AVERA ST MARYS
1. Target Overview & Investment Thesis
AVERA ST MARYS is a 50-bed rural/critical access in HUGHES, SD with $105.0M in net patient revenue and a -10.6% operating margin. The hospital serves a payer mix of 45.1% Medicare, 21.5% Medicaid, and 33.4% commercial.
Thesis: Turnaround. Our ML models identify $7.7M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -10.6% to -3.3% (+736bps).
| Net Revenue HCRIS | $105.0M |
| Current EBITDA COMPUTED | $-11.1M |
| Operating Margin COMPUTED | -10.6% |
| Occupancy HCRIS | 33.1% |
| Revenue / Bed COMPUTED | $2.1M |
| Net-to-Gross HCRIS | 30.0% |
| Distress Probability ML | 55.6% |
2. Market Context & Competitive Position
SD has 63 Medicare-certified hospitals with a median operating margin of -3.2%. The target's margin of -10.6% places it below the state median. Among 31 size-comparable peers (25-100 beds), the median margin is -3.1%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (25-100), prioritizing same-state peers. 31 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| AVERA ST MARYS (Target) | SD | 50 | $105.0M | -10.6% |
| AVERA ST. LUKES | SD | 50 | $210.6M | -7.3% |
| AVERA HEART HOSPITAL OF SOUTH | SD | 53 | $139.0M | 1.5% |
| SIOUX FALLS SPECIALTY HOSPITAL | SD | 33 | $138.8M | 31.7% |
| AVERA QUEEN OF PEACE | SD | 50 | $129.2M | -8.7% |
| PRAIRIE LAKES HEALTH CARE CENT | SD | 69 | $123.9M | -9.8% |
| AVERA SACRED HEART HOSPITAL | SD | 42 | $123.1M | -1.9% |
| AVERA QUEEN OF PEACE | SD | 25 | $122.9M | -5.8% |
| MONUMENT HEALTH SPEARFISH HOSP | SD | 27 | $116.6M | 1.9% |
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: $7.7M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $2.2M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $2.1M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $2.1M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $1.3M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $67K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-11.1M |
| + RCM Uplift | +$7.7M |
| Pro Forma EBITDA | $-3.4M |
| Current Margin | -10.6% |
| Pro Forma Margin | -3.3% |
| WC Released (1x) | $4.0M |
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 | $-17.2M | $3.8M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-17.2M | $-1.4M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-15.4M | $18.5M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-15.4M | $15.6M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-18.9M | $-29.3M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-18.9M | $-38.4M | 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 33.1%, 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 55.6% 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
- 31 hospitals with 25-100 beds
- Same-state prioritization (n=32)
- Comp margins: P25=-7.4% / P50=-3.1% / P75=8.3%
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.