ENCOMPASS HEALTH REHABILITATION INST
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION INST is a 80-bed suburban community hospital in PIMA, AZ with $17.0M in net patient revenue and a 10.2% operating margin. The hospital serves a payer mix of 46.2% Medicare, 0.6% Medicaid, and 53.1% commercial.
Thesis: Turnaround. Our ML models identify $1.3M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 10.2% to 17.5% (+736bps).
| Net Revenue HCRIS | $17.0M |
| Current EBITDA COMPUTED | $1.7M |
| Operating Margin COMPUTED | 10.2% |
| Occupancy HCRIS | 68.9% |
| Revenue / Bed COMPUTED | $213K |
| Net-to-Gross HCRIS | 63.2% |
| Distress Probability ML | 48.8% |
2. Market Context & Competitive Position
AZ has 124 Medicare-certified hospitals with a median operating margin of -0.8%. The target's margin of 10.2% places it above the state median. Among 57 size-comparable peers (40-160 beds), the median margin is 1.9%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (40-160), prioritizing same-state peers. 57 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | AZ | 80 | $17.0M | 10.2% |
| HAVASU REGIONAL MEDICAL CENTER | AZ | 144 | $256.1M | 16.9% |
| SUMMIT HEALTHCARE | AZ | 89 | $254.1M | -2.9% |
| BANNER UNIVERSITY MED CENTER S | AZ | 132 | $190.9M | -16.3% |
| HONORHEALTH SCOTTSDALE THOMPSO | AZ | 120 | $187.9M | -1.6% |
| VERDE VALLEY MEDICAL CENTER | AZ | 87 | $172.5M | 4.3% |
| BANNER HEART HOSPITAL | AZ | 108 | $162.2M | 17.4% |
| BANNER CASA GRANDE MEDICAL CEN | AZ | 141 | $151.2M | -6.3% |
| NORTHWEST MEDICAL CENTER ORO V | AZ | 96 | $145.8M | 10.6% |
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% | $358K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $341K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $337K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $207K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $11K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $1.7M |
| + RCM Uplift | +$1.3M |
| Pro Forma EBITDA | $3.0M |
| Current Margin | 10.2% |
| Pro Forma Margin | 17.5% |
| WC Released (1x) | $653K |
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 | $2.7M | $24.0M | 8.99x | 55.2% |
| Base (11x exit) | 10.0x | 11.0x | $2.7M | $27.2M | 10.22x | 59.2% |
| Bull Case | 9.0x | 11.0x | $2.4M | $32.2M | 13.44x | 68.1% |
| Bull (12x exit) | 9.0x | 12.0x | $2.4M | $35.9M | 14.96x | 71.8% |
| Bear Case | 11.0x | 10.0x | $2.9M | $16.8M | 5.74x | 41.8% |
| Bear (11x exit) | 11.0x | 11.0x | $2.9M | $19.5M | 6.64x | 46.0% |
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
- 57 hospitals with 40-160 beds
- Same-state prioritization (n=58)
- Comp margins: P25=-10.9% / P50=1.9% / P75=8.6%
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.