ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 50-bed suburban community hospital in MERRIMACK, NH with $31.9M in net patient revenue and a 26.0% operating margin. The hospital serves a payer mix of 61.4% Medicare, 0.2% Medicaid, and 38.4% commercial.
Thesis: Turnaround. Our ML models identify $2.3M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 26.0% to 33.4% (+736bps).
| Net Revenue HCRIS | $31.9M |
| Current EBITDA COMPUTED | $8.3M |
| Operating Margin COMPUTED | 26.0% |
| Occupancy HCRIS | 84.5% |
| Revenue / Bed COMPUTED | $638K |
| Net-to-Gross HCRIS | 89.0% |
| Distress Probability ML | 47.8% |
2. Market Context & Competitive Position
NH has 30 Medicare-certified hospitals with a median operating margin of -2.7%. The target's margin of 26.0% places it above the state median. Among 17 size-comparable peers (25-100 beds), the median margin is -7.2%. 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. 17 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | NH | 50 | $31.9M | 26.0% |
| EXETER HOSPITAL INC. | NH | 99 | $282.0M | -3.2% |
| CHESHIRE MEDICAL CENTER | NH | 86 | $236.2M | -22.4% |
| PARKLAND MEDICAL CENTER | NH | 68 | $158.7M | 47.2% |
| CONCORD HOSPITAL - LACONIA | NH | 86 | $131.9M | -12.6% |
| LITTLETON REGIONAL HEALTHCARE | NH | 25 | $98.2M | -10.4% |
| MEMORIAL HOSPITAL | NH | 25 | $97.7M | 1.3% |
| NEW LONDON HOSPITAL | NH | 25 | $87.9M | 0.5% |
| HUGGINS HOSPITAL | NH | 25 | $86.3M | -8.3% |
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% | $670K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $638K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $632K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $388K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $20K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $8.3M |
| + RCM Uplift | +$2.3M |
| Pro Forma EBITDA | $10.7M |
| Current Margin | 26.0% |
| Pro Forma Margin | 33.4% |
| 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 | $12.8M | $78.3M | 6.13x | 43.7% |
| Base (11x exit) | 10.0x | 11.0x | $12.8M | $90.3M | 7.06x | 47.8% |
| Bull Case | 9.0x | 11.0x | $11.5M | $102.2M | 8.88x | 54.8% |
| Bull (12x exit) | 9.0x | 12.0x | $11.5M | $114.9M | 9.98x | 58.4% |
| Bear Case | 11.0x | 10.0x | $14.1M | $62.4M | 4.44x | 34.7% |
| Bear (11x exit) | 11.0x | 11.0x | $14.1M | $73.2M | 5.21x | 39.1% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 61.4% 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
- 17 hospitals with 25-100 beds
- Same-state prioritization (n=18)
- Comp margins: P25=-10.9% / P50=-7.2% / P75=0.3%
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.