MERCY HOSPITAL OF DEFIANCE LLC
1. Target Overview & Investment Thesis
MERCY HOSPITAL OF DEFIANCE LLC is a 23-bed rural/critical access in DEFIANCE, OH with $50.4M in net patient revenue and a -15.3% operating margin. The hospital serves a payer mix of 44.0% Medicare, 1.5% Medicaid, and 54.5% commercial.
Thesis: Turnaround. Our ML models identify $3.7M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -15.3% to -8.0% (+736bps).
| Net Revenue HCRIS | $50.4M |
| Current EBITDA COMPUTED | $-7.7M |
| Operating Margin COMPUTED | -15.3% |
| Occupancy HCRIS | 37.1% |
| Revenue / Bed COMPUTED | $2.2M |
| Net-to-Gross HCRIS | 28.1% |
| Distress Probability ML | 49.3% |
2. Market Context & Competitive Position
OH has 235 Medicare-certified hospitals with a median operating margin of -0.3%. The target's margin of -15.3% places it below the state median. Among 76 size-comparable peers (12-46 beds), the median margin is -1.9%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (12-46), prioritizing same-state peers. 76 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| MERCY HOSPITAL OF DEFIANCE LL (Target) | OH | 23 | $50.4M | -15.3% |
| THE SURGICAL HOSPITAL AT SOUTH | OH | 24 | $166.6M | -3.1% |
| GALION COMMUNITY HOSPITAL | OH | 25 | $128.2M | 16.6% |
| MARY RUTAN HOSPITAL | OH | 39 | $113.0M | -12.5% |
| MERCY HEALTH-TIFFIN HOSPITAL | OH | 35 | $103.0M | 18.1% |
| JOINT TOWNSHIP DISTRICT MEMORI | OH | 33 | $95.6M | 9.3% |
| FULTON COUNTY HEALTH CENTER | OH | 25 | $95.2M | -7.4% |
| UH SAMARITAN MEDICAL CENTER | OH | 39 | $88.9M | -3.5% |
| MERCER COUNTY COMMUNITY HOSPIT | OH | 42 | $87.8M | -0.9% |
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: $3.7M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $1.1M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $1.0M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $997K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $613K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $32K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-7.7M |
| + RCM Uplift | +$3.7M |
| Pro Forma EBITDA | $-4.0M |
| Current Margin | -15.3% |
| Pro Forma Margin | -8.0% |
| WC Released (1x) | $1.9M |
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 | $-11.9M | $-13.9M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-11.9M | $-19.1M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-10.7M | $-10.7M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-10.7M | $-14.9M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-13.1M | $-28.5M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-13.1M | $-35.6M | 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
- 76 hospitals with 12-46 beds
- Same-state prioritization (n=77)
- Comp margins: P25=-11.4% / P50=-1.9% / P75=11.3%
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.