MADISON STATE HOSPITAL
1. Target Overview & Investment Thesis
MADISON STATE HOSPITAL is a 150-bed under-performing / distressed in JEFFERSON, IN with $6.2M in net patient revenue and a -100.0% operating margin. The hospital serves a payer mix of 0.1% Medicare, 19.0% Medicaid, and 80.9% commercial.
Thesis: Undervalued. Our ML models identify $470K in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -100.0% to -406.5% (+753bps).
| Net Revenue HCRIS | $6.2M |
| Current EBITDA COMPUTED | $-25.8M |
| Operating Margin COMPUTED | -100.0% |
| Occupancy HCRIS | 68.3% |
| Revenue / Bed COMPUTED | $42K |
| Net-to-Gross HCRIS | 8.2% |
| Distress Probability ML | 45.9% |
2. Market Context & Competitive Position
IN has 171 Medicare-certified hospitals with a median operating margin of -1.1%. The target's margin of -100.0% places it below the state median. Among 47 size-comparable peers (75-300 beds), the median margin is 6.1%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (75-300), prioritizing same-state peers. 47 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| MADISON STATE HOSPITAL (Target) | IN | 150 | $6.2M | -100.0% |
| UNION HOSPITAL INC. | IN | 258 | $581.9M | 3.8% |
| IU HEALTH BLOOMINGTON HOSPITAL | IN | 210 | $529.4M | 6.2% |
| REID HOSPITAL & HEALTH CARE SE | IN | 183 | $487.2M | 26.1% |
| IU HEALTH ARNETT HOSPITAL | IN | 194 | $426.2M | 16.1% |
| HENDRICKS REGIONAL HEALTH | IN | 130 | $423.4M | -3.6% |
| IU HEALTH NORTH HOSPITAL | IN | 153 | $413.3M | 24.2% |
| FRANCISCAN HEALTH LAFAYETTE | IN | 177 | $377.7M | 2.7% |
| PORTER REGIONAL HOSPITAL | IN | 199 | $370.6M | 22.1% |
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: $470K (753bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $131K | +210bp | 18mo |
| Denial Rate Reduction | 12.0% | 6.5% | $128K | +206bp | 12mo |
| Cost to Collect | 4.5% | 2.5% | $125K | +200bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $76K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $10K | +15bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-25.8M |
| + RCM Uplift | +$470K |
| Pro Forma EBITDA | $-25.4M |
| Current Margin | -100.0% |
| Pro Forma Margin | -406.5% |
| WC Released (1x) | $239K |
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 | $-39.8M | $-165.8M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-39.8M | $-195.3M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-35.8M | $-206.7M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-35.8M | $-236.0M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-43.7M | $-155.2M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-43.7M | $-185.0M | 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 |
| 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
- 47 hospitals with 75-300 beds
- Same-state prioritization (n=48)
- Comp margins: P25=-8.2% / P50=6.1% / P75=17.2%
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.