ALISO RIDGE BEHAVIORAL HEALTH
1. Target Overview & Investment Thesis
ALISO RIDGE BEHAVIORAL HEALTH is a 119-bed under-performing / distressed in ORANGE, CA with $9.7M in net patient revenue and a -89.1% operating margin. The hospital serves a payer mix of 2.8% Medicare, 25.0% Medicaid, and 72.3% commercial.
Thesis: Undervalued. Our ML models identify $720K in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -89.1% to -81.6% (+743bps).
| Net Revenue HCRIS | $9.7M |
| Current EBITDA COMPUTED | $-8.6M |
| Operating Margin COMPUTED | -89.1% |
| Occupancy HCRIS | 44.8% |
| Revenue / Bed COMPUTED | $81K |
| Net-to-Gross HCRIS | 51.0% |
| Distress Probability ML | 57.5% |
2. Market Context & Competitive Position
CA has 414 Medicare-certified hospitals with a median operating margin of -4.9%. The target's margin of -89.1% places it below the state median. Among 188 size-comparable peers (60-238 beds), the median margin is -4.5%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (60-238), prioritizing same-state peers. 188 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ALISO RIDGE BEHAVIORAL HEALTH (Target) | CA | 119 | $9.7M | -89.1% |
| CITY OF HOPE NATIONAL MEDICAL | CA | 217 | $1.83B | -10.7% |
| KFH - SOUTH SACRAMENTO | CA | 233 | $803.9M | 5.9% |
| COMMUNITY HOSP. MONTEREY PENIN | CA | 227 | $797.2M | 9.3% |
| KFH - MANTECA | CA | 213 | $796.8M | 15.2% |
| LAC OLIVE VIEW/UCLA MEDICAL CE | CA | 225 | $754.9M | -10.5% |
| CHILDRENS HOSP & RES CNTR OAKL | CA | 155 | $687.9M | -7.1% |
| KFH - WALNUT CREEK | CA | 219 | $681.0M | -3.4% |
| NORTHBAY HOSPITAL GROUP | CA | 204 | $676.6M | -8.2% |
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: $720K (743bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $204K | +210bp | 18mo |
| Denial Rate Reduction | 12.0% | 6.5% | $195K | +201bp | 12mo |
| Cost to Collect | 4.5% | 2.5% | $194K | +200bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $118K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $10K | +10bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-8.6M |
| + RCM Uplift | +$720K |
| Pro Forma EBITDA | $-7.9M |
| Current Margin | -89.1% |
| Pro Forma Margin | -81.6% |
| WC Released (1x) | $372K |
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 | $-13.3M | $-49.8M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-13.3M | $-59.1M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-12.0M | $-61.0M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-12.0M | $-70.1M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-14.6M | $-49.0M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-14.6M | $-58.7M | 0.00x | -100.0% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| High | Negative operating margin | RCM uplift bridge shows clear path to profitability; working capital release provides near-term cash cushion |
| Medium | Elevated Medicaid exposure (25.0%) | Medicaid reimburses below cost in most states. Mitigant: denial reduction lever has highest impact on Medicaid claims |
| High | Elevated distress probability | Model estimates 57.5% 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
- 188 hospitals with 60-238 beds
- Same-state prioritization (n=189)
- Comp margins: P25=-20.3% / P50=-4.5% / P75=4.6%
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.