THE REHAB HOSPITAL AT RARITAN BAY
1. Target Overview & Investment Thesis
THE REHAB HOSPITAL AT RARITAN BAY is a 76-bed community hospital in UNION, NJ with $28.5M in net patient revenue and a 1.3% operating margin. The hospital serves a payer mix of 58.1% Medicare, 0.0% Medicaid, and 41.9% commercial.
Thesis: Turnaround. Our ML models identify $2.1M in annual EBITDA improvement potential from RCM optimization across 5 levers, lifting margin from 1.3% to 8.6% (+736bps).
| Net Revenue HCRIS | $28.5M |
| Current EBITDA COMPUTED | $357K |
| Operating Margin COMPUTED | 1.3% |
| Occupancy HCRIS | 55.2% |
| Revenue / Bed COMPUTED | $375K |
| Net-to-Gross HCRIS | 17.0% |
| Distress Probability ML | nan% |
2. Market Context & Competitive Position
NJ has 95 Medicare-certified hospitals with a median operating margin of -3.9%. The target's margin of 1.3% places it above the state median. Among 39 size-comparable peers (38-152 beds), the median margin is -5.9%. The target performs in line with or above peers.
3. RCM Performance Analysis — Comparable Hospitals
Comps selected by bed count (38-152), prioritizing same-state peers. 39 hospitals in the comp set.
| Hospital | State | Beds | Revenue | Margin |
|---|---|---|---|---|
| THE REHAB HOSPITAL AT RARITAN (Target) | NJ | 76 | $28.5M | 1.3% |
| SOUTHERN OCEAN MEDICAL CENTER | NJ | 147 | $233.0M | 10.5% |
| DEBORAH HEART AND LUNG CENTER | NJ | 85 | $211.9M | -5.5% |
| ST LUKES WARREN HOSPITAL | NJ | 92 | $200.8M | 28.1% |
| ST. MICHAELS MEDICAL CENTER | NJ | 147 | $198.6M | -13.6% |
| ROBERT WOOD JOHNSON HOSPITAL @ | NJ | 152 | $193.9M | -15.5% |
| NEWTON MEDICAL CENTER | NJ | 139 | $189.3M | -6.7% |
| BERGEN NEW BRIDGE MEDICAL CENT | NJ | 101 | $187.0M | -39.4% |
| ST. MARYS HOSPITAL - PASSAIC | NJ | 122 | $173.8M | 0.9% |
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: $2.1M (736bps margin improvement).
| Lever | Current | Target | EBITDA Impact | Margin | Ramp |
|---|---|---|---|---|---|
| Net Collection Rate | 93.5% | 97.0% | $598K | +210bp | 18mo |
| Cost to Collect | 4.5% | 2.5% | $570K | +200bp | 12mo |
| Denial Rate Reduction | 12.0% | 6.5% | $564K | +198bp | 12mo |
| A/R Days Reduction | 5200.0% | 3800.0% | $347K | +122bp | 9mo |
| Clean Claim Rate | 88.0% | 96.0% | $18K | +6bp | 6mo |
5. EBITDA Bridge
| Current EBITDA | $357K |
| + RCM Uplift | +$2.1M |
| Pro Forma EBITDA | $2.5M |
| Current Margin | 1.3% |
| Pro Forma Margin | 8.6% |
| WC Released (1x) | $1.1M |
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 | $550K | $23.3M | 42.41x | 111.6% |
| Base (11x exit) | 10.0x | 11.0x | $550K | $25.8M | 46.98x | 116.0% |
| Bull Case | 9.0x | 11.0x | $495K | $32.9M | 66.54x | 131.5% |
| Bull (12x exit) | 9.0x | 12.0x | $495K | $36.1M | 72.88x | 135.8% |
| Bear Case | 11.0x | 10.0x | $605K | $12.7M | 20.93x | 83.7% |
| Bear (11x exit) | 11.0x | 11.0x | $605K | $14.1M | 23.35x | 87.8% |
7. Key Risks & Mitigants
| Severity | Risk Factor | Mitigant |
|---|---|---|
| Medium | Heavy Medicare dependence | Medicare comprises 58.1% of days; rate updates may lag inflation. Mitigant: CDI/CMI lever directly increases Medicare reimbursement |
| Low | Low net-to-gross ratio | Large contractual allowances suggest pricing discipline issues. Mitigant: payer renegotiation is an additional upside lever |
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
- 39 hospitals with 38-152 beds
- Same-state prioritization (n=40)
- Comp margins: P25=-25.8% / P50=-5.9% / P75=2.6%
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.