BAPTIST HEALTH SYSTEM
1. Target Overview & Investment Thesis
BAPTIST HEALTH SYSTEM is a 1498-bed large academic medical center in BEXAR, TX with $1.32B in net patient revenue and a 13.7% operating margin. The hospital serves a payer mix of 15.3% Medicare, 8.8% Medicaid, and 75.8% commercial.
Thesis: Platform Growth. Our ML models identify $97.0M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 13.7% to 21.1% (+736bps).
| Net Revenue HCRIS | $1.32B |
| Current EBITDA COMPUTED | $180.8M |
| Operating Margin COMPUTED | 13.7% |
| Occupancy HCRIS | 52.5% |
| Revenue / Bed COMPUTED | $879K |
| Net-to-Gross HCRIS | 10.6% |
| Distress Probability ML | 51.2% |
2. Market Context & Competitive Position
TX has 583 Medicare-certified hospitals with a median operating margin of -0.7%. The target's margin of 13.7% places it above the state median. Among 10 size-comparable peers (749-2996 beds), the median margin is 4.0%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (749-2996), prioritizing same-state peers. 10 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| BAPTIST HEALTH SYSTEM (Target) | TX | 1498 | $1.32B | 13.7% |
| MEMORIAL HERMANN TEXAS MEDICAL | TX | 1089 | $2.64B | 2.8% |
| THE METHODIST HOSPITAL | TX | 966 | $2.63B | 5.2% |
| TEXAS CHILDRENS HOSPITAL | TX | 863 | $2.50B | -29.9% |
| METHODIST HOSPITAL | TX | 1729 | $2.42B | 22.9% |
| MEMORIAL HERMANN HOSPITAL SYS | TX | 1417 | $2.15B | 7.3% |
| MEDICAL CITY DALLAS | TX | 819 | $1.33B | 49.7% |
| BAYLOR UNIVERSITY MEDICAL CTR | TX | 800 | $1.26B | 0.4% |
| THE UNIVERSITY OF TEXAS MEDICA | TX | 819 | $1.19B | -29.9% |
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: $97.0M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $27.7M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $26.3M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $26.1M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $16.0M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $843K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $180.8M |
| + RCM Uplift | +$97.0M |
| Pro Forma EBITDA | $277.8M |
| Current Margin | 13.7% |
| Pro Forma Margin | 21.1% |
| WC Released (1x) | $50.5M |
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 | $278.2M | $2.16B | 7.77x | 50.7% |
| Base (11x exit) | 10.0x | 11.0x | $278.2M | $2.47B | 8.88x | 54.8% |
| Bull Case | 9.0x | 11.0x | $250.4M | $2.88B | 11.50x | 63.0% |
| Bull (12x exit) | 9.0x | 12.0x | $250.4M | $3.21B | 12.84x | 66.6% |
| Bear Case | 11.0x | 10.0x | $306.0M | $1.59B | 5.19x | 39.0% |
| Bear (11x exit) | 11.0x | 11.0x | $306.0M | $1.85B | 6.03x | 43.2% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| High | Elevated distress probability | Model estimates 51.2% probability of financial distress. Mitigant: distressed entry pricing (7-9x) compensates for risk |
| Low | Low net-to-gross ratio | Large contractual allowances suggest pricing discipline issues. Mitigant: payer renegotiation is an additional upside lever |
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
- 10 hospitals with 749-2996 beds
- Same-state prioritization (n=11)
- Comp margins: P25=-22.3% / P50=4.0% / 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.