ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 43-bed suburban community hospital in HARRISON, MS with $27.7M in net patient revenue and a 29.9% operating margin. The hospital serves a payer mix of 73.9% Medicare, 4.2% Medicaid, and 21.9% commercial.
Thesis: Turnaround. Our ML models identify $2.0M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 29.9% to 37.2% (+736bps).
| Net Revenue HCRIS | $27.7M |
| Current EBITDA COMPUTED | $8.3M |
| Operating Margin COMPUTED | 29.9% |
| Occupancy HCRIS | 99.3% |
| Revenue / Bed COMPUTED | $644K |
| Net-to-Gross HCRIS | 67.3% |
| Distress Probability ML | 43.5% |
2. Market Context & Competitive Position
MS has 110 Medicare-certified hospitals with a median operating margin of -12.5%. The target's margin of 29.9% places it above the state median. Among 63 size-comparable peers (22-86 beds), the median margin is -13.9%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (22-86), prioritizing same-state peers. 63 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | MS | 43 | $27.7M | 29.9% |
| BAPTIST MEM HOSPITAL UNION COU | MS | 83 | $117.9M | 3.7% |
| KINGS DAUGHTERS MEDICAL CENTER | MS | 22 | $91.5M | -8.4% |
| METHODIST H/C OLIVE BRANCH HOS | MS | 65 | $75.4M | -25.6% |
| NORTH SUNFLOWER COUNTY HOSPITA | MS | 25 | $70.1M | -7.2% |
| MISSISSIPPI METHODIST REHAB CE | MS | 31 | $68.1M | -0.5% |
| UMMC-GRENADA | MS | 49 | $63.7M | 7.1% |
| NESHOBA COUNTY GENERAL HOSPITA | MS | 38 | $47.6M | -19.7% |
| ALLIANCE HEALTH CENTER | MS | 79 | $46.1M | 32.5% |
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% | $581K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $553K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $548K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $337K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $18K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $8.3M |
| + RCM Uplift | +$2.0M |
| Pro Forma EBITDA | $10.3M |
| Current Margin | 29.9% |
| Pro Forma Margin | 37.2% |
| 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 | $12.7M | $74.9M | 5.89x | 42.6% |
| Base (11x exit) | 10.0x | 11.0x | $12.7M | $86.5M | 6.80x | 46.7% |
| Bull Case | 9.0x | 11.0x | $11.5M | $97.4M | 8.51x | 53.4% |
| Bull (12x exit) | 9.0x | 12.0x | $11.5M | $109.6M | 9.57x | 57.1% |
| Bear Case | 11.0x | 10.0x | $14.0M | $60.6M | 4.33x | 34.1% |
| Bear (11x exit) | 11.0x | 11.0x | $14.0M | $71.2M | 5.09x | 38.5% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 73.9% 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
- 63 hospitals with 22-86 beds
- Same-state prioritization (n=64)
- Comp margins: P25=-22.6% / P50=-13.9% / P75=-1.5%
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.