MERCY WALWORTH HOSPITAL
1. Target Overview & Investment Thesis
MERCY WALWORTH HOSPITAL is a 25-bed under-performing / distressed in WALWORTH, WI with $616.4M in net patient revenue and a 4.4% operating margin. The hospital serves a payer mix of 33.9% Medicare, 8.1% Medicaid, and 58.0% commercial.
Thesis: Turnaround. Our ML models identify $45.4M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 4.4% to 11.8% (+736bps).
| Net Revenue HCRIS | $616.4M |
| Current EBITDA COMPUTED | $27.3M |
| Operating Margin COMPUTED | 4.4% |
| Occupancy HCRIS | 34.8% |
| Revenue / Bed COMPUTED | $24.7M |
| Net-to-Gross HCRIS | 29.0% |
| Distress Probability ML | 21.7% |
2. Market Context & Competitive Position
WI has 150 Medicare-certified hospitals with a median operating margin of 0.4%. The target's margin of 4.4% places it above the state median. Among 87 size-comparable peers (12-50 beds), the median margin is 1.2%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (12-50), prioritizing same-state peers. 87 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| MERCY WALWORTH HOSPITAL (Target) | WI | 25 | $616.4M | 4.4% |
| ASPIRUS RIVERVIEW HOSPITAL & C | WI | 44 | $161.3M | 13.1% |
| MEMORIAL MEDICAL CENTER INC. | WI | 25 | $138.4M | 8.1% |
| LAKEVIEW MEDICAL CENTER OF RIC | WI | 40 | $137.4M | -12.0% |
| MARSHFIELD MEDICAL CENTER-MINO | WI | 19 | $129.6M | -12.4% |
| FORT ATKINSON MEMORIAL HOSPITA | WI | 49 | $127.0M | -10.1% |
| MCHS-RED CEDAR | WI | 25 | $123.4M | 16.8% |
| MEMORIAL HOSPITAL OF BURLINGTO | WI | 33 | $118.8M | 15.3% |
| OAK LEAF SURGICAL HOSPITAL LLC | WI | 13 | $109.8M | 34.1% |
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: $45.4M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $12.9M | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $12.3M | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $12.2M | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $7.5M | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $395K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $27.3M |
| + RCM Uplift | +$45.4M |
| Pro Forma EBITDA | $72.7M |
| Current Margin | 4.4% |
| Pro Forma Margin | 11.8% |
| WC Released (1x) | $23.6M |
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 | $42.0M | $633.9M | 15.09x | 72.1% |
| Base (11x exit) | 10.0x | 11.0x | $42.0M | $710.9M | 16.92x | 76.1% |
| Bull Case | 9.0x | 11.0x | $37.8M | $874.3M | 23.12x | 87.4% |
| Bull (12x exit) | 9.0x | 12.0x | $37.8M | $964.9M | 25.52x | 91.1% |
| Bear Case | 11.0x | 10.0x | $46.2M | $393.4M | 8.51x | 53.5% |
| Bear (11x exit) | 11.0x | 11.0x | $46.2M | $447.7M | 9.69x | 57.5% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Low occupancy | At 34.8%, 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
- 87 hospitals with 12-50 beds
- Same-state prioritization (n=88)
- Comp margins: P25=-10.1% / P50=1.2% / P75=8.6%
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.