BILLINGS CLINIC
1. Target Overview & Investment Thesis
BILLINGS CLINIC is a 334-bed suburban community hospital in YELLOWSTONE, MT with $871.5M in net patient revenue and a -17.3% operating margin. The hospital serves a payer mix of 35.7% Medicare, 27.2% Medicaid, and 37.1% commercial.
Thesis: Undervalued. Our ML models identify $64.1M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -17.3% to -9.9% (+736bps).
| Net Revenue HCRIS | $871.5M |
| Current EBITDA COMPUTED | $-150.6M |
| Operating Margin COMPUTED | -17.3% |
| Occupancy HCRIS | 65.2% |
| Revenue / Bed COMPUTED | $2.6M |
| Net-to-Gross HCRIS | 64.6% |
| Distress Probability ML | 53.3% |
2. Market Context & Competitive Position
MT has 66 Medicare-certified hospitals with a median operating margin of -9.6%. The target's margin of -17.3% places it below the state median. Among 1394 size-comparable peers (167-668 beds), the median margin is -3.8%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (167-668), prioritizing same-state peers. 1394 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| BILLINGS CLINIC (Target) | MT | 334 | $871.5M | -17.3% |
| ST. LUKES HOSPITAL | PA | 633 | $8.94B | 87.9% |
| STANFORD HEALTH CARE | CA | 657 | $6.76B | 3.7% |
| MEMORIAL HOSPITAL FOR CANCER A | NY | 514 | $4.34B | -32.5% |
| UC DAVIS MEDICAL CENTER | CA | 666 | $3.28B | -11.5% |
| U OF U HOSPITALS & CLINICS | UT | 616 | $2.72B | -1.8% |
| THE CHILDRENS HOSPITAL OF PHIL | PA | 667 | $2.70B | -26.8% |
| UNIVERSITY OF WI HOSPITALS & C | WI | 644 | $2.68B | 3.2% |
| RONALD REAGAN UCLA | CA | 446 | $2.62B | -6.8% |
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: $64.1M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $18.3M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $17.4M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $17.3M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $10.6M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $558K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-150.6M |
| + RCM Uplift | +$64.1M |
| Pro Forma EBITDA | $-86.4M |
| Current Margin | -17.3% |
| Pro Forma Margin | -9.9% |
| WC Released (1x) | $33.4M |
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 | $-231.7M | $-351.8M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-231.7M | $-462.2M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-208.5M | $-325.8M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-208.5M | $-416.9M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-254.8M | $-597.3M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-254.8M | $-739.8M | 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 |
| Medium | Elevated Medicaid exposure (27.2%) | Medicaid reimburses below cost in most states. Mitigant: denial reduction lever has highest impact on Medicaid claims |
| High | Elevated distress probability | Model estimates 53.3% 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
- 1394 hospitals with 167-668 beds
- Same-state prioritization (n=6)
- Comp margins: P25=-13.1% / P50=-3.8% / P75=5.6%
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.