ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 67-bed suburban community hospital in ALLEGHENY, PA with $32.7M in net patient revenue and a 20.8% operating margin. The hospital serves a payer mix of 56.1% Medicare, 0.4% Medicaid, and 43.5% commercial.
Thesis: Turnaround. Our ML models identify $2.4M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 20.8% to 28.2% (+736bps).
| Net Revenue HCRIS | $32.7M |
| Current EBITDA COMPUTED | $6.8M |
| Operating Margin COMPUTED | 20.8% |
| Occupancy HCRIS | 86.7% |
| Revenue / Bed COMPUTED | $488K |
| Net-to-Gross HCRIS | 65.2% |
| Distress Probability ML | 44.8% |
2. Market Context & Competitive Position
PA has 225 Medicare-certified hospitals with a median operating margin of -4.4%. The target's margin of 20.8% places it above the state median. Among 95 size-comparable peers (34-134 beds), the median margin is -0.5%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (34-134), prioritizing same-state peers. 95 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | PA | 67 | $32.7M | 20.8% |
| THE GETTYSBURG HOSPITAL | PA | 76 | $341.8M | 18.4% |
| ST. JOSEPH MEDICAL CENTER | PA | 132 | $334.8M | 13.2% |
| EPHRATA COMMUNITY HOSPITAL | PA | 115 | $291.8M | 3.8% |
| AMERICAN ONCOLOGIC HOSPIAL | PA | 100 | $229.8M | -11.1% |
| EVANGELICAL COMMUNITY HOSPITAL | PA | 119 | $223.6M | 5.1% |
| ST. LUKES HOSPITAL - MONROE CA | PA | 98 | $221.8M | 7.8% |
| GEISINGER LEWISTOWN HOSPITAL | PA | 107 | $210.8M | 11.2% |
| UPMC HANOVER | PA | 73 | $200.8M | 18.2% |
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: $2.4M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $687K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $654K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $648K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $398K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $21K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $6.8M |
| + RCM Uplift | +$2.4M |
| Pro Forma EBITDA | $9.2M |
| Current Margin | 20.8% |
| Pro Forma Margin | 28.2% |
| WC Released (1x) | $1.3M |
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 | $10.5M | $69.0M | 6.59x | 45.8% |
| Base (11x exit) | 10.0x | 11.0x | $10.5M | $79.3M | 7.57x | 49.9% |
| Bull Case | 9.0x | 11.0x | $9.4M | $90.7M | 9.61x | 57.2% |
| Bull (12x exit) | 9.0x | 12.0x | $9.4M | $101.7M | 10.78x | 60.9% |
| Bear Case | 11.0x | 10.0x | $11.5M | $53.6M | 4.65x | 36.0% |
| Bear (11x exit) | 11.0x | 11.0x | $11.5M | $62.7M | 5.44x | 40.3% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 56.1% 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
- 95 hospitals with 34-134 beds
- Same-state prioritization (n=96)
- Comp margins: P25=-18.5% / P50=-0.5% / P75=8.8%
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 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.