ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 85-bed community hospital in MADISON, AL with $42.1M in net patient revenue and a 17.9% operating margin. The hospital serves a payer mix of 53.9% Medicare, 0.0% Medicaid, and 46.1% commercial.
Thesis: Turnaround. Our ML models identify $3.1M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 17.9% to 25.2% (+736bps).
| Net Revenue HCRIS | $42.1M |
| Current EBITDA COMPUTED | $7.5M |
| Operating Margin COMPUTED | 17.9% |
| Occupancy HCRIS | 95.5% |
| Revenue / Bed COMPUTED | $496K |
| Net-to-Gross HCRIS | 63.6% |
| Distress Probability ML | nan% |
2. Market Context & Competitive Position
AL has 115 Medicare-certified hospitals with a median operating margin of -8.5%. The target's margin of 17.9% places it above the state median. Among 41 size-comparable peers (42-170 beds), the median margin is -11.7%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (42-170), prioritizing same-state peers. 41 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | AL | 85 | $42.1M | 17.9% |
| CRESTWOOD MEDICAL CENTER | AL | 164 | $258.9M | 14.6% |
| THOMAS HOSPITAL | AL | 164 | $244.7M | 6.2% |
| SOUTH BALDWIN REGIONAL MEDICAL | AL | 112 | $168.2M | 46.4% |
| CULLMAN REGIONAL | AL | 137 | $167.1M | -4.9% |
| ATHENS LIMESTONE | AL | 66 | $88.9M | -20.9% |
| BRYCE HOSPITAL | AL | 98 | $76.4M | 29.5% |
| RUSSELL MEDICAL CENTER | AL | 45 | $75.3M | -14.8% |
| JACK HUGHSTON MEMORIAL HOSPITA | AL | 47 | $75.2M | 6.5% |
4. Predicted Improvement Opportunities
Improvement targets set at P75 of comparable peers with 60% gap closure assumption. Coefficients calibrated to published research bands. Total EBITDA uplift: $3.1M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $885K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $842K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $834K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $513K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $27K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $7.5M |
| + RCM Uplift | +$3.1M |
| Pro Forma EBITDA | $10.6M |
| Current Margin | 17.9% |
| Pro Forma Margin | 25.2% |
| WC Released (1x) | $1.6M |
6. Returns Analysis — Scenario Matrix
5-year hold, 5.5x leverage, 3% organic growth, 10%/yr debt paydown. Base case uses 100% of predicted RCM uplift. Bull case: 130% uplift at lower entry. Bear case: 50% uplift at higher entry.
| Scenario | Entry | Exit | Equity In | Equity Out | MOIC | IRR |
|---|---|---|---|---|---|---|
| Base Case | 10.0x | 10.0x | $11.6M | $80.7M | 6.96x | 47.4% |
| Base (11x exit) | 10.0x | 11.0x | $11.6M | $92.5M | 7.98x | 51.5% |
| Bull Case | 9.0x | 11.0x | $10.4M | $106.5M | 10.21x | 59.2% |
| Bull (12x exit) | 9.0x | 12.0x | $10.4M | $119.3M | 11.44x | 62.8% |
| Bear Case | 11.0x | 10.0x | $12.7M | $61.4M | 4.82x | 37.0% |
| Bear (11x exit) | 11.0x | 11.0x | $12.7M | $71.7M | 5.63x | 41.3% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Standard execution risk | RCM improvement requires management buy-in and 12-18 month implementation timeline |
8. Data Sources & Methodology Appendix
Data Sources
- CMS HCRIS Cost Reports (Medicare-certified hospitals)
- CMS Medicare Utilization (DRG-level volumes)
- CMS Chronic Conditions (county-level disease prevalence)
- HCRIS multi-year trend data (financial time series)
Comparable Selection
- 41 hospitals with 42-170 beds
- Same-state prioritization (n=42)
- Comp margins: P25=-18.3% / P50=-11.7% / P75=6.1%
Bridge Methodology
- Targets: P75 of comparable peers (60% gap closure)
- Denial: avoidable share = 35% of delta × NPR
- AR: bad debt coefficient = $0.65 per day per $1K NPR
- NCR: 60% coefficient on collection rate improvement
- CDI: 0.75% of Medicare revenue per 0.01 CMI point
Returns Assumptions
- Leverage: 5.5x entry (84.6% debt / 15.4% equity)
- Organic growth: 3% annual EBITDA growth
- Debt paydown: 10% of principal per year
- Hold period: 5 years
Generated by SeekingChartis on April 26, 2026. All predictions use public data only. Confidence intervals calibrated via split conformal prediction (90% coverage target). This memo is for informational purposes and does not constitute investment advice.