MERCY HEALTH-WILLARD HOSPITAL LLC
1. Target Overview & Investment Thesis
MERCY HEALTH-WILLARD HOSPITAL LLC is a 20-bed rural/critical access in HURON, OH with $28.0M in net patient revenue and a -1.7% operating margin. The hospital serves a payer mix of 50.0% Medicare, 1.0% Medicaid, and 49.1% commercial.
Thesis: Turnaround. Our ML models identify $2.1M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -1.7% to 5.6% (+736bps).
| Net Revenue HCRIS | $28.0M |
| Current EBITDA COMPUTED | $-484K |
| Operating Margin COMPUTED | -1.7% |
| Occupancy HCRIS | 23.0% |
| Revenue / Bed COMPUTED | $1.4M |
| Net-to-Gross HCRIS | 35.4% |
| Distress Probability ML | 54.6% |
2. Market Context & Competitive Position
OH has 235 Medicare-certified hospitals with a median operating margin of -0.3%. The target's margin of -1.7% places it below the state median. Among 69 size-comparable peers (10-40 beds), the median margin is -3.4%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (10-40), prioritizing same-state peers. 69 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| MERCY HEALTH-WILLARD HOSPITAL (Target) | OH | 20 | $28.0M | -1.7% |
| 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% |
| MEMORIAL HOSPITAL | OH | 31 | $79.9M | 4.6% |
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: $2.1M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $587K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $559K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $553K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $340K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $18K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-484K |
| + RCM Uplift | +$2.1M |
| Pro Forma EBITDA | $1.6M |
| Current Margin | -1.7% |
| Pro Forma Margin | 5.6% |
| WC Released (1x) | $1.1M |
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 | $-745K | $17.4M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-745K | $18.9M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-670K | $25.4M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-670K | $27.5M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-819K | $7.3M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-819K | $7.8M | 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 | Low occupancy | At 23.0%, 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 54.6% 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
- 69 hospitals with 10-40 beds
- Same-state prioritization (n=70)
- Comp margins: P25=-12.5% / P50=-3.4% / P75=13.0%
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.