CHEROKEE MEDICAL CENTER
1. Target Overview & Investment Thesis
CHEROKEE MEDICAL CENTER is a 45-bed safety-net/medicaid heavy in CHEROKEE, AL with $18.6M in net patient revenue and a 6.0% operating margin. The hospital serves a payer mix of 15.8% Medicare, 40.7% Medicaid, and 43.5% commercial.
Thesis: Turnaround. Our ML models identify $1.4M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 6.0% to 13.3% (+736bps).
| Net Revenue HCRIS | $18.6M |
| Current EBITDA COMPUTED | $1.1M |
| Operating Margin COMPUTED | 6.0% |
| Occupancy HCRIS | 27.4% |
| Revenue / Bed COMPUTED | $413K |
| Net-to-Gross HCRIS | 20.0% |
| Distress Probability ML | 61.7% |
2. Market Context & Competitive Position
AL has 115 Medicare-certified hospitals with a median operating margin of -8.5%. The target's margin of 6.0% places it above the state median. Among 58 size-comparable peers (22-90 beds), the median margin is -16.0%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (22-90), prioritizing same-state peers. 58 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| CHEROKEE MEDICAL CENTER (Target) | AL | 45 | $18.6M | 6.0% |
| ATHENS LIMESTONE | AL | 66 | $88.9M | -20.9% |
| RUSSELL MEDICAL CENTER | AL | 45 | $75.3M | -14.8% |
| JACK HUGHSTON MEMORIAL HOSPITA | AL | 47 | $75.2M | 6.5% |
| EASTPOINTE HOSPITAL | AL | 66 | $56.6M | -50.0% |
| NORTH BALDWIN INFIRMARY | AL | 35 | $55.3M | -3.3% |
| PRATTVILLE BAPTIST HOSPITAL | AL | 55 | $53.5M | -16.2% |
| HIGHLANDS MEDICAL CENTER | AL | 45 | $45.9M | -30.2% |
| ENCOMPASS HEALTH REHABILITATIO | AL | 85 | $42.1M | 17.9% |
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% | $390K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $371K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $368K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $226K | +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 | $2.5M |
| Current Margin | 6.0% |
| Pro Forma Margin | 13.3% |
| WC Released (1x) | $712K |
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 | $21.0M | 12.31x | 65.2% |
| Base (11x exit) | 10.0x | 11.0x | $1.7M | $23.6M | 13.86x | 69.2% |
| Bull Case | 9.0x | 11.0x | $1.5M | $28.7M | 18.70x | 79.6% |
| Bull (12x exit) | 9.0x | 12.0x | $1.5M | $31.7M | 20.70x | 83.3% |
| Bear Case | 11.0x | 10.0x | $1.9M | $13.6M | 7.25x | 48.6% |
| Bear (11x exit) | 11.0x | 11.0x | $1.9M | $15.6M | 8.30x | 52.7% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Elevated Medicaid exposure (40.7%) | Medicaid reimburses below cost in most states. Mitigant: denial reduction lever has highest impact on Medicaid claims |
| Medium | Low occupancy | At 27.4%, fixed costs are spread over fewer patient days. Mitigant: volume growth is an additional upside lever not modeled in base case |
| High | Elevated distress probability | Model estimates 61.7% probability of financial distress. Mitigant: distressed entry pricing (7-9x) compensates for risk |
| Low | Low net-to-gross ratio | Large contractual allowances suggest pricing discipline issues. Mitigant: payer renegotiation is an additional upside lever |
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
- 58 hospitals with 22-90 beds
- Same-state prioritization (n=59)
- Comp margins: P25=-26.6% / P50=-16.0% / P75=-1.5%
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.