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May 3, 2010 Health System Partnerships. 2 Changing Landscape: Health Systems Physician Challenges: –Waning out of network model –Poor reimbursement –Expense.

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Presentation on theme: "May 3, 2010 Health System Partnerships. 2 Changing Landscape: Health Systems Physician Challenges: –Waning out of network model –Poor reimbursement –Expense."— Presentation transcript:

1 May 3, 2010 Health System Partnerships

2 2 Changing Landscape: Health Systems Physician Challenges: –Waning out of network model –Poor reimbursement –Expense pressures –Reduced margins, distributions and valuations Affiliation Goals: –Access to capital –Stability –Growth –Contracting leverage –Management effectiveness –Partial liquidity event Hospital/ Corporate Partner 25% Physicians Only 75% Hospital/ Corporate Partner 37% Physicians Only 63%

3 3 Health System Perspective on ASCs Build a leading network of ASC JVs Recapture, grow ambulatory surgery volumes Access efficient, convenient and high quality facilities Free up hospital-based OR capacity Align with high quality physicians Leverage scarce capital across wide network Expand brand name and market presence Grow other IP, OP, and ancillary services Earn strong financial returns Prepare for Accountable Care Organization structure

4 4 Structuring Health System Partnerships 1.Build a scalable strategic plan 2.Know what youre going after 3.Maximize physician ownership and commitment 4.Contract on behalf of your network 5.Control does not require 51% 6.Partner for the long term 7.Access partner capital 8.Negotiate effective non-competes 9.Negotiate effective buy-back provisions 10.Be flexible in approach to physician integration

5 5 Changing Landscape: ASC Industry Flip This House strategy – buy low, then sell to larger ASC company at high price Build It, And They Will Come strategy Out-of-network as corner- stone of strategy Larger companies inhibited by accounting consolidation from making minority investments Larger companies open to full range of deal structures – including minority investments Sellers looking for long-term operating partner, who can bring sustained value Economies of scale more important than ever Reimbursement + cost pressure consolidation accelerating PastToday + Future

6 6 SCA Overview 126 facilities Strong clinical results 5,000 teammates 2,000 physician investors $700 million revenue Strong financial results Significant capital Flexible deal structures –Acquisitions –New builds –Hospital partnerships

7 7 SCA Operating Model Focus on clinical quality and patient safety Commitment to serving physicians and creating value Investment in recruiting and developing leaders Data driven processes and disciplined execution Economies of scale Best practice sharing Clinical Excellence Advocacy Supply Savings Volume Growth Payer Contracting Benchmarking Training Labor Management How We WorkValue To Our Centers

8 8 SCA Performance Prior Company New Company

9 9 SCA Health System Experience Health System/HospitalLocation Sutter HealthSacramento, Santa Rosa, & Auburn, CA California Pacific Medical CenterSan Francisco, CA University of California San DiegoSan Diego, CA Redlands Community HospitalRedlands, CA Loyola UniversityOakbrook Terrace, IL Baylor UniversityHouston, TX Holy SpiritCamp Hill, PA Mainline HealthPaoli, PA Baptist Health SystemMemphis, TN Vanderbilt UniversityNashville, TN Shands HospitalJacksonville, FL Florida HospitalWinter Park, FL Owensboro Health SystemOwensboro, KY Northeast Georgia Medical CtrGainesville, GA Muskogee Regional Med CtrMuskogee, OK Norman Regional HospitalNorman, OK

10 10 SCA Perspective Three areas of focus: –Provide outstanding patient care + clinical outcomes –Create measurable value for physicians –Recruit + develop outstanding leaders Actively acquiring centers –Private equity partner with interest to invest more capital –Make both majority and minority investments –Both physician/SCA and physician/hospital/SCA structures –Open to out-of-network centers, at appropriate price Built to last – a stable partner for the long-term Active corporate citizen for our teammates + communities

11 ASC Strategies for the Foreseeable Future: National Landscape as Viewed Through the ASC Prism Brent W. Lambert, MD, FACS Principal and Founder Luke M. Lambert, MBA, CFA, CASC Chief Executive Officer Ambulatory Surgical Centers of America

12 The ASC industry is no longer growing. We will see as many closing ASCs this year as new openings.

13 The pool of surgeons is not growing, but rather contracting as a function of the population.

14 Maturation of ASCs where there are inadequate or no evergreen provisions in the documents.

15 Consolidation of payers.

16 Elimination of OON.

17 Private equity fervor for the ASC industry declining.

18 Minority model gaining acceptance with private equity investors.

19 ASC industry is weak politically vis-a-vis the hospital industry. This is changing with the ASC Association Advocacy Committee, comprised of corporate industry leaders and the ASC Association.

20 The Squeeze is On Now reaping the effects of dramatic cost inflation. Reimbursement has been flat or down over the course of many years for most centers. Large numbers of centers are not delivering positive returns.

21 Capital Driven Growth Will Disappoint Capital is relatively abundant compared to good management. Companies and capital providers that ignore accounting presentation in favor of business logic will prevail, others are handicapped. Good operators dont need capital.

22 Keys to Future Success: Efficiency Schedule consolidation delivers good old fashioned labor productivity and margin improvement. Surgeon preference drives supply cost. With financial returns threatened surgeons willing to make hard decisions.

23 Payer Contracting Accept what youre offered and youll struggle financially. Surgeon direction of surgical venue key to negotiating success. Hospital partnerships can enable centers to maintain profits while going in network.

24 Physician Recruitment Dwindling numbers of available physicians – musical chairs. Its becoming uncommon to find physicians that arent bound by non- competitive covenants. Hospital employment is a significant limiting trend.

25 Minority Model will Continue to Deliver Superior Results Level of surgeon participation impacts: schedule, supply costs, and recruitment. Accounting driven business models compete with one arm tied behind their back. Corporate partners do deliver value with expertise and assistance As in the past, there will be many more happy minority model investors than majority.

26 THINK PROFITS Brent W. Lambert, MD, FACS Principal & Founder Luke M. Lambert, CFS, CASC Chief Executive Officer Ambulatory Surgical Centers of America

27 Question and Answer Session

28 Hospitals and Surgery Centers Key Thoughts on Strategic Planning David Fleisch Partner Healthcare Practice Bain & Company Andrew Hayek Chief Executive Oficer Surgical Care Afiliates Scott Becker, JD, CPA Partner McGuireWoods, LLP Luke Lambert Chief Executive Officer Ambulatory Surgical Centers of America Brent Lambert President & Owner Ambulatory Surgical Centers of America

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