ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 60-bed suburban community hospital in ARAPAHOE, CO with $21.8M in net patient revenue and a -5.9% operating margin. The hospital serves a payer mix of 46.2% Medicare, 23.4% Medicaid, and 30.3% commercial.
Thesis: Turnaround. Our ML models identify $1.6M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -5.9% to 1.5% (+736bps).
| Net Revenue HCRIS | $21.8M |
| Current EBITDA COMPUTED | $-1.3M |
| Operating Margin COMPUTED | -5.9% |
| Occupancy HCRIS | 67.8% |
| Revenue / Bed COMPUTED | $363K |
| Net-to-Gross HCRIS | 56.1% |
| Distress Probability ML | 53.6% |
2. Market Context & Competitive Position
CO has 108 Medicare-certified hospitals with a median operating margin of -3.6%. The target's margin of -5.9% places it below the state median. Among 42 size-comparable peers (30-120 beds), the median margin is -3.6%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (30-120), prioritizing same-state peers. 42 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | CO | 60 | $21.8M | -5.9% |
| VALLEY VIEW HOSPITAL | CO | 31 | $285.3M | -3.1% |
| CENTURA MERCY HOSPITAL | CO | 73 | $270.4M | 10.0% |
| CENTURA ST. ANTHONY NORTH HOSP | CO | 118 | $268.3M | 10.9% |
| UCHEALTH HIGHLANDS RANCH HOSPI | CO | 93 | $235.2M | -4.6% |
| COMMUNITY HOSPITAL | CO | 44 | $216.5M | -5.5% |
| VAIL VALLEY MEDICAL CENTER | CO | 54 | $214.4M | -28.1% |
| UCHEALTH LONGS PEAK HOSPITAL | CO | 83 | $181.8M | -1.7% |
| CENTURA AVISTA ADVENTIST HOSPI | CO | 108 | $181.3M | 8.4% |
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: $1.6M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $457K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $435K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $431K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $265K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $14K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-1.3M |
| + RCM Uplift | +$1.6M |
| Pro Forma EBITDA | $317K |
| Current Margin | -5.9% |
| Pro Forma Margin | 1.5% |
| WC Released (1x) | $835K |
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 | $-2.0M | $7.5M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-2.0M | $7.7M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-1.8M | $12.3M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-1.8M | $12.9M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-2.2M | $174K | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-2.2M | $-515K | 0.00x | -100.0% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| High | Negative operating margin | RCM uplift bridge shows clear path to profitability; working capital release provides near-term cash cushion |
| Medium | Elevated Medicaid exposure (23.4%) | Medicaid reimburses below cost in most states. Mitigant: denial reduction lever has highest impact on Medicaid claims |
| High | Elevated distress probability | Model estimates 53.6% 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
- 42 hospitals with 30-120 beds
- Same-state prioritization (n=43)
- Comp margins: P25=-9.7% / P50=-3.6% / P75=4.6%
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.