SUTTER MATERNITY & SURGERY CENTER
1. Target Overview & Investment Thesis
SUTTER MATERNITY & SURGERY CENTER is a 28-bed suburban community hospital in SANTA CRUZ, CA with $90.5M in net patient revenue and a 12.8% operating margin. The hospital serves a payer mix of 4.6% Medicare, 15.3% Medicaid, and 80.1% commercial.
Thesis: Turnaround. Our ML models identify $6.7M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 12.8% to 20.1% (+736bps).
| Net Revenue HCRIS | $90.5M |
| Current EBITDA COMPUTED | $11.6M |
| Operating Margin COMPUTED | 12.8% |
| Occupancy HCRIS | 37.5% |
| Revenue / Bed COMPUTED | $3.2M |
| Net-to-Gross HCRIS | 35.9% |
| Distress Probability ML | 50.2% |
2. Market Context & Competitive Position
CA has 414 Medicare-certified hospitals with a median operating margin of -4.9%. The target's margin of 12.8% places it above the state median. Among 72 size-comparable peers (14-56 beds), the median margin is -6.3%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (14-56), prioritizing same-state peers. 72 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| SUTTER MATERNITY & SURGERY CEN (Target) | CA | 28 | $90.5M | 12.8% |
| TAHOE FOREST HOSPITAL | CA | 25 | $264.3M | 13.0% |
| PORTERVILLE DEVELOPMENTAL CENT | CA | 17 | $193.6M | -6.0% |
| ADVENTIST HEALTH REEDLEY | CA | 49 | $187.1M | 1.8% |
| SUTTER DAVIS HOSPITAL | CA | 48 | $176.9M | 12.5% |
| ADVENTIST HEALTH UKIAH VALLEY | CA | 50 | $173.4M | -39.9% |
| ADVENTIST HEALTH CLEARLAKE | CA | 25 | $159.9M | -6.3% |
| ST ELIZABETH COMMUNITY HOSPTI | CA | 49 | $159.2M | 3.5% |
| RIDGECREST REGIONAL HOSPITAL | CA | 25 | $149.6M | -14.7% |
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: $6.7M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $1.9M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $1.8M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $1.8M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $1.1M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $58K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $11.6M |
| + RCM Uplift | +$6.7M |
| Pro Forma EBITDA | $18.2M |
| Current Margin | 12.8% |
| Pro Forma Margin | 20.1% |
| WC Released (1x) | $3.5M |
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 | $17.8M | $143.0M | 8.03x | 51.7% |
| Base (11x exit) | 10.0x | 11.0x | $17.8M | $163.1M | 9.16x | 55.7% |
| Bull Case | 9.0x | 11.0x | $16.0M | $190.9M | 11.91x | 64.1% |
| Bull (12x exit) | 9.0x | 12.0x | $16.0M | $213.0M | 13.29x | 67.8% |
| Bear Case | 11.0x | 10.0x | $19.6M | $103.9M | 5.30x | 39.6% |
| Bear (11x exit) | 11.0x | 11.0x | $19.6M | $120.7M | 6.16x | 43.9% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| High | Elevated distress probability | Model estimates 50.2% probability of financial distress. Mitigant: distressed entry pricing (7-9x) compensates for risk |
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
- 72 hospitals with 14-56 beds
- Same-state prioritization (n=73)
- Comp margins: P25=-17.6% / P50=-6.3% / P75=1.8%
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.