MEMORIAL HEALTH SYSTEM
1. Target Overview & Investment Thesis
MEMORIAL HEALTH SYSTEM is a 501-bed suburban community hospital in EL PASO, CO with $1.11B in net patient revenue and a 3.5% operating margin. The hospital serves a payer mix of 22.1% Medicare, 27.1% Medicaid, and 50.8% commercial.
Thesis: Undervalued. Our ML models identify $81.9M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 3.5% to 10.9% (+736bps).
| Net Revenue HCRIS | $1.11B |
| Current EBITDA COMPUTED | $39.2M |
| Operating Margin COMPUTED | 3.5% |
| Occupancy HCRIS | 103.3% |
| Revenue / Bed COMPUTED | $2.2M |
| Net-to-Gross HCRIS | 18.0% |
| Distress Probability ML | 39.9% |
2. Market Context & Competitive Position
CO has 108 Medicare-certified hospitals with a median operating margin of -3.6%. The target's margin of 3.5% places it above the state median. Among 12 size-comparable peers (250-1002 beds), the median margin is 2.9%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (250-1002), prioritizing same-state peers. 12 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| MEMORIAL HEALTH SYSTEM (Target) | CO | 501 | $1.11B | 3.5% |
| UNIVERSITY OF CO HOSPITAL | CO | 709 | $2.66B | 1.8% |
| CHILDRENS HOSPITAL COLORADO | CO | 486 | $1.42B | -2.3% |
| DENVER HEALTH MEDICAL CENTER | CO | 396 | $1.11B | -8.1% |
| CENTURA PENROSE HOSPITAL | CO | 484 | $809.7M | 0.2% |
| SWEDISH MEDICAL CENTER | CO | 351 | $670.0M | 23.8% |
| PRESBYTERIAN ST. LUKES MEDICAL | CO | 287 | $646.0M | 27.6% |
| SAINT JOSEPH HOSPITAL | CO | 400 | $567.5M | -6.1% |
| SKY RIDGE MEDICAL CENTER | CO | 273 | $544.7M | 28.9% |
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: $81.9M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $23.4M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $22.2M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $22.0M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $13.5M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $712K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $39.2M |
| + RCM Uplift | +$81.9M |
| Pro Forma EBITDA | $121.0M |
| Current Margin | 3.5% |
| Pro Forma Margin | 10.9% |
| WC Released (1x) | $42.7M |
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 | $60.3M | $1.08B | 17.88x | 78.0% |
| Base (11x exit) | 10.0x | 11.0x | $60.3M | $1.20B | 19.99x | 82.0% |
| Bull Case | 9.0x | 11.0x | $54.2M | $1.49B | 27.55x | 94.1% |
| Bull (12x exit) | 9.0x | 12.0x | $54.2M | $1.65B | 30.35x | 97.9% |
| Bear Case | 11.0x | 10.0x | $66.3M | $648.2M | 9.78x | 57.8% |
| Bear (11x exit) | 11.0x | 11.0x | $66.3M | $734.5M | 11.08x | 61.8% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Elevated Medicaid exposure (27.1%) | Medicaid reimburses below cost in most states. Mitigant: denial reduction lever has highest impact on Medicaid claims |
| 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
- 12 hospitals with 250-1002 beds
- Same-state prioritization (n=13)
- Comp margins: P25=-3.2% / P50=2.9% / P75=22.4%
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.