hospital Rule.

No Earnings Guidance for 2006

As a result of uncertainties related to a number of regulatory changes that will impact each of its four operating divisions in 2006, the Company is not providing 2006 earnings guidance at this time. In addition to the Proposed Hospital Rule, a revised Medicare patient classification system for nursing centers known as “RUGs refinement” will impact the operating results for both the Company’s nursing centers and Peoplefirst rehabilitation businesses in 2006. The implementation of Medicare Part B therapy caps in 2006 also is expected to affect the operating results of the Company’s nursing center and Peoplefirst rehabilitation services divisions. In addition, the implementation of the Medicare Part D drug benefit that became effective January 1, 2006 will impact a significant portion of the Company’s KPS pharmacy business. There is also uncertainty with respect to the previously disclosed rent reset option available to the Company’s primary landlord, Ventas, Inc. (“Ventas”) (NYSE:VTR).

Issues Associated with Outstanding Warrants

The Company’s Series A warrants (NASDAQ:KINDW) and Series B warrants (NASDAQ:KINDZ) will expire on April 20, 2006. Each Series A warrant allows the holder to purchase two shares of the Company’s common stock at an aggregate price of $30.00, while each Series B warrant allows the holder to purchase two shares of common stock at an aggregate price of $33.33. At December 31, 2005, there were outstanding 1,859,534 Series A warrants and 4,630,343 Series B warrants.

Effective February 27, 2006, the Company successfully amended the warrant agreement governing its Series A warrants and its Series B warrants. The amendment implements a cashless exercise procedure offering warrants holders the option to pay the exercise price for the warrants in the form of shares of the Company’s common stock acquired upon the exercise of such warrants. The cashless exercise procedure will be available to current and subsequent warrant holders beginning February 27, 2006. The warrant agreement did not previously provide for a cashless exercise procedure.

To the extent warrant holders do not avail themselves of the cashless exercise procedure, the Company intends to repurchase shares of its common stock in the open market with the cash proceeds from the exercise of the warrants over time and subject to market conditions. The Company’s diluted earnings per share is derived by use of the treasury stock method of accounting, which assumes that warrants are converted and shares of common stock are repurchased simultaneously. Since the Company’s repurchase of its common stock in the open market is subject to certain daily trading volume limitations, the actual dilution resulting from the exercise of the warrants in 2006 may be higher than the levels reported in its historical financial statements.

Forward Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements regarding the Company’s expected future financial position, results of operations, cash flows, financing plans, business strategy, budgets, capital expenditures, competitive positions, growth opportunities, plans and objectives of management and statements containing the words such as “anticipate,” “approximate,” “believe,” “plan,” “estimate,” “expect,” “project,” “could,” “should,” “will,” “intend,” “may” and other similar expressions, are forward-looking statements.

Such forward-looking statements are inherently uncertain, and stockholders and other potential investors must recognize that actual results may differ materially from the Company’s expectations as a result of a variety of factors, including, without limitation, those discussed below. Such forward-looking statements are based upon management’s current expectations and include known and unknown risks, uncertainties and other factors, many of which the Company is unable to predict or control, that may cause the Company’s actual results or performance to differ materially from any future results or performance expressed or implied by such forward-looking statements. These statements involve risks, uncertainties and other factors discussed below and detailed from time to time in the Company’s filings with the Securities and Exchange Commission.

In addition to the factors set forth above, other factors that may affect the Company’s plans or results include, without limitation, (a) the Company’s ability to operate pursuant to the terms of its debt obligations and its Master Lease Agreements with Ventas; (b) the Company’s ability to meet its rental and debt service obligations; (c) adverse developments with respect to the Company’s results of operations or liquidity; (d) the Company’s ability to attract and retain key executives and other healthcare personnel; (e) increased operating costs due to shortages in qualified nurses and other healthcare personnel; (f) the effects of healthcare reform and government regulations, interpretation of regulations and changes in the nature and enforcement of regulations governing the healthcare industry; (g) changes in the reimbursement rates or methods of payment from third party payors, including the Medicare and Medicaid programs, and changes arising from the Medicare

prospective payment system for long-term acute care hospitals, including the Proposed Hospital Rule, and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, and changes in Medicare and Medicaid reimbursements for the Company’s nursing centers; (h) national and regional economic conditions, particularly their effect on the availability and cost of labor, materials and other services; (i) the Company’s ability to control costs, particularly labor and employee benefit costs; (j) the Company’s ability to comply with the terms of its Corporate Integrity Agreement; (k) the Company’s ability to successfully pursue its development activities and successfully integrate new operations, including the realization of anticipated revenues, economies of scale, cost savings and productivity gains associated with such operations; (l) the increase in the costs of defending and insuring against alleged professional liability claims and the Company’s ability to predict the estimated costs related to such claims; (m) the Company’s ability to successfully reduce (by divestiture of operations or otherwise) its exposure to professional liability claims; (n) the Company’s ability to successfully dispose of unprofitable facilities; and (o) the Company’s ability to ensure and maintain an effective system of internal controls over financial reporting. Many of these factors are beyond the Company’s control. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance. The Company disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

Kindred Healthcare, Inc. through its subsidiaries operates hospitals, nursing centers, institutional pharmacies and a contract rehabilitation services business across the United States.

KINDRED HEALTHCARE, INC.

Financial Summary

(In thousands, except per share amounts)

	Three months ended December 31,						Year ended December 31,
	2005			2004			2005			2004
Revenues	$	989,042		$	893,216		$	3,923,999		$	3,490,276
Income from continuing operations	$	24,313		$	26,633		$	128,630		$	87,257
Discontinued operations, net of income taxes:
Income (loss) from operations		2,166			(28	)		17,660			(855	)
Loss on divestiture of operations		(881	)		(7,202	)		(1,381	)		(15,822	)
Net income	$	25,598		$	19,403		$	144,909		$	70,580
Earnings per common share:
Basic:
Income from continuing operations	$	0.65		$	0.73		$	3.45		$	2.44
Discontinued operations:
Income (loss) from operations		0.06			–			0.47			(0.03	)
Loss on divestiture of operations		(0.03	)		(0.20	)		(0.04	)		(0.44	)
Net income	$	0.68		$	0.53		$	3.88		$	1.97
Diluted:
Income from continuing operations	$	0.56		$	0.63		$	2.84		$	2.06
Discontinued operations:
Income (loss) from operations		0.05			–			0.39			(0.02	)
Loss on divestiture of operations		(0.02	)		(0.17	)		(0.03	)		(0.37	)
Net income	$	0.59		$	0.46		$	3.20		$	1.67
Shares used in computing earnings per common share:
Basic		37,472			36,200			37,328			35,774
Diluted		43,736			42,639			45,239			42,403

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(In thousands, except per share amounts)

	Three months ended December 31,						Year ended December 31,
	2005			2004			2005			2004
Revenues	$	989,042		$	893,216		$	3,923,999		$	3,490,276
Salaries, wages and benefits		537,129			488,479			2,112,736			1,937,054
Supplies		155,855			122,164			574,911			476,359
Rent		69,596			65,930			274,524			258,703
Other operating expenses		160,409			148,406			648,496			575,426
Depreciation and amortization		27,709			23,156			103,156			89,093
Interest expense		1,728			1,912			8,098			12,814
Investment income		(3,210	)		(1,786	)		(11,060	)		(6,425	)
		949,216			848,261			3,710,861			3,343,024
Income from continuing operations before reorganization items and income taxes		39,826			44,955			213,138			147,252
Reorganization items		(268	)		–			(1,639	)		(304	)
Income from continuing operations before income taxes		40,094			44,955			214,777			147,556
Provision for income taxes		15,781			18,322			86,147			60,299
Income from continuing operations		24,313			26,633			128,630			87,257
Discontinued operations, net of income taxes:
Income (loss) from operations		2,166			(28	)		17,660			(855	)
Loss on divestiture of operations		(881	)		(7,202	)		(1,381	)		(15,822	)
Net income	$	25,598		$	19,403		$	144,909		$	70,580
Earnings per common share:
Basic:
Income from continuing operations	$	0.65		$	0.73		$	3.45		$	2.44
Discontinued operations:
Income (loss) from operations		0.06			–			0.47			(0.03	)
Loss on divestiture of operations		(0.03	)		(0.20	)		(0.04	)		(0.44	)
Net income	$	0.68		$	0.53		$	3.88		$	1.97
Diluted:
Income from continuing operations	$	0.56		$	0.63		$	2.84		$	2.06
Discontinued operations:
Income (loss) from operations		0.05			–			0.39			(0.02	)
Loss on divestiture of operations		(0.02	)		(0.17	)		(0.03	)		(0.37	)
Net income	$	0.59		$	0.46		$	3.20		$	1.67
Shares used in computing earnings per common share:
Basic		37,472			36,200			37,328			35,774
Diluted		43,736			42,639			45,239			42,403

KINDRED HEALTHCARE, INC.

Condensed Consolidated Balance Sheet

(In thousands, except per share amounts)

	December 31, 2005			December 31, 2004
ASSETS
Current assets:
Cash and cash equivalents	$	83,420		$	69,128
Cash – restricted		5,135			6,054
Insurance subsidiary investments		231,134			238,856
Accounts receivable less allowance for loss		479,605			400,517
Inventories		43,731			35,025
Deferred tax assets		61,078			70,137
Assets held for sale		12,056			22,672
Other		28,805			31,954
		944,964			874,343
Property and equipment		891,009			765,586
Accumulated depreciation		(369,393	)		(273,880	)
		521,616			491,706
Goodwill		69,879			31,582
Insurance subsidiary investments		48,796			41,651
Deferred tax assets		73,750			91,180
Other		101,556			62,831
	$	1,760,561		$	1,593,293
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	134,547		$	122,176
Salaries, wages and other compensation		244,851			230,056
Due to third party payors		26,642			33,910
Professional liability risks		70,090			82,609
Other accrued liabilities		79,704			76,985
Income taxes		58,572			26,748
Long-term debt due within one year		6,221			5,282
		620,627			577,766
Long-term debt		26,323			32,544
Professional liability risks		182,113			204,713
Deferred credits and other liabilities		60,962			58,485
Stockholders’ equity:
Common stock, $0.25 par value; authorized 175,000 shares; issued 37,331 shares – December 31, 2005 and 37,189 shares – December 31, 2004		9,333			9,297
Capital in excess of par value		673,358			636,015
Deferred compensation		(14,228	)		(7,353	)
Accumulated other comprehensive income (loss)		(60	)		468
Retained earnings		202,133			81,358
		870,536			719,785
	$	1,760,561		$	1,593,293

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Cash Flows

(In thousands)

	Three months ended December 31,						Year ended December 31,
	2005			2004			2005			2004
Cash flows from operating activities:
Net income	$	25,598		$	19,403		$	144,909		$	70,580
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		27,980			23,623			104,506			91,474
Amortization of deferred compensation costs		2,809			2,020			9,470			7,217
Provision for doubtful accounts		1,668			5,418			14,867			23,222
Deferred income taxes		50,286			45,981			50,286			45,981
Loss on divestiture of discontinued operations		881			7,202			1,381			15,822
Reorganization items		(268	)		–			(1,639	)		(304	)
Other		(232	)		2,753			(2,687	)		7,632
Change in operating assets and liabilities:
Accounts receivable		100,853			25,627			(70,555	)		2,541
Inventories and other assets		3,390			1,927			(3,509	)		5,368
Accounts payable		5,417			(598	)		4,413			(5,136	)
Income taxes		(37,414	)		(28,203	)		37,254			10,347
Due to third party payors		2,809			13,041			(7,268	)		2,504
Other accrued liabilities		(27,807	)		(23,928	)		(18,295	)		(9,119	)
Net cash provided by operating activities		155,970			94,266			263,133			268,129
Cash flows from investing activities:
Purchase of property and equipment		(45,950	)		(34,460	)		(126,063	)		(92,388	)
Acquisition of healthcare facilities		(40,899	)		(38,052	)		(114,818	)		(58,212	)
Sale of assets		6,003			5,268			17,199			29,826
Purchase of insurance subsidiary investments		(69,575	)		(74,254	)		(336,391	)		(113,033	)
Sale of insurance subsidiary investments		91,663			46,740			334,820			75,918
Net change in insurance subsidiary cash and cash equivalents		(19,053	)		16,431			1,899			(23,511	)
Net change in other investments		(125	)		–			3,344			4,405
Other		(2,009	)		155			(215	)		4,591
Net cash used in investing activities		(79,945	)		(78,172	)		(220,225	)		(172,404	)
Cash flows from financing activities:
Repayment of long-term debt		(1,401	)		(1,209	)		(5,282	)		(105,023	)
Payment of deferred financing costs		(331	)		(1,072	)		(702	)		(5,120	)
Issuance of common stock		1,162			1,415			24,873			8,778
Repurchase of common stock		(47,964	)		–			(47,964	)		–
Other		17,819			24,161			459			8,244
Net cash provided by (used in)financing activities		(30,715	)		23,295			(28,616	)		(93,121	)
Change in cash and cash equivalents		45,310			39,389			14,292			2,604
Cash and cash equivalents at beginning of period		38,110			29,739			69,128			66,524
Cash and cash equivalents at end of period	$	83,420		$	69,128		$	83,420		$	69,128

KINDRED HEALTHCARE, INC.

Condensed Consolidated Statement of Operations

(In thousands, except per share amounts)

	2004 Quarters															2005 Quarters
	First			Second			Third			Fourth			Year			First			Second			Third			Fourth			Year
Revenues	$	847,846		$	875,271		$	873,943		$	893,216		$	3,490,276		$	930,473		$	1,035,865		$	968,619		$	989,042		$	3,923,999
Salaries, wages and benefits		477,924			480,251			490,400			488,479			1,937,054			508,680			535,605			531,322			537,129			2,112,736
Supplies		114,794			118,722			120,679			122,164			476,359			127,615			145,329			146,112			155,855			574,911
Rent		62,834			64,310			65,629			65,930			258,703			67,184			68,783			68,961			69,596			274,524
Other operating expenses		139,893			144,361			142,766			148,406			575,426			149,000			175,603			163,484			160,409			648,496
Depreciation and amortization		21,303			21,963			22,671			23,156			89,093			23,768			25,213			26,466			27,709			103,156
Interest expense		3,654			4,713			2,535			1,912			12,814			2,000			2,439			1,931			1,728			8,098
Investment income		(1,213	)		(1,823	)		(1,603	)		(1,786	)		(6,425	)		(2,347	)		(3,031	)		(2,472	)		(3,210	)		(11,060	)
		819,189			832,497			843,077			848,261			3,343,024			875,900			949,941			935,804			949,216			3,710,861
Income from continuing operations before reorganization items and income taxes		28,657			42,774			30,866			44,955			147,252			54,573			85,924			32,815			39,826			213,138
Reorganization items		–			(304	)		–			–			(304	)		(1,371	)		–			–			(268	)		(1,639	)
Income from continuing operations before income taxes		28,657			43,078			30,866			44,955			147,556			55,944			85,924			32,815			40,094			214,777
Provision for income taxes		12,045			17,722			12,210			18,322			60,299			22,567			34,533			13,266			15,781			86,147
Income from continuing operations		16,612			25,356			18,656			26,633			87,257			33,377			51,391			19,549			24,313			128,630
Discontinued operations, net of income taxes:
Income (loss) from operations		(2,772	)		(2,524	)		4,469			(28	)		(855	)		3,513			12,029			(48	)		2,166			17,660
Gain (loss) on divestiture of operations		–			(1,063	)		(7,557	)		(7,202	)		(15,822	)		–			2,647			(3,147	)		(881	)		(1,381	)
Net income	$	13,840		$	21,769		$	15,568		$	19,403		$	70,580		$	36,890		$	66,067		$	16,354		$	25,598		$	144,909
Earnings per common share:
Basic:
Income from continuing operations	$	0.47		$	0.71		$	0.52		$	0.73		$	2.44		$	0.92		$	1.37		$	0.51		$	0.65		$	3.45
Discontinued operations:
Income (loss) from operations		(0.08	)		(0.07	)		0.12			–			(0.03	)		0.10			0.32			–			0.06			0.47
Gain (loss) on divestiture of operations		–			(0.03	)		(0.21	)		(0.20	)		(0.44	)		–			0.07			(0.08	)		(0.03	)		(0.04	)
Net income	$	0.39		$	0.61		$	0.43		$	0.53		$	1.97		$	1.02		$	1.76		$	0.43		$	0.68		$	3.88
Diluted:
Income from continuing operations	$	0.39		$	0.61		$	0.44		$	0.63		$	2.06		$	0.75		$	1.11		$	0.43		$	0.56		$	2.84
Discontinued operations:
Income (loss) from operations		(0.07	)		(0.06	)		0.11			–			(0.02	)		0.08			0.26			–			0.05			0.39
Gain (loss) on divestiture of operations		–			(0.03	)		(0.18	)		(0.17	)		(0.37	)		–			0.06			(0.07	)		(0.02	)		(0.03	)
Net income	$	0.32		$	0.52		$	0.37		$	0.46		$	1.67		$	0.83		$	1.43		$	0.36		$	0.59		$	3.20
Shares used in computing earnings per common share:
Basic		35,414			35,536			35,939			36,200			35,774			36,312			37,495			38,013			37,472			37,328
Diluted		42,721			41,913			42,293			42,639			42,403			44,410			46,367			46,033			43,736			45,239

KINDRED HEALTHCARE, INC.

Business Segment Data

(In thousands)

	2004 Quarters															2005 Quarters
	First			Second			Third			Fourth			Year			First			Second			Third			Fourth			Year
Revenues:
Hospital division	$	343,349		$	350,097		$	350,852		$	354,360		$	1,398,658		$	393,040		$	434,562		$	389,776		$	390,742		$	1,608,120
Health services division		424,422			440,935			438,035			451,703			1,755,095			443,144			484,581			461,272			470,501			1,859,498
Rehabilitation division		52,699			52,588			61,157			61,982			228,426			64,947			65,365			65,553			66,908			262,773
Pharmacy division		79,746			84,346			96,591			99,352			360,035			107,957			131,849			135,165			147,254			522,225
		900,216			927,966			946,635			967,397			3,742,214			1,009,088			1,116,357			1,051,766			1,075,405			4,252,616
Eliminations:
Rehabilitation		(34,830	)		(35,470	)		(45,545	)		(45,675	)		(161,520	)		(48,497	)		(49,139	)		(50,932	)		(51,619	)		(200,187	)
Pharmacy		(17,540	)		(17,225	)		(27,147	)		(28,506	)		(90,418	)		(30,118	)		(31,353	)		(32,215	)		(34,744	)		(128,430	)
		(52,370	)		(52,695	)		(72,692	)		(74,181	)		(251,938	)		(78,615	)		(80,492	)		(83,147	)		(86,363	)		(328,617	)
	$	847,846		$	875,271		$	873,943		$	893,216		$	3,490,276		$	930,473		$	1,035,865		$	968,619		$	989,042		$	3,923,999
Income from continuing operations:
Operating income (loss):
Hospital division	$	79,687		$	86,120		$	79,210		$	83,933		$	328,950		$	101,801		$	134,263		$	90,728		$	92,754		$	419,546
Health services division		48,031			62,403			57,086			67,265			234,785			53,680			65,447			49,928			55,035			224,090
Rehabilitation division		8,519			7,265			7,737			7,910			31,431			9,711			6,989			7,913			7,439			32,052
Pharmacy division		7,609			7,729			10,853			10,871			37,062			11,454			13,298			14,455			17,630			56,837
Corporate:
Overhead		(26,834	)		(30,356	)		(33,028	)		(33,531	)		(123,749	)		(29,115	)		(38,052	)		(32,631	)		(34,716	)		(134,514	)
Insurance subsidiary		(1,777	)		(1,224	)		(1,760	)		(2,281	)		(7,042	)		(2,353	)		(2,617	)		(2,692	)		(2,493	)		(10,155	)
		(28,611	)		(31,580	)		(34,788	)		(35,812	)		(130,791	)		(31,468	)		(40,669	)		(35,323	)		(37,209	)		(144,669	)
		115,235			131,937			120,098			134,167			501,437			145,178			179,328			127,701			135,649			587,856
Reorganization items		–			304			–			–			304			1,371			–			–			268			1,639
Operating income		115,235			132,241			120,098			134,167			501,741			146,549			179,328			127,701			135,917			589,495
Rent		(62,834	)		(64,310	)		(65,629	)		(65,930	)		(258,703	)		(67,184	)		(68,783	)		(68,961	)		(69,596	)		(274,524	)
Depreciation and amortization		(21,303	)		(21,963	)		(22,671	)		(23,156	)		(89,093	)		(23,768	)		(25,213	)		(26,466	)		(27,709	)		(103,156	)
Interest, net		(2,441	)		(2,890	)		(932	)		(126	)		(6,389	)		347			592			541			1,482			2,962
Income from continuing operations before income taxes		28,657			43,078			30,866			44,955			147,556			55,944			85,924			32,815			40,094			214,777
Provision for income taxes		12,045			17,722			12,210			18,322			60,299			22,567			34,533			13,266			15,781			86,147
	$	16,612		$	25,356		$	18,656		$	26,633		$	87,257		$	33,377		$	51,391		$	19,549		$	24,313		$	128,630

KINDRED HEALTHCARE, INC.

Business Segment Data (Continued)

(In thousands)

	2004 Quarters										2005 Quarters
	First		Second		Third		Fourth		Year		First		Second		Third		Fourth		Year
Rent:
Hospital division	$	22,488	$	23,168	$	23,898	$	24,077	$	93,631	$	24,717	$	25,244	$	25,366	$	25,529	$	100,856
Health services division		39,014		39,587		40,111		40,245		158,957		40,674		41,429		41,473		41,555		165,131
Rehabilitation division		611		708		747		773		2,839		800		817		817		809		3,243
Pharmacy division		662		790		812		780		3,044		926		1,169		1,226		1,614		4,935
Corporate		59		57		61		55		232		67		124		79		89		359
	$	62,834	$	64,310	$	65,629	$	65,930	$	258,703	$	67,184	$	68,783	$	68,961	$	69,596	$	274,524
Depreciation and amortization:
Hospital division	$	8,257	$	8,496	$	8,923	$	9,401	$	35,077	$	9,554	$	9,836	$	10,579	$	10,979	$	40,948
Health services division		6,357		6,518		6,612		6,970		26,457		7,476		7,914		8,271		8,975		32,636
Rehabilitation division		33		37		38		51		159		54		56		57		64		231
Pharmacy division		530		583		603		718		2,434		926		1,521		1,525		1,779		5,751
Corporate		6,126		6,329		6,495		6,016		24,966		5,758		5,886		6,034		5,912		23,590
	$	21,303	$	21,963	$	22,671	$	23,156	$	89,093	$	23,768	$	25,213	$	26,466	$	27,709	$	103,156
Capital expenditures, excluding acquisitions (including discontinued operations):
Hospital division	$	5,406	$	5,177	$	8,867	$	10,697	$	30,147	$	8,235	$	11,289	$	11,634	$	14,145	$	45,303
Health services division		8,450		6,487		7,074		14,692		36,703		6,957		10,986		14,488		17,915		50,346
Rehabilitation division		47		56		19		246		368		2		96		17		538		653
Pharmacy division		773		1,075		1,004		1,977		4,829		1,075		1,506		1,562		2,820		6,963
Corporate:
Information systems		2,651		4,033		4,251		4,892		15,827		1,462		4,171		5,580		9,191		20,404
Other		554		829		1,175		1,956		4,514		232		550		271		1,341		2,394
	$	17,881	$	17,657	$	22,390	$	34,460	$	92,388	$	17,963	$	28,598	$	33,552	$	45,950	$	126,063

KINDRED HEALTHCARE, INC.

Business Segment Data (Continued)

(Unaudited)

	2004 Quarters										2005 Quarters
	First		Second		Third		Fourth		Year		First		Second		Third		Fourth		Year
Hospital data:
End of period data:
Number of hospitals		66		68		72		72				73		73		73		74
Number of licensed beds		5,245		5,396		5,569		5,569				5,603		5,603		5,603		5,694
Revenue mix % (a):
Medicare		67		64		63		63		65		65		71		65		65		67
Medicaid		7		8		8		7		7		6		6		7		6		6
Private and other		26		28		29		30		28		29		23		28		29		27
Admissions:
Medicare		6,780		6,674		6,550		6,719		26,723		7,397		7,080		7,106		7,287		28,870
Medicaid		682		789		763		741		2,975		727		823		845		827		3,222
Private and other		1,243		1,401		1,369		1,495		5,508		1,564		1,528		1,495		1,503		6,090
		8,705		8,864		8,682		8,955		35,206		9,688		9,431		9,446		9,617		38,182
Admissions mix %:
Medicare		78		75		75		75		76		76		75		75		76		76
Medicaid		8		9		9		8		8		8		9		9		8		8
Private and other		14		16		16		17		16		16		16		16		16		16
Patient days:
Medicare		206,256		200,628		190,466		190,772		788,122		207,670		209,670		197,725		199,857		814,922
Medicaid		27,670		29,228		30,435		30,200		117,533		26,660		28,361		30,489		29,867		115,377
Private and other		51,856		52,640		53,571		56,160		214,227		61,052		55,622		53,535		57,633		227,842
		285,782		282,496		274,472		277,132		1,119,882		295,382		293,653		281,749		287,357		1,158,141
Average length of stay:
Medicare		30.4		30.1		29.1		28.4		29.5		28.1		29.6		27.8		27.4		28.2
Medicaid		40.6		37.0		39.9		40.8		39.5		36.7		34.5		36.1		36.1		35.8
Private and other		41.7		37.6		39.1		37.6		38.9		39.0		36.4		35.8		38.3		37.4
Weighted average		32.8		31.9		31.6		30.9		31.8		30.5		31.1		29.8		29.9		30.3
Revenues per admission (a):
Medicare	$	33,722	$	33,902	$	33,963	$	33,466	$	33,762	$	34,750	$	43,798	$	35,871	$	34,960	$	37,298
Medicaid		34,701		34,102		35,889		33,155		34,462		30,295		30,887		32,385		29,014		30,665
Private and other		73,248		69,184		73,784		70,188		71,517		72,872		64,824		71,913		74,516		71,023
Weighted average		39,443		39,497		40,411		39,571		39,728		40,570		46,078		41,264		40,630		42,117
Revenues per patient day (a):
Medicare	$	1,109	$	1,128	$	1,168	$	1,179	$	1,145	$	1,238	$	1,479	$	1,289	$	1,275	$	1,321
Medicaid		855		921		900		814		872		826		896		898		803		856
Private and other		1,756		1,841		1,886		1,868		1,839		1,867		1,781		2,008		1,943		1,898
Weighted average		1,202		1,239		1,278		1,279		1,249		1,331		1,480		1,383		1,360		1,388
Medicare case mix index (discharged patients only)		1.26		1.25		1.21		1.19		1.23		1.22		1.25		1.20		1.11		1.19
Average daily census		3,140		3,104		2,983		3,012		3,060		3,282		3,227		3,062		3,123		3,173
Occupancy %		63.1		60.7		57.0		56.3		59.2		61.2		59.9		56.9		58.5		59.1

(a) Includes income of $2.2 million in the first quarter of 2004, $3.9 million in the second quarter of 2004, $1.6 million in the third quarter of 2004, $2.9 million in the first quarter of 2005, $54.6 million in the second quarter of 2005, $5.9 million in the third quarter of 2005 and $1.9 million in the fourth quarter of 2005 related to certain Medicare reimbursement issues.

KINDRED HEALTHCARE, INC.

Business Segment Data (Continued)

(Unaudited)

	2004 Quarters											2005 Quarters
	First		Second			Third		Fourth		Year		First		Second			Third		Fourth		Year
Nursing center data:
End of period data:
Number of nursing centers:
Owned or leased		236		236			236		236				236		237			237		237
Managed		7		7			7		7				7		5			5		5
		243		243			243		243				243		242			242		242
Number of licensed beds:
Owned or leased		30,184		30,180			30,161		30,161				30,161		30,266			30,264		30,264
Managed		803		803			803		803				803		605			605		605
		30,987		30,983			30,964		30,964				30,964		30,871			30,869		30,869
Revenue mix %:
Medicare		36		33			32		32		33		35		32			32		33		33
Medicaid		46		49	(a)		50		50		49		47		51	(b)		50		49		49
Private and other		18		18			18		18		18		18		17			18		18		18
Patient days (excludes managed facilities):
Medicare		412,746		390,347			367,886		372,205		1,543,184		394,310		396,230			378,714		381,430		1,550,684
Medicaid		1,585,728		1,600,172			1,645,362		1,630,491		6,461,753		1,564,779		1,568,306			1,601,714		1,591,713		6,326,512
Private and other		386,815		389,974			395,923		400,985		1,573,697		385,093		383,986			396,053		414,738		1,579,870
		2,385,289		2,380,493			2,409,171		2,403,681		9,578,634		2,344,182		2,348,522			2,376,481		2,387,881		9,457,066
Patient day mix %:
Medicare		17		17			15		15		16		17		17			16		16		16
Medicaid		67		67			68		68		68		67		67			67		67		67
Private and other		16		16			17		17		16		16		16			17		17		17
Revenues per patient day:
Medicare Part A	$	331	$	331		$	335	$	347	$	336	$	347	$	346		$	349	$	364	$	352
Total Medicare (including Part B)		373		375			385		395		381		388		389			395		404		394
Medicaid		122		135	(a)		133		138		132		134		159	(b)		144		144		145
Private and other		199		201			198		199		199		207		211			206		211		209
Weighted average		178		185			182		188		183		189		206			194		197		197
Average daily census		26,212		26,159			26,187		26,127		26,171		26,046		25,808			25,831		25,955		25,910
Occupancy %		86.5		86.3			86.3		86.3		86.4		86.0		85.3			85.3		85.8		85.6
Rehabilitation data:
Revenue mix %:
Company-operated		70		71			76		75		73		76		77			78		77		76
Non-affiliated		30		29			24		25		27		24		23			22		23		24
Pharmacy data:
Number of customer licensed beds at end of period:
Company-operated		28,188		28,164			28,476		28,634				29,105		28,649			28,649		28,657
Non-affiliated		35,102		36,385			36,671		37,561				46,745		56,112			55,201		64,625
		63,290		64,549			65,147		66,195				75,850		84,761			83,850		93,282

(a) Includes income of $8.7 million for periods prior to April 1, 2004 related to retroactive Medicaid rate increases in the state of North Carolina. Related provider tax expense of $2.8 million under this program was recorded in other operating expenses.

(b) Includes income of $31.8 million for periods prior to April 1, 2005 related to retroactive Medicaid rate increases in the state of Indiana. Related provider tax expense of $16.0 million under this program was recorded in other operating expenses.