BHC FAIRFAX HOSPITAL
1. Target Overview & Investment Thesis
BHC FAIRFAX HOSPITAL is a 221-bed suburban community hospital in KING, WA with $68.3M in net patient revenue and a 3.8% operating margin. The hospital serves a payer mix of 10.4% Medicare, 8.0% Medicaid, and 81.6% commercial.
Thesis: Undervalued. Our ML models identify $5.0M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 3.8% to 11.1% (+736bps).
| Net Revenue HCRIS | $68.3M |
| Current EBITDA COMPUTED | $2.6M |
| Operating Margin COMPUTED | 3.8% |
| Occupancy HCRIS | 71.2% |
| Revenue / Bed COMPUTED | $309K |
| Net-to-Gross HCRIS | 38.0% |
| Distress Probability ML | 46.0% |
2. Market Context & Competitive Position
WA has 104 Medicare-certified hospitals with a median operating margin of -10.3%. The target's margin of 3.8% places it above the state median. Among 33 size-comparable peers (110-442 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 (110-442), prioritizing same-state peers. 33 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| BHC FAIRFAX HOSPITAL (Target) | WA | 221 | $68.3M | 3.8% |
| 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% |
| PEACEHEALTH SOUTHWEST MEDICAL | WA | 408 | $813.8M | -9.6% |
| 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% |
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: $5.0M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $1.4M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $1.4M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $1.4M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $831K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $44K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $2.6M |
| + RCM Uplift | +$5.0M |
| Pro Forma EBITDA | $7.6M |
| Current Margin | 3.8% |
| Pro Forma Margin | 11.1% |
| WC Released (1x) | $2.6M |
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 | $4.0M | $67.3M | 16.95x | 76.1% |
| Base (11x exit) | 10.0x | 11.0x | $4.0M | $75.3M | 18.97x | 80.1% |
| Bull Case | 9.0x | 11.0x | $3.6M | $93.2M | 26.08x | 92.0% |
| Bull (12x exit) | 9.0x | 12.0x | $3.6M | $102.7M | 28.75x | 95.8% |
| Bear Case | 11.0x | 10.0x | $4.4M | $40.9M | 9.36x | 56.4% |
| Bear (11x exit) | 11.0x | 11.0x | $4.4M | $46.4M | 10.62x | 60.4% |
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
- 33 hospitals with 110-442 beds
- Same-state prioritization (n=34)
- Comp margins: P25=-14.5% / 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.