33rd Annual J.P. Morgan Healthcare Conference

Transcription

1 33rd Annual J.P. Morgan Healthcare Conference San Francisco, California January 12, 2015 Jim Skogsbergh President and Chief Executive Officer Lee B. Sacks, M.D. Executive Vice President and Chief Medical Officer Dominic J. Nakis Chief Financial Officer and Treasurer

2 The following material and presentation contains information which is forward looking within the meaning of federal securities law. These forward looking statements are based on the current plans and expectations of Advocate Health Care Network ( Advocate ) that, although believed to be reasonable, are subject to a number of known and unknown uncertainties and risks inherent in the operation of health care facilities, many of which are beyond Advocate s control, that could significantly affect current plans and expectations and Advocate s future financial position and results of operations. These forward looking statements speak only as of the date made. Investors are cautioned not to unduly rely on such forward looking statements. This presentation should be reviewed in conjunction with Advocate s December 31, 2013 and September 30, 2014 continuing disclosure reports.

3 Introduction and Advocate Overview Jim Skogsbergh President and Chief Executive Officer

4 Advocate Health Care Hospitals (12) 4 teaching 1 children's 1 critical access 5 level 1 trauma centers Physicians 1,350 employed/affiliated 5,175 APP 6,400 Medical staff Post acute Home health, hospice, LTAC & palliative care 33,400 associates $5.3B total revenue 17.8% market share

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6 Pluralistic Physician Approach Employed /Affiliated ~ 1,350 Aligned ~ 3,825 Advocate Physician Partners ~ 5,175 Advocate Medical Staff ~ 6,400

7 Affiliation and Merger Silver Cross Partnership NorthShore Merger

8 Silver Cross An Innovative Partnership Joined Advocate Physician Partners Expands Advocate s geographic coverage Silver Cross physicians complement Advocate Physician Partners Provides Silver Cross access to contracts and population health expertise. Silver Cross remains an independent entity; financial statements not consolidated into Advocate. $300 million revenue 289 licensed beds 19,000 capitated lives 300 physicians 10 employed physicians

9 NorthShore Merger One board and management team Strategic direction Single signature managed care contracting Consolidated financial statements and system wide capital allocation Combined obligated group planned

10 NorthShore Merger Objectives & Benefits Increase competition by dramatically changing the way that managed care products are constructed and sold in the Chicago area. Population Health Management and Clinical Integration New Health Plan Products Opportunities for Self Insured Employers Broad and Complementary Geographies

11 Market Share 2014 Q2 20% 17.8% 15% 10% 9.4% 9.2% 7.2% 5% 4.9% 4.5% 4.2% 3.8% 3.6% 0% Advocate Presence Northwestern/ Cadence Ascension/ Adventist NorthShore Rush CHE Trinity Edward/ Elmhurst Tenet

12 Strong Financial Position Advocate NorthShore Rating (M/S&P/F) Aa2/AA/AA Aa2/AA/NR Net Revenue $5 B $2 B Operating Margin 5.1% 6.8% Operating Cash Flow Margin 10.8% 13.2% Net Margin 8.2% 9.2% Total Assets $10 B $3 B Days Cash on Hand Cash to Debt 300% 373% Debt to Capitalization 23.0% 15.6%

13 Advocate & NorthShore Alignment Values Outstanding quality/reputations Highly integrated delivery systems with large employed medical groups Strong management and governance teams Excellent teaching and research capabilities

14 AdvocateCare Advancing Value Based, Coordinated Care Lee B. Sacks, M.D. Executive Vice President and Chief Medical Officer

15 Strong Physician Engagement To drive improvement in health outcomes, care coordination and value creation through an innovative and collaborative partnership with our physicians and the Advocate System. Advocate Medical Group BroMenn PHO Christ PHO Condell PHO Dreyer Medical Group Good Samaritan PHO Good Shepherd PHO Illinois Masonic PHO Lutheran General PHO Sherman PHO South Suburban PHO Trinity PHO Future PHOs Silver Cross PHO Future Medical Groups

16 Population Health Management ( PHM ) PHM is the coordination or management of medical care delivery to a population to improve clinical outcomes at a lower total cost of care. Successful PHM is a key means by which to achieve the Triple Aim : 1. Improving the patient experience. 2. Improving health outcomes. 3. Reducing the total cost of care. PHM and aligned incentives are essential components for taking more financial risk.

17 Reimbursement Model Shift % 1% 12% 32% 55%

18 Current Value Based Agreements Contract Lives Total Spend Commercial 388,000 $1.5 B Medicare Advantage 35,000 $0.3 B Advocate Employee 26,000 $0.1 B Medicare ACO 137,000 $1.7 B Medicaid ACE 62,000 $0.2 B Total 648,000 $3.8 B 14

19 Value Based Agreement Results $2,000/case decrease in SNF costs Medicare Shared Savings Program costs below benchmark PPO trend in cost of care is 1.4% below market Over 1 million individuals in disease and prevention registries

20 Tactics for Success Tactics are needed for the entire population not just the 5% poly chronic to move the mean Enhance focus on ambulatory care Adjust skill mix of the care team Benefit Plan design is essential Behavioral health integration Leverage Big Data

21 Going Forward Shared Savings is a transition model Well positioned for managed Medicaid Medicare Advantage is opportunity for future growth Value/Narrow Network Products for Public/Private Exchanges

22 Financial Performance Dominic J. Nakis Chief Financial Officer and Treasurer

23 Strong Operating Performance Dollars in Millions % 6.8% 6.5% 6.1% 5.1% 10% 5% YTD Q3 Operating Income Operating Margin // 0% Note: Operating income and operating margin for the nine months ended September 30, 2014 are not necessarily indicative of the results that may be experienced during the year ending December 31,

24 Consistently Solid Cash Flow Dollars in Millions % 11.7% 11.6% 11.5% 10.8% YTD Q3 // 15% 10% 5% 0% Operating Cash Flow Operating Cash Flow Margin Note: Cash generated from operations and operating cash flow margin for the nine months ended September 30, 2014 are not necessarily indicative of the results that may be experienced during the year ending December 31,

25 Diversified Investment Portfolio Dollars in Millions (50) 10.5% 0.2% 10.6% 7.1% 3.4% 351 (34) YTD Q3 Investment Income Investment Yield // 20% 10% 0% 10% 20% Note: The 2014 Q3 YTD investment yield is not annualized. Both investment income and yield are net of fees. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 15% 16% 20% 22% 25% 24% 10% 8% 30% 30% Target Actual Sept 30 Expected return of 7.2%. Risk/return ratio at Real Assets Hedge Funds Fixed Income Private Equity Public Equity 27

26 Debt Profile = Low, Level and Long* Tax exempt debt is $1.5 billion, average annual debt service is generally level through 2038 at $90 million and average life is 19 years. $100 $90 Maximum Annual Debt Service: $90.2 million $80 Debt Service (in $millions) $70 $60 $50 $40 $30 $20 $10 $ * Debt profile as of December 18, 2014.

27 Well Diversified Debt Portfolio* Underlying Mix Liquidity Mix Synthetic Fixed, $321.3mm, 21% Fixed Rate $839.4mm, 55% Wells Fargo, $49.2mm, 3% Northern Trust, $86.6mm, 6% JP Morgan, $185.43mm, 12% None, $839.4mm, 55% Intermediate, $181.0mm, 12% Self Liquidity, $355.5mm, 24% Variable Rate, $170.0mm, 11% Product Mix Windows VRDBs, $70.0mm, 5% Fixed Rate, $839.4mm, 55% Weekly VRDBs, $321.3mm, 21% Multi Annual Tender, $120.3mm, 8% Direct Purchase, $100.0mm, 7% * Debt portfolio as of December 18, Annual Tender, $65.1mm, 4%

28 Strong Coverage and Capitalization % 26.1% 24.5% 24.2% 23.0% 40% % 30% 25% Times // Q3 20% 15% 10% 5% 0% Debt Service Coverage Ratio (times) Debt as % of Unrestricted Capitalization Note: 2014 Q3 YTD is a rolling twelve month period. 31

29 Strong Cash to Debt Ratio Percent // Q3 32

30 Substantial Liquidity Position Dollars in Millions 6,000 5,000 4,000 3,000 2,000 1, ,920 3,211 3,842 4,518 4,763 // Q Days on Hand Dollars Days Cash and Investments on Hand 34

31 Well Funded Pension Plans % 92% 100% 99% 100% Dollars in Millions % % 80% 70% 60% Q3 // 50% Assets PBO Percent Funded 33

32 Large Capital Commitments Past 3 Years % Dollars in Millions % 146% 150% 182% 208% 200% 150% 100% 50% Nov // 0% New Commitments Cash Spending Capital Spend Ratio 35

33 Summary National leader in: Health outcomes and safety Value based health care Metro Chicago market share leader and brand strength Growth through selective acquisitions and ability to integrate new hospitals and physicians Pluralistic approach to physician relationships coupled with a large and growing employed medical group Balance sheet strength and solid operating performance All of above reflected in our bond ratings of Aa2/AA/AA (M/S&P/F), with stable (M/F) and positive (S&P) outlooks 42

34 Disclosure Audited financial statements, quarterly reports along with management s discussion and analysis and the annual continuing disclosure report are available on the Advocate, Digital Assurance Certification, LLC and Municipal Securities Rulemaking Board websites. To view online visit:

35 Thank you!