ENCOMPASS HEALTH VALLEY OF THE SUN R
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH VALLEY OF THE SUN R is a 75-bed suburban community hospital in MARICOPA, AZ with $22.6M in net patient revenue and a 3.7% operating margin. The hospital serves a payer mix of 32.5% Medicare, 1.2% Medicaid, and 66.3% commercial.
Thesis: Turnaround. Our ML models identify $1.7M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 3.7% to 11.1% (+736bps).
| Net Revenue HCRIS | $22.6M |
| Current EBITDA COMPUTED | $845K |
| Operating Margin COMPUTED | 3.7% |
| Occupancy HCRIS | 54.4% |
| Revenue / Bed COMPUTED | $301K |
| Net-to-Gross HCRIS | 64.4% |
| Distress Probability ML | 51.7% |
2. Market Context & Competitive Position
AZ has 124 Medicare-certified hospitals with a median operating margin of -0.8%. The target's margin of 3.7% places it above the state median. Among 54 size-comparable peers (38-150 beds), the median margin is 2.2%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (38-150), prioritizing same-state peers. 54 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH VALLEY OF THE (Target) | AZ | 75 | $22.6M | 3.7% |
| 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: $1.7M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $475K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $452K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $447K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $275K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $14K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $845K |
| + RCM Uplift | +$1.7M |
| Pro Forma EBITDA | $2.5M |
| Current Margin | 3.7% |
| Pro Forma Margin | 11.1% |
| WC Released (1x) | $867K |
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 | $1.3M | $22.2M | 17.09x | 76.4% |
| Base (11x exit) | 10.0x | 11.0x | $1.3M | $24.8M | 19.12x | 80.4% |
| Bull Case | 9.0x | 11.0x | $1.2M | $30.8M | 26.30x | 92.3% |
| Bull (12x exit) | 9.0x | 12.0x | $1.2M | $33.9M | 28.99x | 96.1% |
| Bear Case | 11.0x | 10.0x | $1.4M | $13.5M | 9.42x | 56.6% |
| Bear (11x exit) | 11.0x | 11.0x | $1.4M | $15.3M | 10.69x | 60.6% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| High | Elevated distress probability | Model estimates 51.7% probability of financial distress. Mitigant: distressed entry pricing (7-9x) compensates for risk |
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
- 54 hospitals with 38-150 beds
- Same-state prioritization (n=55)
- Comp margins: P25=-10.9% / P50=2.2% / P75=10.2%
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.