MEMORIAL HERMANN NORTHEAST
1. Target Overview & Investment Thesis
MEMORIAL HERMANN NORTHEAST is a 227-bed suburban community hospital in HARRIS, TX with $381.2M in net patient revenue and a 5.4% operating margin. The hospital serves a payer mix of 17.6% Medicare, 4.9% Medicaid, and 77.5% commercial.
Thesis: Platform Growth. Our ML models identify $28.1M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 5.4% to 12.7% (+736bps).
| Net Revenue HCRIS | $381.2M |
| Current EBITDA COMPUTED | $20.4M |
| Operating Margin COMPUTED | 5.4% |
| Occupancy HCRIS | 91.7% |
| Revenue / Bed COMPUTED | $1.7M |
| Net-to-Gross HCRIS | 20.4% |
| Distress Probability ML | 37.1% |
2. Market Context & Competitive Position
TX has 583 Medicare-certified hospitals with a median operating margin of -0.7%. The target's margin of 5.4% places it above the state median. Among 147 size-comparable peers (114-454 beds), the median margin is 4.8%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (114-454), prioritizing same-state peers. 147 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| MEMORIAL HERMANN NORTHEAST (Target) | TX | 227 | $381.2M | 5.4% |
| CHILDRENS MEDICAL CENTER OF DA | TX | 377 | $1.56B | 10.3% |
| COOK CHILDRENS MEDICAL CENTER | TX | 423 | $1.51B | 16.5% |
| DELL CHILDRENS MEDICAL CENTER | TX | 262 | $901.9M | 25.5% |
| DOCTORS HOSPITAL AT RENAISSANC | TX | 394 | $847.8M | 9.2% |
| ASCENSION SETON MEDICAL CENTER | TX | 391 | $702.5M | 12.6% |
| DRISCOLL CHILDRENS HOSPITAL | TX | 215 | $694.3M | 29.4% |
| ROUND ROCK HOSPITAL | TX | 165 | $681.4M | 8.7% |
| METHODIST SUGAR LAND HOSPITAL | TX | 337 | $679.6M | 12.6% |
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: $28.1M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $8.0M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $7.6M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $7.5M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $4.6M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $244K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $20.4M |
| + RCM Uplift | +$28.1M |
| Pro Forma EBITDA | $48.5M |
| Current Margin | 5.4% |
| Pro Forma Margin | 12.7% |
| WC Released (1x) | $14.6M |
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 | $31.4M | $415.1M | 13.23x | 67.6% |
| Base (11x exit) | 10.0x | 11.0x | $31.4M | $466.8M | 14.87x | 71.6% |
| Bull Case | 9.0x | 11.0x | $28.2M | $569.6M | 20.16x | 82.3% |
| Bull (12x exit) | 9.0x | 12.0x | $28.2M | $629.8M | 22.29x | 86.1% |
| Bear Case | 11.0x | 10.0x | $34.5M | $264.7M | 7.67x | 50.3% |
| Bear (11x exit) | 11.0x | 11.0x | $34.5M | $302.3M | 8.76x | 54.3% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Standard execution risk | RCM improvement requires management buy-in and 12-18 month implementation timeline |
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
- 147 hospitals with 114-454 beds
- Same-state prioritization (n=148)
- Comp margins: P25=-8.1% / P50=4.8% / P75=13.8%
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.