ST LUKES WARREN HOSPITAL
1. Target Overview & Investment Thesis
ST LUKES WARREN HOSPITAL is a 92-bed suburban community hospital in WARREN, NJ with $200.8M in net patient revenue and a 28.1% operating margin. The hospital serves a payer mix of 42.7% Medicare, 3.0% Medicaid, and 54.3% commercial.
Thesis: Turnaround. Our ML models identify $14.8M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 28.1% to 35.5% (+736bps).
| Net Revenue HCRIS | $200.8M |
| Current EBITDA COMPUTED | $56.4M |
| Operating Margin COMPUTED | 28.1% |
| Occupancy HCRIS | 52.7% |
| Revenue / Bed COMPUTED | $2.2M |
| Net-to-Gross HCRIS | 13.6% |
| Distress Probability ML | 44.6% |
2. Market Context & Competitive Position
NJ has 95 Medicare-certified hospitals with a median operating margin of -3.9%. The target's margin of 28.1% places it above the state median. Among 43 size-comparable peers (46-184 beds), the median margin is -9.6%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (46-184), prioritizing same-state peers. 43 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| ST LUKES WARREN HOSPITAL (Target) | NJ | 92 | $200.8M | 28.1% |
| HELENE FULD MEDICAL CENTER | NJ | 162 | $430.2M | -3.2% |
| HUNTERDON MEDICAL CENTER | NJ | 184 | $358.4M | -9.6% |
| MOUNTAINSIDE HOSPITAL | NJ | 184 | $306.3M | 12.2% |
| SOUTHERN OCEAN MEDICAL CENTER | NJ | 147 | $233.0M | 10.5% |
| DEBORAH HEART AND LUNG CENTER | NJ | 85 | $211.9M | -5.5% |
| ST. MICHAELS MEDICAL CENTER | NJ | 147 | $198.6M | -13.6% |
| ROBERT WOOD JOHNSON HOSPITAL @ | NJ | 152 | $193.9M | -15.5% |
| NEWTON MEDICAL CENTER | NJ | 139 | $189.3M | -6.7% |
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: $14.8M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $4.2M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $4.0M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $4.0M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $2.4M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $128K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $56.4M |
| + RCM Uplift | +$14.8M |
| Pro Forma EBITDA | $71.2M |
| Current Margin | 28.1% |
| Pro Forma Margin | 35.5% |
| WC Released (1x) | $7.7M |
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 | $86.8M | $520.1M | 5.99x | 43.0% |
| Base (11x exit) | 10.0x | 11.0x | $86.8M | $600.3M | 6.91x | 47.2% |
| Bull Case | 9.0x | 11.0x | $78.2M | $677.3M | 8.67x | 54.0% |
| Bull (12x exit) | 9.0x | 12.0x | $78.2M | $762.0M | 9.75x | 57.7% |
| Bear Case | 11.0x | 10.0x | $95.5M | $418.0M | 4.38x | 34.3% |
| Bear (11x exit) | 11.0x | 11.0x | $95.5M | $490.9M | 5.14x | 38.7% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Low | Low net-to-gross ratio | Large contractual allowances suggest pricing discipline issues. Mitigant: payer renegotiation is an additional upside lever |
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
- 43 hospitals with 46-184 beds
- Same-state prioritization (n=44)
- Comp margins: P25=-30.7% / P50=-9.6% / P75=2.0%
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.