ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 42-bed community hospital in MANATI, PR with $17.4M in net patient revenue and a 9.9% operating margin. The hospital serves a payer mix of 11.1% Medicare, 0.0% Medicaid, and 88.9% commercial.
Thesis: Turnaround. Our ML models identify $1.3M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 9.9% to 17.3% (+736bps).
| Net Revenue HCRIS | $17.4M |
| Current EBITDA COMPUTED | $1.7M |
| Operating Margin COMPUTED | 9.9% |
| Occupancy HCRIS | 95.5% |
| Revenue / Bed COMPUTED | $415K |
| Net-to-Gross HCRIS | 59.1% |
| Distress Probability ML | nan% |
2. Market Context & Competitive Position
PR has 61 Medicare-certified hospitals with a median operating margin of -8.8%. The target's margin of 9.9% places it above the state median. Among 14 size-comparable peers (21-84 beds), the median margin is -17.9%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (21-84), prioritizing same-state peers. 14 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | PR | 42 | $17.4M | 9.9% |
| ADMIN DE SERVICIOS MEDICOS DE | PR | 65 | $179.7M | -50.0% |
| HOSPITAL MENONITA HUMACAO | PR | 73 | $53.1M | 31.3% |
| HOSPITAL METRO HATO REY INC. | PR | 84 | $34.2M | -18.8% |
| HOSP. METROPOLITANO DE SAN GER | PR | 63 | $28.5M | -8.2% |
| CARIBBEAN MEDICAL CENTER | PR | 44 | $24.8M | -0.6% |
| HOSPITAL METROPOLITANO TITO MA | PR | 67 | $24.3M | -17.0% |
| CENTRO COMPRENSIVO DE CANCER | PR | 48 | $20.4M | -50.0% |
| HOSPITAL I GONZALEZ MARTINEZ | PR | 40 | $15.2M | -50.0% |
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: $1.3M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $366K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $349K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $345K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $212K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $11K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $1.7M |
| + RCM Uplift | +$1.3M |
| Pro Forma EBITDA | $3.0M |
| Current Margin | 9.9% |
| Pro Forma Margin | 17.3% |
| WC Released (1x) | $669K |
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 | $2.7M | $24.2M | 9.11x | 55.6% |
| Base (11x exit) | 10.0x | 11.0x | $2.7M | $27.5M | 10.34x | 59.6% |
| Bull Case | 9.0x | 11.0x | $2.4M | $32.6M | 13.62x | 68.6% |
| Bull (12x exit) | 9.0x | 12.0x | $2.4M | $36.3M | 15.15x | 72.2% |
| Bear Case | 11.0x | 10.0x | $2.9M | $17.0M | 5.79x | 42.1% |
| Bear (11x exit) | 11.0x | 11.0x | $2.9M | $19.6M | 6.70x | 46.3% |
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
- 14 hospitals with 21-84 beds
- Same-state prioritization (n=15)
- Comp margins: P25=-50.0% / P50=-17.9% / P75=-3.0%
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.