AVERA DELLS AREA HOSPITAL
1. Target Overview & Investment Thesis
AVERA DELLS AREA HOSPITAL is a 23-bed rural/critical access in MINNEHAHA, SD with $12.2M in net patient revenue and a 14.7% operating margin. The hospital serves a payer mix of 81.8% Medicare, 0.4% Medicaid, and 17.8% commercial.
Thesis: Turnaround. Our ML models identify $900K in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 14.7% to 22.1% (+739bps).
| Net Revenue HCRIS | $12.2M |
| Current EBITDA COMPUTED | $1.8M |
| Operating Margin COMPUTED | 14.7% |
| Occupancy HCRIS | 9.0% |
| Revenue / Bed COMPUTED | $530K |
| Net-to-Gross HCRIS | 57.0% |
| Distress Probability ML | 62.5% |
2. Market Context & Competitive Position
SD has 63 Medicare-certified hospitals with a median operating margin of -3.2%. The target's margin of 14.7% places it above the state median. Among 41 size-comparable peers (12-46 beds), the median margin is -3.1%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (12-46), prioritizing same-state peers. 41 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| AVERA DELLS AREA HOSPITAL (Target) | SD | 23 | $12.2M | 14.7% |
| SIOUX FALLS SPECIALTY HOSPITAL | SD | 33 | $138.8M | 31.7% |
| 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% |
| SIOUXLAND SURGERY CENTER | SD | 38 | $105.7M | 40.1% |
| BLACK HILLS SURGICAL HOSPITAL | SD | 26 | $91.1M | 15.3% |
| HURON REGIONAL MEDICAL CENTER | SD | 25 | $49.4M | -5.9% |
| MONUMENT HEALTH STURGIS REGION | SD | 25 | $39.1M | -3.3% |
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: $900K (739bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $256K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $244K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $243K | +199bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $148K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $10K | +8bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $1.8M |
| + RCM Uplift | +$900K |
| Pro Forma EBITDA | $2.7M |
| Current Margin | 14.7% |
| Pro Forma Margin | 22.1% |
| WC Released (1x) | $467K |
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 | $2.8M | $20.8M | 7.56x | 49.9% |
| Base (11x exit) | 10.0x | 11.0x | $2.8M | $23.8M | 8.64x | 53.9% |
| Bull Case | 9.0x | 11.0x | $2.5M | $27.6M | 11.16x | 62.0% |
| Bull (12x exit) | 9.0x | 12.0x | $2.5M | $30.9M | 12.46x | 65.6% |
| Bear Case | 11.0x | 10.0x | $3.0M | $15.4M | 5.09x | 38.5% |
| Bear (11x exit) | 11.0x | 11.0x | $3.0M | $17.9M | 5.92x | 42.7% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 81.8% of days; rate updates may lag inflation. Mitigant: CDI/CMI lever directly increases Medicare reimbursement |
| Medium | Low occupancy | At 9.0%, 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 62.5% 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
- 41 hospitals with 12-46 beds
- Same-state prioritization (n=42)
- Comp margins: P25=-9.0% / P50=-3.1% / P75=8.6%
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.