BAPTIST HEALTH LEXINGTON
1. Target Overview & Investment Thesis
BAPTIST HEALTH LEXINGTON is a 434-bed suburban community hospital in FAYETTE, KY with $760.6M in net patient revenue and a 2.8% operating margin. The hospital serves a payer mix of 24.4% Medicare, 0.4% Medicaid, and 75.1% commercial.
Thesis: Undervalued. Our ML models identify $56.0M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 2.8% to 10.1% (+736bps).
| Net Revenue HCRIS | $760.6M |
| Current EBITDA COMPUTED | $21.2M |
| Operating Margin COMPUTED | 2.8% |
| Occupancy HCRIS | 65.0% |
| Revenue / Bed COMPUTED | $1.8M |
| Net-to-Gross HCRIS | 15.1% |
| Distress Probability ML | 42.3% |
2. Market Context & Competitive Position
KY has 114 Medicare-certified hospitals with a median operating margin of -0.6%. The target's margin of 2.8% places it above the state median. Among 10 size-comparable peers (217-868 beds), the median margin is -7.0%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (217-868), prioritizing same-state peers. 10 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| BAPTIST HEALTH LEXINGTON (Target) | KY | 434 | $760.6M | 2.8% |
| UOFL HEALTH-LOUISVILLE | KY | 789 | $1.13B | 7.8% |
| ST ELIZABETH HEALTHCARE | KY | 448 | $1.07B | -13.2% |
| UNIVERSITY OF LOUISVILLE HOSPI | KY | 333 | $806.1M | -6.9% |
| OWENSBORO HEALTH REGIONAL HOSP | KY | 302 | $678.6M | 11.1% |
| BAPTIST HEALTH LOUISVILLE | KY | 454 | $677.1M | -7.2% |
| PIKEVILLE MEDICAL CENTER | KY | 328 | $555.1M | -16.6% |
| KINGS DAUGHTERS MEDICAL CENTER | KY | 367 | $542.4M | -20.5% |
| BAPTIST HEALTH HARDIN | KY | 259 | $459.5M | -1.5% |
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: $56.0M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $16.0M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $15.2M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $15.1M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $9.3M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $487K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $21.2M |
| + RCM Uplift | +$56.0M |
| Pro Forma EBITDA | $77.2M |
| Current Margin | 2.8% |
| Pro Forma Margin | 10.1% |
| WC Released (1x) | $29.2M |
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 | $32.6M | $699.5M | 21.48x | 84.7% |
| Base (11x exit) | 10.0x | 11.0x | $32.6M | $780.0M | 23.95x | 88.7% |
| Bull Case | 9.0x | 11.0x | $29.3M | $975.4M | 33.27x | 101.6% |
| Bull (12x exit) | 9.0x | 12.0x | $29.3M | $1.07B | 36.59x | 105.4% |
| Bear Case | 11.0x | 10.0x | $35.8M | $409.0M | 11.42x | 62.7% |
| Bear (11x exit) | 11.0x | 11.0x | $35.8M | $461.5M | 12.88x | 66.7% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| 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
- 10 hospitals with 217-868 beds
- Same-state prioritization (n=11)
- Comp margins: P25=-15.8% / P50=-7.0% / P75=2.8%
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.