ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 34-bed community hospital in SHELBY, AL with $17.4M in net patient revenue and a 10.5% operating margin. The hospital serves a payer mix of 60.0% Medicare, 0.0% Medicaid, and 40.0% commercial.
Thesis: Turnaround. Our ML models identify $1.3M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 10.5% to 17.9% (+736bps).
| Net Revenue HCRIS | $17.4M |
| Current EBITDA COMPUTED | $1.8M |
| Operating Margin COMPUTED | 10.5% |
| Occupancy HCRIS | 87.5% |
| Revenue / Bed COMPUTED | $512K |
| Net-to-Gross HCRIS | 60.8% |
| 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 10.5% places it above the state median. Among 57 size-comparable peers (17-68 beds), the median margin is -16.5%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (17-68), prioritizing same-state peers. 57 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | AL | 34 | $17.4M | 10.5% |
| ATHENS LIMESTONE | AL | 66 | $88.9M | -20.9% |
| RUSSELL MEDICAL CENTER | AL | 45 | $75.3M | -14.8% |
| JACK HUGHSTON MEMORIAL HOSPITA | AL | 47 | $75.2M | 6.5% |
| EASTPOINTE HOSPITAL | AL | 66 | $56.6M | -50.0% |
| NORTH BALDWIN INFIRMARY | AL | 35 | $55.3M | -3.3% |
| PRATTVILLE BAPTIST HOSPITAL | AL | 55 | $53.5M | -16.2% |
| HIGHLANDS MEDICAL CENTER | AL | 45 | $45.9M | -30.2% |
| ST. VINCENTS ST. CLAIR | AL | 40 | $40.8M | 8.7% |
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: $1.3M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $365K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $348K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $345K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $212K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $11K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $1.8M |
| + RCM Uplift | +$1.3M |
| Pro Forma EBITDA | $3.1M |
| Current Margin | 10.5% |
| Pro Forma Margin | 17.9% |
| WC Released (1x) | $667K |
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 | $2.8M | $24.9M | 8.83x | 54.6% |
| Base (11x exit) | 10.0x | 11.0x | $2.8M | $28.3M | 10.03x | 58.6% |
| Bull Case | 9.0x | 11.0x | $2.5M | $33.5M | 13.18x | 67.5% |
| Bull (12x exit) | 9.0x | 12.0x | $2.5M | $37.2M | 14.67x | 71.1% |
| Bear Case | 11.0x | 10.0x | $3.1M | $17.6M | 5.67x | 41.5% |
| Bear (11x exit) | 11.0x | 11.0x | $3.1M | $20.4M | 6.56x | 45.7% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 60.0% of days; rate updates may lag inflation. Mitigant: CDI/CMI lever directly increases Medicare reimbursement |
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
- 57 hospitals with 17-68 beds
- Same-state prioritization (n=58)
- Comp margins: P25=-29.4% / P50=-16.5% / P75=-3.1%
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.