CARONDELET HOLY CROSS HOSPITAL
1. Target Overview & Investment Thesis
CARONDELET HOLY CROSS HOSPITAL is a 25-bed suburban community hospital in SANTA CRUZ, AZ with $39.5M in net patient revenue and a 29.6% operating margin. The hospital serves a payer mix of 4.1% Medicare, 1.9% Medicaid, and 94.0% commercial.
Thesis: Turnaround. Our ML models identify $2.9M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 29.6% to 36.9% (+736bps).
| Net Revenue HCRIS | $39.5M |
| Current EBITDA COMPUTED | $11.7M |
| Operating Margin COMPUTED | 29.6% |
| Occupancy HCRIS | 31.1% |
| Revenue / Bed COMPUTED | $1.6M |
| Net-to-Gross HCRIS | 16.6% |
| Distress Probability ML | 48.6% |
2. Market Context & Competitive Position
AZ has 124 Medicare-certified hospitals with a median operating margin of -0.8%. The target's margin of 29.6% places it above the state median. Among 41 size-comparable peers (12-50 beds), the median margin is -2.8%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (12-50), prioritizing same-state peers. 41 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| CARONDELET HOLY CROSS HOSPITAL (Target) | AZ | 25 | $39.5M | 29.6% |
| ARIZONA GENERAL HOSPITAL | AZ | 50 | $116.2M | -6.6% |
| ARIZONA GENERAL HOSPITAL | AZ | 16 | $97.1M | 10.4% |
| THE CORE INSTITUTE SPECIALTY H | AZ | 28 | $91.2M | 9.2% |
| MT. GRAHAM REGIONAL MEDICAL CE | AZ | 25 | $75.2M | -2.8% |
| COBRE VALLEY REG. MEDICAL CENT | AZ | 25 | $74.9M | -10.3% |
| COPPER QUEEN COMM. HOSP. | AZ | 14 | $63.5M | 6.6% |
| MT. GRAHAM REGIONAL MEDICAL CE | AZ | 25 | $49.4M | -6.8% |
| BANNER PAYSON MEDICAL CENTER | AZ | 25 | $49.3M | 0.0% |
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: $2.9M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $829K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $789K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $781K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $480K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $25K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $11.7M |
| + RCM Uplift | +$2.9M |
| Pro Forma EBITDA | $14.6M |
| Current Margin | 29.6% |
| Pro Forma Margin | 36.9% |
| WC Released (1x) | $1.5M |
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 | $17.9M | $106.0M | 5.91x | 42.6% |
| Base (11x exit) | 10.0x | 11.0x | $17.9M | $122.4M | 6.82x | 46.8% |
| Bull Case | 9.0x | 11.0x | $16.1M | $137.8M | 8.53x | 53.5% |
| Bull (12x exit) | 9.0x | 12.0x | $16.1M | $155.1M | 9.61x | 57.2% |
| Bear Case | 11.0x | 10.0x | $19.7M | $85.6M | 4.34x | 34.1% |
| Bear (11x exit) | 11.0x | 11.0x | $19.7M | $100.6M | 5.10x | 38.5% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Low occupancy | At 31.1%, fixed costs are spread over fewer patient days. Mitigant: volume growth is an additional upside lever not modeled in base case |
| 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
- 41 hospitals with 12-50 beds
- Same-state prioritization (n=42)
- Comp margins: P25=-10.1% / P50=-2.8% / P75=7.1%
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.