FAIRLAWN REHABILITATION HOSPITAL AN
1. Target Overview & Investment Thesis
FAIRLAWN REHABILITATION HOSPITAL AN is a 110-bed suburban community hospital in WORCESTER, MA with $39.9M in net patient revenue and a 6.9% operating margin. The hospital serves a payer mix of 48.0% Medicare, 9.0% Medicaid, and 43.0% commercial.
Thesis: Turnaround. Our ML models identify $2.9M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 6.9% to 14.3% (+736bps).
| Net Revenue HCRIS | $39.9M |
| Current EBITDA COMPUTED | $2.8M |
| Operating Margin COMPUTED | 6.9% |
| Occupancy HCRIS | 63.9% |
| Revenue / Bed COMPUTED | $363K |
| Net-to-Gross HCRIS | 73.5% |
| Distress Probability ML | 53.1% |
2. Market Context & Competitive Position
MA has 99 Medicare-certified hospitals with a median operating margin of -12.2%. The target's margin of 6.9% places it above the state median. Among 56 size-comparable peers (55-220 beds), the median margin is -10.7%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (55-220), prioritizing same-state peers. 56 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| FAIRLAWN REHABILITATION HOSPIT (Target) | MA | 110 | $39.9M | 6.9% |
| NEWTON WELLESLEY HOSPITAL | MA | 216 | $624.3M | -4.7% |
| BETH ISRAEL DEACONESS - PLYMOU | MA | 150 | $349.1M | 2.6% |
| MOUNT AUBURN HOSPITAL | MA | 186 | $337.4M | -8.4% |
| STEWARD ST. ANNES HOSPITAL | MA | 175 | $322.3M | 12.8% |
| FAULKNER HOSPITAL | MA | 147 | $316.6M | -7.9% |
| EMERSON HOSPITAL | MA | 111 | $315.1M | -10.1% |
| WINCHESTER HOSPITAL | MA | 178 | $314.9M | -3.9% |
| BROCKTON HOSPITAL INC. | MA | 175 | $305.2M | -18.4% |
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: $2.9M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $839K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $799K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $791K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $486K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $26K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $2.8M |
| + RCM Uplift | +$2.9M |
| Pro Forma EBITDA | $5.7M |
| Current Margin | 6.9% |
| Pro Forma Margin | 14.3% |
| WC Released (1x) | $1.5M |
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 | $4.3M | $47.7M | 11.17x | 62.1% |
| Base (11x exit) | 10.0x | 11.0x | $4.3M | $53.9M | 12.62x | 66.0% |
| Bull Case | 9.0x | 11.0x | $3.8M | $65.0M | 16.90x | 76.0% |
| Bull (12x exit) | 9.0x | 12.0x | $3.8M | $72.0M | 18.74x | 79.7% |
| Bear Case | 11.0x | 10.0x | $4.7M | $31.6M | 6.73x | 46.4% |
| Bear (11x exit) | 11.0x | 11.0x | $4.7M | $36.3M | 7.73x | 50.5% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| High | Elevated distress probability | Model estimates 53.1% probability of financial distress. Mitigant: distressed entry pricing (7-9x) compensates for risk |
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
- 56 hospitals with 55-220 beds
- Same-state prioritization (n=57)
- Comp margins: P25=-18.2% / P50=-10.7% / P75=-0.4%
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.