ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 40-bed community hospital in WILLIAMSON, TN with $16.0M in net patient revenue and a 7.3% operating margin. The hospital serves a payer mix of 56.7% Medicare, 0.0% Medicaid, and 43.3% commercial.
Thesis: Turnaround. Our ML models identify $1.2M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 7.3% to 14.6% (+736bps).
| Net Revenue HCRIS | $16.0M |
| Current EBITDA COMPUTED | $1.2M |
| Operating Margin COMPUTED | 7.3% |
| Occupancy HCRIS | 73.0% |
| Revenue / Bed COMPUTED | $400K |
| Net-to-Gross HCRIS | 60.4% |
| Distress Probability ML | nan% |
2. Market Context & Competitive Position
TN has 141 Medicare-certified hospitals with a median operating margin of -0.6%. The target's margin of 7.3% places it above the state median. Among 67 size-comparable peers (20-80 beds), the median margin is -0.4%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (20-80), prioritizing same-state peers. 67 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | TN | 40 | $16.0M | 7.3% |
| BAPTIST MEM HOSPITAL TIPTON CO | TN | 48 | $179.0M | -5.8% |
| INDIAN PATH COMMUNITY HOSPITAL | TN | 35 | $142.8M | 12.0% |
| LECONTE MEDICAL CENTER | TN | 60 | $126.3M | 6.4% |
| FRANKLIN WOODS COMMUNITY HOSPI | TN | 80 | $110.3M | 18.7% |
| CUMBERLAND MEDICAL CENTER | TN | 72 | $84.3M | -12.0% |
| HENRY COUNTY MEDICAL CENTER | TN | 43 | $81.7M | -13.0% |
| VANDERBILT TULLAHOMA-HARTON HO | TN | 71 | $79.5M | -8.2% |
| THE CENTER FOR SPINAL SURGERY | TN | 23 | $78.7M | 39.3% |
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: $1.2M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $336K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $320K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $317K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $195K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $10K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $1.2M |
| + RCM Uplift | +$1.2M |
| Pro Forma EBITDA | $2.3M |
| Current Margin | 7.3% |
| Pro Forma Margin | 14.6% |
| WC Released (1x) | $614K |
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 | $1.8M | $19.5M | 10.87x | 61.2% |
| Base (11x exit) | 10.0x | 11.0x | $1.8M | $22.0M | 12.28x | 65.1% |
| Bull Case | 9.0x | 11.0x | $1.6M | $26.5M | 16.42x | 75.0% |
| Bull (12x exit) | 9.0x | 12.0x | $1.6M | $29.3M | 18.20x | 78.7% |
| Bear Case | 11.0x | 10.0x | $2.0M | $13.0M | 6.59x | 45.8% |
| Bear (11x exit) | 11.0x | 11.0x | $2.0M | $14.9M | 7.58x | 49.9% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 56.7% 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
- 67 hospitals with 20-80 beds
- Same-state prioritization (n=68)
- Comp margins: P25=-12.5% / P50=-0.4% / 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.