CHERRY HOSPITAL
1. Target Overview & Investment Thesis
CHERRY HOSPITAL is a 314-bed under-performing / distressed in WAYNE, NC with $5.0M in net patient revenue and a -100.0% operating margin. The hospital serves a payer mix of 2.1% Medicare, 10.8% Medicaid, and 87.1% commercial.
Thesis: Undervalued. Our ML models identify $377K in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -100.0% to -1227.7% (+760bps).
| Net Revenue HCRIS | $5.0M |
| Current EBITDA COMPUTED | $-61.3M |
| Operating Margin COMPUTED | -100.0% |
| Occupancy HCRIS | 50.7% |
| Revenue / Bed COMPUTED | $16K |
| Net-to-Gross HCRIS | 100.0% |
| Distress Probability ML | 58.7% |
2. Market Context & Competitive Position
NC has 129 Medicare-certified hospitals with a median operating margin of -2.0%. The target's margin of -100.0% places it below the state median. Among 31 size-comparable peers (157-628 beds), the median margin is 2.8%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (157-628), prioritizing same-state peers. 31 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| CHERRY HOSPITAL (Target) | NC | 314 | $5.0M | -100.0% |
| REX HOSPITAL | NC | 489 | $1.51B | -0.8% |
| PRESBYTERIAN HOSPITAL | NC | 561 | $1.33B | 1.0% |
| WAKEMED RALEIGH CAMPUS | NC | 609 | $1.15B | -1.4% |
| CAPE FEAR VALLEY MEDICAL CENTE | NC | 627 | $880.9M | -9.6% |
| FIRSTHEALTH MOORE REGIONAL HOS | NC | 412 | $813.8M | 8.8% |
| ATRIUM HEALTH CABARRUS | NC | 447 | $758.9M | 13.9% |
| DUKE RALEIGH HOSPITAL | NC | 186 | $683.0M | 3.7% |
| GASTON MEMORIAL HOSPITAL | NC | 424 | $641.8M | 7.0% |
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: $377K (760bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $104K | +210bp | 18mo |
| Denial Rate Reduction | 12.0% | 6.5% | $104K | +209bp | 12mo |
| Cost to Collect | 4.5% | 2.5% | $99K | +200bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $60K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $10K | +19bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-61.3M |
| + RCM Uplift | +$377K |
| Pro Forma EBITDA | $-60.9M |
| Current Margin | -100.0% |
| Pro Forma Margin | -1227.7% |
| WC Released (1x) | $190K |
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 | $-94.3M | $-400.6M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-94.3M | $-471.3M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-84.9M | $-500.6M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-84.9M | $-571.2M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-103.7M | $-371.8M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-103.7M | $-442.7M | 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 58.7% 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
- 31 hospitals with 157-628 beds
- Same-state prioritization (n=32)
- Comp margins: P25=-4.3% / P50=2.8% / P75=8.8%
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.