36th Annual J.P. Morgan Healthcare Conference

Transcription

1 36th Annual J.P. Morgan Healthcare Conference San Francisco, California January 9, 2018 Jim Skogsbergh President and Chief Executive 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, 2016 and September 30, 2017 continuing disclosure reports.

3 Overview & Strategic Focus Jim Skogsbergh President and Chief Executive Officer

4 Advocate Health Care Physicians Hospitals Post-Acute 1,350 Employed 4,970 Physician Partners 6,300 Medical Staff Associates 11 Acute Care 4 Teaching / 1 Children s 5 Level 1 Trauma Centers Financials Home Health / Hospice Palliative Care / LTACH SNF Partnerships Location 37,000 Associates $6.0 B. Total Revenue $660+ M. Community Benefits Chicagoland/Central IL

5 Mission Driven MISSION - To serve the health needs of individuals, families and communities through a wholistic philosophy rooted in our fundamental understanding of human beings as created in the image of God. VALUES - Compassion, equality, excellence, partnership and stewardship guide our actions as we work together to provide health services to others in our communities. PHILOSOPHY - Is grounded in the principles of human ecology, faith and communitybased health care. These principles arise from an understanding of human beings as a whole person in light of their relationship to God, themselves, their families and the society inwhich they live.

6 National Recognition More than $783 M community

7 Advocate 2025: Trends & Implications SAFETY & QUALITY Maintain unrelenting focus on safety and health outcomes REVENUE GROWTH Increase patient retention, scale and new revenue CONSUMERS Create consumer-friendly experience enabled by digital technology to build loyalty COSTS Standardize and innovate to reduce cost

8 SAFETY QUALITY AFFORDABILITY ADVOCATECARE OUTSTANDING CARE EXPERIENCE CONSUMER-FRIENDLY TRANSACTIONS RETENTION SCALE NEW REVENUE Strong Physician and Associate Engagement

9 ZERO Serious Safety Events by 2020 Current decline 54% 2018 decline target 75% Culture of safety Safety initiatives to decrease harm HRU s and Physician Champions increase event reporting Serious Safety Event Volume Insurance Expense $165 $156 $139 $100 $108 $118 $91 $89 $89 $46 $

10 Through the Medicare Shared Savings Program in 2016: Saved taxpayers $60.6 million Achieved shared savings 2 nd consecutive year Achieved 97.28% of total quality points Ranked 2 nd nationally in savings out of 432 ACOs

11 Improved Public Exchange Performance 68,000 lives Collaborative Product with BCBSIL Break even performance in 2017 projected Significant 2018 premium increase

12 Retail Clinics Drive Patient Acquisition 56 clinics opened May 2016 Nearly 400,000 visits to-date 62 percent new to Advocate $25 million additional 2017 downstream revenue

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14 Advocate Aurora Health Full asset merger Single board of directors equal representation Co-CEOs Dual headquarters Combined executive team Continue existing brands Consolidated financial statements

15 Advocate Aurora Strategic Value Drivers Adjacent markets in contiguous states Complementary expertise Alignment of strategic plans and strong cultures Embrace population health Enhanced scale and operational synergies Investment yield upside

16 Advocate Well Positioned National leader in safety and health outcomes Top decile workforce engagement Strong physician partnerships #1 in brand recognition Financial strength Advocate Aurora Health

17 Financial Profile Dominic J. Nakis Chief Financial Officer and Treasurer

18 Over 1 Million Value Contracted Lives YTD* Global Capitation Commercial HMO 203, , , ,000 Medicare Advantage 34,000 37,000 47,000 47,000 Partial Capitation Commercial HMO 28,000 31,000 36,000 38,000 Shared Savings Commercial PPO/EPO 185, , , ,000 Medicare Shared Savings 134, , , ,000 Medicaid FHP 72,000 97,000 95,000 86,000 Total Lives 656, , ,000 1,016,000 *November 2017

19 Revenues in millions Revenue Growing $7,000 $6,500 $6,000 $5,500 $5,000 $4,500 $4,000 $3,500 $4,854 $3,000 $2,500 $4,548 $4,816 $4,981 $5,100 $2,000 $1,500 $1,000 $500 $0 $1,303 $390 $414 $412 $ Projected Risk Based Revenues Net Patient Service & Other Revenues including Shared Savings

20 Operating Results Trend in Line with Peers Dollars in Millions $400 $ % 6.3% 6.1% 4.7% 10% $ % 3.3% 5% $100 $- $300 $339 $331 $264 $172 $ Q3 YTD Operating Income // Operating Margin 2017 Q3 YTD 0%

21 Dollars in Millions Operating Cash Flow is Solid $700 $600 $500 $400 $300 $200 $100 $- 11.5% 12.0% 11.7% 10.5% 10.1% 9.0% $567 $636 $633 $587 $420 $417 // Q3 YTD 2017 Q3 YTD 15% 10% 5% 0% Operating Cash Flow Operating Cash Flow Margin 25

22 Dollars in Millions Investment Assets and Yields Contribute to Financial Strength $ % 20% 100% 90% 80% 31% Hedge Funds $400 $250 $100 $(50) 7.1% 3.2% $343 $ % $(184) 7.8% $374 // 7.1% $326 $487 10% 0% -10% 70% 60% 50% 40% 30% 28% 12% Fixed Income Private Equity $(200) Q3 YTD 2017 Q3 YTD -20% 20% 10% 29% Public Equity Investment Income Investment Yield 0% Actual September 30 27

23 Dollars in Millions Capital Spend Moderating $ % 250% $ % 196% 200% $600 $ % 149% 123% 150% 100% $300 $150 50% $0 $386 $508 $504 $402 $304 $ Q3 YTD 2017 Q3 YTD // 35 0% Cash Spending Capital Spend Ratio

24 Debt Service (in $millions) Debt Profile low, level & long Total debt of $1.6 billion, annual debt service is level and average life is 18 years $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $

25 Debt Profile Well Diversified Underlying Debt Mix Net Interest Rate Mix $70, 4% $100, 6% $142, 9% $321, 21% $930, 60% Fixed Rate Weekly VRDOs Tender Bonds Direct Purchase Windows VRDBs $165, 10% $142, 9% $326, 21% $930, 60% Fixed Rate Synthetic Fixed Rate Intermediate $250 $200 $150 $100 $50 $0 Renewal Risk Term Loan DP Tender Bonds $77.5 $50.0 Direct Placement $69.7 SBPA $42.8 $127.9 $144.2 $100.0 $22.0 $ $49, 3% $87, 5% $100, 6% $185, 12% $212, 14% Credit Provider Mix $930, 60% Fixed Rate Self Liquidity JP Morgan US Bank Northern Wells

26 Advocate Aurora Health Merger Neither Advocate nor Aurora has agreed to assume any liability for or otherwise guarantee the other party s debt as part of the transaction Evaluation of optimal credit structure, and any potential refinancing of all or part of existing debt, will be determined based upon market conditions, management considerations and other factors 4 2

27 Times Strong Coverage & Capitalization % 23.2% 23.9% 21.8% 22.3% 20.2% Q3 YTD Debt Service Coverage Ratio (times) // 2017 Q3 YTD Debt as % of Unrestricted Capitalization 31 40% 35% 30% 25% 20% 15% 10% 5% 0%

28 Percent Robust Cash to Debt Ratio Q Q3 //

29 Dollars in Millions Pension Plans Fully Funded $1,000 $950 $ % 96% 97% 98% 102% 110% 100% $850 $800 $750 90% 80% $700 $650 70% $600 $550 $500 $840 $937 $899 $915 $945 $999 $838 $979 $1,060 $1, Q3 YTD // 33 60% 50% Assets PBO Percent Funded

30 Dollars in Millions Days on Hand Substantial Liquidity Position $5,400 $5,200 $5,000 $4,800 $4,600 $4, $4,200 $4,000 $4,518 $4,725 $4,712 $4,962 $4,966 $5, Q3 YTD 2017 Q3 YTD // Dollars Days Cash and Investments on Hand 34

31 Advocate Well Positioned National leader in safety and health outcomes Strong brand Physician partnerships Top decile workforce engagement Balance sheet strength and solid operating performance AA+ (S&P), Aa2 (M) AA (F) bond ratings, stable outlooks Advocate Aurora Health 4 2

32 Close with Advocate logo slide