SWEDISH ISSAQUAH
1. Target Overview & Investment Thesis
SWEDISH ISSAQUAH is a 157-bed suburban community hospital in KING, WA with $282.7M in net patient revenue and a -6.1% operating margin. The hospital serves a payer mix of 24.5% Medicare, 3.0% Medicaid, and 72.5% commercial.
Thesis: Undervalued. Our ML models identify $20.8M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from -6.1% to 1.2% (+736bps).
| Net Revenue HCRIS | $282.7M |
| Current EBITDA COMPUTED | $-17.4M |
| Operating Margin COMPUTED | -6.1% |
| Occupancy HCRIS | 51.8% |
| Revenue / Bed COMPUTED | $1.8M |
| Net-to-Gross HCRIS | 29.6% |
| Distress Probability ML | 46.6% |
2. Market Context & Competitive Position
WA has 104 Medicare-certified hospitals with a median operating margin of -10.3%. The target's margin of -6.1% places it above the state median. Among 33 size-comparable peers (78-314 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 (78-314), prioritizing same-state peers. 33 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| SWEDISH ISSAQUAH (Target) | WA | 157 | $282.7M | -6.1% |
| VIRGINIA MASON MEDICAL CENTER | WA | 222 | $1.11B | -23.2% |
| 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% |
| OVERLAKE HOSPITAL MEDICAL CENT | WA | 296 | $675.1M | -14.5% |
| HARRISON MEDICAL CENTER | WA | 238 | $653.4M | 2.2% |
| CENTRAL WASHINGTON HOSPITAL | WA | 176 | $550.9M | -2.0% |
| PROVIDENCE ST. PETER HOSPITAL | WA | 310 | $540.5M | -14.3% |
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: $20.8M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $5.9M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $5.7M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $5.6M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $3.4M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $181K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $-17.4M |
| + RCM Uplift | +$20.8M |
| Pro Forma EBITDA | $3.5M |
| Current Margin | -6.1% |
| Pro Forma Margin | 1.2% |
| WC Released (1x) | $10.8M |
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 | $-26.7M | $93.6M | 0.00x | -100.0% |
| Base (11x exit) | 10.0x | 11.0x | $-26.7M | $94.3M | 0.00x | -100.0% |
| Bull Case | 9.0x | 11.0x | $-24.0M | $154.3M | 0.00x | -100.0% |
| Bull (12x exit) | 9.0x | 12.0x | $-24.0M | $161.2M | 0.00x | -100.0% |
| Bear Case | 11.0x | 10.0x | $-29.4M | $-1.8M | 0.00x | -100.0% |
| Bear (11x exit) | 11.0x | 11.0x | $-29.4M | $-11.5M | 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
- 33 hospitals with 78-314 beds
- Same-state prioritization (n=34)
- Comp margins: P25=-18.9% / P50=-10.4% / P75=-2.0%
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.