COTTONWOOD SPRINGS
1. Target Overview & Investment Thesis
COTTONWOOD SPRINGS is a 72-bed suburban community hospital in JOHNSON, KS with $27.2M in net patient revenue and a 1.9% operating margin. The hospital serves a payer mix of 17.0% Medicare, 0.3% Medicaid, and 82.7% commercial.
Thesis: Turnaround. Our ML models identify $2.0M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 1.9% to 9.2% (+736bps).
| Net Revenue HCRIS | $27.2M |
| Current EBITDA COMPUTED | $507K |
| Operating Margin COMPUTED | 1.9% |
| Occupancy HCRIS | 88.1% |
| Revenue / Bed COMPUTED | $378K |
| Net-to-Gross HCRIS | 30.9% |
| Distress Probability ML | 39.3% |
2. Market Context & Competitive Position
KS has 152 Medicare-certified hospitals with a median operating margin of -17.7%. The target's margin of 1.9% places it above the state median. Among 33 size-comparable peers (36-144 beds), the median margin is -7.9%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (36-144), prioritizing same-state peers. 33 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| COTTONWOOD SPRINGS (Target) | KS | 72 | $27.2M | 1.9% |
| LAWRENCE MEMORIAL HOSPITAL | KS | 110 | $346.7M | -4.0% |
| AM 1 MENORAH MEDICAL CENTER | KS | 137 | $289.4M | 8.5% |
| ST. LUKES SOUTH | KS | 91 | $218.2M | -13.1% |
| HAYS MEDICAL CENTER INC. | KS | 136 | $215.1M | -12.3% |
| CHILDRENS MERCY HOSPITAL KANSA | KS | 42 | $108.5M | 14.7% |
| CENTURA ST. CATHERINE - GARDEN | KS | 90 | $107.1M | -8.1% |
| MERCY REGIONAL HEALTH CENTER | KS | 84 | $95.8M | 0.8% |
| NEWTON MEDICAL CENTER | KS | 76 | $93.2M | -7.9% |
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: $2.0M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $572K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $545K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $539K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $331K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $17K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $507K |
| + RCM Uplift | +$2.0M |
| Pro Forma EBITDA | $2.5M |
| Current Margin | 1.9% |
| Pro Forma Margin | 9.2% |
| 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 | $780K | $23.4M | 29.98x | 97.4% |
| Base (11x exit) | 10.0x | 11.0x | $780K | $26.0M | 33.30x | 101.6% |
| Bull Case | 9.0x | 11.0x | $702K | $32.9M | 46.78x | 115.8% |
| Bull (12x exit) | 9.0x | 12.0x | $702K | $36.0M | 51.33x | 119.8% |
| Bear Case | 11.0x | 10.0x | $858K | $13.1M | 15.28x | 72.5% |
| Bear (11x exit) | 11.0x | 11.0x | $858K | $14.7M | 17.13x | 76.5% |
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
- 33 hospitals with 36-144 beds
- Same-state prioritization (n=34)
- Comp margins: P25=-19.4% / P50=-7.9% / P75=0.6%
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.