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): August 6, 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)

(800) 677-1238

(Company’s telephone number, including area code)

Not applicable

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

	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
		During a conference call held by RehabCare Group, Inc. (“the Company”) on August 6, 2009, Dr. John Short, President and Chief Executive Officer of the Company, was asked about the costs related to mergers and acquisitions and the Company’s recent shelf registration statement on Form S-3.  Dr. Short responded that the Company is evaluating a transaction to achieve scale in its hospital division but that the completion of such transaction was not certain at this time.
		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 August 5, 2009, announcing our second quarter and year to date revenues and results of operations.
	99.2	The script for a conference call held by the registrant on August 6, 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: August 6, 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 August 5, 2009, announcing our seccond quarter and year to date revenues and results of operations.
99.2	The script for a conference call held by the registrant on August 6, 2009

EX-99..1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Wednesday, August 5, 2009

REHABCARE REPORTS SECOND QUARTER 2009 RESULTS

· Diluted earnings per share attributable to RehabCare from continuing operations increases to $0.43 per share compared to $0.26 per share in the second quarter of 2008

· Second quarter consolidated operating revenues increase 12.8% compared to the prior year quarter, driven by strong same store revenue growth across all divisions

· Skilled Nursing Rehabilitation Services and Hospital Rehabilitation Services divisions continue to post healthy operating earnings margins

· Hospital earnings impacted by soft performance at certain hospitals; division continues to implement operational improvements

ST. LOUIS, MO, August 5, 2009--RehabCare Group, Inc. (NYSE:RHB) today reported financial results for the quarter and six months ended June 30, 2009.  Comparative results for the quarter and six months follow.

	Second			First			Second			Six Months Ended
	Quarter			Quarter			Quarter			June 30,
Amounts in millions, except per share data	2009			2009			2008				2009			2008
Consolidated Operating Revenues	$	205.2		$	201.5		$	181.9		$	406.7		$	362.0
Consolidated Operating Earnings		12.8			14.3			7.8			27.1			16.3
Consolidated Net Earnings from Continuing Operations		7.4			8.4			4.0			15.8			8.5
Gain (Loss) from Discontinued Operations, Net of Tax  (a)		(0.9	)		—			(0.2	)		(0.8	)		(0.2	)
Consolidated Net Earnings		6.5			8.4			3.8			15.0			8.3
Net Losses Attributable to Noncontrolling Interests		0.4			0.3			0.7			0.5			0.7
Net Earnings Attributable to RehabCare		6.9			8.7			4.5			15.5			9.0
Diluted Earnings per Share Attributable to RehabCare:
Earnings from Continuing Operations, Net of Tax		0.43			0.48			0.26			0.91			0.52
Net Earnings		0.38			0.48			0.25			0.87			0.51
SRS Operating Revenues		123.8			123.1			114.5			246.9			226.9
SRS Operating Earnings		9.1			10.5			6.2			19.6			10.3
HRS Inpatient Operating Revenues		32.9			31.8			29.9			64.7			59.7
HRS Outpatient Operating Revenues		12.2			11.3			10.3			23.5			20.7
HRS Operating Revenues		45.1			43.1			40.2			88.2			80.4
HRS Operating Earnings		7.7			6.3			5.3			14.0			9.9
Hospital Operating Revenues		36.3			35.3			27.2			71.6			54.7
Hospital Operating Loss		(3.8	)		(2.3	)		(3.5	)		(6.1	)		(3.6	)

(a) The $0.9 million after-tax loss from discontinued operations in the second quarter of 2009 includes a $0.7 million loss on the sale of the Company’s Phase 2 Consulting business on June 1, 2009 and a $0.2 million after-tax loss from Phase 2’s discontinued operating activities.

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REHABCARE REPORTS SECOND QUARTER 2009 RESULTSPage 2

“We were pleased to again deliver a solid quarter of top and bottom line improvement over the prior year.  Our Skilled Nursing Rehabilitation Services (SRS) and Hospital Rehabilitation Services (HRS) divisions continued to generate healthy revenue growth and operating cash flow and achieved profit margins in line with our 2009 outlook,” said John H. Short, Ph.D, RehabCare President and Chief Executive Officer.

“The momentum of our Hospital operations was disrupted in the second quarter by softer performance at certain hospitals. However, we remain focused on implementing strategies for success in each of our hospital markets and anticipate the division will continue to respond with improved results in areas not meeting our expectations,” said Dr. Short.  “At the same time, we continue to evaluate opportunities to grow the division.  On June 30, we announced our joint venture ownership of Dallas LTAC Hospital, which moves us one step closer to achieving greater efficiencies and economies of scale within our hospital operations.”

Financial Overview of Second Quarter

Consolidated operating revenues for the second quarter of 2009 were $205.2 million, a 12.8% increase compared to $181.9 million in the 2008 second quarter.

Net earnings from continuing operations for the second quarter of 2009 were $7.4 million compared to $4.0 million in the 2008 second quarter.  Diluted earnings per share attributable to RehabCare from continuing operations for the second quarter of 2009 were $0.43 compared to $0.26 in the second quarter of 2008.

Consolidated net earnings attributable to RehabCare were $6.9 million, or $0.38 per diluted share, in the second quarter of 2009 compared to $4.5 million, or $0.25 per diluted share, in the prior year quarter. The $0.9 million after-tax loss from discontinued operations in the second quarter of 2009 includes a $0.7 million loss on the sale of the Company’s Phase 2 Consulting business on June 1, 2009 and a $0.2 million after-tax loss from Phase 2’s discontinued operating activities.

Operating revenues in the Skilled Nursing Rehabilitation Services division increased 8.1% from $114.5 million in the second quarter of 2008 to $123.8 million in the second quarter of 2009, primarily the result of a contract therapy same store revenue increase of 9.1%.  On June 30, 2009, SRS operated in 1,065 contract therapy locations compared to 1,053 locations at the end of the second quarter of 2008 and 1,063 locations at the end of the first quarter of 2009.  The Company signed 44 new contracts in the second quarter of 2009 compared to 46 in the second quarter of 2008.

The SRS division’s operating earnings were $9.1 million, or 7.4% of revenue, compared to $6.2 million, or 5.4% of revenue, in the second quarter of 2008.  The year-over-year gain is a result of improved operating performance and better leveraging of selling, general and administrative costs.

The Hospital Rehabilitation Services division’s second quarter 2009 operating revenues increased 12.1% to $45.1 million, compared to $40.2 million in the second quarter of 2008.  Inpatient operating revenues improved 10.2% and inpatient rehabilitation facility (IRF) same store discharges increased 5.9% compared to second quarter 2008.  The average number of inpatient programs increased by 1.3% and the average revenue per program increased 8.8% due to an improvement in IRF-subacute contract mix.  Outpatient operating revenues increased 17.7% as the average number of programs increased by 9.1% and same store revenues increased 12.4%.

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REHABCARE REPORTS SECOND QUARTER 2009 RESULTSPage 3

At June 30, 2009, HRS operated 156 programs compared to 154 at the end of the second quarter of 2008 and 158 programs at the end of the first quarter of 2009.  The division operated 111 IRF programs at the end of the 2009 second quarter compared to 113 at the beginning of the quarter and 107 a year ago. The division had two IRF openings and four closings during the second quarter and two signed but unopened IRF contracts at June 30.

HRS operating earnings increased by $2.3 million to $7.7 million, or 17.0% of revenue, in the second quarter of 2009 compared to $5.3 million, or 13.2% of revenue, in the 2008 second quarter.  The higher average number of IRF programs, increased revenue per program and strong same store growth contributed to year-over-year revenue and earnings improvement in the second quarter of 2009.

Operating revenues in the Hospital division for the second quarter of 2009 increased 2.7% sequentially to $36.3 million and same store discharges increased 10.3%.  The division incurred an operating loss of $3.8 million in the second quarter of 2009 compared to an operating loss of $2.3 million in the first quarter of 2009.  The $1.5 million sequential increase in operating losses was primarily due to lower revenue per patient day, a result of decreased case-mix index and higher unfunded days at certain hospitals and limiting admissions to achieve compliance with the 60% Rule in two of the Company’s IRFs.

With the acquisition of Dallas LTAC Hospital on June 30 and the opening of Greater Peoria Specialty Hospital on August 4, the division currently operates a total of 13 hospitals, including six IRFs and seven long-term acute care hospitals (LTACHs).

Balance Sheet and Liquidity

At June 30, 2009, the Company had approximately $23.6 million in cash and cash equivalents and $32.7 million in outstanding debt.  Net debt (outstanding debt less cash and cash equivalents) stood at $9.1 million at June 30, 2009 compared to $18.8 million at the end of the first quarter of 2009.  Days sales outstanding decreased to 60.9 days at June 30, 2009 from 63.9 days at March 31, 2009.

For the six months ended June 30, 2009, the Company generated cash from operations of $27.1 million and expended approximately $5.9 million for capital expenditures, principally related to information systems and equipment for the start-up of Greater Peoria Specialty Hospital.

Legislative Update

While post-acute bundling generated considerable debate during the first quarter, the focus today is on whether Congress will reach agreement on a health reform package.  The Company remains actively engaged in the healthcare debate and cautiously optimistic that a bill will surface before year end that would include both a physician fee schedule fix and an extension of the Part B Therapy Cap exception process, which expires December 31.

On July 31, the Centers for Medicare and Medicaid Services released final rules for FY2010 Medicare reimbursement.  The Company estimates a net 2.8% rate increase for its freestanding IRFs and a 1.4% net increase for its LTACHs.  The net 1.1% decrease for Skilled Nursing Facilities (SNFs) will likely result in some downward pricing pressure in the Company’s SRS division.

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REHABCARE REPORTS SECOND QUARTER 2009 RESULTSPage 4

Outlook

The Company will not be providing revenue and earnings per share guidance for 2009, but provides the following outlook, which takes into consideration the July 31 final Medicare rules:

· The Company anticipates strong consolidated revenue and net earnings growth for the full year 2009.

· The Skilled Nursing Rehabilitation Services division expects 6.5% - 7.5% operating earnings margins for the remainder of 2009, driven by 6% - 8% year-over-year same store revenue growth. The division also expects flat to modest unit growth in 2009.

· The Hospital Rehabilitation Services division expects 15% - 17% operating earnings margin and flat unit growth for the remainder of 2009.  The division also anticipates 3% - 5% year-over-year growth in IRF same store discharges in 2009.

· The Hospital division expects total year operating losses of $12.5 - $14.0 million, which includes approximately $3.0 million in merger and acquisition related costs.  For full year 2009, revenue is expected to be $155 - $165 million, driven by strong growth in mature and de novo hospitals, including the new LTACH in Dallas.  The Company continues to expect breakeven operating earnings run rate by the end of the first half of 2010.

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

· The Company expects continued strong operating cash flow with DSO in the range of 60 to 65 days.

· Capital expenditures are anticipated to be approximately $6.0 million for the remainder of 2009, principally related to information systems investments.

Conclusion

“Our SRS and HRS colleagues are to be commended for an exceptional first half of the year.  We are well positioned to deliver on our revenue and earnings outlook for 2009 in both divisions.  I also want to recognize our Hospital division colleagues for their efforts to improve performance and for the progress we have made so far,” said Dr. Short.

“We are focused on providing greater value to each of our stakeholders during tough economic times and uncertainty surrounding healthcare reform.”

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 41 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.

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RehabCare will host a conference call on August 6, 2009, beginning at 10:00 AM Eastern time.  Listeners may access the call by dialing (800) 640-9765, confirmation number 24844748, or in a listen-only mode through the Company’s website at http://www.rehabcare.com/investors/webcasts.htm.  A replay of the call will be available beginning at approximately noon Eastern Time tomorrow by dialing (877) 213-9653, confirmation number 24844748.  An online archive of the conference call will remain on the Company’s website for at least 21 days after the call.

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 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 factors that affect its ability to achieve the results estimated.  The Company makes no promise to update any forward- looking statements as a result of changes in underlying factors, new information, future events or otherwise.

CONTACT: RehabCare Group, Inc.

Financial: Jay W. Shreiner, Chief Financial Officer

Press: Donna Lee, Office of the CEO

(314) 863-7422

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REHABCARE REPORTS SECOND QUARTER 2009 RESULTSPage 6

I. Condensed Consolidated Statements of Earnings
(Unaudited; amounts in thousands, except per share data)
	Three Months Ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
		2009			2009			2008			2009			2008
Operating revenues	$	205,164		$	201,531		$	181,899		$	406,695		$	362,003
Costs and expenses:
Operating		164,290			160,522			147,874			324,812			293,370
Selling, general and administrative		24,259			22,850			22,616			47,109			45,037
Depreciation and amortization		3,783			3,869			3,623			7,652			7,280
Total costs and expenses		192,332			187,241			174,113			379,573			345,687
Operating earnings		12,832			14,290			7,786			27,122			16,316
Interest income		4			15			38			19			75
Interest expense		(549	)		(572	)		(1,006	)		(1,121	)		(2,305	)
Other income (expense), net		—			1			25			1			28
Equity in net income of affiliates		108			166			140			274			298
Earnings from continuing operations before income taxes		12,395			13,900			6,983			26,295			14,412
Income tax expense		4,965			5,503			2,975			10,468			5,904
Earnings from continuing operations		7,430			8,397			4,008			15,827			8,508
Gain (loss) from discontinued operations		(882	)		51			(159	)		(831	)		(231	)
Net earnings		6,548			8,448			3,849			14,996			8,277
Net loss attributable to noncontrolling interests		335			212			647			547			727
Net earnings attributable to RehabCare	$	6,883		$	8,660		$	4,496		$	15,543		$	9,004
Amounts attributable to RehabCare:
Earnings from continuing operations	$	7,765		$	8,609		$	4,655		$	16,374		$	9,235
Gain (loss) from discontinued operations		(882	)		51			(159	)		(831	)		(231	)
Net earnings	$	6,883		$	8,660		$	4,496		$	15,543		$	9,004
Diluted EPS attributable to RehabCare:
Earnings from continuing operations	$	0.43		$	0.48		$	0.26		$	0.91		$	0.52
Gain (loss) from discontinued operations		(0.05	)		—			(0.01	)		(0.04	)		(0.01	)
Net earnings	$	0.38		$	0.48		$	0.25		$	0.87		$	0.51
Weighted average diluted shares		18,097			17,899			17,737			17,955			17,723

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REHABCARE REPORTS SECOND QUARTER 2009 RESULTSPage 7

II. Condensed Consolidated Balance Sheets
(Amounts in thousands)
	Unaudited
	June 30,		December 31,
	2009		2008
Assets
Cash and cash equivalents	$	23,585	$	27,373
Accounts receivable, net		141,153		139,197
Deferred tax assets		13,803		14,876
Other current assets		10,726		7,165
Total current assets		189,267		188,611
Property and equipment, net		41,656		37,851
Goodwill		173,462		171,365
Intangible assets		26,555		28,944
Investment in unconsolidated affiliate		4,751		4,772
Other assets		6,087		6,863
	$	441,778	$	438,406
Liabilities & Equity
Current portion of long-term debt	$	5,615	$	—
Payables & accruals		95,823		91,327
Total current liabilities		101,438		91,327
Long-term debt, less current portion		27,040		57,000
Other non-current liabilities		13,122		12,279
Stockholders’ equity		286,278		267,772
Noncontrolling interests		13,900		10,028
	$	441,778	$	438,406

III. Condensed Consolidated Statements of Cash Flows
(Unaudited; amounts in thousands)
	Six Months Ended
	June 30,
	2009			2008
Net cash provided by operating activities	$	27,077		$	18,623
Net cash used in investing activities		(6,866	)		(14,388	)
Net cash used in financing activities		(23,999	)		(155	)
Net increase (decrease) in cash and cash equivalents		(3,788	)		4,080
Cash and cash equivalents at beginning of period		27,373			10,265
Cash and cash equivalents at end of period	$	23,585		$	14,345
Supplemental information:
Additions to property and equipment	$	(5,881	)	$	(7,485	)

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REHABCARE REPORTS SECOND QUARTER 2009 RESULTSPage 8

IV. Operating Statistics (Unaudited; dollars in thousands)
		Second			First			Second		Six Months Ended
		Quarter			Quarter			Quarter		June 30,
		2009			2009			2008			2009			2008
Skilled Nursing Rehabilitation Services
Operating revenues	$	123,787		$	123,148		$	114,478		$	246,935		$	226,928
Operating expenses		100,134			98,998			93,867			199,132			186,938
Selling, general and administrative		12,967			12,017			12,730			24,984			26,213
Depreciation and amortization		1,578			1,678			1,720			3,256			3,507
Operating earnings	$	9,108		$	10,455		$	6,161		$	19,563		$	10,270
Operating earnings margin		7.4	%		8.5	%		5.4	%		7.9	%		4.5	%
Average number of contract therapy locations		1,068			1,074			1,061			1,071			1,058
End of period number of contract therapy locations		1,065			1,063			1,053			1,065			1,053
Patient visits (in thousands)		2,017			2,005			1,914			4,022			3,808
Hospital Rehabilitation Services
Operating revenues
Inpatient Rehabilitation Facility (IRF)	$	31,257		$	30,018		$	27,482		$	61,275		$	54,802
Subacute		1,662			1,725			2,398			3,387			4,837
Total Inpatient	$	32,919		$	31,743		$	29,880		$	64,662		$	59,639
Outpatient		12,178			11,323			10,344			23,501			20,766
Total HRS	$	45,097		$	43,066		$	40,224		$	88,163		$	80,405
Operating expenses		31,007			30,634			28,306			61,641			57,495
Selling, general and administrative		5,806			5,490			5,931			11,296			11,565
Depreciation and amortization		624			646			676			1,270			1,396
Operating earnings	$	7,660		$	6,296		$	5,311		$	13,956		$	9,949
Operating earnings margin		17.0	%		14.6	%		13.2	%		15.8	%		12.4	%
Average number of programs
IRF		113			113			107			113			107
Subacute		9			9			13			9			14
Total Inpatient		122			122			120			122			121
Outpatient		36			36			33			36			33
Total HRS		158			158			153			158			154
End of period number of programs
IRF		111			113			107			111			107
Subacute		9			9			14			9			14
Total Inpatient		120			122			121			120			121
Outpatient		36			36			33			36			33
Total HRS		156			158			154			156			154
IRF discharges		11,359			10,999			10,309			22,358			20,585
Subacute discharges		792			857			734			1,649			1,529
Total Inpatient discharges		12,151			11,856			11,043			24,007			22,114
Outpatient visits (in thousands)		328			311			241			639			481
Hospitals
Operating revenues	$	36,280		$	35,317		$	27,197		$	71,597		$	54,670
Operating expenses		33,149			30,890			25,701			64,039			48,937
Selling, general and administrative		5,351			5,224			3,796			10,575			6,969
Depreciation and amortization		1,581			1,545			1,227			3,126			2,377
Operating earnings (loss)	$	(3,801	)	$	(2,342	)	$	(3,527	)	$	(6,143	)	$	(3,613	)
Operating earnings margin		-10.5	%		-6.6	%		-13.0	%		-8.6	%		-6.6	%
End of period number of facilities		12			11			10			12			10
Patient days		30,233			28,791			23,766			59,024			47,397
Discharges		1,817			1,647			1,467			3,464			2,959

-END-

EX-99..2

Exhibit 99.2

REHABCARE CONFERENCE CALL SCRIPT

August 6, 2009

INTRODUCTION BY CONFERENCE OPERATOR

INTRODUCTION OF MANAGEMENT BY GENERAL COUNSEL

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. 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 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.

Results for the second quarter were mostly in line with our expectations. Our Skilled Nursing Rehabilitation Services (SRS) and Hospital Rehabilitation Services (HRS) divisions delivered a stellar earnings performance.  And, all of our divisions achieved strong operating and same store revenue growth.

The slip in earnings performance by our Hospital division in the second quarter was primarily the result of lower revenue per patient day in certain hospitals.  We continue to take actions to improve performance in each of our hospital markets while assessing opportunities that will move us closer to a level of critical mass in our Hospital division.   A broader base of hospitals will allow us to better leverage our infrastructure and absorb the impact of start-ups, seasonal shifts and performance issues at individual hospitals.   To that end, on June 30, we announced our joint venture ownership of Dallas LTAC Hospital.  With the addition of Dallas and Greater Peoria Specialty Hospital, which opened on August 4, we currently own and operate 13 hospitals, six inpatient rehabilitation facilities and seven long-term acute care hospitals (LTACHs).

Now, let me share some of the highlights from the quarter as they pertain to our core operating divisions.

Year-over-year operating revenues improved 8.1 percent to 123.8 million dollars in our Skilled Nursing Rehabilitation Services division, driven by a 9.1 percent increase in contract therapy same store revenues.  The division had a net gain of 12 units over the second quarter of 2008 and a net gain of two from the first quarter.  We opened 33 new locations and closed 31 during the quarter compared to 35 openings and 40 closures in the first quarter of 2009.  We continue to see a relatively high period of consolidation and ownership changes among our skilled nursing facility (SNF) clients. In the second quarter, 44 new client contracts were signed and the number of signed but unopened contracts stood at 26 at the end of the quarter.

Operating earnings were 9.1 million dollars, or 7.4 percent of revenue, compared to 6.2 million dollars, or 5.4 percent of revenue, in the second quarter of 2008.  The year-over-year gain is a result of improved operating performance and better leveraging of selling, general and administrative costs.

Operating revenues in our Hospital Rehabilitation Services division improved 12.1 percent to 45.1 million dollars over the prior year quarter, with inpatient revenues increasing by 10.2 percent and outpatient revenues increasing 17.7 percent.  Inpatient rehabilitation facility same store discharges increased 5.9 percent compared to second quarter 2008 and outpatient same store revenues increased 12.4 percent.

Operating earnings increased to 7.7 million dollars, or 17.0 percent of revenue, compared to 5.3 million dollars, or 13.2 percent of revenue, in the second quarter of 2008.  A higher average number of inpatient rehabilitation facilities, increased revenue per program and strong same store growth contributed to year-over-year revenue and earnings growth.

At the end of second quarter 2009, HRS operated 156 programs compared to 154 at the end of second quarter 2008 and 158 at the end of first quarter 2009.  The number of inpatient rehabilitation facility programs was down two sequentially to 111 but up from 107 a year ago. The division had two inpatient rehabilitation facility openings and four closings and two signed but unopened inpatient rehabilitation facility contracts.  For the full year 2009, we expect stable unit count in our HRS division.

Revenues in our Hospital division in the second quarter increased 2.7 percent sequentially and same store discharges increased 10.3 percent.  The division reported an operating loss of 3.8 million dollars compared to a loss of 2.3 million dollars in the first quarter.  The 1.5 million dollar sequential increase in operating losses was primarily due to lower revenue per patient day, a result of decreased case-mix index and higher unfunded days in certain hospitals and limiting admissions to achieve compliance with the 60% Rule in two of our IRFs.

Turning to an update on the legislative landscape,while post-acute bundling generated considerable debate during the first quarter, the focus today is on whether Congress will reach agreement on a health reform package.  We remain actively engaged in the healthcare debate and cautiously optimistic that a bill will surface before year end that would include both a physician fee schedule fix and an extension of the Part B Therapy Cap exception process, which expires December 31.

On July 31, CMS released the final rules for FY2010 Medicare reimbursement.  We estimate a net 2.8 percent rate increase for our freestanding inpatient rehabilitation facilities and a net 1.4 percent increase for our LTACHs.  The 1.1 percent decrease for SNFs will likely result in some downward pricing pressure in our SRS division.

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

JAY SHREINER

Thank you, John.

Consolidated operating revenues for the second quarter of 2009 were 205.2 million dollars, compared to 181.9 million dollars in the second quarter of 2008, a 12.8 percent increase.

Net earnings from continuing operations for the second quarter of 2009 were 7.4 million dollars compared to 4.0 million dollars in the 2008 second quarter.  Diluted earnings per share attributable to RehabCare from continuing operations for the second quarter of 2009 were 43 cents compared to 26 cents in the second quarter of 2008.

Consolidated net earnings attributable to RehabCare were 6.9 million dollars, or 38 cents per diluted share, in the second quarter of 2009, compared to 4.5 million dollars, or 25 cents per diluted share, in the second quarter of 2008.  In the 2009 second quarter, we incurred a loss from discontinued operations, net of tax, of 900,000 dollars.  This includes a 700,000 dollar after-tax loss on the sale of Phase 2 Consulting on June 1 and a 200,000 dollar after-tax loss from Phase 2’s discontinued operating activities through the date of sale.

For the six-month period ending June 30, 2009, we generated cash from operations of 27.1 million dollars and spent 5.9 million dollars for capital expenditures, principally related to information systems and equipment for Greater Peoria Specialty Hospital.

Days sales outstanding in accounts receivable decreased to 60.9 days at June 30, 2009 compared to 63.9 days at March 31, 2009, a result of successful collection efforts.

At quarter end, we had approximately 23.6 million dollars in cash and cash equivalents and 32.7 million dollars in outstanding debt, a 24.3 million dollar decrease from the end of the first quarter.  Net debt (or outstanding debt less cash and cash equivalents) stood at 9.1 million dollars at the end of second quarter 2009 compared to 18.8 million dollars at the end of the first quarter 2009.

As previously stated, we will not be providing revenue and earnings per share guidance for 2009, but provide the following outlook, which takes into consideration the recently released final Medicare rules:

●  We anticipate strong consolidated revenue and net earnings growth for the full year 2009.

●  In our Skilled Nursing Rehabilitation Services division, we expect 6.5 to 7.5 percent operating earnings margins for the remainder of 2009, driven by 6 to 8 percent year-over-year same store revenue growth.  The division also expects flat to modest unit growth in 2009.

●  The Hospital Rehabilitation Services division expects 15 to 17 percent operating earnings margin and flat unit growth for the remainder of 2009.  The division also anticipates 3 to 5 percent year-over-year growth in inpatient rehabilitation facility same store discharges.

●  For our Hospital division, we expect total year operating losses of $12.5 to $14.0 million, which includes approximately $3.0 million of incurred and anticipated merger and acquisition related costs, including $500,000 for the Dallas LTAC acquisition. For full year 2009, revenue is expected to be between 155 and 165 million dollars, driven by strong growth in mature and de novo hospitals, including our Dallas LTACH.  We continue to expect breakeven operating earnings run rate by the end of the first half of 2010.

●  The effective tax rate is anticipated to approximate 39 percent for 2009 after consideration of noncontrolling interests and equity income.

●  We expect continued strong operating cash flow and DSO in the range of 60 to 65 days.

●  Capital expenditures are anticipated to be approximately 6.0 million dollars for the remainder of 2009, principally related to information systems investments.

Now I will turn the call back over to John.

JOHN SHORT

Thank you, Jay.

Closing Remarks

We are very pleased with the performance of our SRS and HRS divisions during the first half of the year and are well positioned to deliver on our revenue and earnings outlook for 2009.  Their consistent execution and our conservative balance sheet have given us the financial flexibility to evaluate growth opportunities that will help our Hospital division achieve economies of scale.

While it is still unclear how healthcare reform will ultimately change the face of healthcare, we remain confident in the underlying strength of our business model, and in our innovative spirit, to move us into the future.

I want to thank our colleagues for their hard work and dedication.  Only through their support can we continue to build an organization with the strength and stability to deliver on our greatest promise, which is to help people regain their lives.

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 noon Eastern time today.