MERCY HOSPITAL FORT SMITH
1. Target Overview & Investment Thesis
MERCY HOSPITAL FORT SMITH is a 256-bed suburban community hospital in SEBASTIAN, AR with $447.1M in net patient revenue and a 13.8% operating margin. The hospital serves a payer mix of 24.1% Medicare, 7.2% Medicaid, and 68.7% commercial.
Thesis: Platform Growth. Our ML models identify $32.9M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 13.8% to 21.2% (+736bps).
| Net Revenue HCRIS | $447.1M |
| Current EBITDA COMPUTED | $61.8M |
| Operating Margin COMPUTED | 13.8% |
| Occupancy HCRIS | 74.8% |
| Revenue / Bed COMPUTED | $1.7M |
| Net-to-Gross HCRIS | 27.4% |
| Distress Probability ML | 42.5% |
2. Market Context & Competitive Position
AR has 108 Medicare-certified hospitals with a median operating margin of -7.6%. The target's margin of 13.8% places it above the state median. Among 18 size-comparable peers (128-512 beds), the median margin is -1.0%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (128-512), prioritizing same-state peers. 18 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| MERCY HOSPITAL FORT SMITH (Target) | AR | 256 | $447.1M | 13.8% |
| ARKANSAS CHILDRENS HOSPITAL | AR | 326 | $759.4M | 7.9% |
| ST BERNARDS MEDICAL CENTER | AR | 384 | $425.3M | -18.1% |
| ST VINCENT INFIRMARY MEDICAL C | AR | 379 | $392.7M | -30.0% |
| MERCY MEDICAL CENTER | AR | 236 | $366.7M | 7.7% |
| WASHINGTON REGIONAL MEDICAL CE | AR | 377 | $352.8M | -2.2% |
| NORTHWEST MEDICAL CENTER | AR | 321 | $293.1M | 0.7% |
| BAXTER REGIONAL MEDICAL CENTER | AR | 169 | $282.2M | -2.8% |
| BAPTIST HEALTH MEDICAL CENTER | AR | 320 | $279.1M | -13.1% |
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: $32.9M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $9.4M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $8.9M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $8.9M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $5.4M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $286K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $61.8M |
| + RCM Uplift | +$32.9M |
| Pro Forma EBITDA | $94.7M |
| Current Margin | 13.8% |
| Pro Forma Margin | 21.2% |
| WC Released (1x) | $17.1M |
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 | $95.1M | $736.7M | 7.75x | 50.6% |
| Base (11x exit) | 10.0x | 11.0x | $95.1M | $841.2M | 8.85x | 54.7% |
| Bull Case | 9.0x | 11.0x | $85.6M | $980.7M | 11.46x | 62.9% |
| Bull (12x exit) | 9.0x | 12.0x | $85.6M | $1.10B | 12.80x | 66.5% |
| Bear Case | 11.0x | 10.0x | $104.6M | $541.3M | 5.18x | 38.9% |
| Bear (11x exit) | 11.0x | 11.0x | $104.6M | $629.4M | 6.02x | 43.2% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Standard execution risk | RCM improvement requires management buy-in and 12-18 month implementation timeline |
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
- 18 hospitals with 128-512 beds
- Same-state prioritization (n=19)
- Comp margins: P25=-12.8% / P50=-1.0% / P75=5.8%
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.