ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 41-bed suburban community hospital in CUMBERLAND, NJ with $25.7M in net patient revenue and a 21.2% operating margin. The hospital serves a payer mix of 60.0% Medicare, 1.3% Medicaid, and 38.7% commercial.
Thesis: Turnaround. Our ML models identify $1.9M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 21.2% to 28.6% (+736bps).
| Net Revenue HCRIS | $25.7M |
| Current EBITDA COMPUTED | $5.5M |
| Operating Margin COMPUTED | 21.2% |
| Occupancy HCRIS | 93.1% |
| Revenue / Bed COMPUTED | $628K |
| Net-to-Gross HCRIS | 66.9% |
| Distress Probability ML | 43.6% |
2. Market Context & Competitive Position
NJ has 95 Medicare-certified hospitals with a median operating margin of -3.9%. The target's margin of 21.2% places it above the state median. Among 18 size-comparable peers (20-82 beds), the median margin is -4.9%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (20-82), prioritizing same-state peers. 18 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | NJ | 41 | $25.7M | 21.2% |
| CHILDRENS SPECIALIZED HOPSITAL | NJ | 68 | $150.1M | -18.1% |
| HACKENSACK UMC AT PASCACK VALL | NJ | 78 | $148.8M | 15.0% |
| RAMAPO RIDGE PSYCHIATRIC | NJ | 58 | $78.4M | -34.4% |
| SILVER LAKE (12 MONTH FOR FILI | NJ | 63 | $55.3M | -24.8% |
| MARLTON REHAB HOSPITAL | NJ | 61 | $38.4M | 9.5% |
| UNIVERSITY BEHAVIORAL HEALTHCA | NJ | 64 | $38.1M | -50.0% |
| SSH WILLINGBORO | NJ | 69 | $32.9M | 9.2% |
| SSH - NORTHEAST NEW JERSEY IN | NJ | 62 | $29.8M | 1.8% |
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: $1.9M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $541K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $515K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $510K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $313K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $16K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $5.5M |
| + RCM Uplift | +$1.9M |
| Pro Forma EBITDA | $7.4M |
| Current Margin | 21.2% |
| Pro Forma Margin | 28.6% |
| WC Released (1x) | $987K |
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 | $8.4M | $55.0M | 6.54x | 45.6% |
| Base (11x exit) | 10.0x | 11.0x | $8.4M | $63.2M | 7.52x | 49.7% |
| Bull Case | 9.0x | 11.0x | $7.6M | $72.2M | 9.54x | 57.0% |
| Bull (12x exit) | 9.0x | 12.0x | $7.6M | $81.0M | 10.70x | 60.7% |
| Bear Case | 11.0x | 10.0x | $9.3M | $42.8M | 4.63x | 35.9% |
| Bear (11x exit) | 11.0x | 11.0x | $9.3M | $50.1M | 5.41x | 40.2% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 60.0% 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
- 18 hospitals with 20-82 beds
- Same-state prioritization (n=19)
- Comp margins: P25=-25.5% / P50=-4.9% / P75=9.4%
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.