ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 58-bed suburban community hospital in SPOTSYLVANIA, VA with $32.1M in net patient revenue and a 17.9% operating margin. The hospital serves a payer mix of 59.3% Medicare, 0.7% Medicaid, and 40.0% commercial.
Thesis: Turnaround. Our ML models identify $2.4M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 17.9% to 25.3% (+736bps).
| Net Revenue HCRIS | $32.1M |
| Current EBITDA COMPUTED | $5.8M |
| Operating Margin COMPUTED | 17.9% |
| Occupancy HCRIS | 90.2% |
| Revenue / Bed COMPUTED | $553K |
| Net-to-Gross HCRIS | 73.2% |
| Distress Probability ML | 45.0% |
2. Market Context & Competitive Position
VA has 111 Medicare-certified hospitals with a median operating margin of 4.4%. The target's margin of 17.9% places it above the state median. Among 53 size-comparable peers (29-116 beds), the median margin is 5.7%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (29-116), prioritizing same-state peers. 53 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | VA | 58 | $32.1M | 17.9% |
| CARILION NEW RIVER VALLEY MED | VA | 94 | $261.3M | -0.5% |
| RICHMOND COMMUNITY HOSPITAL | VA | 96 | $254.9M | 21.5% |
| UVA HEALTH PRINCE WILLIAM MEDI | VA | 106 | $191.7M | -7.4% |
| JOHNSTON MEMORIAL HOSPITAL | VA | 100 | $188.3M | 6.1% |
| MARY IMMACULATE HOSPITAL | VA | 114 | $184.6M | 0.8% |
| LONESOME PINE HOSPITAL | VA | 56 | $175.6M | 17.2% |
| LEWISGALE HOSPITAL - MONTGOMER | VA | 92 | $155.7M | 40.7% |
| CULPEPER MEMORIAL HOSPITAL | VA | 70 | $153.9M | 9.3% |
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: $2.4M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $674K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $641K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $635K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $390K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $21K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $5.8M |
| + RCM Uplift | +$2.4M |
| Pro Forma EBITDA | $8.1M |
| Current Margin | 17.9% |
| Pro Forma Margin | 25.3% |
| WC Released (1x) | $1.2M |
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 | $8.8M | $61.5M | 6.96x | 47.4% |
| Base (11x exit) | 10.0x | 11.0x | $8.8M | $70.6M | 7.98x | 51.5% |
| Bull Case | 9.0x | 11.0x | $8.0M | $81.2M | 10.20x | 59.1% |
| Bull (12x exit) | 9.0x | 12.0x | $8.0M | $91.0M | 11.42x | 62.8% |
| Bear Case | 11.0x | 10.0x | $9.7M | $46.9M | 4.82x | 36.9% |
| Bear (11x exit) | 11.0x | 11.0x | $9.7M | $54.7M | 5.62x | 41.2% |
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
- 53 hospitals with 29-116 beds
- Same-state prioritization (n=54)
- Comp margins: P25=-9.7% / P50=5.7% / P75=15.0%
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.