ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 75-bed rural/critical access in BAY, FL with $24.3M in net patient revenue and a 4.6% operating margin. The hospital serves a payer mix of 64.6% Medicare, 0.6% Medicaid, and 34.8% commercial.
Thesis: Turnaround. Our ML models identify $1.8M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 4.6% to 12.0% (+736bps).
| Net Revenue HCRIS | $24.3M |
| Current EBITDA COMPUTED | $1.1M |
| Operating Margin COMPUTED | 4.6% |
| Occupancy HCRIS | 58.8% |
| Revenue / Bed COMPUTED | $324K |
| Net-to-Gross HCRIS | 70.7% |
| Distress Probability ML | 52.5% |
2. Market Context & Competitive Position
FL has 261 Medicare-certified hospitals with a median operating margin of 3.2%. The target's margin of 4.6% places it above the state median. Among 120 size-comparable peers (38-150 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 (38-150), prioritizing same-state peers. 120 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | FL | 75 | $24.3M | 4.6% |
| WEST KENDALL BAPTIST HOSPITAL | FL | 127 | $361.6M | 18.5% |
| ADVENTHEALTH PALM COAST | FL | 99 | $285.7M | 8.1% |
| 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% |
| ASCENSION SACRED HEART EMERALD | FL | 80 | $187.9M | 16.1% |
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: $1.8M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $510K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $486K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $481K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $296K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $16K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $1.1M |
| + RCM Uplift | +$1.8M |
| Pro Forma EBITDA | $2.9M |
| Current Margin | 4.6% |
| Pro Forma Margin | 12.0% |
| WC Released (1x) | $932K |
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 | $1.7M | $25.3M | 14.59x | 70.9% |
| Base (11x exit) | 10.0x | 11.0x | $1.7M | $28.4M | 16.38x | 74.9% |
| Bull Case | 9.0x | 11.0x | $1.6M | $34.9M | 22.34x | 86.1% |
| Bull (12x exit) | 9.0x | 12.0x | $1.6M | $38.5M | 24.66x | 89.8% |
| Bear Case | 11.0x | 10.0x | $1.9M | $15.8M | 8.29x | 52.6% |
| Bear (11x exit) | 11.0x | 11.0x | $1.9M | $18.0M | 9.44x | 56.7% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 64.6% of days; rate updates may lag inflation. Mitigant: CDI/CMI lever directly increases Medicare reimbursement |
| High | Elevated distress probability | Model estimates 52.5% 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
- 120 hospitals with 38-150 beds
- Same-state prioritization (n=121)
- Comp margins: P25=-9.4% / P50=2.8% / P75=11.8%
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.