KENMORE MERCY HOSPITAL
1. Target Overview & Investment Thesis
KENMORE MERCY HOSPITAL is a 159-bed under-performing / distressed in ERIE, NY with $169.7M in net patient revenue and a -16.4% operating margin. The hospital serves a payer mix of 21.3% Medicare, 1.9% Medicaid, and 76.8% commercial.
Thesis: Undervalued. Our ML models identify $12.5M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -16.4% to -9.0% (+736bps).
| Net Revenue HCRIS | $169.7M |
| Current EBITDA COMPUTED | $-27.8M |
| Operating Margin COMPUTED | -16.4% |
| Occupancy HCRIS | 50.0% |
| Revenue / Bed COMPUTED | $1.1M |
| Net-to-Gross HCRIS | 44.5% |
| Distress Probability ML | 49.3% |
2. Market Context & Competitive Position
NY has 196 Medicare-certified hospitals with a median operating margin of -17.5%. The target's margin of -16.4% places it above the state median. Among 96 size-comparable peers (80-318 beds), the median margin is -17.0%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (80-318), prioritizing same-state peers. 96 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| KENMORE MERCY HOSPITAL (Target) | NY | 159 | $169.7M | -16.4% |
| HOSPITAL FOR SPECIAL SURGERY | NY | 200 | $1.12B | -29.3% |
| WHITE PLAINS HOSPITAL | NY | 292 | $884.7M | 8.7% |
| ROSWELL PARK CANCER INSTITUTE | NY | 142 | $772.3M | -40.1% |
| SOUTH SHORE UNIVERSITY HOSPITA | NY | 312 | $700.5M | -38.5% |
| LINCOLN MEDICAL&MENTAL HEALTH | NY | 287 | $693.5M | -22.9% |
| QUEENS HOSPITAL CENTER | NY | 200 | $637.2M | 4.9% |
| JAMAICA HOSPITAL MEDICAL CENTE | NY | 280 | $610.4M | -18.6% |
| SOUTH NASSAU COMMUNITIES HOSPI | NY | 312 | $594.1M | -19.0% |
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: $12.5M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $3.6M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $3.4M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $3.4M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $2.1M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $109K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-27.8M |
| + RCM Uplift | +$12.5M |
| Pro Forma EBITDA | $-15.3M |
| Current Margin | -16.4% |
| Pro Forma Margin | -9.0% |
| WC Released (1x) | $6.5M |
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 | $-42.8M | $-58.7M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-42.8M | $-78.5M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-38.5M | $-51.2M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-38.5M | $-67.2M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-47.1M | $-107.2M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-47.1M | $-133.3M | 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 |
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
- 96 hospitals with 80-318 beds
- Same-state prioritization (n=97)
- Comp margins: P25=-27.7% / P50=-17.0% / P75=-9.3%
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.