ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 40-bed suburban community hospital in HENRICO, VA with $23.2M in net patient revenue and a 15.0% operating margin. The hospital serves a payer mix of 59.3% Medicare, 0.1% Medicaid, and 40.7% commercial.
Thesis: Turnaround. Our ML models identify $1.7M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 15.0% to 22.4% (+736bps).
| Net Revenue HCRIS | $23.2M |
| Current EBITDA COMPUTED | $3.5M |
| Operating Margin COMPUTED | 15.0% |
| Occupancy HCRIS | 88.2% |
| Revenue / Bed COMPUTED | $581K |
| Net-to-Gross HCRIS | 80.6% |
| Distress Probability ML | 46.0% |
2. Market Context & Competitive Position
VA has 111 Medicare-certified hospitals with a median operating margin of 4.4%. The target's margin of 15.0% places it above the state median. Among 41 size-comparable peers (20-80 beds), the median margin is 4.0%. 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. 41 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | VA | 40 | $23.2M | 15.0% |
| LONESOME PINE HOSPITAL | VA | 56 | $175.6M | 17.2% |
| CULPEPER MEMORIAL HOSPITAL | VA | 70 | $153.9M | 9.3% |
| COMMUNITY MEMORIAL HOSPITAL | VA | 66 | $135.2M | -31.0% |
| STAFFORD HOSPITAL | VA | 61 | $127.9M | 5.7% |
| SOUTHSIDE COMMUNITY HOSPITAL | VA | 80 | $113.4M | 7.3% |
| RIVERSIDE WALTER REED | VA | 67 | $108.2M | 12.5% |
| HALIFAX REGIONAL HOSPITAL | VA | 44 | $104.6M | -16.5% |
| SHORE MEMORIAL HOSPITAL | VA | 52 | $103.1M | 11.4% |
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: $1.7M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $488K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $465K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $460K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $283K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $15K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $3.5M |
| + RCM Uplift | +$1.7M |
| Pro Forma EBITDA | $5.2M |
| Current Margin | 15.0% |
| Pro Forma Margin | 22.4% |
| WC Released (1x) | $891K |
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 | $5.4M | $40.1M | 7.47x | 49.5% |
| Base (11x exit) | 10.0x | 11.0x | $5.4M | $45.9M | 8.54x | 53.6% |
| Bull Case | 9.0x | 11.0x | $4.8M | $53.3M | 11.02x | 61.6% |
| Bull (12x exit) | 9.0x | 12.0x | $4.8M | $59.6M | 12.32x | 65.2% |
| Bear Case | 11.0x | 10.0x | $5.9M | $29.8M | 5.05x | 38.2% |
| Bear (11x exit) | 11.0x | 11.0x | $5.9M | $34.7M | 5.88x | 42.5% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 59.3% 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
- 41 hospitals with 20-80 beds
- Same-state prioritization (n=42)
- Comp margins: P25=-12.9% / P50=4.0% / P75=13.4%
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.