MERCY HOSPITAL - WASHINGTON
1. Target Overview & Investment Thesis
MERCY HOSPITAL - WASHINGTON is a 140-bed suburban community hospital in FRANKLIN, MO with $202.9M in net patient revenue and a 16.4% operating margin. The hospital serves a payer mix of 20.7% Medicare, 8.7% Medicaid, and 70.6% commercial.
Thesis: Turnaround. Our ML models identify $14.9M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 16.4% to 23.7% (+736bps).
| Net Revenue HCRIS | $202.9M |
| Current EBITDA COMPUTED | $33.2M |
| Operating Margin COMPUTED | 16.4% |
| Occupancy HCRIS | 45.9% |
| Revenue / Bed COMPUTED | $1.4M |
| Net-to-Gross HCRIS | 22.8% |
| Distress Probability ML | 48.9% |
2. Market Context & Competitive Position
MO has 138 Medicare-certified hospitals with a median operating margin of -6.2%. The target's margin of 16.4% places it above the state median. Among 40 size-comparable peers (70-280 beds), the median margin is -2.9%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (70-280), prioritizing same-state peers. 40 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| MERCY HOSPITAL - WASHINGTON (Target) | MO | 140 | $202.9M | 16.4% |
| UNIVERSITY HEALTH TRUMAN MED C | MO | 258 | $540.8M | -13.5% |
| AMEND 1 CENTERPOINT MEDICAL CE | MO | 265 | $378.8M | 19.2% |
| BOONE HOSPITAL CENTER | MO | 278 | $346.5M | -22.5% |
| CHRISTIAN HOSPITAL NORTHEAST | MO | 267 | $340.9M | -6.6% |
| SOUTHEASTHEALTH | MO | 232 | $335.2M | -15.2% |
| ST. LUKES EAST - LEES SUMMIT | MO | 216 | $318.1M | -5.8% |
| LIBERTY HOSPITAL | MO | 199 | $303.2M | -3.1% |
| PHELPS COUNTY REGIONAL MEDICAL | MO | 196 | $270.3M | 33.1% |
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: $14.9M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $4.3M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $4.1M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $4.0M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $2.5M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $130K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $33.2M |
| + RCM Uplift | +$14.9M |
| Pro Forma EBITDA | $48.2M |
| Current Margin | 16.4% |
| Pro Forma Margin | 23.7% |
| WC Released (1x) | $7.8M |
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 | $51.1M | $368.6M | 7.21x | 48.4% |
| Base (11x exit) | 10.0x | 11.0x | $51.1M | $422.1M | 8.25x | 52.5% |
| Bull Case | 9.0x | 11.0x | $46.0M | $488.0M | 10.60x | 60.4% |
| Bull (12x exit) | 9.0x | 12.0x | $46.0M | $545.9M | 11.86x | 64.0% |
| Bear Case | 11.0x | 10.0x | $56.3M | $277.3M | 4.93x | 37.6% |
| Bear (11x exit) | 11.0x | 11.0x | $56.3M | $323.4M | 5.75x | 41.9% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Standard execution risk | RCM improvement requires management buy-in and 12-18 month implementation timeline |
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
- 40 hospitals with 70-280 beds
- Same-state prioritization (n=41)
- Comp margins: P25=-13.9% / P50=-2.9% / P75=7.3%
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.