SOUTHEASTHEALTH
1. Target Overview & Investment Thesis
SOUTHEASTHEALTH is a 232-bed under-performing / distressed in CAPE GIRARDEAU, MO with $335.2M in net patient revenue and a -15.2% operating margin. The hospital serves a payer mix of 37.4% Medicare, 7.5% Medicaid, and 55.1% commercial.
Thesis: Undervalued. Our ML models identify $24.7M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -15.2% to -7.8% (+736bps).
| Net Revenue HCRIS | $335.2M |
| Current EBITDA COMPUTED | $-50.8M |
| Operating Margin COMPUTED | -15.2% |
| Occupancy HCRIS | 39.1% |
| Revenue / Bed COMPUTED | $1.4M |
| Net-to-Gross HCRIS | 28.7% |
| Distress Probability ML | 51.9% |
2. Market Context & Competitive Position
MO has 138 Medicare-certified hospitals with a median operating margin of -6.2%. The target's margin of -15.2% places it below the state median. Among 34 size-comparable peers (116-464 beds), the median margin is -2.2%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (116-464), prioritizing same-state peers. 34 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| SOUTHEASTHEALTH (Target) | MO | 232 | $335.2M | -15.2% |
| CHILDRENS MERCY HOSPITAL | MO | 328 | $1.44B | 30.5% |
| ST. LOUIS CHILDRENS HOSPITAL | MO | 445 | $886.1M | 6.4% |
| SSM SAINT LOUIS UNIVERSITY HOS | MO | 317 | $772.2M | -6.4% |
| MISSOURI BAPTIST MEDICAL CENTE | MO | 402 | $716.0M | 2.5% |
| HEARTLAND REGIONAL MEDICAL CEN | MO | 352 | $676.9M | -6.2% |
| NORTH KANSAS CITY HOSPITAL | MO | 383 | $601.5M | 7.7% |
| FREEMAN OAK HILL HEALTH SYSTEM | MO | 363 | $587.5M | 3.0% |
| ST. LUKES HOSPITAL | MO | 390 | $573.7M | 2.8% |
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: $24.7M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $7.0M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $6.7M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $6.6M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $4.1M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $215K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-50.8M |
| + RCM Uplift | +$24.7M |
| Pro Forma EBITDA | $-26.2M |
| Current Margin | -15.2% |
| Pro Forma Margin | -7.8% |
| WC Released (1x) | $12.9M |
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 | $-78.2M | $-88.6M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-78.2M | $-122.8M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-70.4M | $-66.8M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-70.4M | $-93.7M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-86.0M | $-186.6M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-86.0M | $-233.2M | 0.00x | -100.0% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| High | Negative operating margin | RCM uplift bridge shows clear path to profitability; working capital release provides near-term cash cushion |
| High | Elevated distress probability | Model estimates 51.9% 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
- 34 hospitals with 116-464 beds
- Same-state prioritization (n=35)
- Comp margins: P25=-12.4% / P50=-2.2% / P75=6.1%
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.