ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 98-bed rural/critical access in OCEAN, NJ with $49.0M in net patient revenue and a 16.7% operating margin. The hospital serves a payer mix of 75.0% Medicare, 1.2% Medicaid, and 23.8% commercial.
Thesis: Turnaround. Our ML models identify $3.6M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 16.7% to 24.1% (+736bps).
| Net Revenue HCRIS | $49.0M |
| Current EBITDA COMPUTED | $8.2M |
| Operating Margin COMPUTED | 16.7% |
| Occupancy HCRIS | 73.5% |
| Revenue / Bed COMPUTED | $500K |
| Net-to-Gross HCRIS | 78.1% |
| Distress Probability ML | 50.4% |
2. Market Context & Competitive Position
NJ has 95 Medicare-certified hospitals with a median operating margin of -3.9%. The target's margin of 16.7% places it above the state median. Among 45 size-comparable peers (49-196 beds), the median margin is -9.6%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (49-196), prioritizing same-state peers. 45 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | NJ | 98 | $49.0M | 16.7% |
| HELENE FULD MEDICAL CENTER | NJ | 162 | $430.2M | -3.2% |
| HUNTERDON MEDICAL CENTER | NJ | 184 | $358.4M | -9.6% |
| MOUNTAINSIDE HOSPITAL | NJ | 184 | $306.3M | 12.2% |
| TRINITAS HOSPITAL | NJ | 192 | $256.4M | -27.3% |
| SOUTHERN OCEAN MEDICAL CENTER | NJ | 147 | $233.0M | 10.5% |
| DEBORAH HEART AND LUNG CENTER | NJ | 85 | $211.9M | -5.5% |
| ST LUKES WARREN HOSPITAL | NJ | 92 | $200.8M | 28.1% |
| ST. MICHAELS MEDICAL CENTER | NJ | 147 | $198.6M | -13.6% |
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: $3.6M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $1.0M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $981K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $971K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $597K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $31K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $8.2M |
| + RCM Uplift | +$3.6M |
| Pro Forma EBITDA | $11.8M |
| Current Margin | 16.7% |
| Pro Forma Margin | 24.1% |
| WC Released (1x) | $1.9M |
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 | $12.6M | $90.1M | 7.15x | 48.2% |
| Base (11x exit) | 10.0x | 11.0x | $12.6M | $103.2M | 8.19x | 52.3% |
| Bull Case | 9.0x | 11.0x | $11.3M | $119.2M | 10.52x | 60.1% |
| Bull (12x exit) | 9.0x | 12.0x | $11.3M | $133.3M | 11.77x | 63.7% |
| Bear Case | 11.0x | 10.0x | $13.8M | $67.9M | 4.91x | 37.5% |
| Bear (11x exit) | 11.0x | 11.0x | $13.8M | $79.2M | 5.72x | 41.7% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 75.0% of days; rate updates may lag inflation. Mitigant: CDI/CMI lever directly increases Medicare reimbursement |
| High | Elevated distress probability | Model estimates 50.4% 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
- 45 hospitals with 49-196 beds
- Same-state prioritization (n=46)
- Comp margins: P25=-27.3% / P50=-9.6% / P75=1.8%
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 28, 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.