CLEVELAND AREA HOSPITAL
1. Target Overview & Investment Thesis
CLEVELAND AREA HOSPITAL is a 14-bed rural/critical access in PAWNEE, OK with $20.0M in net patient revenue and a 3.9% operating margin. The hospital serves a payer mix of 85.1% Medicare, 0.9% Medicaid, and 14.0% commercial.
Thesis: Turnaround. Our ML models identify $1.5M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 3.9% to 11.2% (+736bps).
| Net Revenue HCRIS | $20.0M |
| Current EBITDA COMPUTED | $769K |
| Operating Margin COMPUTED | 3.9% |
| Occupancy HCRIS | 40.7% |
| Revenue / Bed COMPUTED | $1.4M |
| Net-to-Gross HCRIS | 49.2% |
| Distress Probability ML | 53.4% |
2. Market Context & Competitive Position
OK has 147 Medicare-certified hospitals with a median operating margin of -8.8%. The target's margin of 3.9% places it above the state median. Among 53 size-comparable peers (7-28 beds), the median margin is -17.8%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (7-28), prioritizing same-state peers. 53 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| CLEVELAND AREA HOSPITAL (Target) | OK | 14 | $20.0M | 3.9% |
| OKLAHOMA SPINE HOSPITAL | OK | 23 | $79.0M | 8.4% |
| BRISTOW MEDICAL CENTER | OK | 25 | $48.5M | -12.6% |
| JEFFERSON COUNTY HOSPITAL | OK | 25 | $41.1M | 14.4% |
| PHYSICIANS HOSPITAL AT ANADARK | OK | 25 | $34.1M | -48.1% |
| LAKESIDE WOMENS HOSPITAL | OK | 23 | $33.0M | 16.5% |
| STROUD REGIONAL MEDICAL CENTER | OK | 25 | $31.4M | -50.0% |
| SURGICAL HOSPITAL OF OKLAHOMA | OK | 12 | $31.2M | -13.0% |
| HILLCREST HOSPITAL PRYOR | OK | 21 | $30.6M | -7.2% |
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: $1.5M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $419K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $399K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $395K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $243K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $13K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $769K |
| + RCM Uplift | +$1.5M |
| Pro Forma EBITDA | $2.2M |
| Current Margin | 3.9% |
| Pro Forma Margin | 11.2% |
| WC Released (1x) | $766K |
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 | $1.2M | $19.8M | 16.71x | 75.6% |
| Base (11x exit) | 10.0x | 11.0x | $1.2M | $22.1M | 18.71x | 79.6% |
| Bull Case | 9.0x | 11.0x | $1.1M | $27.4M | 25.70x | 91.4% |
| Bull (12x exit) | 9.0x | 12.0x | $1.1M | $30.2M | 28.33x | 95.2% |
| Bear Case | 11.0x | 10.0x | $1.3M | $12.0M | 9.25x | 56.0% |
| Bear (11x exit) | 11.0x | 11.0x | $1.3M | $13.7M | 10.50x | 60.0% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 85.1% of days; rate updates may lag inflation. Mitigant: CDI/CMI lever directly increases Medicare reimbursement |
| High | Elevated distress probability | Model estimates 53.4% 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
- 53 hospitals with 7-28 beds
- Same-state prioritization (n=58)
- Comp margins: P25=-45.2% / P50=-17.8% / P75=-6.7%
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.