ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 53-bed suburban community hospital in HAMPDEN, MA with $31.6M in net patient revenue and a 20.5% operating margin. The hospital serves a payer mix of 68.5% Medicare, 2.7% Medicaid, and 28.8% commercial.
Thesis: Turnaround. Our ML models identify $2.3M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 20.5% to 27.8% (+736bps).
| Net Revenue HCRIS | $31.6M |
| Current EBITDA COMPUTED | $6.5M |
| Operating Margin COMPUTED | 20.5% |
| Occupancy HCRIS | 94.2% |
| Revenue / Bed COMPUTED | $596K |
| Net-to-Gross HCRIS | 74.7% |
| Distress Probability ML | 45.0% |
2. Market Context & Competitive Position
MA has 99 Medicare-certified hospitals with a median operating margin of -12.2%. The target's margin of 20.5% places it above the state median. Among 25 size-comparable peers (26-106 beds), the median margin is -11.9%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (26-106), prioritizing same-state peers. 25 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | MA | 53 | $31.6M | 20.5% |
| DANA-FARBER CANCER INSTITUTE | MA | 30 | $1.88B | -35.1% |
| MASSACHUSETTS EYE AND EAR INFI | MA | 41 | $263.9M | -36.1% |
| NEW ENGLAND BAPTIST HOSPITAL | MA | 75 | $221.2M | -4.6% |
| FALMOUTH HOSPITAL | MA | 81 | $172.1M | -2.2% |
| BIDMC-MILTON HOSPITAL INC | MA | 102 | $134.8M | -11.4% |
| BETH ISRAEL DEACONESS HOSPITAL | MA | 58 | $131.9M | -1.6% |
| BAYSTATE FRANKLIN MEDICAL CENT | MA | 89 | $98.1M | -23.1% |
| MARLBOROUGH HOSPITAL | MA | 67 | $94.2M | -21.8% |
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: $2.3M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $663K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $632K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $625K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $384K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $20K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $6.5M |
| + RCM Uplift | +$2.3M |
| Pro Forma EBITDA | $8.8M |
| Current Margin | 20.5% |
| Pro Forma Margin | 27.8% |
| 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 | $10.0M | $65.9M | 6.62x | 46.0% |
| Base (11x exit) | 10.0x | 11.0x | $10.0M | $75.8M | 7.61x | 50.1% |
| Bull Case | 9.0x | 11.0x | $9.0M | $86.7M | 9.67x | 57.4% |
| Bull (12x exit) | 9.0x | 12.0x | $9.0M | $97.2M | 10.85x | 61.1% |
| Bear Case | 11.0x | 10.0x | $11.0M | $51.1M | 4.66x | 36.1% |
| Bear (11x exit) | 11.0x | 11.0x | $11.0M | $59.7M | 5.46x | 40.4% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 68.5% 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
- 25 hospitals with 26-106 beds
- Same-state prioritization (n=26)
- Comp margins: P25=-18.2% / P50=-11.9% / P75=-1.7%
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.