OVERLAKE HOSPITAL MEDICAL CENTER
1. Target Overview & Investment Thesis
OVERLAKE HOSPITAL MEDICAL CENTER is a 296-bed suburban community hospital in KING, WA with $675.1M in net patient revenue and a -14.5% operating margin. The hospital serves a payer mix of 25.0% Medicare, 3.0% Medicaid, and 72.0% commercial.
Thesis: Undervalued. Our ML models identify $49.7M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -14.5% to -7.1% (+736bps).
| Net Revenue HCRIS | $675.1M |
| Current EBITDA COMPUTED | $-97.6M |
| Operating Margin COMPUTED | -14.5% |
| Occupancy HCRIS | 63.7% |
| Revenue / Bed COMPUTED | $2.3M |
| Net-to-Gross HCRIS | 29.0% |
| Distress Probability ML | 43.5% |
2. Market Context & Competitive Position
WA has 104 Medicare-certified hospitals with a median operating margin of -10.3%. The target's margin of -14.5% places it below the state median. Among 25 size-comparable peers (148-592 beds), the median margin is -11.0%. The target's below-peer margin suggests operational improvement opportunity.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (148-592), prioritizing same-state peers. 25 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| OVERLAKE HOSPITAL MEDICAL CENT (Target) | WA | 296 | $675.1M | -14.5% |
| UNIVERSITY OF WASHINGTON MED C | WA | 592 | $2.02B | -14.4% |
| SEATTLE CHILDRENS HOSPITAL | WA | 350 | $1.70B | 5.7% |
| TACOMA GENERAL ALLENMORE HOSPI | WA | 374 | $1.33B | 5.1% |
| HARBORVIEW MEDICAL CENTER | WA | 406 | $1.20B | -11.3% |
| VIRGINIA MASON MEDICAL CENTER | WA | 222 | $1.11B | -23.2% |
| PROV REGL MED CENTER EVERETT | WA | 548 | $825.5M | -19.6% |
| PEACEHEALTH SOUTHWEST MEDICAL | WA | 408 | $813.8M | -9.6% |
| VALLEY MEDICAL CENTER | WA | 329 | $802.5M | -14.9% |
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: $49.7M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $14.2M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $13.5M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $13.4M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $8.2M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $432K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-97.6M |
| + RCM Uplift | +$49.7M |
| Pro Forma EBITDA | $-47.9M |
| Current Margin | -14.5% |
| Pro Forma Margin | -7.1% |
| WC Released (1x) | $25.9M |
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 | $-150.2M | $-147.0M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-150.2M | $-210.4M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-135.2M | $-95.2M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-135.2M | $-143.8M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-165.2M | $-346.7M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-165.2M | $-435.0M | 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
- 25 hospitals with 148-592 beds
- Same-state prioritization (n=26)
- Comp margins: P25=-14.4% / P50=-11.0% / P75=-5.1%
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.