LILLIAN M. HUDSPETH MEMORIAL HOSP.
1. Target Overview & Investment Thesis
LILLIAN M. HUDSPETH MEMORIAL HOSP. is a 10-bed community hospital in SUTTON, TX with $9.4M in net patient revenue and a -42.3% operating margin. The hospital serves a payer mix of 73.4% Medicare, 0.0% Medicaid, and 26.6% commercial.
Thesis: Turnaround. Our ML models identify $701K in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -42.3% to -34.9% (+743bps).
| Net Revenue HCRIS | $9.4M |
| Current EBITDA COMPUTED | $-4.0M |
| Operating Margin COMPUTED | -42.3% |
| Occupancy HCRIS | 13.9% |
| Revenue / Bed COMPUTED | $943K |
| Net-to-Gross HCRIS | 56.5% |
| Distress Probability ML | nan% |
2. Market Context & Competitive Position
TX has 583 Medicare-certified hospitals with a median operating margin of -0.7%. The target's margin of -42.3% places it below the state median. Among 64 size-comparable peers (5-20 beds), the median margin is -28.5%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (5-20), prioritizing same-state peers. 64 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| LILLIAN M. HUDSPETH MEMORIAL H (Target) | TX | 10 | $9.4M | -42.3% |
| TEXAS SPINE AND JOINT HOSPITAL | TX | 20 | $147.3M | 30.3% |
| WEBSTER SURGICAL SPECIALTY HOS | TX | 20 | $85.0M | -2.8% |
| PRESBYTERIAN PLANO CENTER DIAG | TX | 18 | $81.9M | 28.4% |
| BAYLOR SURGICAL HOSPITAL LAS C | TX | 20 | $79.8M | 33.3% |
| CLEVELAND EMERGENCY HOSPITAL | TX | 16 | $66.9M | 10.2% |
| SOUTHLAKE SPECIALITY HOSPITAL | TX | 17 | $65.4M | 8.9% |
| TOPS SURGICAL SPECIALTY HOSPIT | TX | 15 | $60.6M | 30.4% |
| HERITAGE PARK SURGICAL HOSPITA | TX | 12 | $52.5M | 19.2% |
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: $701K (743bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $198K | +210bp | 18mo |
| Denial Rate Reduction | 12.0% | 6.5% | $190K | +201bp | 12mo |
| Cost to Collect | 4.5% | 2.5% | $189K | +200bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $115K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $10K | +10bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-4.0M |
| + RCM Uplift | +$701K |
| Pro Forma EBITDA | $-3.3M |
| Current Margin | -42.3% |
| Pro Forma Margin | -34.9% |
| WC Released (1x) | $362K |
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 | $-6.1M | $-19.3M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-6.1M | $-23.3M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-5.5M | $-22.9M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-5.5M | $-26.7M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-6.8M | $-20.8M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-6.8M | $-25.1M | 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 | Heavy Medicare dependence | Medicare comprises 73.4% of days; rate updates may lag inflation. Mitigant: CDI/CMI lever directly increases Medicare reimbursement |
| Medium | Low occupancy | At 13.9%, fixed costs are spread over fewer patient days. Mitigant: volume growth is an additional upside lever not modeled in base case |
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
- 64 hospitals with 5-20 beds
- Same-state prioritization (n=76)
- Comp margins: P25=-49.7% / P50=-28.5% / P75=6.5%
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 27, 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.