MERIT HEALTH WESLEY
1. Target Overview & Investment Thesis
MERIT HEALTH WESLEY is a 121-bed suburban community hospital in LAMAR, MS with $140.9M in net patient revenue and a 1.3% operating margin. The hospital serves a payer mix of 31.0% Medicare, 17.3% Medicaid, and 51.7% commercial.
Thesis: Undervalued. Our ML models identify $10.4M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 1.3% to 8.7% (+736bps).
| Net Revenue HCRIS | $140.9M |
| Current EBITDA COMPUTED | $1.8M |
| Operating Margin COMPUTED | 1.3% |
| Occupancy HCRIS | 82.3% |
| Revenue / Bed COMPUTED | $1.2M |
| Net-to-Gross HCRIS | 9.5% |
| Distress Probability ML | 42.0% |
2. Market Context & Competitive Position
MS has 110 Medicare-certified hospitals with a median operating margin of -12.5%. The target's margin of 1.3% places it above the state median. Among 26 size-comparable peers (60-242 beds), the median margin is -4.4%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (60-242), prioritizing same-state peers. 26 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| MERIT HEALTH WESLEY (Target) | MS | 121 | $140.9M | 1.3% |
| BAPTIST MEM HOSPITAL NORTH MIS | MS | 195 | $229.4M | 0.7% |
| BAPTIST MEM HOSPITAL GOLDEN TR | MS | 154 | $221.1M | 6.9% |
| MAGNOLIA HOSPITAL | MS | 158 | $161.6M | -4.7% |
| CENTRAL MISSISSIPPI MEDICAL CE | MS | 226 | $142.2M | -12.4% |
| RIVER OAKS HOSPITAL | MS | 158 | $124.1M | 7.0% |
| SOUTHWEST MS REGIONAL MED CENT | MS | 97 | $123.1M | -16.0% |
| RUSH FOUNDATION HOSPITAL | MS | 191 | $122.0M | -19.1% |
| BAPTIST MEM HOSPITAL UNION COU | MS | 83 | $117.9M | 3.7% |
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: $10.4M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $3.0M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $2.8M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $2.8M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $1.7M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $90K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $1.8M |
| + RCM Uplift | +$10.4M |
| Pro Forma EBITDA | $12.2M |
| Current Margin | 1.3% |
| Pro Forma Margin | 8.7% |
| WC Released (1x) | $5.4M |
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 | $2.8M | $115.8M | 41.05x | 110.2% |
| Base (11x exit) | 10.0x | 11.0x | $2.8M | $128.3M | 45.48x | 114.6% |
| Bull Case | 9.0x | 11.0x | $2.5M | $163.5M | 64.37x | 130.0% |
| Bull (12x exit) | 9.0x | 12.0x | $2.5M | $179.1M | 70.51x | 134.2% |
| Bear Case | 11.0x | 10.0x | $3.1M | $63.1M | 20.31x | 82.6% |
| Bear (11x exit) | 11.0x | 11.0x | $3.1M | $70.4M | 22.67x | 86.7% |
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
- 26 hospitals with 60-242 beds
- Same-state prioritization (n=27)
- Comp margins: P25=-16.0% / P50=-4.4% / P75=3.7%
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.