MCKENZIE COUNTY HEALTHCARE SYSTEM
1. Target Overview & Investment Thesis
MCKENZIE COUNTY HEALTHCARE SYSTEM is a 24-bed rural/critical access in MCKENZIE, ND with $43.1M in net patient revenue and a -20.2% operating margin. The hospital serves a payer mix of 65.2% Medicare, 8.5% Medicaid, and 26.3% commercial.
Thesis: Turnaround. Our ML models identify $3.2M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -20.2% to -12.8% (+736bps).
| Net Revenue HCRIS | $43.1M |
| Current EBITDA COMPUTED | $-8.7M |
| Operating Margin COMPUTED | -20.2% |
| Occupancy HCRIS | 19.6% |
| Revenue / Bed COMPUTED | $1.8M |
| Net-to-Gross HCRIS | 65.5% |
| Distress Probability ML | 60.6% |
2. Market Context & Competitive Position
ND has 52 Medicare-certified hospitals with a median operating margin of -9.3%. The target's margin of -20.2% places it below the state median. Among 40 size-comparable peers (12-48 beds), the median margin is -8.7%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (12-48), prioritizing same-state peers. 40 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| MCKENZIE COUNTY HEALTHCARE SYS (Target) | ND | 24 | $43.1M | -20.2% |
| MERCY MEDICAL CENTER | ND | 25 | $85.2M | -14.2% |
| JAMESTOWN REGIONAL MEDICAL CEN | ND | 25 | $75.9M | 1.4% |
| ST JOSEPHS HOSPITAL & HEALTH C | ND | 25 | $70.0M | -0.8% |
| VIBRA HOSPITAL OF FARGO LLC | ND | 31 | $27.2M | 46.6% |
| PAM REHABILITATION HOSPITAL OF | ND | 42 | $26.6M | 19.0% |
| MERCY HOSPITAL | ND | 25 | $25.9M | -9.3% |
| UNITY MEDICAL CENTER | ND | 14 | $25.7M | -0.5% |
| HEART OF AMERICA MEDICAL CENTE | ND | 25 | $25.5M | -12.1% |
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: $3.2M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $905K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $862K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $854K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $525K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $28K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-8.7M |
| + RCM Uplift | +$3.2M |
| Pro Forma EBITDA | $-5.5M |
| Current Margin | -20.2% |
| Pro Forma Margin | -12.8% |
| WC Released (1x) | $1.7M |
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 | $-13.4M | $-25.6M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-13.4M | $-32.5M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-12.0M | $-26.4M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-12.0M | $-32.4M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-14.7M | $-37.2M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-14.7M | $-45.7M | 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 |
| Medium | Heavy Medicare dependence | Medicare comprises 65.2% of days; rate updates may lag inflation. Mitigant: CDI/CMI lever directly increases Medicare reimbursement |
| Medium | Low occupancy | At 19.6%, fixed costs are spread over fewer patient days. Mitigant: volume growth is an additional upside lever not modeled in base case |
| High | Elevated distress probability | Model estimates 60.6% 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
- 40 hospitals with 12-48 beds
- Same-state prioritization (n=41)
- Comp margins: P25=-20.4% / P50=-8.7% / P75=-2.2%
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.