Community Health Systems to sell 25 Hospitals as net loss swells to $1.7 billion in Source: Healthcare Drive February 20, 2017

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1 Future State Of U.S. Healthcare Ralph Lawson, FHFMA, CPA Executive Vice President and Chief Financial Officer Baptist Health South Florida October 20,

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3 10/20/2017 Community Health Systems to sell 25 Hospitals as net loss swells to $1.7 billion in Source: Healthcare Drive February 20,

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5 Baptist Health South Florida - Miami Beach Medical Office Building 5

6 Headwinds Looking at the first nine months of FY 2017, CHI reported an operating loss of $424 million on revenues of $12.2 billion. The business model for Baptist Health, and all major U.S. healthcare systems, is rapidly becoming obsolete. Aging population causes rapidly deteriorating payor mix And a labor shortage in healthcare Technology and clinical advances will cause outpatient business to continue to expand, cannibalizing much of our higher margin business Lower cost settings attract new competitors and aggressive pricing Federal and state budget concerns will continue to result in lower payments to providers per unit of service Healthcare reform will also likely reduce payments to providers No one knows what the new federal programs will look like Source: Becker s Hospital Review May 23, 2017 Source: Ralph Lawson, June

7 Medicare To Become Majority Of Volume By 2022 Estimated Percent Of Cost Collected By Payor FY 2012 FY 2017 Comparison Of Volume To Payment Projected Number of Medicare Beneficiaries Millions of Beneficiaries 12.4% increase from 2014 to Average Inpatient Payer Mix By Volume n = 785 Hospitals 6% 2% 33% 25% 200% 150% As a percentage of gross revenue 8% 20% As a percentage of net revenue 0% 13% 12% % 42% 15% 58% 100% 50% 37% 22% 68% 2% 5% Self-Pay Medicaid Commercial Medicare 0% Medicare Medicare Advantage Medicaid Medicaid HMO Commercial Uninsured 3% 10% Medicare Medicare Advantage Medicaid Medicaid HMO Commercial Uninsured Source: CMS, Health Care Advisory Board interviews and analysis Source: Baptist Health South Florida, Inc., July 2017 Source: Baptist Health South Florida, Inc. June 30,

8 Comparison Of Volume To Payment As a percentage of gross revenue As a percentage of net revenue Current State 8% 20% 0% 13% 12% Future State 37% 3% 10% 3% 22% 33% 68% 0% 21% 2% 5% $2.4 Billion Every large health system CFO wants to reduce cost to break-even on Medicare, but I do not know anyone who has achieved this goal. Cleveland Clinic operating income plummets 71%. $2.2 Billion 30% 55% 19% 1% 4% 7% 2% Medicare 25% Medicaid Commercial Medicare Advantage Medicaid HMO Uninsured Source: Baptist Health South Florida, Inc. June 30, 2017 Source: Ralph Lawson Source: Becker s Hospital Review March 22,

9 Headwinds Aging population causes rapidly deteriorating payor mix And a labor shortage in healthcare Technology and clinical advances will cause outpatient business to continue to expand, cannibalizing much of our higher margin business Lower cost settings attract new competitors and aggressive pricing Federal and state budget concerns will continue to result in lower payments to providers per unit of service Healthcare reform will also likely reduce payments to providers No one knows what the new federal programs will look like 9

10 Baptist Outpatient Services Express Care Clinic - Country Walk Baptist Health On Demand Visit with a physician anytime, anywhere on your mobile device Source: Baptist Health South Florida 10

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12 10/20/2017 Cerner Electronic Health Record Source: Baptist Health South Florida 12

13 Headwinds Headwinds Medicaid Is The Government Health Care Program For The Poor Aging population causes rapidly deteriorating payor mix And a labor shortage in healthcare Technology and clinical advances will cause outpatient business to continue to expand, cannibalizing much of our higher margin business Lower cost settings attract new competitors and aggressive pricing Federal and state budget concerns will continue to result in lower payments to providers per unit of service Healthcare reform will also likely reduce payments to providers No one knows what the new federal programs will look like Aging population causes rapidly deteriorating payor mix And a labor shortage in healthcare Technology and clinical advances will cause outpatient business to continue to expand, cannibalizing much of our higher margin business Lower cost settings attract new competitors and aggressive pricing Federal and state budget concerns will continue to result in lower payments to providers per unit of service Healthcare reform will reduce payments to providers No one knows what the new federal programs will look like Represents about 10% of the entire federal budget Generally state designed within federal guidelines Medicaid pays for half of all births in the United States Medicaid pays for most people in nursing homes If you or your loved one are disabled, you may qualify About eleven million more people got coverage through the Medicaid expansion Huge variation in coverage from state to state Source: Health Shots, June 27,

14 Headwinds Aging population causes rapidly deteriorating payor mix And a labor shortage in healthcare Technology and clinical advances will cause outpatient business to continue to expand, cannibalizing much of our higher margin business Lower cost settings attract new competitors and aggressive pricing Federal and state budget concerns will continue to result in lower payments to providers per unit of service Healthcare reform will reduce payments to providers No one knows what the new federal programs will look like 14

15 Obamacare Enrollee Options Choice Of Three Or More Insurers "I didn't expect Donald Trump to win. I think most of my colleagues didn't. So we didn't expect to be in this situation," Pat Toomey, R-Pa., said Wednesday. Source: 15

16 What Do Americans Think About The Affordable Care Act? President Trump s Recent Executive Orders 55% of Americans generally approve of the 2010 ACA, up from only 42% right after the November 2016 election 40% want to keep the law but make significant changes 30% want to repeal the law 26% want to keep the law as it is Eliminated the Cost Sharing Reduction (CSR) subsidy which totaled about $7 billion annually Kept the Premium Tax Credit subsidy in tact Which will now undoubtedly increase because of the elimination of the CSR subsidy Source: Gallup, April 4,

17 NYC Health + Hospitals sees operating loss nearly double to $673 million. How will Baptist Health survive in such a troubled business environment? Remember True North: Source: Becker s Hospital Review June 1, 2017 Source: Baptist Health South Florida 17

18 Remember True North: Have the courage to remain true to our core values Courage is fear holding on for a minute longer. Source: George S. Patton, United States General 18

19 It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change. Source: Charles Darwin 19