Project Justification - Financial Analysis

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Cameron McCoy
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1 Project Justification - Financial Analysis It is critical for (Organization) to allocate its capital resources to those projects, initiatives or purchases that have the greatest impact on operations. To that end, an emphasis will be placed on the predicted financial performance of all proposed investments that meet the criteria for Executive Leadership review and approval. It is the intent for major projects that meet this review criteria to be evaluated as a pool of investments to ensure that the best projects have access to funding. The attached Excel template will be the vehicle used by operating entities to capture and share projected financial performance. Instructions There are five tabs contained in the Excel template, four of which require information to be entered. The cells highlighted in yellow indicate input is requested. The file is intended to serve as a template and it is perfectly acceptable to rename, add or subtract data categories. It is also acceptable to use averages in categories like revenue; however, this should be detailed in the assumptions tab. Project Information Tab This tab is for the input of basic project information including project name, entity/campus, automated approval information (if available), and contact information for the primary point of contact relating to the project. The contact provided will be used as the point person for any questions or follow-up. Assumptions Tab The template contains examples of the types of categories of assumptions that should be included. Please be as thorough as possible in providing detail on any assumptions made when creating the data to be input to the model. For example, when projecting volume, it would be useful to understand the method and service area used to determine volume projections. Capital Tab This sheet is the place to enter all capital expenses related to the project over the timeframe covered by the financial proforma. In addition to the high level information contained in the Excel workbook, it is expected that the detail used to generate the data will be available to those reviewing the request. For example, any construction related request should have a detailed estimate of construction costs available from Planning, Design & Construction department. Please enter the required capital amounts in thousands. Inputs Tab This page contains inputs for ongoing revenues and expenses. It is important to note that only incremental revenues and expenses should be included in the proforma. For example, if adding capacity to an existing service line, only the projected new volume to be generated by the additional capacity should be included. The total volume of the service line should not be used to justify the expansion of services. Please note, if there is no revenue projected, but expense savings are anticipated, then the reduced expenses should be entered as negative values in the appropriate section. Please enter volume projections and per unit gross revenue in whole numbers. Enter other operating revenue and expenses in thousands. Summary Tab This sheet summarizes all of the data into an output document that can be used for review.

2 PROJECT JUSTIFICATION FINANCIAL ANALYSIS Name of Entity/Region: Project Startup Year: 2015 Contact Person: John Doe Telephone Number: Fax Number:

3 Project Justification Assumptions Name of Entity/Region: Volume 1.) 8 providers, MON-FRI 8-5 PM 2.) 4 PCP's on day 1, 4 add'l physicians added YR 2/3 All docs 65th percentile for productivity after YR 1 Capital 1.) 1 time cost for bldg, equipment, & IT 2.) Revenue 1.) Productivity is based upon MGMA for PCP start up. 2.) Ancillary revenue includes LAB & XRAY Expense 1.) 4 PCP's YR 1, 6 YR 2, 8 YR 3 and beyond 2.) Nursing, ancillary, reception, & manager to support operations 1.) 2% - 6% depending upon category 2.) Soft Benefits of the Project 1.) 2.)

4 Name of Entity/Region: Input as thousands Cost Category Initial Inv Fiscal Year Total New Construction 3, ,699 Renovation Equipment Land Purchase A/E, Consulting Contingency Information System Other Total 5, ,261 Salvage Value Average Useful Life Years New Construction 40 Renovation 20 Equipment 7 A/E, Consulting 5 Contingency 5 Information System 3 Other 7 Project Justification Capital Expenditure Estimates Depreciation New Construction Renovation Equipment A/E, Consulting Contingency Information System Other Total

5 Project Justification Net Income Projections Name of Entity/Region: Fiscal Year VOLUME PROJECTIONS INPATIENT ADMISSIONS Input as whole numbers - incremental volume only Office Visits - PROF ONLY # DOCS Medicare 3,110 5,135 7,235 8,153 8,390 8,390 8,390 Medicaid 714 1,179 1,661 1,872 1,926 1,926 1,926 Commercial 1 3,544 5,851 8,244 9,291 9,561 9,561 9,561 Commercial 2 4,895 8,082 11,387 12,833 13,205 13,205 13,205 Self-Pay ,104 1,136 1,136 1,136 Other Total 12,748 21,047 29,655 33,421 34,391 34,391 34,391 OUTPATIENT CASES - LAB ONLY # DOCS Medicare Medicaid ,101 1,165 1,175 1,175 1,175 Commercial 1 4,767 7,341 10,013 10,594 10,689 10,689 10,689 Commercial 2 6,486 9,988 13,624 14,414 14,544 14,544 14,544 Self-Pay 1,363 2,099 2,863 3,029 3,056 3,056 3,056 Other Total 13,539 20,850 28,439 30,089 30,360 30,360 30,360 OUTPATIENT CASES - XRAY ONLY # DOCS Medicare Medicaid Commercial Commercial ,099 1,159 1,169 1,169 1,169 Self-Pay Other Total 1,466 2,258 2,860 3,018 3,045 3,045 3,045 PER UNIT GROSS REVENUE INPATIENT ADMISSIONS Input as whole numbers Office Visits - PROF ONLY Medicare 3.5% Medicaid 3.5% Commercial 1 3.5% Commercial 2 3.5% Self-Pay 3.5% Other 3.5% Page 1

6 Name of Entity/Region: Project Justification Net Income Projections Fiscal Year OUTPATIENT CASES - LAB ONLY Medicare 3.5% Medicaid 3.5% Commercial 1 3.5% Commercial 2 3.5% Self-Pay 3.5% Other 3.5% OUTPATIENT CASES - XRAY ONLY Medicare 3.5% Medicaid 3.5% Commercial 1 3.5% Commercial 2 3.5% Self-Pay 3.5% Other 3.5% GROSS REVENUE CALCULATION HOSPITAL BASED GROSS Medicare Medicaid Commercial Commercial Self-Pay Other Total Hospital Based Gross 753 1,200 1,680 1,839 1,920 1,987 2,057 CLINIC BASED GROSS Medicare ,100 1,284 1,367 1,415 1,464 Medicaid Commercial ,254 1,463 1,558 1,612 1,669 Commercial ,188 1,732 2,020 2,152 2,227 2,305 Self-Pay Other Total Outpatient Gross 1,810 3,093 4,511 5,262 5,604 5,800 6,003 TOTAL GROSS REVENUE $2,563 $4,293 $6,191 $7,101 $7,524 $7,787 $8,060 REVENUE DEDUCTIONS HOSPITAL BASED DEDUCTS Input as thousands Medicare 4.0% Medicaid 4.0% Commercial 1 4.0% Commercial 2 4.0% Self-Pay 4.0% Other 4.0% Total Revenue Deductions ,026 1,113 1,157 1,157 CLINIC BASED DEDUCTS Medicare 4.0% Medicaid 4.0% Commercial 1 4.0% Commercial 2 4.0% ,006 1,046 Self-Pay 4.0% Other 4.0% Total Revenue Deductions 597 1,161 1,828 2,285 2,543 2,645 2,751 Page 2

7 Project Justification Net Income Projections Name of Entity/Region: Fiscal Year Provision for Charity 0.0% TOTAL REVENUE DEDUCTIONS $989 $1,815 $2,755 $3,312 $3,656 $3,802 $3,908 NET REVENUE CALCULATION HOSPITAL BASED REVENUE ($000s) Medicare Medicaid Commercial Commercial Self-Pay Other Total Inpatient Net Revenue OUTPATIENT NET REVENUE ($000s) Medicare Medicaid Commercial ,014 1,047 Commercial ,037 1,151 1,185 1,221 1,259 Self-Pay Other Total Outpatient Net Revenue 1,213 1,932 2,683 2,976 3,061 3,155 3,252 TOTAL NET REVENUE $1,574 $2,478 $3,435 $3,789 $3,868 $3,986 $4,152 Total Revenue Deduction % 38.59% 42.27% 44.51% 46.64% 48.59% 48.82% 48.48% OTHER OPERATING REVENUE 0.0% EXPENSES Input as thousands FTE Type 1 Salary 2.5% FTE Type 2 Salary 2.5% FTE Type 3 Salary 0.0% Employee Benefits 2.0% Lease Expense 2.5% Professional Fees 3.0% Medical Supplies 3.0% Drugs 3.0% Other Supplies 3.0% Support Services 1.0% Repairs & Maintenance 3.0% Interest 0.0% Other Expense 4.0% Bad Debt 4.0% Depreciation (calculated from Capital) TOTAL EXPENSES 2,310 2,358 2,408 2,385 2,437 2,385 2,440 NET OPERATING INCOME ($736) $120 $1,028 $1,404 $1,431 $1,601 $1,713 Page 3

8 Project Justification Net Income Projections Name of Entity/Region: Initial Inv Volume Inpatient Admissions Outpatient Cases 27,753 44,155 60,955 66,528 67,796 67,796 67,796 Patient Revenue Inpatient Services $ 753 $ 1,200 $ 1,680 $ 1,839 $ 1,920 $ 1,987 $ 2,057 Outpatient Services 1,810 3,093 4,511 5,262 5,604 5,800 6,003 Gross Patient Revenue 2,563 4,293 6,191 7,101 7,524 7,787 8,060 Deductions from Patient Revenue Contractual Discounts 989 1,815 2,755 3,312 3,656 3,802 3,908 Provision for Charity Total Deductions from Revenue 989 1,815 2,755 3,312 3,656 3,802 3,908 Net Patient Revenue 1,574 2,478 3,435 3,789 3,868 3,986 4,152 Other Operating Revenue Total Operating Revenue 1,574 2,478 3,435 3,789 3,868 3,986 4,152 Operating Expenses Salaries & Wages ,020 1,045 1,072 Employee Benefits Lease Expense Professional Fees Medical Supplies Drugs Other Supplies Support Services Repairs & Maintenance Interest Other Expense Bad Debt Depreciation Total Operating Expenses 2,310 2,358 2,408 2,385 2,437 2,385 2,440 Excess of Revenue over Expenses $ (736) $ 120 $ 1,028 $ 1,404 $ 1,431 $ 1,601 $ 1,713 from Operations Free Cash Flow Calculation Project Capital Expenditures $ (5,261) $ - $ - $ - $ - $ - $ - $ - Excess of Revenue of Expenses (736) 120 1,028 1,404 1,431 1,601 1,713 Terminal Value Add Back: Depreciation Interest Total Project Free Cash Flow $ (5,261) $ (348) $ 508 $ 1,416 $ 1,718 $ 1,746 $ 1,809 $ 1,921 Cummulative Project Free Cash Flow $ (5,261) $ (5,609) $ (5,101) $ (3,685) $ (1,967) $ (221) $ 1,588 $ 3,509 Weighted Average Cost of Capital 6.0% Discounted Cash Flow $ (5,261) $ (328) $ 452 $ 1,189 $ 1,361 $ 1,304 $ 1,275 $ 1,277 Net Present Value $ 1,270 Internal Rate of Return 10.7%

CENTEGRA HEALTH SYSTEM AND AFFILIATES CONSOLIDATING STATEMENT OF REVENUE AND EXPENSES FOR THE TWELVE MONTHS ENDED JUNE 30, 2017 Unaudited

CENTEGRA HEALTH SYSTEM AND AFFILIATES CONSOLIDATING STATEMENT OF REVENUE AND EXPENSES FOR THE TWELVE MONTHS ENDED JUNE 30, 2017 Unaudited CONSOLIDATING STATEMENT OF REVENUE AND EXPENSES FOR THE TWELVE MONTHS ENDED JUNE 30, 2017 HOSPITAL THE CENTEGRA HEALTH BRIDGE CLINICAL CHWN GROUP FOUNDATION NIMED COMBINED LAB CMS CPC COMBINED CIS ELIMINATIONS