CITI NOT FOR PROFIT HEALTH CARE INVESTOR CONFERENCE

Transcription

1 CITI NOT FOR PROFIT HEALTH CARE INVESTOR CONFERENCE Jim Hinton, President and CEO Gary Brock, EVP and CIDNO Fred Savelsbergh, EVP and CFO Moody s Aa3 (stable outlook) S&P AA- (stable outlook) May 2017

2 Disclaimer This presentation is not a prospectus and is not an offer to sell securities. The statements made by representatives of Baylor Scott & White Health ( BSWH ) that are not historical facts are forward-looking statements. The forward-looking statements generally can be identified with words or phrases such as anticipates, believes, could, proforma, estimates, expects, foresees, may, plan, predict, should, will or other words or phrases of similar import. All statements included in this presentation that any person expects or anticipates will, should or may occur in the future are forward-looking statements. These statements are based on assumptions and analyses made by BSWH in light of its experience and perception of historical trends of Baylor Health Care System and its affiliates and Scott & White Healthcare and its affiliates, current conditions and expected future developments as well as other factors it believes are appropriate in the circumstances. However, whether actual results and developments conform to expectations and predictions is subject to a number of risks and uncertainties as well as additional factors beyond BSWH control. All of the forward-looking statements made in this presentation are qualified by these cautionary statements. There can be no assurance that the actual results or developments anticipated will be realized or, even if substantially realized, that they will have the expected consequences to or effects on BSWH business or operations. All subsequent forward-looking statements attributable to BSWH or persons acting on their behalf are expressly qualified in their entirety by the factors and assumptions described above and in any documents containing those forward-looking statements. The information contained in this presentation speaks only as of the date stated, or if no date is stated, as of the date of this presentation. BSWH is not under any obligation and does not intend to make publicly available any update or other revisions to any of the forward-looking statements contained in this presentation to reflect circumstances existing after the date of this presentation or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized. The information contained in this presentation supersedes any information that BSWH has previously distributed to the extent that such prior information conflicts with the information contained herein. 2

3 SYSTEM OVERVIEW MANAGING CHANGE FINANCIAL AND OPERATING PERFORMANCE

4 Mission, Vision, Values Mission Baylor Scott & White Health exists to serve all people by providing personalized health and wellness through exemplary care, education and research as a Christian ministry of healing. Vision To be the most trusted name in giving and receiving safe, quality, compassionate healthcare. Circle of Care Integrity Servanthood Teamwork Values Excellence Innovation Stewardship 4

5 The Largest Not-for-Profit System in Texas 5.8+ MILLION PATIENT ENCOUNTERS ANNUALLY 48 HOSPITALS 496 SPECIALTY CARE CLINICS 163 PRIMARY CARE CLINICS SATELLITE OUTPATIENT CLINICS AMBULATORY SURGERY CENTERS 6 URGENT CARE CLINICS 4 SENIOR HEALTH CENTERS 3.6 MILLION OUTPATIENT REGISTRATIONS 9,600+ PHYSICIANS 5,385 LICENSED BEDS All information as of 3/31/2017 except patient encounters and outpatient registrations which are for the twelve months ended 6/30/

6 The Largest Not-for-Profit System in Texas 48,000+ EMPLOYEES $8.4 BILLION TOTAL OPERATING REVENUE $10.8 BILLION TOTAL ASSETS $1.0 BILLION ADJUSTED EBITDA #1 #5 LARGEST EMPLOYER IN TEMPLE LARGEST EMPLOYER IN D/FW 548,000+ COVERED LIVES Financial information is FY Employees is as of 3/31/2017 and includes ~8,000 JV employees. Covered lives is as of 3/31/2017 and represents combined SWHP and BSWQA covered lives with any overlap in covered lives eliminated. 6

7 Academics and Research A Key Part of Our Mission Academic Partnerships Undergraduate Education Residencies 749 as of 3/31/ % stay within BSWH Research Over 2,000 Active Trials as of 3/31/ Oncology 290 Cardiovascular 192 Transplant $53 million in external funding in FY

8 Clinically Integrated Business Models Baylor Scott & White Entities Strategic Partnerships JV formed in ambulatory surgery centers 8 short-stay surgical hospitals JV formed in hospitals JV formed in rehabilitation hospitals 2 managed units at Irving and BAS 60+ outpatient rehabilitation clinics JV formed in outpatient imaging centers JV formed in emergency medical centers 8

9 Clinically Integrated Health Network with Large Geographic Reach BSWH Service Area SW Health Plan SW Health Plan Filings BSW Quality Alliance 45 counties / 36,000 square miles Scott & White Health Plan 12,600 physicians 119 hospitals 250,000+ members 1 #1 accredited plan in Texas for commercial and Medicare for 4th year in a row 2 Rated 4.5 stars by Centers for Medicare and Medicaid Services Baylor Scott & White Quality Alliance 5,400+ physicians 370,000+ covered lives NCQA Accredited ACO Level 2 Becker s Top 100 ACO s to know SK&A s Top 30 Largest ACOs 1) After exiting the Texas Marketplace for Individual ACA membership at 1/1/2017 2) As ranked by NCQA 9

10 Delivery Platform Full Continuum of Services Community Quaternary 10

11 In Some of the Fastest Growing Texas Markets North Texas Demographic Overview The North Texas demographic base is: Growing, and the level of growth is accelerating Relatively young, affluent Denton, Collin, and Rockwall counties have highly favorable characteristics North Texas Total Population Trends Growth Less than 5% 5% to 7% 7% to 10% 10% and above 7.6% 7,840,080 6,838,160 7,283, Median Household Income, 2016 Below $56,000 $56,000 to $70,000 $70,000 to $80,000 $80,000 and above Age % 42% 25% 7% 4% % 41% 26% 8% 5% Source: 2016 Claritas Data 11

12 In Some of the Fastest Growing Texas Markets Central Texas Demographic Overview The Central Texas demographic base is: Growing population base Relatively young, affluent Travis, Williamson, Hays counties have highly favorable characteristics Central Texas Total Population Trends Growth Below 0% 0% to3% 3% to 6% 6% to 9% 9% and above 3,057, % 3,668,690 3,394,893 Median Household Income, 2016 Below $40,000 $40,000 to $50,000 $50,000 to $60,000 $60,000 and above Age % 45% 23% 7% 5% % 44% 23% 8% 5% 12

13 Awards and Accolades Three Hospitals Recognized as Best Regional Hospitals in the U.S. News & World Report Hospitals 8 Hospitals Great Oncology Programs Great Heart Programs 6 Hospitals 2 Hospitals 11 Hospitals 133 HTPN + S&W clinics 4 hospitals: Best Hospital Consumers Choice Award 13

14 MANAGING CHANGE

15 Managing Change Delivering care at the most appropriate, lowest cost, point-of-service possible is paramount Health systems their business model, boundaries and place along the continuum of care are changing rapidly as demonstrated by: Changing Physician Workforce Changing Demographics and Priorities Changing Job Requirements Changing Performance Standards Fueling New Rules of Engagement Physicians are increasingly young and female Most physicians are employed with resultant corporate requirements Patients more demanding on access, cost and service Physician burnout is increasing Moving Health Systems to Value-based Payment Current status of Repeal and Replace creating uncertainty Advisory Board Company Health Care Industry Committee March

16 Managing Change Consolidation of the health industry has moved to convergence of all sectors creating integrated delivery networks Hospitals Retail Clinics Ambulatory Care Centers Post-Acute Care Consolidation Physicians Health Plans 16

17 Managing Change Strategically increasing scale where it compliments or coordinates well with our current system assets and business lines Expanding the delivery continuum - organically and through joint ventures in growing markets Restructuring assets or business lines/segments (including ACA products) that are not financially viable Focusing on value creation through our ACO 17

18 BSWQA OVERVIEW

19 Baylor Scott & White Quality Alliance (BSWQA) MISSION: Baylor Scott & White Quality Alliance s mission is to achieve the highest quality and most cost effective care possible for the patients that we serve through clinical integration Achieving the Triple Aim Improve the patient experience of care Improve the health of the population Reduce the per capita cost of healthcare Better Care Better Health Better Value 19

20 Population Health Management Defined Population health management is BSWQA accepting the performance accountability for the patient experience as well as the clinical and financial outcomes of a defined group of members where incentives are aligned. Population health management is accomplished through An Adequate Network: Comprised of accountable providers Integrated and Actionable Data: Distributed to the hands of providers and care managers Engaging Members: At open enrollment and including active participation in their plan of care Engaging providers: Aligned incentives promoting value-based care and performance 20

21 BSWQA Philosophy BSWQA believes the success in population health management is achieved when the clinical processes are aligned as close to the provider and member as possible Care is Integrated Comprehensive care management is integrated with the care team and the provider Data is integrated into the provider workflow Governance is Accountable Engages providers regarding the care of their patients Holds physicians accountable for performance Analytics are Insightful and Actionable Data is aggregated for all members being treated by our providers, regardless of their insurance 21

22 Redesigning the Relationship to Deliver Value Redesigning how we work with payers and employers Other Payers Employer Benefit Redesign Engage the member through incentives Align the member to the network Align with a Third-Party Administrator Claims management Member customer service Pharmacy benefit management Utilization management Drive provider network access Together we A Single Source For: Preventive health services 5,000+ tightly-aligned Primary/ Specialist care Clinical protocols and care pathways Enhanced Care Management Risk stratification/prediction model Hospitals/Post-acute care facilities Chronic disease management Health information exchange Performance accountability Find and engage more patients with health plan technology plus provider records. Help more members. by using a streamlined experience. Save more through efficiencies across the entire spectrum of care. 22

23 BSWQA Four Key Strategies for Improving Quality and Efficiency Outcomes Success depends on physicians across the care continuum altering their behavior and transitioning their way of thinking so that value-based metrics, accountability and clinical integration are achieved. PATIENT-CENTERED MEDICAL HOME COMPREHENSIVE CARE MANAGEMENT Patients matched with PCP Team Based Care Disease Management Preventive Health Services Evidence Based Protocols Health Care Coordinators Health Coach/RN Care Manager Transition Care Management Complex Care Management Close Gaps in Care DATA REPORTING ANALYTICS PHYSICIAN ENGAGEMENT INFRASTRUCTURE Clarify Predict Measure (It s all about insights not numbers) Data is aggregated for all patients being treated by our providers, regardless of their insurance PODS Network Field Advisors Practice/Provider Level Meetings Practice/Provider Level Meetings Network Field Advisors Medical Directors Regional Pod Meetings Performance Monitoring Data Transparency 23

24 BSW Care Value Proposition Connected via EHR/HIE 24

25 The BSWQA Care Model The BSWQA care model is a broad set of capabilities strategically customized for populations and personalized for patients. Old Model A great network PMPM CC fee buys you gaps, transitions, and DM for your 80/15/5 Advancing the Model We have a great ability to impact what we can impact NUM Engagement is not status-quo Data and analysis are intertwined throughout Population variability demands tailored approaches ACO fee supports the infrastructure PCMH High Performance Network 4,600+ Physicians 1,500+ Access Points Clinical Integration BSWQA Capabilities Proactive Highand Rising- Risk Management Transitional Management Network Utilization Management Quality Measure Performance Population Health Analytics Health Access Navigation Specialty Focus (OB, Oncology) Post-Acute Care Management Member Engagement Population Stability ED Reduction Program Behavioral Health Clinical Documentation Improvement Integrated Wellness Chronic Disease Management 25

26 The BSWQA Care Model Customized for populations based on: Nature of the contract Interventions needed to drive contract performance Current state of the physician practice operations Personalized for patients based on: Disease states Utilization patterns and risk factors Goals and readiness for change Socioeconomic and family situation 26

27 Diving Deeper Into Performance 21 Focus Measures Physician Compensation Focus Measures Action Plan Aligning contract metrics for deeper physician engagement and pay for performance Work plan to push through physician enterprise: Departmental plan Transparent work flows Alignment on activities Timeline on tactics 27

28 Reporting and Analytic Activities Physician dashboard with drill-through Administrative dashboard with drill-through Executive Scorecard Practice/Provider Level Physician Engagement Network Utilization with drill-through Predictive Modeling/ Risk Stratification 28

29 BSWQA Is Growing 375,000+ Covered Lives 300+ In-Network Facilities 5,000+ In-Network Physicians 140,000+ Covered Families 65+ Employers 21 Counties Covered by In-Network Physicians 36% Covered Lives Growth in 2016 $2.3 Billion Incurred Claims 29

30 Commercial vs. Medicare Contracts Medicare Commercial Traditional Medicare 110,000+ Lives 80% from 2015 $1.3+ B in Claims Medicare Advantage 2 Payers 22,000+ Lives 50% from 2015 $140+ M in Claims 3 Payers 240,000+ Lives 250%+ from ,467 Employers 140,000 Families $810+ M in Claims COVERED LIVES 375,

31 FINANCIAL AND OPERATING PERFORMANCE

32 Strong Financial Trajectory OPERATING REVENUE $8.4BN TOTAL LIQUIDITY $5.1BN TOTAL NET ASSETS $5.0BN $5.7BN $3.2BN $3.7BN Merger 10/1/2013 Merger 10/1/2013 Merger 10/1/ UNRESTRICTED DCOH ADJUSTED EBITDA $.98BN TOTAL COST OF CAPITAL 5.3% $.83BN 4.1% Merger 10/1/2013 Merger 10/1/2013 Merger 10/1/ CAGR = Compounded Annual Growth Rate FY11 is based on BHCS June 30 fiscal year audit and SWH August 31 fiscal year audit combined (adjusted for accounting conformity). 32

33 Financial Performance Since Inception Total Operating Revenue Income Statement ($ in 000 s) Adjusted EBITDA* Actual Total Op. Rev. Proforma 2014 Actual Adj. EBITDA Proforma ,750,000 7,500,000 6,250,000 5,000,000 3,750,000 2,500,000 1,250,000 0 $8,366,215 $7,535,926 $6,745,162 $6,743,895 FYE 6/30/14 FYE 6/30/15 FYE 6/30/16 FYTD 3/31/17 1,500,000 1,000, ,000 0 $1,301,723 $908,802 $978,920 $774,436 FYE 6/30/14 FYE 6/30/15 FYE 6/30/16 FYTD 3/31/17 800, , , , , , , ,000 0 Total Operating Income and Margin % Actual Op. Income $ Proforma 2014 Op. Income Margin % 8.9% 5.9% 4.7% 5.1% $672,331 $494,148 $316,159 $342,287 FYE 6/30/14 FYE 6/30/15 FYE 6/30/16 FYTD 3/31/17 10% 8% 6% 4% 2% 0% *Adjusted EBITDA equals: Revenue in Excess of Expenses Plus Depreciation, Amortization, Taxes, and Interest, excluding unrealized gains/losses on investment, unrealized gains/losses on interest rate swap and loss on extinguishment of debt. *FY14 information is based on Offering Memorandum pro forma information.. 33

34 Five Year Commitment to Reduce Cost Synergies Overview FY 2014 (October 2013 June 2014) Plan: $37,406,000 Actual: $39,645,000 FY 2015 (July 2014 June 2015) Plan: $ 91,503,000 Actual: $108,990, % 119 % Inception-to-date Plan: $392,302,000 Actual: $443,644, % FY 2016 (July 2015 June 2016) Plan: $143,446,000 Actual: $162,787, % Five year commitment Plan: $576,868,000 Actual: $443,644,000 77% FY 2017 (July 2016 March 2017) Plan: $119,947,000 Actual: $132,222, % 34

35 Volumes in the Transitioning Industry Hospital Encounters (1) Total Patient Encounters Total Surgeries Emergency Department Visits Other Outpatient Registrations Admissions Adults, Pedi, and NICU HealthTexas & Zephyr Total Patient Encounters S&W/Hillcrest Total Clinic Visits 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 4,247,711 4,370,578 4,866,459 3,896, /30/14 6/30/15 6/30/16 YTD 3/31/17 (1) Hospital Encounters represents: Admissions Adults, Pediatric, and Neonatal ICU: Emergency Department Visits; Other Outpatient Registrations; and Total Surgeries. Emergency Department Visits exclude patients admitted through the Emergency Department. 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, ,032,067 2,206,694 2,912,997 2,677,292 2,690,162 2,844,041 2,953,076 2,291,078 6/30/14 6/30/15 6/30/16 YTD 3/31/17 600,000 Covered Lives Unique Patients (2) 2,500, , , , , , , , , ,091 2,000,000 1,500,000 1,000, ,000 1,670,439 1,811,963 2,219,649 2,026, /30/14 6/30/15 6/30/16 YTD 3/31/17 0 6/30/14 6/30/15 6/30/16 YTD 3/31/17 (2) Unique patients include patients treated at BSWH managed hospitals, clinics, HTPN, and THVG. 35

36 Capital Expenditure Metrics (PP&E) 500,000 Capital Spend ($ in 000 s) 400, , , ,000 $436,000 $426,000 $355,000 $276,000 0 FY 14 FY 15 FY 16 YTD 3/31/17 Capital Spending Ratio (%) Average Age of Plant (years) % 124.0% 97.0% 97.7% FY 14 FY 15 FY 16 YTD 3/31/17 0 FY 14 FY 15 FY 16 YTD 3/31/17 36

37 Key Financial Ratios & Metrics Comprehensive Debt MADS Coverage 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 Bonds Cap Leases Notes Op. Leases & Unfunded Pensions $4,576,000 $4,347,000 $3,859,000 $3,471,000 6/30/14 6/30/15 6/30/16 3/31/ /30/14 6/30/15 6/30/16 3/31/17* * Rolling 12 months ended 3/31/17 Debt to Capitalization Ratio Debt to Cash Flow 44.0% 43.0% 42.0% 41.0% 40.0% 39.0% 38.0% 37.0% 36.0% 35.0% 43.0% 41.0% 38.1% 38.5% 6/30/14 6/30/15 6/30/16 3/31/ /30/14 6/30/15 6/30/16 3/31/17 37

38 Debt Portfolio Underlying Debt Mix 3/31/2017 $ in millions Effective Debt Mix 3/31/2017 $ in millions Obligated Group Debt Portfolio Par/Notional % of Total Fixed Rate Debt 2, % Variable Bank Bought Put Debt % Window Weekly VRDB % Weekly VRDB (LOC) % Auction Rate Securities % Total Debt $2, % 250 MADS** 200 Debt Service Obligated Group Debt Portfolio Par/Notional % of Total Fixed Rate 2, % Synthetic Fixed % Floating % Total Debt $2, % Note: Synthetic fixed only includes effective swaps (excludes forward swaps) Obligated Group Other System Note: Debt service presented above is smoothed for MADs purposes in accordance with BSWH s MTI ** System Maximum Annual Debt Service: $199.6 million (used in covenant calculation) in 2017 Obligated Affiliates Maximum Annual Debt Service: $178.3 million in

39 Investment Portfolio $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $- $3.82 Cash and Investments ($ in billions) $4.56 $5.07 $5.18 6/30/14 6/30/15 6/30/16 3/31/17 Unrestricted Restricted Unrestricted Days Cash on Hand 6/30/14 6/30/15 6/30/16 3/31/ Blended Master Trust Policy 1 Blended Master Trust Actual 1 Cash 0% 1% Traditional Equity 25% 28% Private Equity 6% 5% Total Equity 32% 33% Traditional Debt 30% 32% Private Debt 3% 1% Total Fixed Income 34% 33% Liquid Real Assets 4% 5% Private Real Assets 6% 4% Total Real Assets 10% 9% Liquid Diversifiers 14% 14% Hedge Funds 10% 9% Total Multi Asset 25% 24% Investment Returns 5-7 year expected 6.1% FYTD 3/31/17 7.2% Rolling 12-Month 9.7% 1 Discretionary Operating and Foundation assets only as of 3/31/

40 Leveraging Our Talents and Assets to Deliver Value in a Transitioning Industry Strategic investments in growth markets Focus on value creation through population health Digitally connected delivery platform Accelerate elimination of clinical variation Drive efficiency and effectiveness across enterprise functional areas 40