CHI ST LUKES HEALTH BAYLOR MED CTR
1. Target Overview & Investment Thesis
CHI ST LUKES HEALTH BAYLOR MED CTR is a 628-bed large academic medical center in HARRIS, TX with $1.10B in net patient revenue and a -9.5% operating margin. The hospital serves a payer mix of 19.1% Medicare, 6.9% Medicaid, and 74.0% commercial.
Thesis: Undervalued. Our ML models identify $81.2M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -9.5% to -2.1% (+736bps).
| Net Revenue HCRIS | $1.10B |
| Current EBITDA COMPUTED | $-104.7M |
| Operating Margin COMPUTED | -9.5% |
| Occupancy HCRIS | 68.3% |
| Revenue / Bed COMPUTED | $1.8M |
| Net-to-Gross HCRIS | 20.3% |
| Distress Probability ML | 44.1% |
2. Market Context & Competitive Position
TX has 583 Medicare-certified hospitals with a median operating margin of -0.7%. The target's margin of -9.5% places it below the state median. Among 54 size-comparable peers (314-1256 beds), the median margin is 3.5%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (314-1256), prioritizing same-state peers. 54 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| CHI ST LUKES HEALTH BAYLOR MED (Target) | TX | 628 | $1.10B | -9.5% |
| UT MD ANDERSON CANCER CENTER | TX | 721 | $4.90B | -0.8% |
| 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% |
| UT SOUTHWESTERN UNIVERSITY HOS | TX | 737 | $2.28B | -4.6% |
| SCOTT AND WHITE MEMORIAL HOSPI | TX | 616 | $1.85B | -10.5% |
| CHILDRENS MEDICAL CENTER OF DA | TX | 377 | $1.56B | 10.3% |
| COOK CHILDRENS MEDICAL CENTER | TX | 423 | $1.51B | 16.5% |
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: $81.2M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $23.2M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $22.0M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $21.8M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $13.4M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $706K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-104.7M |
| + RCM Uplift | +$81.2M |
| Pro Forma EBITDA | $-23.6M |
| Current Margin | -9.5% |
| Pro Forma Margin | -2.1% |
| WC Released (1x) | $42.3M |
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 | $-161.1M | $120.8M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-161.1M | $80.6M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-145.0M | $296.0M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-145.0M | $280.1M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-177.2M | $-232.6M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-177.2M | $-313.5M | 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 |
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
- 54 hospitals with 314-1256 beds
- Same-state prioritization (n=55)
- Comp margins: P25=-15.4% / P50=3.5% / P75=12.6%
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.