ROCKCASTLE HOSPT. & RESPIR CARE CTR
1. Target Overview & Investment Thesis
ROCKCASTLE HOSPT. & RESPIR CARE CTR is a 30-bed suburban community hospital in ROCKCASTLE, KY with $79.1M in net patient revenue and a 2.2% operating margin. The hospital serves a payer mix of 34.7% Medicare, 5.6% Medicaid, and 59.7% commercial.
Thesis: Turnaround. Our ML models identify $5.8M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 2.2% to 9.6% (+736bps).
| Net Revenue HCRIS | $79.1M |
| Current EBITDA COMPUTED | $1.7M |
| Operating Margin COMPUTED | 2.2% |
| Occupancy HCRIS | 35.1% |
| Revenue / Bed COMPUTED | $2.6M |
| Net-to-Gross HCRIS | 37.4% |
| Distress Probability ML | 50.7% |
2. Market Context & Competitive Position
KY has 114 Medicare-certified hospitals with a median operating margin of -0.6%. The target's margin of 2.2% places it above the state median. Among 57 size-comparable peers (15-60 beds), the median margin is -3.4%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (15-60), prioritizing same-state peers. 57 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ROCKCASTLE HOSPT. & RESPIR CAR (Target) | KY | 30 | $79.1M | 2.2% |
| 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% |
| FLAGET MEMORIAL HOSPITAL | KY | 40 | $86.2M | -0.6% |
| ADVENTHEALTH MANCHESTER | KY | 49 | $73.0M | -11.0% |
| HARLAN ARH | KY | 56 | $69.9M | -24.1% |
| HARRISON MEMORIAL HOSPITAL | KY | 34 | $67.8M | -9.9% |
| SAINT JOSEPH MOUNT STERLING | KY | 42 | $64.2M | -5.4% |
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: $5.8M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $1.7M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $1.6M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $1.6M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $962K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $51K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $1.7M |
| + RCM Uplift | +$5.8M |
| Pro Forma EBITDA | $7.6M |
| Current Margin | 2.2% |
| Pro Forma Margin | 9.6% |
| WC Released (1x) | $3.0M |
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 | $2.7M | $69.7M | 26.01x | 91.9% |
| Base (11x exit) | 10.0x | 11.0x | $2.7M | $77.5M | 28.94x | 96.0% |
| Bull Case | 9.0x | 11.0x | $2.4M | $97.6M | 40.48x | 109.6% |
| Bull (12x exit) | 9.0x | 12.0x | $2.4M | $107.2M | 44.46x | 113.6% |
| Bear Case | 11.0x | 10.0x | $2.9M | $39.7M | 13.48x | 68.2% |
| Bear (11x exit) | 11.0x | 11.0x | $2.9M | $44.7M | 15.15x | 72.2% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| High | Elevated distress probability | Model estimates 50.7% probability of financial distress. Mitigant: distressed entry pricing (7-9x) compensates for risk |
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
- 57 hospitals with 15-60 beds
- Same-state prioritization (n=58)
- Comp margins: P25=-11.0% / P50=-3.4% / P75=7.4%
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.