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January 7, 2013
We may have made forward-looking statements in this presentation that are not historical facts but rather reflect current expectations concerning future results and events. These forward-looking statements are subject to risks, uncertainties and other factors, some of which are beyond our control that could cause actual results and events to differ materially from those forecasted or anticipated in the forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which reflect management's view only as of the date of this presentation or as of such earlier date as indicated. All forward-looking statements included in this presentation and all subsequent forward-looking statements attributable to Phoenix Childrens Hospital, Inc. or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. We do not intend to update or revise these statements to reflect events or circumstances existing after the date of this presentation or to reflect the occurrence of unanticipated events, except as required by law.
Speakers
Craig McKnight
Executive Vice President and Chief Financial Officer Associate Faculty, Mel and Enid Zuckerman College of Public Health, University of Arizona
Phoenix Childrens Hospital at a glance One of newest pediatric hospitals in the US; operational since 1983, stand-alone since 2002 National pediatric player with newly completed 11-story tower
Six Centers of Excellence Top ten childrens hospitals in US based on volume Nearest quaternary pediatric providers are Denver and San Diego
PCH has been at the center of the consolidation of the pediatric specialty market in Phoenix, driven by the Dignity Health relationship and the new tower
Phoenix Childrens Hospital is the leading pediatric service provider in the Southwest In 2005, PCH developed a plan that recognized the tremendous growth in the pediatric population of Arizona
Need for capacity (new physical plant) Physician group growth and management (focus on sub-specialists) Geographic expansion (ambulatory network) Academic affiliations and research collaborations Consolidation of the market (affiliation with Dignity Health)
PCH overcame significant challenges in achieving its objectives By the mid 2000s PCHs patient base was growing in Maricopa County and throughout Arizona
To meet the demand, PCH Board and management initiated a campus redevelopment plan that called for the construction of a new tower of which the financing was completed in 2007
Beginning in 2008, the financial crisis had a significant impact in Arizona driving down the economy and putting pressure on the State budget PCH responded immediately and aggressively to this economic reality
Scaled back the project by $100 million Developed a Safety Net Care Pool and intergovernmental transfer arrangement Aggressive ongoing financial discipline
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Strategic plan positions PCH for future success Pediatric-specific clinically-integrated organization
Improves quality of care and access to care Improves reimbursement opportunity
Focus on high-acuity / quaternary programs Strong focus on management of population health Strong partnerships
Pediatric specialists (employed) Primary care pediatricians (non-employed) Dignity Health Mayo Clinic University of Arizona Phoenix State of Arizona & AHCCCS
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Energized and engaged Board Strong philanthropic support Large and growing pediatric population Rebounding Arizona economic environment
PCH has Consolidated the Pediatric Specialty Market in Phoenix The affiliation with Dignity Health united the two leading specialty pediatric providers in the state of Arizona into one comprehensive pediatric health care delivery system Effective June 1, 2011, Dignity transferred substantially all of its pediatric service lines within Maricopa County to PCH
Dignity Health 20% Phoenix Childrens Hospital, Inc. 80% Childrens Healthcare of Arizona, Inc.
Specialty
Neurosurgery
Cardiology
#13
#7
Orthopedics
#26
#11
The PCH-Dignity Health Pediatric Combination resulted in 3 of our 6 Centers of Excellence achieving volumes that immediately place them in the top 10
Source: U.S. News & World Report
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Banner Lease
Banner Health has decided to exercise their right to terminate the PCH lease of a 76 private bed NICU at their downtown Phoenix hospital following a binding legal ruling related to the strategic alignment with Dignity Health. The Banner Health leased unit operated at an average daily census of approximately 36 patients during 2012 and represented approximately 4% of PCH operating revenues. PCH will concentrate its NICU services at its 33 bed Level IIIC NICU located on the PCH campus as well as providing comprehensive physician specialty services at Dignity Healths 65 bed Level III NICU and 2 Level II NICUs (40 beds) in Maricopa County. A transition plan is being jointly developed. The impact on operations is not expected to be material.
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Physician Strategy 720-member Medical Staff at October 2012 Employed Multi-Specialty Physician Group
Fundamental strategy 220 physicians, 65 physician extenders Focused on sub-specialists Common economics, infrastructure, IT platforms
Note: Includes physician extenders
Physician Strategy Includes Six Centers of Excellence to Focus Future Growth and Investment
Childrens Heart Center * Barrow Neurological Institute at Phoenix Childrens Hospital * Center for Pediatric Orthopaedics Center for Cancer and Blood Disorders Level 1 Pediatric Trauma Center Neonatal Intensive Care Unit
Orthopaedic Pediatric Patient Days (All Payors) Hospital Patient Days Phoenix Children's Hosp. 3,635 Banner Desert Medical Center 1,005 Tucson Medical Center 611 University Medical Center 584 Maricopa Medical Center 371 Other (29 Hospitals) 1,417 Total 7,623
Neuro Pediatric Patient Days (All Payors) Hospital Patient Days Phoenix Children's Hosp. 7,401 Banner Desert Medical Center 2,046 University Medical Center 1,219 Tucson Medical Center 787 Maricopa Medical Center 626 St Joseph's Hospital Medical Ctr 518 Los Ninos Hospital 504 Other (24 Hospitals) 889 Total 13,990
Hem-Onc Pediatric Patient Days (All Payors) Hospital Patient Days % of Total Phoenix Children's Hosp. 7,411 64% University Medical Center 2,141 18% Banner Desert Medical Center 1,600 14% Other (23 Hospitals) 510 4% Total 11,662 100%
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Arizona statewide pediatric hospital activity 12 months ended June 30, 2012
Physician Strategy Partnering with UofA College of Medicine - Phoenix Academic Affiliation with University of Arizona Phoenix completed 2010 Positioning for growth in research Academic Programs Faculty Recruitment
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The Arizona economy has begun to rebound after dropping sharply from 2008 to 2010
Total nonfarm Arizona employment: Jan-02 through Sep-12
2,800,000
2,700,000
2,600,000
2,500,000
2,400,000
2,300,000
2,200,000
2,100,000
2,000,000 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Source: Bureau of Labor Statistics; Total Nonfarm Arizona Employees; Seasonally Adjusted. Series ID: SMS04000000000000001.
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$35,000
$30,000
$25,000
Dollars Raised
$20,000
$15,000
$10,000
$5,000
$0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Total Raised includes new cash and new pledges for years 1986-2003. Beginning in 2004, includes in-kind gifts.
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Key management initiatives to mitigate the impact of AHCCCS payment reductions include: Expense management Revenue cycle improvements Intergovernmental transfers Arizona Safety Net Coalition
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Strong Cost Controls PCH is below the national CHA average on two key indicators
PCHs overall operating cost per adjusted patient day is 16.5% below CHA average in 2011 ($3,601 v. $4,312) PCHs FTEs per adjusted occupied bed is 15% below CHA average in 2011
Continued better than CHA stats for FTEs and operating costs despite build up for new tower and market consolidation with Dignity Health in 2011
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Revenue Cycle Overhaul Revenue Cycle was evaluated in 2010 and improvement program started immediately, with over $20 million in improvements recorded in 2011 alone Improvements have come from:
ED and urgent care coding - $10 million E-insurance (financial counseling) - $3 million Clinical documentation - $4 million Short pay review program - $3 million Patient access redesign - $1 million
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Partnership with the State of Arizona As the Arizona economy declined, PCH leadership reached out to Arizona executive and legislative leadership to effectively create a partnership between PCH and the state As a result, legislation passed in 2010 HB 2116 and in 2011 SB1357 that enabled other public entities to be considered as sourcing entities for public match as part of an intergovernmental transfer agreement Continued focus by PCH led to creation of the Safety Net Care Pool in 2012
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40,000
35,000
12.0%
6.0%
5,000
4,000
2.0%
0.0% 2008
2009
2010
2011
2012YTD
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2011 Payor AETNA BC OUT OF STATE BLUE CROSS CIGNA UNITED HEALTH CONTRACT All Others Payor % 6.7 6.2 9.8 4.9 8.1 4.3 40.0 Payment Method Per Diem DRG DRG Per Diem Per Diem Per Diem
2012 YTD Payor % 6.7 6.2 9.8 4.9 8.1 4.1 39.8
Contract 39.7% AHCCCS 52.2%
Payment Method Per Diem DRG DRG DRG Per Diem Per Diem
Contract 40.3%
AHCCCS 52.5%
Commercial 0.7%
2012
Gov't Prog 3.2%
Commercial 0.9%
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PCH Delivered on its Strategic Plan and is Positioned for Continued Success Key elements of Strategic Plan
Consolidated the pediatric market Grew our employed pediatric subspecialty group Completed the new patient care tower Expanded the network of satellite facilities Developed strategic academic affiliations Added key research collaborations
Future objectives
Further development of a pediatric-specific, clinically-integrated organization Continued focus on high-acuity / quaternary programs Creating an organization dedicated to managing pediatric population health
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