Financial Turmoil In the Healthcare Industry Presented by:

1. Financial Turmoil In the Healthcare Industry Presented by: Larry Heydon, President/CEO of Johnson Memorial Health IOA Meeting-May 2, 2014 Version 2 -2/8/13

2. Financial Turmoil In the Healthcare Industry Two Concerning Factors Simultaneously at Play- A “Double Whammy” Partial Healthcare Reform (ObamaCare) Volume Erosion (Consumerism/Redirection)

3. 1. Partial Healthcare Reform “SOME” Targeted Objectives of the Patient Protection and Affordable Care Act and Other Healthcare Reform Measures (Obamacare) • For US Citizens In General • Reduce Medicare spending (to protect program for future generations) • For Uninsured or Underinsured • Allow for universal health insurance coverage for all via Medicaid expansion at state level and sliding scale insurance exchanges (market plans) • For Insured (via private coverage or employer sponsored health plans) • Allow for transparency in pricing and reduced spending • Expand eligibility/reduce restrictions in coverage • Over time, allow for reduced costs per encounters • For Healthcare Providers • Allow for decrease in Medicare reimbursement • Reduce levels of “free” care via universal health insurance coverage • Emphasis on quality management In general, hospitals supported these objectives

4. Impact of Partial Reform-An Overview Uninsured/ Underinsured Commercial and Self Pay New Exchanges Medicaid Medicare Medicare No Medicaid Expansion Medicaid Expansion Estimated 10%+ cuts over a 10 year period for hospitals Commercial Plans including employer sponsor plans adjusts to lower exchange rates Average Rate Average Rate Average Rate Reimbursement Scale “Free” “Retail” Costs Current Reform “Promise” Partial Reform

5. 2. Volume Erosion – “Consumerism” Historical Commercial Plans Reaction to High Costs “Commercial” Box from Previous Slide Patient Paid – Co Pays/Deductibles Patient Paid- Co Pays/High Deductibles/Health Savings Plans Insurance Paid • Private Insurance Policies • Employer Sponsored Plans Insurance Paid

6. 2. Volume Erosion – “Consumerism”

8. Specific Comments on What Hospitals are Doing • Increased competition against each other (to steal market share….friendly neighbors era is over) • Competitive pricing on key lab and radiology ancillary services to combat niche providers. • Short term participation in Exchange/Market Plans and other key narrow network plans to protect volume. • Long term creation of regional insurance network plans (ACOs and ACCs) to redirect volume, better manage care and save the middleman premium charged by insurers. • Short term fierce physician integration steps followed by long term re-evaluation of physician specialty needs and compensation…simply can not afford to carry too high of a level of subsidization for employed physicians. • Unavoidable focus on decreasing labor costs while still meeting regulatory requirements. • Potential elimination of non-core services lines that are subsidized…causing a movement towards specialty centers and a general decrease in access to care • Significant list of other expense control initiatives (supplies, outsourcing, etc) • Paradigm shift from fee for service (FFS) reimbursement to fixed capitated payment where lower volume equates to higher financial reward (less is better).

9. A comment on healthcare professionals, current and future Thank You and Q&A