KONA COMMUNITY HOSPITAL
1. Target Overview & Investment Thesis
KONA COMMUNITY HOSPITAL is a 83-bed safety-net/medicaid heavy in HAWAII, HI with $105.2M in net patient revenue and a -37.0% operating margin. The hospital serves a payer mix of 14.1% Medicare, 37.4% Medicaid, and 48.5% commercial.
Thesis: Turnaround. Our ML models identify $7.7M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -37.0% to -29.6% (+736bps).
| Net Revenue HCRIS | $105.2M |
| Current EBITDA COMPUTED | $-38.9M |
| Operating Margin COMPUTED | -37.0% |
| Occupancy HCRIS | 82.2% |
| Revenue / Bed COMPUTED | $1.3M |
| Net-to-Gross HCRIS | 32.6% |
| Distress Probability ML | 48.5% |
2. Market Context & Competitive Position
HI has 26 Medicare-certified hospitals with a median operating margin of -14.7%. The target's margin of -37.0% places it below the state median. Among 2150 size-comparable peers (42-166 beds), the median margin is -3.4%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (42-166), prioritizing same-state peers. 2150 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| KONA COMMUNITY HOSPITAL (Target) | HI | 83 | $105.2M | -37.0% |
| MIDWESTERN REGIONAL MEDICAL CE | IL | 73 | $1.38B | 80.5% |
| ROSWELL PARK CANCER INSTITUTE | NY | 142 | $772.3M | -40.1% |
| CHILDRENS HOSP & RES CNTR OAKL | CA | 155 | $687.9M | -7.1% |
| ROUND ROCK HOSPITAL | TX | 165 | $681.4M | 8.7% |
| CONTRA COSTA REGIONAL MEDICAL | CA | 124 | $595.0M | -29.2% |
| JOHN DEMPSEY HOSPITAL | CT | 141 | $590.3M | -24.8% |
| INNOVIS HEALTH | ND | 142 | $537.9M | -5.3% |
| STRAUB CLINIC & HOSPITAL | HI | 159 | $537.5M | 4.1% |
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: $7.7M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $2.2M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $2.1M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $2.1M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $1.3M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $67K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-38.9M |
| + RCM Uplift | +$7.7M |
| Pro Forma EBITDA | $-31.2M |
| Current Margin | -37.0% |
| Pro Forma Margin | -29.6% |
| WC Released (1x) | $4.0M |
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 | $-59.9M | $-179.3M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-59.9M | $-216.7M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-53.9M | $-210.6M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-53.9M | $-245.7M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-65.9M | $-198.6M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-65.9M | $-239.9M | 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 (37.4%) | Medicaid reimburses below cost in most states. Mitigant: denial reduction lever has highest impact on Medicaid claims |
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
- 2150 hospitals with 42-166 beds
- Same-state prioritization (n=7)
- Comp margins: P25=-15.5% / P50=-3.4% / P75=7.9%
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.