SAINT JOSEPH MOUNT STERLING
1. Target Overview & Investment Thesis
SAINT JOSEPH MOUNT STERLING is a 42-bed suburban community hospital in MONTGOMERY, KY with $64.2M in net patient revenue and a -5.4% operating margin. The hospital serves a payer mix of 26.4% Medicare, 1.9% Medicaid, and 71.7% commercial.
Thesis: Turnaround. Our ML models identify $4.7M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -5.4% to 1.9% (+736bps).
| Net Revenue HCRIS | $64.2M |
| Current EBITDA COMPUTED | $-3.5M |
| Operating Margin COMPUTED | -5.4% |
| Occupancy HCRIS | 49.1% |
| Revenue / Bed COMPUTED | $1.5M |
| Net-to-Gross HCRIS | 30.6% |
| Distress Probability ML | 47.1% |
2. Market Context & Competitive Position
KY has 114 Medicare-certified hospitals with a median operating margin of -0.6%. The target's margin of -5.4% places it below the state median. Among 64 size-comparable peers (21-84 beds), the median margin is 0.0%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (21-84), prioritizing same-state peers. 64 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| SAINT JOSEPH MOUNT STERLING (Target) | KY | 42 | $64.2M | -5.4% |
| BAPTIST HEALTH LAGRANGE | KY | 42 | $236.9M | 2.7% |
| CLARK REGIONAL MEDICAL CENTER | KY | 54 | $156.4M | 16.5% |
| BAPTIST HEALTH RICHMOND | KY | 53 | $145.6M | -3.7% |
| GEORGETOWN COMMUNITY HOSPITAL | KY | 75 | $118.5M | 15.1% |
| HIGHLANDS REGIONAL MEDICAL CEN | KY | 63 | $96.5M | -32.6% |
| FLAGET MEMORIAL HOSPITAL | KY | 40 | $86.2M | -0.6% |
| ROCKCASTLE HOSPT. & RESPIR CAR | KY | 30 | $79.1M | 2.2% |
| ADVENTHEALTH MANCHESTER | KY | 49 | $73.0M | -11.0% |
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: $4.7M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $1.3M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $1.3M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $1.3M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $781K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $41K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-3.5M |
| + RCM Uplift | +$4.7M |
| Pro Forma EBITDA | $1.2M |
| Current Margin | -5.4% |
| Pro Forma Margin | 1.9% |
| WC Released (1x) | $2.5M |
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 | $-5.3M | $24.3M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-5.3M | $25.0M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-4.8M | $38.8M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-4.8M | $40.9M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-5.9M | $2.4M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-5.9M | $757K | 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 |
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
- 64 hospitals with 21-84 beds
- Same-state prioritization (n=65)
- Comp margins: P25=-11.0% / P50=0.0% / P75=10.3%
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.