CARRIS HEALTH-REDWOOD LLC
1. Target Overview & Investment Thesis
CARRIS HEALTH-REDWOOD LLC is a 14-bed suburban community hospital in REDWOOD, MN with $55.7M in net patient revenue and a 9.0% operating margin. The hospital serves a payer mix of 36.7% Medicare, 7.8% Medicaid, and 55.5% commercial.
Thesis: Turnaround. Our ML models identify $4.1M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 9.0% to 16.4% (+736bps).
| Net Revenue HCRIS | $55.7M |
| Current EBITDA COMPUTED | $5.0M |
| Operating Margin COMPUTED | 9.0% |
| Occupancy HCRIS | 33.4% |
| Revenue / Bed COMPUTED | $4.0M |
| Net-to-Gross HCRIS | 61.9% |
| Distress Probability ML | 52.5% |
2. Market Context & Competitive Position
MN has 141 Medicare-certified hospitals with a median operating margin of -3.6%. The target's margin of 9.0% places it above the state median. Among 85 size-comparable peers (7-28 beds), the median margin is -3.0%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (7-28), prioritizing same-state peers. 85 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| CARRIS HEALTH-REDWOOD LLC (Target) | MN | 14 | $55.7M | 9.0% |
| CUYUNA REGIONAL MEDICAL CENTER | MN | 25 | $180.8M | -4.0% |
| MAYO CLINIC HEALTH SYSTEM - RE | MN | 27 | $149.3M | 1.8% |
| NEW ULM MEDICAL CENTER | MN | 24 | $128.6M | 4.2% |
| LAKEWOOD HEALTH SYSTEM | MN | 25 | $124.7M | 0.2% |
| AVERA MARSHALL REGIONAL MEDICA | MN | 25 | $115.2M | -17.0% |
| WELIA HEALTH | MN | 25 | $106.7M | 1.1% |
| CCH-MONTICELLO | MN | 25 | $97.7M | 9.2% |
| RIVERWOOD HEALTHCARE CENTER | MN | 25 | $85.5M | -2.9% |
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: $4.1M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $1.2M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $1.1M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $1.1M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $678K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $36K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $5.0M |
| + RCM Uplift | +$4.1M |
| Pro Forma EBITDA | $9.1M |
| Current Margin | 9.0% |
| Pro Forma Margin | 16.4% |
| WC Released (1x) | $2.1M |
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 | $7.7M | $74.2M | 9.58x | 57.1% |
| Base (11x exit) | 10.0x | 11.0x | $7.7M | $84.1M | 10.87x | 61.2% |
| Bull Case | 9.0x | 11.0x | $7.0M | $100.2M | 14.38x | 70.4% |
| Bull (12x exit) | 9.0x | 12.0x | $7.0M | $111.3M | 15.98x | 74.1% |
| Bear Case | 11.0x | 10.0x | $8.5M | $51.2M | 6.01x | 43.1% |
| Bear (11x exit) | 11.0x | 11.0x | $8.5M | $59.1M | 6.94x | 47.3% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Low occupancy | At 33.4%, fixed costs are spread over fewer patient days. Mitigant: volume growth is an additional upside lever not modeled in base case |
| High | Elevated distress probability | Model estimates 52.5% 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
- 85 hospitals with 7-28 beds
- Same-state prioritization (n=89)
- Comp margins: P25=-13.2% / P50=-3.0% / 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.