ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 84-bed rural/critical access in SALT LAKE, UT with $19.4M in net patient revenue and a -5.7% operating margin. The hospital serves a payer mix of 54.4% Medicare, 2.6% Medicaid, and 43.0% commercial.
Thesis: Turnaround. Our ML models identify $1.4M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -5.7% to 1.7% (+736bps).
| Net Revenue HCRIS | $19.4M |
| Current EBITDA COMPUTED | $-1.1M |
| Operating Margin COMPUTED | -5.7% |
| Occupancy HCRIS | 41.7% |
| Revenue / Bed COMPUTED | $230K |
| Net-to-Gross HCRIS | 57.0% |
| Distress Probability ML | 55.2% |
2. Market Context & Competitive Position
UT has 59 Medicare-certified hospitals with a median operating margin of 8.0%. The target's margin of -5.7% places it below the state median. Among 14 size-comparable peers (42-168 beds), the median margin is 22.9%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (42-168), prioritizing same-state peers. 14 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | UT | 84 | $19.4M | -5.7% |
| LOGAN REGIONAL HOSPITAL | UT | 114 | $320.1M | 29.3% |
| AMERICAN FORK HOSPITAL | UT | 88 | $216.8M | 25.3% |
| RIVERTON HOSPITAL | UT | 87 | $195.8M | 18.0% |
| TIMPANOGOS REGIONAL HOSPITAL | UT | 117 | $156.1M | 38.3% |
| CEDAR CITY HOSPITAL | UT | 48 | $136.8M | 31.4% |
| LONE PEAK HOSPITAL | UT | 61 | $133.1M | 25.2% |
| ALTA VIEW HOSPITAL | UT | 57 | $130.9M | -0.6% |
| AMEND #1 LAKEVIEW HOSPITAL | UT | 84 | $111.5M | 33.2% |
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: $1.4M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $406K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $387K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $383K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $235K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $12K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-1.1M |
| + RCM Uplift | +$1.4M |
| Pro Forma EBITDA | $321K |
| Current Margin | -5.7% |
| Pro Forma Margin | 1.7% |
| WC Released (1x) | $742K |
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 | $-1.7M | $7.0M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-1.7M | $7.1M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-1.5M | $11.3M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-1.5M | $11.8M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-1.9M | $392K | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-1.9M | $-175K | 0.00x | -100.0% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| High | Negative operating margin | RCM uplift bridge shows clear path to profitability; working capital release provides near-term cash cushion |
| High | Elevated distress probability | Model estimates 55.2% probability of financial distress. Mitigant: distressed entry pricing (7-9x) compensates for risk |
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 42-168 beds
- Same-state prioritization (n=15)
- Comp margins: P25=0.3% / P50=22.9% / P75=30.9%
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.