KETTERING HEALTH DAYTON
1. Target Overview & Investment Thesis
KETTERING HEALTH DAYTON is a 317-bed suburban community hospital in MONTGOMERY, OH with $667.6M in net patient revenue and a 3.3% operating margin. The hospital serves a payer mix of 18.7% Medicare, 5.5% Medicaid, and 75.8% commercial.
Thesis: Undervalued. Our ML models identify $49.1M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 3.3% to 10.6% (+736bps).
| Net Revenue HCRIS | $667.6M |
| Current EBITDA COMPUTED | $21.9M |
| Operating Margin COMPUTED | 3.3% |
| Occupancy HCRIS | 57.2% |
| Revenue / Bed COMPUTED | $2.1M |
| Net-to-Gross HCRIS | 20.6% |
| Distress Probability ML | 44.8% |
2. Market Context & Competitive Position
OH has 235 Medicare-certified hospitals with a median operating margin of -0.3%. The target's margin of 3.3% places it above the state median. Among 57 size-comparable peers (158-634 beds), the median margin is -0.2%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (158-634), prioritizing same-state peers. 57 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| KETTERING HEALTH DAYTON (Target) | OH | 317 | $667.6M | 3.3% |
| RAINBOW BABIES & CHILDRENS HOS | OH | 231 | $2.22B | -5.0% |
| ARTHUR G JAMES CANCER HOSPITAL | OH | 356 | $1.95B | 21.0% |
| UNIVER.OF CINCINNATI MED CENTE | OH | 542 | $1.30B | 2.8% |
| METROHEALTH MEDICAL CENTER | OH | 580 | $1.18B | -35.5% |
| CHILDRENS HOSPITAL MEDICAL CEN | OH | 424 | $1.04B | -7.7% |
| GRANT MEDICAL CENTER | OH | 448 | $1.01B | 8.1% |
| SUMMA HEALTH SYSTEM | OH | 560 | $1.00B | -22.8% |
| THE CHRIST HOSPITAL | OH | 444 | $921.0M | 0.1% |
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: $49.1M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $14.0M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $13.4M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $13.2M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $8.1M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $427K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $21.9M |
| + RCM Uplift | +$49.1M |
| Pro Forma EBITDA | $71.1M |
| Current Margin | 3.3% |
| Pro Forma Margin | 10.6% |
| WC Released (1x) | $25.6M |
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 | $33.7M | $636.0M | 18.86x | 79.9% |
| Base (11x exit) | 10.0x | 11.0x | $33.7M | $710.5M | 21.08x | 84.0% |
| Bull Case | 9.0x | 11.0x | $30.3M | $883.7M | 29.12x | 96.3% |
| Bull (12x exit) | 9.0x | 12.0x | $30.3M | $973.0M | 32.07x | 100.1% |
| Bear Case | 11.0x | 10.0x | $37.1M | $379.3M | 10.23x | 59.2% |
| Bear (11x exit) | 11.0x | 11.0x | $37.1M | $429.3M | 11.58x | 63.2% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Standard execution risk | RCM improvement requires management buy-in and 12-18 month implementation timeline |
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
- 57 hospitals with 158-634 beds
- Same-state prioritization (n=58)
- Comp margins: P25=-7.2% / P50=-0.2% / P75=6.3%
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.