ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 187-bed suburban community hospital in NORFOLK, MA with $73.5M in net patient revenue and a 19.6% operating margin. The hospital serves a payer mix of 53.1% Medicare, 4.3% Medicaid, and 42.6% commercial.
Thesis: Turnaround. Our ML models identify $5.4M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 19.6% to 27.0% (+736bps).
| Net Revenue HCRIS | $73.5M |
| Current EBITDA COMPUTED | $14.4M |
| Operating Margin COMPUTED | 19.6% |
| Occupancy HCRIS | 58.3% |
| Revenue / Bed COMPUTED | $393K |
| Net-to-Gross HCRIS | 73.9% |
| Distress Probability ML | 53.7% |
2. Market Context & Competitive Position
MA has 99 Medicare-certified hospitals with a median operating margin of -12.2%. The target's margin of 19.6% places it above the state median. Among 53 size-comparable peers (94-374 beds), the median margin is -10.1%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (94-374), prioritizing same-state peers. 53 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | MA | 187 | $73.5M | 19.6% |
| LAHEY CLINIC HOSPITAL INC. | MA | 345 | $991.1M | -4.2% |
| SOUTH SHORE HOSPITAL | MA | 374 | $711.6M | -12.0% |
| NEWTON WELLESLEY HOSPITAL | MA | 216 | $624.3M | -4.7% |
| CAPE COD HOSPITAL | MA | 239 | $620.3M | -1.3% |
| BERKSHIRE MEDICAL CENTER | MA | 238 | $522.9M | -12.9% |
| NORTH SHORE MEDICAL CENTER | MA | 268 | $503.5M | -12.9% |
| STEWARD ST. ELIZABETHS MEDICAL | MA | 244 | $428.5M | 0.7% |
| BEVERLY HOSPITAL | MA | 261 | $410.6M | -1.6% |
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: $5.4M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $1.5M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $1.5M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $1.5M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $894K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $47K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $14.4M |
| + RCM Uplift | +$5.4M |
| Pro Forma EBITDA | $19.8M |
| Current Margin | 19.6% |
| Pro Forma Margin | 27.0% |
| WC Released (1x) | $2.8M |
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 | $22.2M | $149.2M | 6.72x | 46.4% |
| Base (11x exit) | 10.0x | 11.0x | $22.2M | $171.4M | 7.72x | 50.5% |
| Bull Case | 9.0x | 11.0x | $20.0M | $196.4M | 9.83x | 58.0% |
| Bull (12x exit) | 9.0x | 12.0x | $20.0M | $220.2M | 11.02x | 61.6% |
| Bear Case | 11.0x | 10.0x | $24.4M | $115.0M | 4.71x | 36.3% |
| Bear (11x exit) | 11.0x | 11.0x | $24.4M | $134.4M | 5.51x | 40.7% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| High | Elevated distress probability | Model estimates 53.7% 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
- 53 hospitals with 94-374 beds
- Same-state prioritization (n=54)
- Comp margins: P25=-18.1% / P50=-10.1% / P75=-0.5%
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.