LEGACY SALMON CREEK HOSPITAL
1. Target Overview & Investment Thesis
LEGACY SALMON CREEK HOSPITAL is a 178-bed suburban community hospital in CLARK, WA with $479.7M in net patient revenue and a -5.2% operating margin. The hospital serves a payer mix of 18.9% Medicare, 7.3% Medicaid, and 73.7% commercial.
Thesis: Undervalued. Our ML models identify $35.3M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -5.2% to 2.2% (+736bps).
| Net Revenue HCRIS | $479.7M |
| Current EBITDA COMPUTED | $-24.8M |
| Operating Margin COMPUTED | -5.2% |
| Occupancy HCRIS | 97.8% |
| Revenue / Bed COMPUTED | $2.7M |
| Net-to-Gross HCRIS | 33.1% |
| Distress Probability ML | 36.2% |
2. Market Context & Competitive Position
WA has 104 Medicare-certified hospitals with a median operating margin of -10.3%. The target's margin of -5.2% places it above the state median. Among 35 size-comparable peers (89-356 beds), the median margin is -10.4%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (89-356), prioritizing same-state peers. 35 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| LEGACY SALMON CREEK HOSPITAL (Target) | WA | 178 | $479.7M | -5.2% |
| SEATTLE CHILDRENS HOSPITAL | WA | 350 | $1.70B | 5.7% |
| VIRGINIA MASON MEDICAL CENTER | WA | 222 | $1.11B | -23.2% |
| VALLEY MEDICAL CENTER | WA | 329 | $802.5M | -14.9% |
| EVERGREEN HEALTHCARE | WA | 304 | $789.3M | -18.9% |
| ST. JOSEPH MEDICAL CENTER | WA | 208 | $750.0M | 1.9% |
| KADLEC REGIONAL MEDICAL CENTER | WA | 278 | $737.7M | -7.4% |
| ST JOSEPH MEDICAL CENTER | WA | 337 | $690.6M | -12.2% |
| OVERLAKE HOSPITAL MEDICAL CENT | WA | 296 | $675.1M | -14.5% |
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: $35.3M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $10.1M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $9.6M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $9.5M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $5.8M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $307K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-24.8M |
| + RCM Uplift | +$35.3M |
| Pro Forma EBITDA | $10.5M |
| Current Margin | -5.2% |
| Pro Forma Margin | 2.2% |
| WC Released (1x) | $18.4M |
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 | $-38.1M | $189.7M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-38.1M | $196.3M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-34.3M | $300.5M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-34.3M | $317.7M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-41.9M | $25.5M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-41.9M | $14.5M | 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
- 35 hospitals with 89-356 beds
- Same-state prioritization (n=36)
- Comp margins: P25=-16.5% / P50=-10.4% / P75=-1.7%
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.