BANNER HEALTH Investor Conference Call Year Ended December 31, 2012 and Quarter Ended March 31, 2013 May 30, 2013 Dennis Dahlen, Senior Vice President / Chief Financial Officer
Banner Health Snapshot 23 Acute Care Hospitals Banner Health Network Banner Medical Group with more than 900 doctors Banner Health Centers and Clinics Behavioral Hospital Outpatient Surgery Medical Education $4.9 billion in revenue, 2012 AA- bond rating $395 million in community benefit including $149 million in charity care, 2012 2
Strong Performance Continues. Operating Income & EBIDA $800 $700 $600 $500 14.6% 16.0% 14.0% 12.0% 10.0% $400 $300 $200 $100 $0 5.9% 2007 2008 2009 2010 2011 2012 8.0% 6.0% 4.0% 2.0% 0.0% Operating Income Operating EBIDA Operating Margin Operating EBIDA Margin 3
...In Spite Of Considerable Headwinds Uncompensated Care Burden, 2009-2012 $500 $450 $400 $350 $300 $250 $200 $150 $100 $50 $0 2009 2010 2011 2012 9.1% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% } $72 Uncompensated Care % of Revenue 4
2012 Operating Performance Consolidated Income Statement Year-Ended December 31 ($ in thousands ) 2012 2011 * % Variance Total revenues $ 4,878,172 $ 4,741,053 2.9% Total expenses 4,588,653 4,499,245-2.0% Operating income $ 289,519 $ 241,808 19.7% Investment income $ 285,168 $ 5,339 5241.2% Interest rate swaps 17,681 (227,113) 107.8% Minority interest/other (9,139) (31,821) 71.3% Non-operating income $ 293,710 $ (253,595) 215.8% Excess of revenues over expenses $ 583,229 $ (11,787) 5048.1% Operating EBIDA margin 14.6% 13.1% Operating margin 5.9% 5.1% Total EBIDA margin 19.5% 8.2% Total margin 11.3% -0.3% * Early adoption of reporting change 5
Expense Control Supports Performance Key Performance Indicators Year Ending December 31 2012 2011 % Change Salaries and Benefits % of Revenue 51.1% 52.2% -1.1% Labor Productivity (FTE/AOB) 6.44 6.62-2.7% Hospital Productivity (FTE/AOB) 5.05 5.31-4.8% Average Salary / FTE $66,839 $65,598 1.9% Supplies % of Revenue 15.6% 16.2% -3.7% Supply Exp per Adjusted Admit $1,780 $1,753 1.6% Bad Debt & Charity as % of Patient Rev 20.1% 14.9% 35.0% Investment Returns 10.7% 0.4% 2675% Positive Trend Neutral Negative Trend 6
Utilization Trends Are Mixed Key Utilization Indicators Year-Ended December 31 Hospital (acute care): 2012 2011 Licensed beds 4,155 4,119 Admissions (excl. newborns) 228,176 240,515 Average length of stay 3.81 3.78 Patient days 870,215 909,546 Licensed beds occupancy % 57.31% 60.67% Observation days 67,599 38,423 Emergency room visits 733,976 719,633 Outpatient visits (excl. ER) 932,997 950,364 Long-term care/behavioral/rehabilitation: Licensed beds 681 698 Resident days 186,831 200,830 Licensed beds occupancy % 73.24% 74.86% Banner Medical Group Patient Visits 2,283,011 2,154,298 Banner Health Network Risk Lives 188,192 88,197 7
Financial Position Improved by Performance Selected Balance Sheet Ratios Ratio 2007 2008 2009 2010 2011 2012 Debt to Capital 43.2% 60.0% 49.1% 44.8% 44.5% 41.0% Days Cash on Hand 246 126 190 213 216 259 Cash to Debt 108.7% 50.3% 86.0% 105.0% 112.6% 129.1% Debt Service Coverage 6.80 2.20 4.35 4.44 3.97 4.17 8
Interest Rate Swaps December 2012 Valuation SWAP Notional Amount SWAP Fixed Rates Variable Rates Without SWAP MTM Liability (1) 2005 Floating rate $ 556,100,000 3.69% 0.43% $(125,067,533) 2006 Interest rate (2) 425,000,000 3.71% 0.44% (3) (144,712,524) 2007 Floating rate 400,000,000 4.41% 1.05% (124,873,349) LME Swap 13,516,289 6.84% 0.21% (4) (1,321,949) Total $1,394,616,289 - - $(395,975,355) (1) Mark to Market (MTM) is based on estimated LIBOR rates for remaining life of bond. 30 day LIBOR at 12/31/2012 was 0. 21%. The MTM liability represents the approximate cost to terminate SWAP. (2) 2006 Interest Rate Swap cash flows commenced May 11, 2011. (3) 61.80% of 30-day Libor plus 0.31%. (4) 30-day Libor. Note: Posted Collateral at 12/31/2012 was $251 million. 9
New value-based models of care 10
Pioneer ACO first-year results 8.9% reduction in overall hospital admissions 14.4% reduction in average length of stay 6.0% reduction in avoidable hospital readmissions 6.7% reduction high-tech imaging services 2.53% reduction in CMS paid amount per beneficiary 11
Pioneer ACO financial performance 10% 5% 0% Banner Health -5% 16 25 15 1 23 12 24 32 3 30 18 28 22 26 9 2 20 6 17 31 27 21 10 4 13 14 19 11 7 5 29 8-10% 12
Focus on Clinical Quality Results 13
Ventilator Associated Pneumonia (VAP) Acute Care Patients 50% Reduction Clinical Cost Avoidance of $1 Million Clinical Practices: Ventilator Oral Care CHG Ventilator Management 14
Mortality Observed/Expected Acute Care Patients 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Mortality outcomes are >50% better than predicted Clinical Practice: Severe Sepsis Delirium 15
Indwelling Catheters during Labor 80.0% 70.0% 73.8% 69.6% 73.0% 69.8% 60.0% 62.6% 50.0% 40.0% Target of 35% 42.1% 41.9% 44.3% 30.0% 31.3% 23.6% 20.0% 21.3% 10.0% 16
Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 ED CT Scans Atraumatic Headache 45.0% 40.0% Initiative Started July 2011 35.0% 30.0% target stretch 25.0% 20.0% target stretch 15.0% 10.0% 5.0% 0.0% 17
Hours Length of Stay in Hours Intensive Care Patients 80 70 60 50 > 24 hours Improvement 40 30 20 10 Clinical Cost Avoidance of $22 Million Clinical Practice: Delirium Identification, Prevention and Treatment 18
Quarter Ended March 31, 2013 19
Millions YTD Operating Income By Month $350 $300 $250 2012 2010 2011 $200 $150 $100 2013 $50 $0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2013 2012 2011 2010 20
First Quarter Operating Performance Consolidated Income Statement Quarter-Ended March 31 ($ in thousands ) 2013 2012 % Variance Total revenues $ 1,246,049 $ 1,316,968-5.4% Total expenses 1,162,780 1,162,460 0.0% Operating income $ 83,269 $ 154,508-46.1% Investment income $ 108,652 $ 143,165-24.1% Interest rate swaps 40,554 63,273-35.9% Minority interest/other (6,746) (7,320) 7.8% Non-operating income $ 142,460 $ 199,118-28.5% Excess of revenues over expenses $ 225,729 $ 353,626-36.2% Operating EBIDA margin 15.2% 19.7% Operating margin 6.7% 11.7% Total EBIDA margin 23.9% 30.3% Total margin 16.3% 23.3% 21
First Quarter Operating Performance (normalized) Consolidated Income Statement Quarter-Ended March 31 ($ in thousands ) 2013 2012 % Variance Total revenues $ 1,235,149 $ 1,223,500 1.0% Total expenses 1,162,780 1,155,236-0.7% Operating income $ 72,369 $ 68,264 6.0% Investment income $ 108,652 $ 143,165-24.1% Interest rate swaps 40,554 63,273-35.9% Minority interest/other (6,746) (7,320) 7.8% Non-operating income $ 142,460 $ 199,118-28.5% Excess of revenues over expenses $ 214,829 $ 267,382-19.7% Operating EBIDA margin 14.4% 14.2% Operating margin 5.9% 5.6% Total EBIDA margin 23.3% 26.2% Total margin 15.6% 18.8% 22
Expense Control Supports Performance Key Performance Indicators Three Months Ending March 31 2013 2012 % Change Salaries and Benefits % of Revenue 50.7% 48.1% 2.6% Labor Productivity (FTE/AOB) 5.99 6.20-3.4% Hospital Productivity (FTE/AOB) 4.52 4.90-7.7% Average Salary / FTE $ 67,619 $66,538 1.6% Supplies % of Revenue 16.0% 15.0% 6.7% Supply Exp per Adjusted Admit $1,841 $1,752 5.1% Bad Debt & Charity as % of Patient Rev 20.5% 18.7% 9.1% Investment Returns 3.9% 5.7% -31.6% Positive Trend Neutral Negative Trend 23
Utilization Indicators Quarter-Ended March 31 Hospital (acute care): 2013 2012 Licensed beds 4,148 4,150 Admissions (excl. newborns) 58,989 60,960 Average length of stay 4.02 3.86 Patient days 237,237 235,142 Licensed beds occupancy % 63.40% 62.46% Observation days 19,971 15,419 Emergency room visits 188,867 191,304 Outpatient visits (excl. ER) 227,481 241,683 Long-term care/behavioral/rehabilitation: Licensed beds 659 698 Resident days 43,234 49,259 Licensed beds occupancy % 72.89% 77.55% Banner Medical Group Patient Visits 712,885 576,658 Banner Health Network Risk Lives 242,234 168,083 24
Balance Sheet Strength Continues To Improve Selected Balance Sheet Ratios Ratio (S&P AA- Median) 2007 2008 2009 2010 2011 2012 First 3 Months 2013 LT Debt to Capital (33.1%) Days Cash on Hand (Excl Bad Debt) (215) Cash to LT Debt (164%) Actual Debt Service Coverage (4.9) 43.2% 60.0% 49.1% 44.8% 44.5% 41.0% 39.0% 246 126 190 213 216 259 268 109% 50% 86% 105% 113% 129% 139% 6.80 2.20 4.35 4.44 3.97 4.17 4.40 25
Interest Rate Swaps March 2013 Valuation SWAP Notional Amount SWAP Fixed Rates Variable Rates Without SWAP MTM Liability (1) 2005 Floating rate $ 543,000,000 3.69% 0.44% $(115,003,356) 2006 Interest rate (2) 425,000,000 3.71% 0.44% (3) (128,048,952) 2007 Floating rate 400,000,000 4.41% 1.02% (111,150,701) LME Swap 13,335,567 6.84% 0.20% (4) (1,162,152) Total $1,381,335,567 - - $(355,365,161) (1) Mark to Market (MTM) is based on estimated LIBOR rates for remaining life of bond. 30 day LIBOR at 03/31/2013 was 0. 20%. The MTM liability represents the approximate cost to terminate SWAP. (2) 2006 Interest Rate Swap cash flows commenced May 11, 2011. (3) 61.80% of 30-day Libor plus 0.31%. (4) 30-day Libor. Note: Posted Collateral at 03/31/2013 was $204 million. 26
Questions 27