MERCY REHABILITATION HOSPITAL - ST L
1. Target Overview & Investment Thesis
MERCY REHABILITATION HOSPITAL - ST L is a 90-bed suburban community hospital in ST. LOUIS, MO with $47.0M in net patient revenue and a 25.2% operating margin. The hospital serves a payer mix of 47.0% Medicare, 2.4% Medicaid, and 50.6% commercial.
Thesis: Turnaround. Our ML models identify $3.5M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 25.2% to 32.5% (+736bps).
| Net Revenue HCRIS | $47.0M |
| Current EBITDA COMPUTED | $11.8M |
| Operating Margin COMPUTED | 25.2% |
| Occupancy HCRIS | 74.6% |
| Revenue / Bed COMPUTED | $522K |
| Net-to-Gross HCRIS | 71.4% |
| Distress Probability ML | 48.4% |
2. Market Context & Competitive Position
MO has 138 Medicare-certified hospitals with a median operating margin of -6.2%. The target's margin of 25.2% places it above the state median. Among 44 size-comparable peers (45-180 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 (45-180), prioritizing same-state peers. 44 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| MERCY REHABILITATION HOSPITAL (Target) | MO | 90 | $47.0M | 25.2% |
| LAKE REGIONAL HEALTH SYSTEM | MO | 105 | $226.8M | -2.7% |
| HANNIBAL REGIONAL HOSPITAL | MO | 86 | $226.2M | -6.8% |
| SSM HEALTH ST CLARE HOSPITAL | MO | 180 | $225.5M | 2.8% |
| CAPITAL REGION MEDICAL CENTER | MO | 100 | $224.0M | -17.7% |
| BARNES JEWISH WEST COUNTY HOSP | MO | 68 | $221.1M | 4.9% |
| COX MEDICAL CENTER BRANSON | MO | 144 | $217.3M | -0.8% |
| SSM HEALTH ST. JOSEPH HOSPITAL | MO | 179 | $208.4M | 1.5% |
| MERCY HOSPITAL - WASHINGTON | MO | 140 | $202.9M | 16.4% |
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: $3.5M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $986K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $939K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $930K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $571K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $30K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $11.8M |
| + RCM Uplift | +$3.5M |
| Pro Forma EBITDA | $15.3M |
| Current Margin | 25.2% |
| Pro Forma Margin | 32.5% |
| WC Released (1x) | $1.8M |
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 | $18.2M | $112.5M | 6.19x | 44.0% |
| Base (11x exit) | 10.0x | 11.0x | $18.2M | $129.7M | 7.13x | 48.1% |
| Bull Case | 9.0x | 11.0x | $16.4M | $147.0M | 8.98x | 55.1% |
| Bull (12x exit) | 9.0x | 12.0x | $16.4M | $165.2M | 10.09x | 58.8% |
| Bear Case | 11.0x | 10.0x | $20.0M | $89.4M | 4.47x | 34.9% |
| Bear (11x exit) | 11.0x | 11.0x | $20.0M | $104.8M | 5.24x | 39.3% |
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
- 44 hospitals with 45-180 beds
- Same-state prioritization (n=45)
- Comp margins: P25=-17.8% / P50=-2.9% / P75=8.7%
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.