ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 60-bed suburban community hospital in ERIE, PA with $24.2M in net patient revenue and a 3.2% operating margin. The hospital serves a payer mix of 52.5% Medicare, 0.9% Medicaid, and 46.6% commercial.
Thesis: Turnaround. Our ML models identify $1.8M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 3.2% to 10.6% (+736bps).
| Net Revenue HCRIS | $24.2M |
| Current EBITDA COMPUTED | $783K |
| Operating Margin COMPUTED | 3.2% |
| Occupancy HCRIS | 72.3% |
| Revenue / Bed COMPUTED | $403K |
| Net-to-Gross HCRIS | 63.3% |
| Distress Probability ML | 48.0% |
2. Market Context & Competitive Position
PA has 225 Medicare-certified hospitals with a median operating margin of -4.4%. The target's margin of 3.2% places it above the state median. Among 90 size-comparable peers (30-120 beds), the median margin is 0.1%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (30-120), prioritizing same-state peers. 90 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | PA | 60 | $24.2M | 3.2% |
| THE GETTYSBURG HOSPITAL | PA | 76 | $341.8M | 18.4% |
| 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% |
| MEMORIAL HOSPITAL | PA | 80 | $184.5M | 13.1% |
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: $1.8M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $507K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $483K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $478K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $294K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $15K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $783K |
| + RCM Uplift | +$1.8M |
| Pro Forma EBITDA | $2.6M |
| Current Margin | 3.2% |
| Pro Forma Margin | 10.6% |
| WC Released (1x) | $927K |
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 | $1.2M | $23.0M | 19.05x | 80.3% |
| Base (11x exit) | 10.0x | 11.0x | $1.2M | $25.6M | 21.28x | 84.3% |
| Bull Case | 9.0x | 11.0x | $1.1M | $31.9M | 29.42x | 96.7% |
| Bull (12x exit) | 9.0x | 12.0x | $1.1M | $35.1M | 32.39x | 100.5% |
| Bear Case | 11.0x | 10.0x | $1.3M | $13.7M | 10.31x | 59.5% |
| Bear (11x exit) | 11.0x | 11.0x | $1.3M | $15.5M | 11.67x | 63.5% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Standard execution risk | RCM improvement requires management buy-in and 12-18 month implementation timeline |
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
- 90 hospitals with 30-120 beds
- Same-state prioritization (n=91)
- Comp margins: P25=-18.1% / P50=0.1% / P75=9.0%
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.