STONECREST
1. Target Overview & Investment Thesis
STONECREST is a 182-bed safety-net/medicaid heavy in WAYNE, MI with $60.0M in net patient revenue and a 22.9% operating margin. The hospital serves a payer mix of 10.3% Medicare, 65.9% Medicaid, and 23.8% commercial.
Thesis: Turnaround. Our ML models identify $4.4M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 22.9% to 30.3% (+736bps).
| Net Revenue HCRIS | $60.0M |
| Current EBITDA COMPUTED | $13.8M |
| Operating Margin COMPUTED | 22.9% |
| Occupancy HCRIS | 90.8% |
| Revenue / Bed COMPUTED | $330K |
| Net-to-Gross HCRIS | 39.8% |
| Distress Probability ML | 56.0% |
2. Market Context & Competitive Position
MI has 163 Medicare-certified hospitals with a median operating margin of -5.2%. The target's margin of 22.9% places it above the state median. Among 55 size-comparable peers (91-364 beds), the median margin is -7.1%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (91-364), prioritizing same-state peers. 55 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| STONECREST (Target) | MI | 182 | $60.0M | 22.9% |
| W.A. FOOTE MEMORIAL HOSPITAL | MI | 331 | $681.8M | -9.0% |
| TRINITY HEALTH MUSKEGON | MI | 262 | $621.2M | -15.5% |
| TRINITY HEALTH GRAND RAPIDS | MI | 271 | $601.8M | -27.3% |
| HENRY FORD HEALTH MACOMB HOSPI | MI | 303 | $584.5M | -6.9% |
| MYMICHIGAN MEDICAL CENTER MIDL | MI | 195 | $537.8M | -9.6% |
| METROPOLITAN HOSPITAL | MI | 201 | $512.0M | -11.3% |
| LAKELAND MEDICAL CENTER ST. J | MI | 235 | $488.2M | -3.6% |
| TRINITY HEALTH OAKLAND | MI | 333 | $480.5M | -7.2% |
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: $4.4M (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% | $1.2M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $1.2M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $730K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $38K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $13.8M |
| + RCM Uplift | +$4.4M |
| Pro Forma EBITDA | $18.2M |
| Current Margin | 22.9% |
| Pro Forma Margin | 30.3% |
| WC Released (1x) | $2.3M |
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 | $21.2M | $134.9M | 6.37x | 44.8% |
| Base (11x exit) | 10.0x | 11.0x | $21.2M | $155.3M | 7.34x | 49.0% |
| Bull Case | 9.0x | 11.0x | $19.0M | $176.7M | 9.28x | 56.1% |
| Bull (12x exit) | 9.0x | 12.0x | $19.0M | $198.4M | 10.42x | 59.8% |
| Bear Case | 11.0x | 10.0x | $23.3M | $105.9M | 4.55x | 35.4% |
| Bear (11x exit) | 11.0x | 11.0x | $23.3M | $124.1M | 5.33x | 39.8% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Elevated Medicaid exposure (65.9%) | Medicaid reimburses below cost in most states. Mitigant: denial reduction lever has highest impact on Medicaid claims |
| High | Elevated distress probability | Model estimates 56.0% 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
- 55 hospitals with 91-364 beds
- Same-state prioritization (n=56)
- Comp margins: P25=-13.4% / P50=-7.1% / P75=-0.3%
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.