1. Today’s Changing Healthcare Economics WSHMMA Meeting April 13, 2011 Presented by Jeff Veilleux, EVP & CFO

2. Adapting to a New Reality… Positioning for Success

3. 3 Long Term Pressure – Healthcare Reform

4. 4 Organizational Expectations Slow Growth Cost Pressure Deteriorating Payer Mix HCR Pressures –3 rd party insurer pressure –Medicare and Medicaid rate decreases –Medicare and Medicaid volume increases –Move to outpatient –Bad debts may decrease

5. 5 Expected Shift in Insurance Coverage Dual coverage affects the total insurance coverage population calculation, thus total insurance coverage population does not equal to the true US population amount. Estimated Effects of the Patient Protection and Affordable Care Act, as Passed by the Senate, on Enrollment by Insurance Coverage, in millions Source: Congressional Budget Office and the staff of the Joint Committee on Taxation. Centers for Medicare & Medicaid Services, Office of the Actuary. January 8, 2010 (http://www1.cms.gov/ActuarialStudies/Downloads/S_PPACA_2010-01-08.pdf) 314mm 327mm 334mm 342mm

6. 6 Translating Insurance Coverage into Bottom-Line Impact 2006 U.S. Hospital Cost Shift Estimate Source: Milliman Inc. – Hospital and Physician Cost Shift, December 2008. Of the $89 billion in total cost shift, 57% or $51 billion is hospital related. In 1999, the gap between Medicare and Commercial Payers was 11.3%. By 2006, the gap widened to 32.5%.

7. 7 State Medicaid Spending is Expected to Increase because of Health Reform 0 - 25th Percentile 25th - 50th Percentile 50th - 75th Percentile 75th - 100th Percentile Source: Center on Budget and Policy Priorities (FY2011 estimates) and National Association of State Budget Officers (FY2008 data); based on a composite score comprising equal weightings of the estimated percentage of state spending on Medicaid and most recently available state deficit/surplus as a share of general fund. National Medians State Budget Deficit: 14.2% Medicaid Spending: 19.6% Statistical Key: B = Budget Deficit (Share of FY2011 state budget that is under-funded as of 7/15/2010) M = Medicaid Spending (State Medicaid spending as a percentage of total state expenditures, FY2008) B: 20.2% M: 23.2% B: 34.7% M: 28.2% B: 38.3% M: 19.5% B: 13.9% M: 25.9% B: 36.6% M: 22.8% B: 21.6% M: 19.7% B: 41.5% M: 29.5% B: 9.4% M: 34.5% B: 15.9% M: 26.7% B: 30.3% M: 26.4% B: 15.6% M: 30.3% B: 9.8% M: 28.5% B: NA M: 8.4% B: NA% M: 20.3% B: 21.6% M: 11.1% B: 28.9% M: 17.4% B: 11.5% M: 11.5% B: 12.0% M: 11.2% B: 18.9% M: 17.9% B: 8.7% M: 18.7% B: 8.8% M: 21.3% B: 12.5% M: 19.3% B: 14.4% M: 18.9% B: 9.6% M: 17.7% B: NA M: 15.1% B: 14.8% M: 18.6% B: NA M: 13.7% B: 8.8% M: 22.3% B: 14.6% M: 13.6% B: 30.2% M: 18.9% B: 8.8% M: 15.1% B: 12.9% M: 16.3% B: 23.9% M: 13.5% B: 10.3% M: 10.2% B: 26.2% M: 19.6% B: 3.4% M: 21.9% B: 9.6% M: 18.7% B: 9.2% M: 22.2% B: 26.0% M: 22.6% B: 16.1% M: 22.4% B: 54.0% M: 12.3% B: 24.1% M: 26.0% B: 11.3% M: 23.2% B: 25.6% M: 21.1% B: 9.4% M: 21.7% B: NA M: 16.8% B: 6.2% M: 20.8% B: 10.2% M: 16.4% B: 8.3% M: 11.0% B: 3.6% M: 12.1%

8. 8 States With Stronger Economies May Lower System Bad Debt Risk N: 7.7% U: 6.3% N: 9.4% U: 6.8% N: 12.4% U: 6.5% N: 5.4% U: 9.0% N: 8.5% U: 6.8% N: 12.6% U: 4.8% N: 10.3% U: 5.9% N: 10.9% U: 3.6% N: 9.7% U: 9.2% N: 11.3% U: 4.5% N: 13.0% U: 7.2% N: 10.2% U: 6.0% N: 8.9% U: 7.9% N: 9.7% U: 8.8% N: 11.0% U: 8.5% N: 9.6% U: 8.0% N: 12.9% U: 7.1% N: 12.6% U: 9.1% N: 14.9% U: 9.6% N: 13.6% U: 8.2% N: 11.6% U: 10.5% N: 11.3% U: 12.0% N: 13.6% U: 7.0% N: 11.8% U: 8.9% N: 13.6% U: 6.8% N: 9.8% U: 10.0% N: 11.9% U: 10.1% N: 14.6% U: 8.5% N: 20.1% U: 11.4% N: 19.3% U: 7.0% N: 11.9% U: 10.3% N: 19.0% U: 7.9% N: 17.0% U: 7.5% N: 16.1% U: 8.0% N: 14.7% U: 8.8% N: 13.1% U: 10.4% N: 15.9% U: 7.3% N: 15.9% U: 6.8% N: 14.7% U: 10.1% N: 18.9% U: 9.6% N: 18.4% U: 12.3% N: 17.7% U: 10.0% N: 14.8% U: 10.0% N: 11.7% U: 13.2% N: 18.3% U: 11.0% N: 18.0% U: 14.2% N: 23.1% U: 8.2% N: 15.9% U: 10.0% N: 16.5% U: 10.5% N: 16.1% U: 10.7% N: 25.1% U: 8.2% 0 - 25th Percentile 25th - 50th Percentile 50th - 75th Percentile 75th - 100th Percentile National Medians Uninsured Population: 13.1% Unemployment Rate: 8.7% Statistical Key: N = Uninsured Population (Percentage of Total Population Under 65, 2010) U = Unemployment Rate (Seasonally adjusted percentage of civilian labor force, as of June 2010) Sources: Bureau of Labor Statistics (June 2010 figures) and Robert Wood Johnson Foundation (2010 estimates); based on a composite score comprising equal weightings of the state unemployment rate and uninsured percentage of state population.

9. 9 Market Expectations Local Competition –MD’s –Employees Battles for Market Share –Programs –Patients Consolidation –Local –Regional –National

10. 10 Health System Consolidation: Poised to Re-Ignite 1985-1998: HMO Heyday - Payors control lives Act 1: Payor consolidation Federal Policy / Economic Factors Commercial Payors Provider Catalysts 2003-2008: ACT II Payor Consolidation Returns 2002-2007: Provider Recovery 2001-2002: Tech Bubble Implodes 1997-2000: BBA After Shocks 1998-2003: Specialty Companies Emerge and outperform 1992-1994: Anticipation of Clinton Reform 1990-1997: Columbia – Take No Prisoners Approach to Growth October 1983: Inception of DRGs 2004-2008: NFPs embrace growth 2008-2010 Great Recession 2009-2010: Reform Overhang Kills M&A 2008-2010: Preserve cash Growth in response to external factors Portfolio Rationalization driven by financial considerations Strengthening Fundamentals drives Growth Twin bullets: Recession and Reform

11. 11 2.8% 2.2% Operating Margin Note: Historical Data based on approx 250 reporting systems; Preliminary 2009 data is based on 168 systems, which represents 64% of the systems used in the 2008 Citi Growth Study. Approximately 90% of systems above $5 billion and 60% of all systems with operating revenue below $5 billion have reported 2009 data. Comparative data from Citi Growth Study. Health system data reflects average value of category. NMHS’ FY 2001-2009 data reflects data reflects operating margin calculated from audited financials. 2.2% 3.6% Largest Systems Continue to Experience Highest Operating Margins Preliminary 2009 results show the impact of improved operations. Average Operating Margin of 2.5% was an improvement of 90 bps from 2008 levels. Scale continues to drive difference in performance between “Haves” and “Have-Nots”

12. 12 Leading IHN’s and Large Systems Have Clear Sustainable Competitive Advantages in Periods of Transformation Advantages of Scale Advantages of Integration Highest Revenue Growth Lowest Bad Debt Expense Ratio Lowest Supply Expense Lowest Cost of Capital Leveraging of IT & Routine Capital Spending Highest Investment in Strategic Spending Operating Margin

13. 13 Supply Expense Ratio 18.1% 21.7% 15.2% 18.5% Both Scale and Integration Favorably Impact Supply Costs 21.4% 21.8% *Note: Historical Data based on approx. 250 reporting systems; Comparative data from Citi Growth Study. Health system data reflects average value of category. NMHS’ did not break out supply expense in its audited financials prior to 2008.

14. 14 Wild Cards ACO Activity New Payment Structures –Bundling –Pay for performance

15. 15 Long Term Pressure – Healthcare Reform