ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 50-bed suburban community hospital in CHATHAM, GA with $27.8M in net patient revenue and a 19.7% operating margin. The hospital serves a payer mix of 60.2% Medicare, 1.2% Medicaid, and 38.6% commercial.
Thesis: Turnaround. Our ML models identify $2.0M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 19.7% to 27.1% (+736bps).
| Net Revenue HCRIS | $27.8M |
| Current EBITDA COMPUTED | $5.5M |
| Operating Margin COMPUTED | 19.7% |
| Occupancy HCRIS | 93.3% |
| Revenue / Bed COMPUTED | $555K |
| Net-to-Gross HCRIS | 71.2% |
| Distress Probability ML | 44.2% |
2. Market Context & Competitive Position
GA has 165 Medicare-certified hospitals with a median operating margin of -2.8%. The target's margin of 19.7% places it above the state median. Among 89 size-comparable peers (25-100 beds), the median margin is -3.4%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (25-100), prioritizing same-state peers. 89 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | GA | 50 | $27.8M | 19.7% |
| TANNER MEDICAL CENTER-VILLA RI | GA | 58 | $289.8M | 33.3% |
| NORTHSIDE HOSPITAL - DULUTH | GA | 87 | $193.2M | -3.1% |
| ADVENTHEALTH GORDON | GA | 69 | $188.5M | -3.4% |
| COLQUITT REGIONAL MEDICAL CENT | GA | 99 | $173.8M | -17.0% |
| KENNESTONE HOSPITAL AT WINDY H | GA | 55 | $160.5M | 0.7% |
| PIEDMONT NEWTON HOSPITAL | GA | 94 | $148.5M | 4.8% |
| COFFEE REGIONAL MEDICAL CENTER | GA | 82 | $141.6M | -10.3% |
| PIEDMONT COLUMBUS REGIONAL NOR | GA | 71 | $135.5M | 21.7% |
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: $2.0M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $583K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $555K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $550K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $338K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $18K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $5.5M |
| + RCM Uplift | +$2.0M |
| Pro Forma EBITDA | $7.5M |
| Current Margin | 19.7% |
| Pro Forma Margin | 27.1% |
| WC Released (1x) | $1.1M |
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 | $8.4M | $56.6M | 6.71x | 46.3% |
| Base (11x exit) | 10.0x | 11.0x | $8.4M | $65.0M | 7.71x | 50.4% |
| Bull Case | 9.0x | 11.0x | $7.6M | $74.5M | 9.81x | 57.9% |
| Bull (12x exit) | 9.0x | 12.0x | $7.6M | $83.5M | 11.00x | 61.5% |
| Bear Case | 11.0x | 10.0x | $9.3M | $43.6M | 4.70x | 36.3% |
| Bear (11x exit) | 11.0x | 11.0x | $9.3M | $51.0M | 5.50x | 40.6% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 60.2% of days; rate updates may lag inflation. Mitigant: CDI/CMI lever directly increases Medicare reimbursement |
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
- 89 hospitals with 25-100 beds
- Same-state prioritization (n=90)
- Comp margins: P25=-16.7% / P50=-3.4% / P75=5.2%
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.