MERCY HOSPITAL LEBANON
1. Target Overview & Investment Thesis
MERCY HOSPITAL LEBANON is a 43-bed suburban community hospital in LACLEDE, MO with $94.1M in net patient revenue and a 15.5% operating margin. The hospital serves a payer mix of 20.0% Medicare, 21.8% Medicaid, and 58.2% commercial.
Thesis: Turnaround. Our ML models identify $6.9M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 15.5% to 22.9% (+736bps).
| Net Revenue HCRIS | $94.1M |
| Current EBITDA COMPUTED | $14.6M |
| Operating Margin COMPUTED | 15.5% |
| Occupancy HCRIS | 30.6% |
| Revenue / Bed COMPUTED | $2.2M |
| Net-to-Gross HCRIS | 28.0% |
| Distress Probability ML | 54.8% |
2. Market Context & Competitive Position
MO has 138 Medicare-certified hospitals with a median operating margin of -6.2%. The target's margin of 15.5% places it above the state median. Among 64 size-comparable peers (22-86 beds), the median margin is -9.2%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (22-86), prioritizing same-state peers. 64 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| MERCY HOSPITAL LEBANON (Target) | MO | 43 | $94.1M | 15.5% |
| HANNIBAL REGIONAL HOSPITAL | MO | 86 | $226.2M | -6.8% |
| BARNES JEWISH WEST COUNTY HOSP | MO | 68 | $221.1M | 4.9% |
| CITIZENS MEMORIAL HOSPITAL DIS | MO | 52 | $178.3M | -19.3% |
| LEES SUMMIT MEDICAL CENTER | MO | 80 | $146.7M | 13.6% |
| GOLDEN VALLEY MEMORIAL HOSPITA | MO | 42 | $139.8M | -4.9% |
| PROGRESS WEST HOSPITAL | MO | 69 | $112.0M | 11.7% |
| WESTERN MISSOURI MEDICAL CENTE | MO | 45 | $108.5M | -9.2% |
| BELTON REGIONAL MEDICAL CENTER | MO | 62 | $92.1M | 17.2% |
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: $6.9M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $2.0M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $1.9M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $1.9M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $1.1M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $60K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $14.6M |
| + RCM Uplift | +$6.9M |
| Pro Forma EBITDA | $21.6M |
| Current Margin | 15.5% |
| Pro Forma Margin | 22.9% |
| WC Released (1x) | $3.6M |
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 | $22.5M | $165.8M | 7.37x | 49.1% |
| Base (11x exit) | 10.0x | 11.0x | $22.5M | $189.7M | 8.43x | 53.1% |
| Bull Case | 9.0x | 11.0x | $20.3M | $219.9M | 10.85x | 61.1% |
| Bull (12x exit) | 9.0x | 12.0x | $20.3M | $245.9M | 12.13x | 64.7% |
| Bear Case | 11.0x | 10.0x | $24.8M | $123.9M | 5.00x | 38.0% |
| Bear (11x exit) | 11.0x | 11.0x | $24.8M | $144.3M | 5.83x | 42.3% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Low occupancy | At 30.6%, 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 54.8% 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
- 64 hospitals with 22-86 beds
- Same-state prioritization (n=65)
- Comp margins: P25=-16.4% / P50=-9.2% / 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.