WELLSTONE
1. Target Overview & Investment Thesis
WELLSTONE is a 100-bed suburban community hospital in nan, IN with $26.9M in net patient revenue and a 14.1% operating margin. The hospital serves a payer mix of 6.5% Medicare, 7.9% Medicaid, and 85.6% commercial.
Thesis: Turnaround. Our ML models identify $2.0M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 14.1% to 21.5% (+736bps).
| Net Revenue HCRIS | $26.9M |
| Current EBITDA COMPUTED | $3.8M |
| Operating Margin COMPUTED | 14.1% |
| Occupancy HCRIS | 63.8% |
| Revenue / Bed COMPUTED | $269K |
| Net-to-Gross HCRIS | 62.8% |
| Distress Probability ML | 50.0% |
2. Market Context & Competitive Position
IN has 171 Medicare-certified hospitals with a median operating margin of -1.1%. The target's margin of 14.1% places it above the state median. Among 60 size-comparable peers (50-200 beds), the median margin is 4.3%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (50-200), prioritizing same-state peers. 60 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| WELLSTONE (Target) | IN | 100 | $26.9M | 14.1% |
| 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% |
| ST. MARY MEDICAL CENTER INC. | IN | 180 | $319.2M | 9.5% |
| COMMUNITY HOSPITAL SOUTH | IN | 169 | $315.7M | 14.4% |
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: $2.0M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $566K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $539K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $533K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $328K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $17K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $3.8M |
| + RCM Uplift | +$2.0M |
| Pro Forma EBITDA | $5.8M |
| Current Margin | 14.1% |
| Pro Forma Margin | 21.5% |
| WC Released (1x) | $1.0M |
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 | $5.9M | $45.0M | 7.67x | 50.3% |
| Base (11x exit) | 10.0x | 11.0x | $5.9M | $51.4M | 8.76x | 54.4% |
| Bull Case | 9.0x | 11.0x | $5.3M | $59.8M | 11.34x | 62.5% |
| Bull (12x exit) | 9.0x | 12.0x | $5.3M | $66.8M | 12.66x | 66.1% |
| Bear Case | 11.0x | 10.0x | $6.4M | $33.1M | 5.14x | 38.7% |
| Bear (11x exit) | 11.0x | 11.0x | $6.4M | $38.5M | 5.98x | 43.0% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Standard execution risk | RCM improvement requires management buy-in and 12-18 month implementation timeline |
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
- 60 hospitals with 50-200 beds
- Same-state prioritization (n=61)
- Comp margins: P25=-11.4% / P50=4.3% / 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.