ENCOMPASS HEALTH REHABILITATION HOSP
1. Target Overview & Investment Thesis
ENCOMPASS HEALTH REHABILITATION HOSP is a 40-bed suburban community hospital in nan, LA with $17.8M in net patient revenue and a 2.8% operating margin. The hospital serves a payer mix of 56.6% Medicare, 0.4% Medicaid, and 43.1% commercial.
Thesis: Turnaround. Our ML models identify $1.3M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 2.8% to 10.2% (+736bps).
| Net Revenue HCRIS | $17.8M |
| Current EBITDA COMPUTED | $505K |
| Operating Margin COMPUTED | 2.8% |
| Occupancy HCRIS | 85.7% |
| Revenue / Bed COMPUTED | $445K |
| Net-to-Gross HCRIS | 51.4% |
| Distress Probability ML | 43.5% |
2. Market Context & Competitive Position
LA has 212 Medicare-certified hospitals with a median operating margin of -3.5%. The target's margin of 2.8% places it above the state median. Among 125 size-comparable peers (20-80 beds), the median margin is -4.1%. 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. 125 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ENCOMPASS HEALTH REHABILITATIO (Target) | LA | 40 | $17.8M | 2.8% |
| UNIVERSITY HOSPITAL & CLINICS | LA | 52 | $158.9M | -33.4% |
| SOUTHERN REGIONAL MEDICAL CORP | LA | 64 | $97.3M | -50.0% |
| NEW ORLEANS EAST HOSPITAL | LA | 60 | $77.6M | -29.7% |
| OCHSNER BAYOU LLC | LA | 25 | $76.5M | -0.9% |
| OUR LADY OF THE ANGELS HOSPITA | LA | 36 | $76.2M | -4.9% |
| CENTRAL LOUISIANA SURGICAL HOS | LA | 24 | $69.1M | 7.7% |
| ABBEVILLE GENERAL HOSPITAL | LA | 44 | $68.5M | 3.4% |
| ST. CHARLES PARISH HOSPITAL | LA | 27 | $64.0M | -5.1% |
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% | $374K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $356K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $353K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $217K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $11K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $505K |
| + RCM Uplift | +$1.3M |
| Pro Forma EBITDA | $1.8M |
| Current Margin | 2.8% |
| Pro Forma Margin | 10.2% |
| WC Released (1x) | $683K |
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 | $777K | $16.4M | 21.17x | 84.1% |
| Base (11x exit) | 10.0x | 11.0x | $777K | $18.3M | 23.61x | 88.2% |
| Bull Case | 9.0x | 11.0x | $699K | $22.9M | 32.78x | 101.0% |
| Bull (12x exit) | 9.0x | 12.0x | $699K | $25.2M | 36.06x | 104.8% |
| Bear Case | 11.0x | 10.0x | $854K | $9.6M | 11.28x | 62.3% |
| Bear (11x exit) | 11.0x | 11.0x | $854K | $10.9M | 12.73x | 66.3% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 56.6% 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
- 125 hospitals with 20-80 beds
- Same-state prioritization (n=126)
- Comp margins: P25=-21.3% / P50=-4.1% / P75=4.9%
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.