ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 80-bed rural/critical access in INDIAN RIVER, FL with $32.5M in net patient revenue and a 14.9% operating margin. The hospital serves a payer mix of 75.0% Medicare, 0.2% Medicaid, and 24.8% commercial.
Thesis: Turnaround. Our ML models identify $2.4M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 14.9% to 22.3% (+736bps).
| Net Revenue HCRIS | $32.5M |
| Current EBITDA COMPUTED | $4.9M |
| Operating Margin COMPUTED | 14.9% |
| Occupancy HCRIS | 71.2% |
| Revenue / Bed COMPUTED | $406K |
| Net-to-Gross HCRIS | 73.7% |
| Distress Probability ML | 50.2% |
2. Market Context & Competitive Position
FL has 261 Medicare-certified hospitals with a median operating margin of 3.2%. The target's margin of 14.9% places it above the state median. Among 122 size-comparable peers (40-160 beds), the median margin is 2.8%. 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. 122 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | FL | 80 | $32.5M | 14.9% |
| WEST KENDALL BAPTIST HOSPITAL | FL | 127 | $361.6M | 18.5% |
| ADVENTHEALTH PALM COAST | FL | 99 | $285.7M | 8.1% |
| HOMESTEAD HOSPITAL | FL | 159 | $270.4M | -11.1% |
| NEMOURS CHILDRENS HOSPITAL | FL | 130 | $268.7M | -10.2% |
| DOCTORS HOSPITAL | FL | 130 | $250.0M | 0.9% |
| ADVENTHEALTH ZEPHYRHILLS | FL | 149 | $207.1M | -0.8% |
| ADVENTHEALTH DELAND | FL | 142 | $197.1M | 2.8% |
| ASCENSION SACRED HEART BAY | FL | 126 | $192.1M | -6.7% |
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: $2.4M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $682K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $650K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $643K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $395K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $21K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $4.9M |
| + RCM Uplift | +$2.4M |
| Pro Forma EBITDA | $7.2M |
| Current Margin | 14.9% |
| Pro Forma Margin | 22.3% |
| WC Released (1x) | $1.2M |
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 | $7.5M | $55.9M | 7.49x | 49.6% |
| Base (11x exit) | 10.0x | 11.0x | $7.5M | $63.9M | 8.57x | 53.7% |
| Bull Case | 9.0x | 11.0x | $6.7M | $74.2M | 11.05x | 61.7% |
| Bull (12x exit) | 9.0x | 12.0x | $6.7M | $83.0M | 12.35x | 65.3% |
| Bear Case | 11.0x | 10.0x | $8.2M | $41.5M | 5.06x | 38.3% |
| Bear (11x exit) | 11.0x | 11.0x | $8.2M | $48.3M | 5.89x | 42.6% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 75.0% of days; rate updates may lag inflation. Mitigant: CDI/CMI lever directly increases Medicare reimbursement |
| High | Elevated distress probability | Model estimates 50.2% 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
- 122 hospitals with 40-160 beds
- Same-state prioritization (n=123)
- Comp margins: P25=-10.2% / P50=2.8% / P75=11.7%
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.