a presentation to hfma maryland chapter 2016 fall...

A Presentation to HFMA Maryland Chapter2016 Fall Institute

October 5, 2016

Trends in Strategic M&A:Merging to Manage the Shift in Reimbursement

Confidential

This document is for discussion purposes only and does not constitute advice of any kind, including tax, accounting, legal or regulatory advice, and Cain Brothers &Company, LLC (“Cain Brothers”) is not and does not hold itself out to be an advisor as to tax, accounting, legal or regulatory matters. We recommend that you seekindependent third party legal, regulatory, accounting and tax advice regarding the contents of this document. The matters discussed herein are subject to ourreview and assessment from a legal, compliance, accounting policy and risk perspective, as appropriate, following our discussion with you.

This document was prepared on a confidential basis solely for discussion between you and Cain Brothers and not with a view toward public disclosure. Thisdocument may contain information provided by third parties. This document, and any oral information provided in connection herewith, shall be treated as strictlyconfidential and may not be reproduced, distributed or disclosed, in whole or in part, except with our prior written consent and, if applicable, the prior writtenconsent of any third-party information provider. Cain Brothers assumes no obligation to update or otherwise revise these materials.

No representation or warranty, express or implied, is made as to the accuracy or completeness of the information contained herein and nothing contained herein is,or shall be relied upon as, a representation or warranty, whether as to the past or the future. Cain Brothers and our affiliates and our and their respective officers,employees and agents, as well as any third-party information providers, expressly disclaim any and all liability which may be based on this document and anyerrors therein or omissions therefrom.

This document does not constitute an offer or solicitation to sell or purchase any securities and is not a commitment by Cain Brothers or any of its affiliates toprovide or arrange any financing for any transaction or to purchase any security or act as an agent or advisor or in any other capacity in connection therewith. Thisdocument does not constitute a recommendation to pursue, and is not intended to provide the sole basis for evaluating, a particular transaction, and you retain fullresponsibility for the decision to pursue any specific transaction discussed herein or otherwise.

Disclaimer

Agenda

3

• Health Care Industry Trends

• Health System M&A Market Update

• Market Overview

• Strategic Assessment and Capital Access

• Health System Strategic Partnership Models

• Cain Brothers Transaction Case Studies

• Conclusion

• Appendix – Information about Cain Brothers

Health Care Industry Trends


5

Pressure on Providers

Transformational StrategiesTransformational Strategies

HealthcareProvidersHealthcareProviders

Value-BasedPurchasing of

Care

PPACA

Consumerism

PhysicianShortages

IncreasedPayor

LeverageRisk

Assumption &Population

Management

LimitedAccess to

Capital

CompetitorConsolidation


6

Migration to Coordinated Models of Care

The health care landscape is changing rapidly as purchasers demand greater value and transparency

Health InsuranceBenefit Model

Health InsuranceBenefit Model

TodayToday FutureFuture

Defined ContributionDefined Benefit

Quality/CostInformationQuality/CostInformation

Care CoordinationCare Coordination

ReimbursementReimbursement

“Value” Creation“Value” Creation

Opaque

Volume-based

Fragmented

Provision of Care

Integrated

Value-based

Transparent

Population Health

Value-BasedPurchasing of

Care

7

A patient navigating the healthcare delivery system today will encounter many providers who are notfinancially or clinically integrated, all seeking to maximize their service

Health Care Industry TrendsFragmented System that Rewards Volume over Value

Acu

ity

/ R

even

ue

ACUTE CARE

COMMUNITY-BASED CARE POST-ACUTE CARE

Physician Clinics

Urgent Care

AmbulatorySurgery

General Acute Care Hospital

Inpatient Rehab

Home Health

Long-TermAcute Care

Outpatient RehabWellness Center/Retail Pharmacy

Diagnostic Imaging/Clinical Labs Skilled Nursing

PPACA

8

Payers are increasingly transferring financial risk and clinical accountability to providers, incentingincreased coordination and technology to provide quality care at most appropriate setting


INTERVENTIONAL CARE

PREVENTIVE CARE

Physician Clinics

Acu

ity

/ C

ost

Urgent Care

AmbulatorySurgery

General Acute Care Hospital

Inpatient Rehab

Home Health

Long-Term AcuteCare

Outpatient Rehab

Wellness Center/Retail Pharmacy

Diagnostic Imaging/Clinical Labs Skilled Nursing

TECHNOLOGY SOLUTIONS

Email and AppsEMR TeleMedicineRemote Monitoring

Supportive Housing/Day Care

Patient Coordinationsomewhat elusive

PPACA

Integrated Systems will View Interventional Care as a Cost Center


9

Consumerism from Increased Patient Responsibility

Patients are bearing a greater portion of health care costs as a result of health benefit redesign

3% 2% 1% 1% 1% 1% 1% 1%

21% 20% 20% 19% 17% 16% 14% 13%

57% 58% 60% 58%55% 56% 57% 58%

13% 12% 10%8%

10% 9% 9% 8%

5% 8% 8% 13% 17% 19% 20% 20%

2007 2008 2009 2010 2011 2012 2013 2014

Conventional HMO PPO POS HDHP/SO

Distribution of Health Plan Enrollment for Covered Workers Average Deductible for Individuals among Covered Workers

• High-deductible health plans constitute 20% of enrollment foremployer-sponsored insurance

• Individual deductibles for covered workers have nearly doubled overthe past seven years

$584$616

$735$826

$917$991

$1,097$1,135

$1,217

2006 2007 2008 2009 2010 2011 2012 2013 2014

All Firms

____________________Source: Kaiser/HRET Survey of Employer-Sponsored Health Benefits.

Consumerism


10

Physician Shortages

While the growth in total physicians has been moderate, there has been a significant increase in the number ofemployed physicians• PPACA, advances in medical technology and physician shortages have caused hospitals and health systems to accelerate the direct

employment of physicians

• In 2013, employed physicians represented over 60% of all physicians, up from approximately half in 2005

Physician Employment Trend Estimated Physician Demand Trend

57%49%

37% 33%

43%51%

63%67%

683K 723K 794K 821K

2000 2005 2013 2016P

Independent Employed

650,000

700,000

750,000

800,000

850,000

900,000

950,000

2008 2010 2015 2020 2025

Physician Supply - All Specialties

Physician Demand - All Specialties

____________________Sources: Accenture – “Clinical care: The independent doctor will NOT see you now” – July 29, 2015 and Association of American Medical Colleges (includes expected physiciansupply needs as a result of health care reform).

20%

87%

-30%

Growth

130,600including64,800non-PCPs

PhysicianShortages

26%

27%17%

9%

4%

4%4%

3%2%4%

United

Cigna

Aetna

WellPoint

Pacificare

Oxford

Trigon

HealthNet

RightChoice

Other

41%

14%13%

15%

10%8% United

Anthem

Cigna

Aetna

Humana

Other

19%

15%

13%11%

9%

8%

3%3%

3%3%

2%2%

2% 6%

United US Healthcare

Aetna Cigna

Humana WellPoint

Healthsource Oxford

Foundation Mid Atlantic

Takecare Health Systems

FHP International Other

11

Managed Care Consolidation

Since the mid-1990’s, the managed care industry has seen significant consolidation• Providers in markets that consolidate either horizontal (hospital/hospital) and/or vertically (hospital/physicians) are better able to

offset concentration of payers

• Market forces including PPACA are shifting payer focus to provider and other non-insurance businesses, and reconfiguring the payerlandscape to control risk dollars

• Recently announced mergers among four of the top five managed care companies (Anthem/Cigna, Aetna/Humana) will furtherconcentrate clout among a small number of commercial payers

Managed Care Companies (as a Percentage of Total Market Capitalization)

____________________Source: CapitalIQ and industry research. 2015 as of 8/12/15.

2015 – Total $287.3 billionTop 5 = 92% of total

1995 – Total $40.6 billionTop 5 = 67% of total

IncreasedPayer Leverage



12

Integration of the Care Continuum

Population and risk assumption will require better integration of providers• Reimbursement pressures will require “venue neutrality”

• Re-admission penalties and reimbursement for “episodes of care” require closer coordination

• Accountable care and population management require integration of care continuum

Acute CareHospitals

Acute CareHospitals

Acute CareHospitals

Post AcuteCare

Post AcuteCare

Post AcuteCare

PhysicianServicesPhysicianServicesPhysicianServices

Wellness,Prevention and

DiseaseManagement

Wellness,Prevention and

DiseaseManagement

Diagnostics,Pharmacy,DME, Etc.



ACO/Risk Bearing Enterprises(Payers, Physicians, Health Systems, or Others)

Payers(Insurers, CMS, State Medicaid, Employers, Exchanges)

Revenue $PMPM (Per Member Per Month)

Cost $ Cost $ Cost $ Cost $ Cost $

Risk Assumption& PopulationManagement


13

Size Impacts Access to Capital

Larger systems continue to benefit from a broader revenue base, economies of scale, and stronger operatingmargins• Since the recovery began, the performance of health systems has rebounded more than stand-alone hospitals

• The higher ratings of health systems has led to greater access to affordable capital, especially as credit spreads remain high and weakerinvestment grade/below investment grade credits have had difficulty entering the capital markets

• IT is key to scale

Limited Accessto Capital

____________________Source: S&P – “U.S. Not-For-Profit Health Care System Ratios” Information as of 9/10/2015.

0%

5%

10%

15%

20%

25%

AA+/AA AA- A+ A A- BBB+ BBB BBB- SpeculativeGrade

Systems Stand-Alones

S&P Not-For-Profit Health Care Ratings Distribution


14

Large Systems are Growing Through M&A

Even large health systems are seeking to become larger to gain efficiencies and to ensure market relevance

$5.6 Billion $12.5 Billion

Combined:

$18.1 Billion


Combined:

$13.1 Billion


Combined:

$11.1 Billion


Combined:

$7.0 Billion


Combined:

$6.1 Billion

CompetitorConsolidation

Health System M&A Market Update


Reimbursement Pressure fromPublic and Private Payers

Demand for CoordinatedCare Models

Quality and Price Transparency

Increasing Consumerismand Employer Engagement

Sophisticated EMR andHealth Care IT Systems

Key Drivers of Change

• Provider-centric

• FFS-based Payment

• Loosely Integrated ProviderNetworks

• Procedure Oriented

Today

• Patient-centric

• Value-based Payment

• Tightly Integrated ProviderNetworks

• Health Oriented

Tomorrow

Managing the shift from fee-for-service reimbursement, which constitutes ~90% of the market today, to fee-for-value models isa fundamental force driving much of the increased health system M&A activity

Migration to Population Health Management

16

Health System M&A Market UpdateMajor Trends

Strategic Acquirers• Excluding isolated communities and distressed

situations, the vast majority of transactions involvean in-market acquirer

Capital-Light Diversification

Hospital Real EstateMonetization

• Investor-owned systems are actively exploringhospital portfolio monetization opportunities toaccess low-cost capital and/or recapitalize theircompanies

• Outpatient and technology-enabled companieshave been targeted recently as traditional hospitaloperators diversify their business portfolios

Trend Description Examples

Regional Mergers of LargeSystems

• Large systems are joining forces in “merger-of-equal” transactions to strengthen regionalfootprints +

+

+Reg

iona

l Sca

leC

apita

l Eff

icie

ncy

(1) Vanguard disclosed conversations with a REIT inits definitive merger proxy with THC.

+ + +

?(1)

“Portfolio Optimization”• Multi-regional systems are selling weaker affiliates

to redeploy capital toward more attractiveopportunities

+ + +

17

____________________Source for chart: Irving Levin Associates hospital deal volume through August 2016.

51 57 58 6052

72

90

107

88100 102

61

'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 YTD '16

Health System M&A Market UpdateRobust M&A Activity

18

• Insurance coverageexpansion

• Value-basedreimbursement

• Sequestration

• Population healthmanagement/risk

• Reimbursementpressure

• Back office andpurchasing savings

• EMR and other ITsystems

• Migration tooutpatient settings

• Remote patientmonitoring andprovider-enablementtools

• Competitive focus onquality, cost, full carecontinuum andpatient engagement

• Focus on long-termviability

• Achieving criticallocal market scale

• Low interest rates

• High stock valuations

• Growing accessdivide between weakand strong

Scale Regulatory Technology CompetitionFinancial

Hospital Mergers & Acquisitions Volume

Transaction volume has accelerated due to several motivating factors and developments

____________________Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2014, for community hospitals. Analysis includes all nonfederal, short-term general, andspecialty hospitals whose facilities and services are available to the public.

Hospitals in Health Systems (% of Total)

2,921 2,941 3,007 3,101 3,144 3,183

2,087 2,044 1,966 1,898 1,830 1,743

5,008 4,985 4,973 4,999 4,974 4,926

2009 2010 2011 2012 2013 2014

In System Standalone

58.3% 59.0% 60.5% 62.0%

9.0%Increase

9.0%Increase

(16.5%)Decline(16.5%)Decline

63.2%

Standalone community hospitals are increasingly joining systems

Health System M&A Market UpdateConsolidation into Systems

19

64.6%

Merger activity is being driven by a desire to reduce cost and create the coordinated care networks necessaryto manage population health

The Benefits of Scale

20

IT systems

Purchasing

Back office

Human resources

Compliance

+ + + +Economies ofScale

Economies ofScale

Human Capitaland ExpertiseHuman Capitaland Expertise

RiskManagement

RiskManagement

CapitalFormation

CapitalFormation

PayerContracting

PayerContracting

Physicianengagement

Recruiting

Quality andclinical protocols

Standardization

Best practicedeployment

Reserves

Revenue, payer, andgeographicaldiversification

Population healthcapabilities

Improved accessto debt capital

Lower debt costs

Investmentflexibility

Access to lives

Preferred providerarrangements

Ability to assumegreater risk (andrelated rewards)

Foundation for Sustainable Success


21

Comparison of Not-for-Profit and For-Profit SystemsHealth System M&A Market Update

Not-for-Profit Community Hospital Not-for-Profit Health System For-Profit Health System

Mission • Charitable purpose • Charitable purpose • Create shareholder value

Fiduciary Board • Local board(s)• Smaller in size• Volunteer governance

• System board and local boards• Larger in size• Volunteer governance

• Single board• Smaller in size• Paid governance

Fiduciary BoardMembers

• Local leaders• Medical staff• Philanthropists• Religious leaders (faith-based orgs)

• National and local leaders• Medical staff• Philanthropists• Religious leaders (faith-based orgs)

• Investors• National leaders• Politicians and regulators

Management • Broad responsibilities • More focused responsibilities • More focused responsibilities

Sources of Capital • Tax-exempt debt• Taxable debt• Retained earnings• Contributions

• Tax-exempt debt• Taxable debt• Retained earnings• Contributions

• Taxable debt• Retained earnings• Equity

Primary Investors • Institutional investors• Commercial banks• Religious organizations

• Institutional investors• Commercial banks• Religious organizations

• Institutional investors• Commercial banks• Public shareholders• Private equity, hedge funds, etc.

Use of Excess CashFlow / RetainedEarnings

• Reinvest in business• Investment decisions influenced by

long-term perspective• Investments to ensure permanence

• Reinvest in business• Build cash reserves• Expand into regional markets• Pursue non-core business lines

• Reinvest in business• Dividends/share repurchases• Investment decisions influenced by

market reactions

Credit Profile • High liquidity• Low leverage• Lower margin• Typically investment grade

• Moderate liquidity• Moderate leverage• Higher margin• Typically investment grade

• Low liquidity• High leverage• Higher margin• Often non-investment grade

Taxes • Exemption on earnings and interest• Donor exemption on contributions

• Exemption on earnings and interest• Donor exemption on contributions

• Tax-paying entity

Transaction Structure • Merger/membership transfer • Merger/membership transfer• Joint Venture / Joint Operating

• Asset or stock purchase

0%

2%

4%

6%

8%

10%

12%

14%

16%

2012 2013 2014

For-Profit EBITDA NFP Operating EBITDA

22

Not-for-Profit and For-Profit Financial ConsiderationsHealth System M&A Market Update

For-profit systems tend to be larger, have higher financial leverage, and generate higher EBITDAmargins than their not-for-profit peers

Comparison of Credit Metrics(1) EBITDA Margin by Ownership Status(1)

Category Not-for-Profit For-Profit

Sample Size 366 8

Median Rating A2 Ba2

Median Revs ($MM) $673 $8,049

Median Debt ($MM) $244 $3,251

Median Debt/Revs 36.2% 61.7%

Median Debt/ Cash Flow 3.1 6.2

____________________(1) Source: Moody’s Investor Services 2015 Medians for Not-for-Profit Hospitals, S&P CapitalIQ, for-profit median analysis basedon LTM 12/31/15 financials for CHA, THC, CYH, LPNT, UHS, SEM, KND and IASIS.

23

Active M&A market for deals of all sizes as benefits of consolidation increaseHealth System M&A Market Update

Aetna & Banner Health

Apollo Global Management

Billings Clinic &RegionalCare

Cerberus CapitalManagement

CCMP & Canada PensionPlan Investment Board

IASIS Healthcare (TPG)

Leonard Green & Partners

Tenet

The Carlyle Group & TPGCapital

TPG Capital

Risk SharingAgreement

Notable M&A Transactions($ in millions)

For-Profit JVs / Investments

Announced Target AcquirorEnterprise

ValueEBITDAMultiple

06/28/16 Floyd Memorial Hospital and Health Services Baptist Health $75.0 9.9x05/11/16 Susquehanna Health UPMC N/A N/A05/02/16 6 Las Vegas Acute Care Hospitals Universal Health Services N/A N/A04/04/16 12 Kindred LTACH Curahealth $27.5 N/A04/01/16 5 Tenet Atlanta-Area Hospitals WellStar Health System $575.0 N/A03/22/16 Capella Healthcare RegionalCare Hospital Partners N/A N/A12/29/15 2 IU Health Hospitals Community Health Systems N/A N/A11/12/15 RegionalCare Hospital Partners Apollo Global Management N/A N/A11/03/15 Akron General Cleveland Clinic $186.3 N/A10/29/15 Wheaton Franciscan Healthcare Ascension N/A N/A10/12/15 Crozer-Keystone Health System Prospect Medical Holdings $100.0 8.8x09/01/15 West Jefferson Medical Center LCMC Health $200.0 N/A

03/27/15 Carroll Hospital Center LifeBridge Health $50.0 1.6x

01/29/15 Community Medical Center Billings Clinic RegionalCare $74.0 3.7x

01/08/15 Nason Hospital Conemaugh Health System $12.0 N/A

12/22/14 Bert Fish Medical Center Florida Hospital $40.0 N/A

11/06/14 SwedishAmerican Health System University of Wisconsin Health $179.5 4.0x

10/06/14 Culpeper Regional Hospital UVA Medical Center $10.0 0.7x

10/02/14 Watertown Regional Medical Center LifePoint Health $40.0 5.6x

08/28/14 Lodi Memorial Hospital Adventist Health $106.3 16.7x

07/11/14 MedWest Haywood Duke LifePoint $28.5 N/A03/31/14 Fairmont General Hospital Alecto Healthcare $15.3 N/A

03/14/14 Conemaugh Health System Duke LifePoint Healthcare $75.0 1.7x02/12/14 East Orange General Hospital Prospect Medical Holdings $32.0 16.5x

02/06/14 Garden City Hospital Prime Healthcare Services $48.8 7.8x

01/29/14 Hackettstown Regional Medical Center Atlantic Health System $54.0 8.0x

12/30/13 Casa Grande Regional Medical Banner Health $87.0 N/A

10/03/13 Citrus Memorial HCA $140.0 N/A

10/03/13 CharterCARE Health Partners Prospect Medical Holdings $53.0 7.8xCONFIDENTIAL

CONFIDENTIAL

CONFIDENTIAL

CONFIDENTIAL

CONFIDENTIAL

Health System M&A Market UpdateAntitrust Considerations

Health Care Reform encourages integration, coordination and consolidation, but antitrustregulators have been increasingly aggressive – and successful

Recent FTC actions pertaining to hospital mergers include:

• Cabell Huntington Hospital: FTC filed an administrative complaint challenging the proposed acquisition of St. Mary’s MedicalCenter; complaint was dismissed when West Virginia legislature passed a cooperative agreement law allowing the acquisition

• Advocate Health Care Network/NorthShore University Health System: FTC filed an administrative complaint challengingthe proposed combination; FTC lost the initial hearing for the injunction, but is appealing the findings

• Penn State Hershey Medical Center/PinnacleHealth System: FTC filed an administrative complaint challenging the proposedcombination; FTC lost the initial hearing for the injunction, but is appealing the findings

• St. Luke’s Health System: FTC filed a complaint challenging acquisition of Saltzer Medical Group, resulting in an adverseruling from a U.S. District Judge requiring an unwinding of the merger

24

Market Overview

Overview

• Maryland, including the Washington D.C. metropolitan area, is acompetitive market with both large systems and small hospitals

• All with greater than $1billion in net patient revenues, BonSecours, Johns Hopkins, LifeBridge, MedStar, and University ofMaryland health systems are integrated market leaders

• Maryland has 370.6 active physicians per 100 thousand people inthe state

> Ranked as the 2nd state for active physicians per 100 thousandpeople

Relevant Hospitals / Systems

• Adventist Healthcare

• Bon Secours Health System

• Greater Baltimore Medical Center

• Johns Hopkins Health System

• LifeBridge Health

• MedStar Health

• Mercy Medical Center

• University of Maryland Medical System

26

Maryland Hospital Market

Financial Considerations for Maryland Healthcare Providers

• Close to half of Maryland hospitals experienced operating losses in2015

• Large factor is the continuing trend of insurers designating morehospital stays as lower-paying outpatient observations instead ofinpatient admissions

• Another important trend is the consumer shift to high deductibleinsurance plans, which carry higher out-of-pocket costs whensomeone seeks care

• Providers also adapting to fixed payment model following shift awayfrom fee-for-service outlined in 2014 Maryland Medicare waiveragreement

Recent Merger Activity

• UMD Medical, Trivergent and LifeBridge have grown through acquisition

• University of Maryland mergers and partnerships since 2009 include Saint AgnesHospital, Upper Chesapeake Health, St. Joseph Medical and Union Hospital

• Frederick Regional Health System, Meritus Health and Western Maryland HealthSystem announced a merger in 2013 to form Trivergent Health Alliance

____________________Source: AHD, Association of American Medical Colleges, Baltimore Sun, Definitive Healthcare

Market Overview

Reimbursement Dynamics

• Maryland operates the nation’s only all-payer hospital rateregulation system.:> Medicare waiver that exempts MD from the Inpatient

Prospective Payment System and Outpatient ProspectivePayment System

> State of Maryland set rates for these services> All third party purchasers pay the same rate

• January 10, 2014, new initiative to modernize MD’s unique all-payerrate-setting system for hospital services:> Improve patient health> Reduce costs

27

Maryland Hospital Reimbursement Dynamics

____________________Source: CMS press release 1-10-14

Market Overview

Under the terms of the new All-Payer Model:

• Shift away from payment per inpatient admission to per capita totalhospital cost

• Requires MD to generate $330 million in Medicare savings over afive year performance period

• Limits its annual all-payer per capita total hospital cost growth to3.58%

• Shift hospital revenue over the 5 year performance period intoglobal payment models

Quality Triggers

• Maryland will achieve a number of quality targets designed topromote better care, better health and lower costs.

> Readmissions

> Hospital Acquired Conditions

> Population Health

> After 5-years, if MD Hospitals don’t succeed, MD hospitals willtransition to the national Medicare payment systems.

28

Map of Facilities – Maryland (includes Washington D.C., Delaware, and Virginia)Market Overview

84

48

25

79

96

110 101

83

57

87 55

80

93

52

23

95

31

33

78 71107

1262 13

9

10

103

88

105

86

99

76

77

75

85

9069

41

54

16

18

42

56

53

21

17

1

6047

14

74 9734

73100 30 264666

725043

45

67118

29 61

72 9215

98

2891 10844

51

222024 4994

63108

32

4089

106

82

437

27

36 19

3868

36

65104

5

64

102

81

35

59

58

70

39

27

29

Map of Facilities – Maryland (includes Washington D.C., Delaware, and Virginia) (Cont’d)Market Overview

Johns HopkinsHoward County General HospitalJohns Hopkins Bayview Medical CenterKennedy Krieger InstituteSibley Memorial HospitalSuburban HospitalThe Johns Hopkins Hospital

LifeBridge HealthCarroll Hospital CenterLevindale Hebrew Geriatric Center and HospitalNorthwest HospitalSinai Hospital of Baltimore

Maryland Department of Health & MentalHygiene

Clifton T Perkins Hospital CenterDeers Head Hospital CenterEastern Shore Hospital CenterSpringfield Hospital CenterSpring Grove Hospital CenterWestern Maryland Hospital Center

Mary Washington HealthcareMary Washington HospitalStafford Hospital

MedStar HealthMedStar Franklin Square Medical CenterMedStar Georgetown University HospitalMedStar Good Samaritan HospitalMedStar Harbor HospitalMedStar Montgomery Medical CenterMedStar Saint Mary's HospitalMedStar Southern Maryland HospitalMedStar Union Memorial HospitalMedStar Washington Hospital Center

Novant HealthNovant Health Haymarket Medical CenterNovant Health Prince William Medical Center

Riverside Health SystemRiverside Tappahannock Hospital

VA Maryland Health Care SystemBaltimore VA Medical CenterPerry Point VA Medical Center

Valley HealthWarren Memorial HospitalWinchester Medical Center

Stand Alone Acute-CareAnne Arundel Medical CenterAtlantic General HospitalAugusta HealthBeebe HealthcareBrook Lane Psychiatric CenterCalvert Memorial HospitalCapital HospiceDoctors Community HospitalFauquier HospitalFort Washington Medical CenterFrederick Memorial HospitalGarrett County Memorial HospitalGreater Baltimore Medical CenterHoward University HospitalMcCready HealthMercy Medical CenterMeritus Medical CenterMetropolitan Transition Center Correctional

FacilityNanticoke Memorial HospitalNational Institutes of Health Clinical CenterPeninsula Regional Medical CenterThomas B Finan CenterUnion HospitalUnited Medical CenterVirginia Hospital CenterWestern Maryland Regional Medical Center

1

88

20

42

53

54

9

31

3334

4112

14

16

52

AdventistAdventist HealthCare Shady Grove Medical CenterAdventist HealthCare Washington Adventist

HospitalAdventist Behavioral Health – RockvilleAdventist HealthCare Behavioral Health & Wellness

Services – Eastern ShoreAdventist HealthCare Physical Health &

Rehabilitation - Silver SpringAdventist HealthCare Physical Health &

Rehabilitation- Rockville

AscensionProvidence HospitalSaint Agnes Hospital

BayhealthBayhealth Kent General HospitalBayhealth Milford Memorial Hospital

Bon SecoursBon Secours Hospital

Christiana Care HealthChristiana HospitalWilmington Hospital

Dimensions HealthcareLaurel Regional HospitalPrince George's Hospital Center

HCAJohn Randolph Medical CenterReston Hospital CenterSpotsylvania Regional Medical Center

HealthsouthHealthsouth Chesapeake Rehab Hospital

InovaInova Alexandria HospitalInova Fair Oaks HospitalInova Fairfax HospitalInova Loudoun HospitalInova Mount Vernon Hospital

7

11 97

91

94

75

90

80

9293

9596

9899100

101

103

105

107

108

110

45

4344

46

79

25

4748495051

2

8

10

13

15

1718

21222324

26

282930

76

7778

8384

85

109

8687

LegendSentaraMartha Jefferson HospitalSentara Northern Virginia Medical CenterSentara Rockingham Memorial Hospital

Sheppard Pratt Health SystemSheppard & Enoch Pratt HospitalSheppard Pratt at Ellicott City

TrinityHoly Cross Germantown HospitalHoly Cross HospitalSaint Francis Hospital

UHSThe George Washington University Hospital

US Air Force MedicineMalcolm Grow Medical Center

US Navy MedicineWalter Reed National Military Medical Center

U of MarylandBaltimore Washington Medical CenterMaryland General HospitalMt. Washington Pediatric HospitalUniversity of Maryland Charles Regional Med CtrUniversity of Maryland Childrens HospitalUniversity of Maryland Harford Memorial HospitalUniversity of Maryland Medical CenterUniversity of Maryland Rehabilitation and

Orthopaedic InstituteUniversity of Maryland Saint Joseph Medical CenterUniversity of Maryland Shore Medical Center at

ChestertownUniversity of Maryland Shore Med Ctr at

DorchesterUniversity of Maryland Shore Medical Ctr at EastonUniversity of Maryland Upper Chesapeake Med Ctr

U of VirginiaUniversity of Virginia Medical CenterCulpeper Regional Hospital

5657

606162

63

666768

70

7273

74

55

34

5

6

19

32

353637383940

5958

64

65

8182

89

102

104

106

27

69

71

Strategic Assessment and Capital Access

Strategic AssessmentKey Question

31

What are the criticalelements the

hospital/systemneeds to ensurefinancial stability

and sustainedfulfillment of

mission?

PrimaryCare

Physicians

Specialists

Service LineExpansion

SkilledNursing

Technology

Upgrades

UrgentCare /Retail

HomeHealth

UpgradedPhysical

Plant

GeographicExpansion

Rehab / PTQualityReferral

Destination

Clinical BestPractices

ExpenseReduction

Strategic AssessmentFunding Strategic Objectives

32

Strategic Evaluation

• Define vision,mission, andobjectives

• Evaluatecompetitivelandscape

• Assess financialand operatingposition

• Determine risktolerance

• Formulatestrategicalternatives

• Forecaststrategicalternatives

FundingAssessment

• Determinefundingrequirementsfor strategicalternatives

• Enterprise andbusiness unitvaluation

• Prioritizefunding options

• Prioritizestrategies

StrategicAlternatives

• Pursueoperationalefficiencies

• Reprioritizecapitalallocation

• Issue debt• Attract external

capital throughJVs / affiliations

• Divest non-coreassets

• Mergers / salesof entire system

Capital Access Via Non-Core Hospital AssetsMonetization Candidates

33

• Affiliated hospitals in non‐core markets or with significant, sustained operating losses

• Ambulatory surgery centers

• Behavioral health facilities and operations

• Diagnostic imaging centers

• Dialysis centers

• Home health agencies

• Hospice facilities

• Laboratories

• Managed care organizations

• Medical transportation services

• MOBs

• Physician practice management infrastructure

• Rehabilitation facilities

• Senior living and housing, including skilled nursing, assisted living, and dementia services

A primary reason assets are classified as non-core often relates to lack of economies of scaleand resulting high, noncompetitive cost structure.

Capital Access Via Non-Core Hospital AssetsConsiderations for Institution for Monetizing Non-Core Hospital Assets

34

• Disruption to core hospital operations• Allows management to focus on core business• Benefit from third-party expertise

Impact on OperationsImpact on Operations

• Is asset supporting other businesses• Does institution have expertise to run asset profitably• Future capital need / free up capital• Large enough to attract talent

Economic Benefit /Impact

Economic Benefit /Impact

• Personnel issues• Level of integration into core hospital operationsEase to SeparateEase to Separate

• Is the asset worth substantial capital?• Will the asset generate substantial interest from buyers?Likely Buyer InterestLikely Buyer Interest

• Contractual relationship post-transaction• Continued governance• Community perception and brand impact

Continued Oversight &Brand Impact

Continued Oversight &Brand Impact

35

Strategic Affiliation Process Overview

HighIntensity

LowIntensity

ModerateIntensity

Internal Due Diligence, CIPPreparation & Finalize

Buyer List

Organization & Preparation Marketing & Preliminary Diligence Final Diligence & Closing

Go to Market MgmtMtgs

Confirmatory Diligence,Negotiations &

Regulatory Approval

LaunchData

Room

Compare Offers;Choose Winning

Bidder(s)

InitialIndications

Due

LOIsDue

Man

agem

ent

Invo

lvem

ent

DataRoomPrep

Financial Advisor Actively Manages Potential Buyers to Effectively Utilize Management’s TimeManagement’s time commitment during the process will vary depending on the phase of the transaction

Decision Matrix: Evaluating Potential Strategic Partners by ObjectiveStrategic Affiliation Process Overview

36

CRITERIA FOR CONSIDERATION Wei

ghtin

g

Stat

us Q

uo

Pot

enti

alP

artn

er 1

Pot

enti

alP

artn

er 2

Pot

enti

alP

artn

er 3

Pot

enti

alP

artn

er e

tc.

Enhance clinical programs/clincial quality

Ability to improve financial performance

Ensure access to capital

Alignment with population health

Retention of local control

Provide economies of scale/reduce cost

Retain not for profit, mission focus

Enhance access to care (point of care)

Reputation and brand value

Expand primary care base/physician recruitment

IT platform enhancement/compatibility

Patient/family centered care (culture)

Complementary geography

Insurance product/risk management

Support/add teaching programs

Improve philanthropy

Community acceptance

Monetization of enterprise value/foundation funding

Economic development benefits

37

Strategic Affiliation Process OverviewCommunications with Stakeholders

• Evaluate risk among key stakeholders> Physicians

> Employees

> Employers

• Board and management leadership are critical> Designate small number of spokespeople to champion the process

> Understand and stick to key messages

> Maintain confidentiality

• Communication with stakeholders should be proactive and transparent> Clear, concise explanation of system’s goals in exploring partnership

> Utilize financial and operational metrics to support need for outside resources and strategic alignment with third party

> Status of process, in compliance with confidentiality restrictions

> Consistent messages

> Solicit media coverage as appropriate to facilitate community understanding

> Reach out to key political, business and community leaders

> Media

> Politicos

> Regulators

Health System Strategic Partnership Models

Health System Strategic Partnership ModelsThe Tradeoff

HighLow

Low

Hig

h

Hig

hLo

w

Acc

ess

to C

apit

al

Affiliation Benefits

Leve

l of C

ontr

ol

LowHigh

Health System Strategic Partnership ModelsPotential Transaction Structures: Alternatives & Trade-Offs

40

Shared Services Affiliation

Minority Interest JV

Joint Operating Agreement

Joint Venture

Asset Sale

Memorial Health SystemCorporation

Example of Joint Models

Status Quo

Joint Operating Company

Post-Transaction Risk

Merger/Membership Substitution

Joint Venture Case StudyHealth System Strategic Partnership Models

CharterCare and Prospect

Overview Prospect Medical Holdings (Prospect) formed alimited liability company to purchase andoperate two hospitals and related businesses inProvidence, RI from CharterCare HealthPartners (CCHP) and Prospect CharterCare, LLC (LLC)

Consideration CCHP sold the assets and operations of RogerWilliams Medical Center, St. Joseph HealthServices of Rhode Island, Elmhurst ExtendedCare Facilities and other operating assets toLLC In exchange, CCHP received cash provided by

Prospect and a minority share of the LLCequity

Governance LLC Board of directors is comprised of anequal number of appointees from CCHP andProspect Prospect directors have final authority in most

circumstances of LLC Board deadlock

OwnershipRights /Restrictions

Prospect subject to minimum hold period Prospect retains right of first offer if CCHP

wishes to sell its shares Mutual right of first refusal CCHP tag-along rights CCHP put option after minimum hold period

Other Prospect required to maintain the Catholicidentity of St. Joseph Health Services locationsand comply with Ethical and ReligiousDirectives

Contributes:-Two hospitals-Complementaryoperating assets

ProspectCharterCare

Contributes:-Cash

CCHP4 Seats

Prospect4 Seats

Board of Directors

Receives:-Majority ownership-Board appointments-Management contract

Receives:-Cash-MinorityOwnership-Board appointments

Transaction Structure

41

Cain Brothers represented CCHP in this transaction.

Joint Operating Company Case StudyHealth System Strategic Partnership Models

BJC and Memorial Group

Overview Memorial Group, Inc. (Memorial) and BJCHealthcare (BJC) formed a nonstock, nonprofitcompany to own and operate two hospitalsand related businesses in Southwestern IL Memorial Regional Health Services (MRHS)

Consideration Memorial contributed the assets andoperations of Memorial Hospital Belleville andMemorial Hospital East, in Shiloh, as well asother operating assets BJC provided substantial capital and

technological commitments, credit support forMemorial’s debt, and service preservationassurances

Governance While MRHS has two members, the memberswill appoint an equal number of directors Memorial secures representation at the BJC

Board level for a defined period

Reserve Rights Mutual controls on sales or acquisitionsexceeding specified threshold Protective rights against BJC’s exclusive

expansion of services in MRHS service area BJC approval of Memorial appointees and

appointment/termination of MRHS CEO

Other Upon satisfaction of a set of predefinedconditions, Memorial will withdraw itsmembership from MRHS in exchange for acontribution to a community foundation

Contributes:-Two hospitals-Complementaryoperating assets

Memorial RegionalHealth Services

Contributes:-CapitalCommitments-Credit Support

Memorial BJC

Board of DirectorsEqual Representation

Receives:-MembershipInterest-Board appointments-Reserve rights

Receives:- MembershipInterest-Board appointments-Reserve rights


42

Cain Brothers represented BJC in this transaction.


43

Joint Operating Agreement Case Study

U of L Health Care and KentuckyOne Health

Overview University Medical Center (UMC), an affiliate ofthe University of Louisville (UofL), entered into a20-year JOA with KentuckyOne Health (KYOne) KYOne concurrently entered into an academic

affiliation agreement with UofL and a leaseagreement with the Commonwealth of Kentucky

Consideration UMC contributed the operating assets listedabove, although maintains financial andoperational control of NICU, obstetrical andreproductive services KYOne contributed 10% “virtual equity” in

KYOne and $543.5 million of investment duringthe first five years, expanding to $1.4 billion over20 years

Governance UMC assigned day-to-day operations to KYOnethrough certain Delegated Powers KYOne board of directors expanded from 15 to

18 members with the three additional membersappointed by UofL

Reserve Rights UMC maintains ownership of the followingreserve rights KYOne has the right to terminate the JOA

should UMC lose access to certain state andfederal funding streams

Other JOA prohibits capital calls on UMC JOA automatically renews for successive five-

year terms unless terminated by either party forcause or at the end of a term UMC will become a member of CHI Credit

Group

Contributes:-Operations of UofLHospital, cancer centerand related assets

20-YearJoint Operating

Agreement

Receives:-Capital commitments-10% “Virtual equity” inKYOne-Reserve rights


Retains:-Ownership of assets &operations of certainservice lines

Contributes:-Capital commitments-10% “Virtual equity” inKYOne-Operational expertise

Receives:-Operations of UofLHospital, cancer centerand related assets-Reserve rights

Retains:-Ownership of assets

Cain Brothers represented UofL Health Care in this transaction.

____________________Note: KYOne is a joint venture sponsored by Catholic Health Initiatives and Jewish Hospital Healthcare Services.


44

Minority Interest Joint Venture Case Study

UMHS and MidMichigan Health

Overview University of Michigan Health System (UMHS)took a minority interest stake in MidMichiganHealth (MidMichigan) in exchange for certaincontributions by UMHS with the goal to improvethe quality of services provided by MidMichiganand expand capacity to provide such services UMHS received less than 1% ownership in

MidMichigan with the option to increase its stakeover time to up to 20%.

Governance UMHS received two board seats on 17-memberMidMichigan board UMHS and MidMichigan Members equally

represented on operating council which wasestablished to coordinate activities betweenMidMichigan and UMHS within the scope of theaffiliation

Reserve Rights UMHS and MidMichigan each hold customaryreserved rights

DissentersRights

After the initial term, UMHS may withdraw theuse of its brand if MidMichigan takes certainactions without the approval of the UMHS-appointed directors

Distributions /Value SharingPayments

UMHS receives predefined annual distributions UMHS receives value sharing payments for its

personnel, services, expertise and othercommitments

Other Parties subject to certain restrictive covenantsduring the term of the agreement Parties have predefined exit provisions including

any payments, if applicable, upon termination


Cain Brothers represented UMHS in this transaction.

Michigan HealthCorporation

(“MHC”)

Members ofMidMichigan Board

(who are not MHCappointed)

Receives:-Less 1% interest-2 board seats-Equalrepresentation onoperating council-Distributions /value sharingpayments-Reserved rights-Option toincreasemembershipinterest up to 20%

Contributes:-Brand-Clinical protocols-Know-how

Retains:-More than 99%ownership-15 board seats-Reserved rights

Gives up:-Some control-Some economics

Cain Brothers Transaction Case Studies

Community Medical CenterCain Brothers Transaction Case Studies

• Community Medical Center (“CMC”) is a 151-licensed bed hospitallocated in Missoula, Montana with a staff of over 900 FTEs and 300physicians

• Billings Clinic RegionalCare (the “JV”) is a joint-venture formed in 2013between Billings Clinic and RegionalCare Hospital Partners(“RegionalCare”)

• Billings Clinic is the largest health care system in Montana consisting ofa multi-specialty physician group practice, a 272-bed hospital and a 90-bed skilled nursing and assisted living facility in addition to partnershipswith ten critical access hospitals

• RegionalCare is a for-profit national system of community hospitalsfocused on expanding health care services in non-urban markets

• CMC retained Cain Brothers to assist management in seeking astrategic partner with the objective to lower cost of care, improvequality, position CMC for the challenges introduced by the AffordableCare Act, and secure access to capital for service line expansion,information system development and physician recruitment

• In addition to the approximately $74 million purchase price, the JVmade significant capital commitments to CMC including $60 million forstrategic initiatives, $40 million for health care provider and physicianrecruitment needs, and commitments for routine capital expenditureneeds

• Cain Brothers acted as exclusive financial advisor to CMC in thistransaction

Highlights

46

has been sold to a joint venture between

and

Cain Advised Community Medical Center

Meriter Health ServiceCain Brothers Transaction Case Studies

• Meriter Health Services (“Meriter”) is an integrated health care systembased in Madison,Wisconsin that owns and operates:

• Meriter Hospital, a 448-bed acute care hospital;

• Meriter Medical Group, a multispecialty physician practice with over 100employed physicians;

• Physicians Plus Insurance Corp., an 85,000 member HMO; and

• A set of related businesses, including home health and laboratory

• UnityPoint Health operates a regional health care delivery system thatincludes 12 hospitals in ten Iowa cities, three hospitals in three Illinoiscities and approximately 800 employed physicians practicing in morethan 88 communities

• Meriter retained Cain Brothers as its exclusive financial advisor inconnection with an assessment of its partnership options

• After its affiliated HMO lost $30 million in FY 2012, Meriter opted toexplore both comprehensive and health plan-specific solutions

• As part of the engagement, Cain Brothers provided the followingservices to Meriter, among others:

• Advised Meriter on its partnership options;

• Managed a competitive search process that included health systems, healthplans and financial sponsors;

• Coordinated the due diligence process and assisted with reverse duediligence; and

• Helped negotiate the structure and terms of the affiliation

Highlights

has affiliated with

47

Cain Advised Meriter Health Services

St. Joseph’s Health SystemCain Brothers Transaction Case Studies

• Saint Joseph’s Health System (“SJHS”), an affiliate of Catholic HealthEast, has formed a joint operating company (“JOC”) with EmoryHealthcare (“Emory”)

• Emory is Atlanta’s largest health system with six hospitals andover 14,500 employees

• SJHS is a 410-bed tertiary care hospital with leading programsin cardiovascular, orthopedic and other acute care specialties

• Under the terms of the JOC, SJHS contributed the assets andoperations of Saint Joseph Hospital Atlanta, its research institute andphysician organizations. Emory contributed certain complementaryhospital assets and operations

• SJHS retains its Catholic identity, maintains its existing policies oncharitable and pastoral care and will continue to provide communitybenefits

• Cain Brothers was engaged to conduct a competitive process to solicitadditional affiliation proposals from credible, qualified potentialpartners and reengage with organizations involved in earlier discussions

• The process included selection of three finalists that included completedue diligence and fully-negotiated definitive agreements subject only toGeorgia Attorney General review and approval

• Cain Brothers acted as exclusive financial advisor to SJHS in thistransaction

Highlights

has formed a joint operating company

with

48

Cain Advised Saint Joseph’s Health System

Robinson Health SystemCain Brothers Transaction Case Studies

• Robinson Health System (“RHS”) operates Robinson MemorialHospital (“RMH”) a 117-bed hospital, which is the second largestemployer in Portage County and had a medical staff of nearly 400physicians

• University Hospitals (“UH”) is an Ohio-based academic medical centerwith an integrated network of 15 hospitals

• RMH also operates an urgent care facility, comprehensive imagingfacilities, a network of physician practices and outpatient centers andmedical facilities throughout the county

• RMH was previously a county owned hospital, but began a process toconvert to not-for-profit status in 2011

• RHS retained Cain Brothers to assist management in seeking astrategic partner in light of significant merger activity changing thelandscape in the region and financial pressures faced as a result of thegrowth in Medicare, Medicaid and the uninsured

• Cain Brothers ran a broad process that included discussions with anumber of organizations

• Following the transaction, Robinson Memorial Hospital will be knownas UH Robinson Medical Center

• As part of the agreement, three members of University Hospital’sboard will be named to Robinson Health System’s 15-member board

Highlights

Ravenna, OH

49

has been acquired by

Cain Advised Robinson Memorial Hospital

The Chester County Hospital and Health SystemCain Brothers Transaction Case Studies

• The Chester County Hospital and Health System (“TCCHHS”) hascompleted its affiliation with the University of Pennsylvania HealthSystem (“UPHS”)

• The affiliation will continue to allow TCCHHS to provide quality careto the Westchester community and will expand the presence of UPHS

• Cain Brothers assisted the Board of Directors and management teamin seeking a strategic partner in light of the challenging environmentfaced by many stand-alone hospital systems including changes imposedby Health Care Reform, increased needs for strategic capital and adesire to enhance services and quality of care

• Cain Brothers advised TCCHHS in a process that included discussions withmany organizations

• UPHS has made a significant capital commitment to TCCHHS and theWest Chester community. UPHS has also committed to maintainingThe Chester County Hospital as an inpatient facility

• TCCHHS was founded in 1892 as the first hospital in Chester County,Pennsylvania. Today, the hospital staffs 220 beds and is building a newpatient tower with the capacity for 72 private patient rooms.

• UPHS is one of the nation’s leading academic medical centers, includingthree acute care hospitals, a faculty practice of approximately 1,400physicians, and a primary care practice of over 200 employedphysicians. The University also includes the nation’s first medical school,the Perelman School of Medicine, which is ranked among the nation’stop 10 by U.S. News & World Report

has become a member of

Highlights

50

Cain Advised Chester County Hospital

John C. Lincoln Health NetworkCain Brothers Transaction Case Studies

• John C. Lincoln Health Network (“JCLHN”) is a healthcare systemlocated in Phoenix with two hospitals and a 130+ member primarycare physician group

• Scottsdale Healthcare (“SHC”) is a three hospital system located inScottsdale with a strong reputation for specialty services

• JCLHN and SHC formed a new parent company that will become thesole corporate member of both entities

• Parent board will mirror subsidiary boards

• The new parent organization, Scottsdale Lincoln Health Network, willbe governed by a board with balanced representation from JCLHN’sboard and the SHC’s board plus ex-officio members

• The vision of the new health system is to combine resources toachieve overhead efficiencies and leverage the physician networks ofboth systems to more effectively manage population health throughACO strategies

• The new Scottsdale Lincoln Health Network has approximately 10,500employees, 3,700 affiliated physicians and 3,100 volunteers, an extensiveprimary care physician network, urgent care centers, clinical research,medical education, an inpatient rehabilitation hospital, an AccountableCare Organization, two foundations and extensive community services

• Cain Brothers acted as exclusive financial advisor to JCLHN in thistransaction

Highlights

51

and

have formed

Scottsdale Lincoln Health Network

Cain Advised John C. Lincoln Health Network

Northeast Health SystemCain Brothers Transaction Case Studies

• Northeast Health System (“NHS”) is an integrated healthcare systemcomprised of a network of acute-care hospitals, behavioral health andsenior health services dedicated to providing the full continuum of careto residents of Massachusetts’ North Shore and Cape Ann

• NHS is one of the largest healthcare service providers in its area with5,000 employees and 600 physicians

• Lahey Clinic is a teaching hospital of Tufts University School ofMedicine known for its world-renowned innovative technology andpioneering medical treatment

• Lahey Clinic has more than 5,000 employees including 500 physiciansand 1,100 nurses

• Under the terms of the agreement, NHS and Lahey Clinic formed anew integrated healthcare delivery system by creating a new parentorganization that governs both NHS and Lahey Clinic

• The new parent organization is referred to as Lahey Health System,which is governed by a board that consists of an equal number ofrepresentatives selected by the NHS board and the Lahey ClinicFoundation board plus additional unaffiliated members from thecommunity

• Cain Brothers conducted an auction with a select group of strategicallycompatible organizations including both not-for-profit and for-profitorganizations

• Cain Brothers acted as exclusive financial advisor to NHS in thistransaction

Highlights

has affiliated with

52

Cain Advised Northeast Health System

University of ToledoCain Brothers Transaction Case Studies

• The University of Toledo (“UT”) is a leading research institutioncreated under Ohio law and an instrumentality of the state of Ohio,with nearly 23,000 students, 1,500 instructional faculty and 4,300 staffmembers and is comprised of 13 colleges offering more than 250undergraduate, graduate, and professional programs• UT operates the UT College of Medicine and Life Sciences (COM&LS), and the

UT College of Nursing, UT College of Pharmacy, the UT College of HealthSciences and the UT College of Natural Sciences that are historically supportedby the University of Toledo Medical Center (“UTMC”) and the University ofToledo Physicians (“UTP”)

• ProMedica Health System (“ProMedica”), a mission-based, non-profithealthcare organization that serves northwest Ohio and southeastMichigan and owns and operates acute care hospitals, with the flagshipToledo Hospital and Toledo Children’s Hospital

• On August 26th, UT and ProMedica signed a 50-year AcademicAffiliation Agreement (the “Affiliation Agreement”) focused on: (i)collaboration and support of training physicians and healthcareprofessionals, (ii) goal to achieve physician synergies, (iii) train the nextgeneration of healthcare providers, (iv) extend academic and researchcapabilities and (v) support the UT COM&LS, academic, training andresearch missions and faculty• The Affiliation furthers community values, including retaining and importing

clinical talent; elevating the quality and consistency of patient care; andimproving opportunities for economic development in NW Ohio

• The Academic Affiliation Agreement commitment by ProMedica, includes:

• Annual minimum of $50 million in Academic Affiliation Payments

• $250 million for medical school campus development

• UT residents receive access to ProMedica’s EMR platform

• Training of substantially all UT residents and learners at ProMedica

• Cain Brothers & Company LLC served as UT’s financial advisor

Highlights

has formed an academic affiliation with

Financial Advisory

53

Cain Advised University of Toledo

UCSF and Children’s Hospital & Research Center OaklandCain Brothers Transaction Case Studies

• UCSF Medical Center (UCSF) is one of the nation's top 10 hospitalsaccording to the U.S. News and World Report and is part of theUniversity of California, San Francisco. UCSF operates two hospitals inSan Francisco with a total of 690 beds and is in the process of buildinga third campus at Mission Bay which will have 289 beds, including a183-bed Benioff Children’s Hospital

• Children's Hospital & Research Center at Oakland is an independent,191-bed children's hospital and is one of only two solely designatedCalifornia Level One pediatric trauma centers in the region

• This affiliation creates the largest network of children’s providers inNorthern California with two hospitals in San Francisco and Oaklandand a network of over 800 pediatricians and pediatric specialistsproviding services across 65 pediatric specialties and subspecialties

• Children’s Hospital Oakland will remain separately licensed and retainits own board of directors and medical staff, but the two hospitalorganizations will collaborate and share best practices for the deliveryof the highest pediatric care possible

• Cain Brothers advised both UCSF and Children’s Hospital Oaklandthroughout this partnership process, including managing acomprehensive affiliation process and helping negotiate the structureand terms of the affiliation with each hospital individually and jointly

Highlights

and

have affiliated

54

Cain Advised UCSF and Children’s Hospital Oakland

has merged with

Rutgers, The State University of New JerseyCain Brothers Transaction Case Studies

• Under the New Jersey Medical and Health Sciences EducationRestructuring Act Rutgers has merged with UMDNJ

• The Act was created to strengthen medical education in the northern,central and southern portions of the State

• In January 2012, Rutgers engaged Cain Brothers to serve as itsexclusive financial advisor in connection with its merger with ninemajor component units of UMDNJ (the Transferred Units”) comprising:

• 1. Robert Wood Johnson Medical School 6. School of Public Health• 2. New Jersey Medical School 7. School of Health Related Professions• 3. New Jersey Dental School 8. University Behavioral Healthcare• 4. Cancer Institute of New Jersey 9. School of Nursing• 5. Graduate School of Biomed. Sciences

• Omitted from the merger, the School of Osteopathic Medicine andRobert Wood Johnson Medical School-Camden was transferred toRowan University, while University Hospital in Newark remains a state-owned facility and the primary teaching hospital affiliate of the NewJersey Medical School

• Cain Brothers work included (i) development of a financialcombination and projection model for the combined entities, (ii) anallocation of UMDNJ’s outstanding debt across the Transferred (andnon-transferred) Units and an evaluation of restructuring opportunitiesrelated to such debt, (iii) an assessment of the financial and operationalrisks of the consolidation and the key drivers for transaction success,and (iv) the implications of the merger on Rutgers “Aa2/AA” creditratings

• Rutgers Board of Governors and Board of Trustees officially approvedthe merger on November 19, 2012, and the transaction closed on July1, 2013

Highlights

55

Cain Advised Rutgers University

Baylor College of MedicineCain Brothers Transaction Case Studies

• Baylor College of Medicine (“BCM” or the “College”) is a non-profitacademic medical center located in Houston,TX

• In 2007, the College began constructing the Baylor College of Medicine MedicalCenter (”BCMMC”), an approximately 1.2 million square foot clinical servicesbuilding, on the BCM’s McNair Campus, a 33-acre parcel of propertycontiguous to the southern boundary of the Texas Medical Center (“TMC”)

• Catholic Health Initiatives (“CHI”), is the third largest faith-basedhealth system in the country

• In April of 2013, CHI acquired six-hospital St. Luke's Episcopal Health System,now known as the CHI St. Luke’s Health System (“CHI St. Luke’s”)

• Cain Brothers was engaged by BCM to assist the College in securing astrategic partner to complete development of BCMMC and to issue afairness opinion related to the transaction

• In January of 2014, BCM and CHI St. Luke’s announced that they hadformed a joint venture to complete the construction of, own andoperate the Baylor St. Luke’s Medical Center at BCM’s McNair Campus

• The joint-venture acute care hospital, which will be part of CHI St.Luke’s Health, will eventually replace the existing, 850-bed St.Luke’s Medical Center on the Texas Medical Center campus

• The first phase of the project – a 250-bed inpatient facility – is expectedto open by spring 2015. The second phase, adding up to 400 additionalacute-care beds, is expected to be completed in 2018

• The joint venture will own the new hospital as well as other ambulatoryfacilities and other real estate assets

• Starting in 2015, the College’s separately owned ambulatory surgeryservices at the McNair Campus will become part of the joint venture

Highlights

has formed a joint venture with

an affiliate of

56

Cain Advised Baylor College of Medicine

Baylor Health Care System and Scott & White HealthcareCain Brothers Transaction Case Studies

• Baylor Health Care System (“Baylor”) and Scott & White Healthcare(“Scott & White”) have merged to form Baylor Scott & White Health

• The combined health system is a $7.7 billion health care organizationand is the State of Texas’ largest not-for-profit health system

• Baylor Scott & White Health unites the organizations’ 42 hospitals,more than 350 patient care sites, more than 4,000 active physicians,34,000 employees, and the Scott & White Health Plan

• Baylor Scott & White Health is managed under a unified Board ofTrustees with equal representation from each institution. DraytonMcLane, Jr., the chair of the Scott & White Board of Trustees, serves aschair of the new company’s board, and Jim Turner, chair of the BaylorHealth Care System Board of Trustees, serves as chair-elect

• The new organization is led by a single executive leadership team. JoelAllison, continues to serve in his role as president and CEO of Baylor,and also serves as chief executive officer of the new company. Dr.Robert Pryor, continues to serve as president and CEO of Scott &White, and also serves as president and chief operating officer of thenew organization

• Cain Brothers was jointly retained by Baylor and Scott & White toassist the two health systems in merger discussions

Highlights

and

have merged to form

57

Cain Advised Baylor Heath System and Scott & White

Northwestern Medical Faculty FoundationCain Brothers Transaction Case Studies

• The Northwestern Medical Faculty Foundation (“NMFF”) is a 501(c)(3)not-for-profit corporation located in Chicago, IL

• A 700-member, multispecialty medical group is the faculty practice plan ofNorthwestern University’s Feinberg School of Medicine; and

• Not-for-profit corporation that includes the full-time faculty of FeinbergSchool of Medicine with the exception of pediatrics and physiatrists

• NMFF retained Cain Brothers as its financial advisor to complete avaluation of the organization and to assess strategies to increase thevalue of NMFF

• Cain Brothers reviewed NMFF and its relationship with NorthwesternUniversity’s Feinberg School of Medicine and Northwestern MemorialHospital

• Reviewed the historic financial statements and projected financial results ofNMFF;

• Reviewed the relationship and funds flow arrangements between NMFF,Feinberg School of Medicine and Northwestern Memorial Hospital;

• Reviewed the relationships between and alignment of NMFF and theassociated specialist faculty members of Feinberg that operate independentof NMFF;

• Reviewed the relationships between NMFF and the primary care physicianswhich actively practice at or near Northwestern;

• Discussed alternative strategies and considerations that could increase thevalue of NMFF under various assumptions; and

• Prepared a valuation analysis and report for the senior leadership of NMFF

Highlights

Provided Valuation Analysis of the FacultyPractice Plan of Northwestern University

Feinberg School of Medicine

Financial Advisor

58

Cain Advised Northwestern Medical Faculty Foundation

Caritas Christi Health CareCain Brothers Transaction Case Studies

• Caritas Christi Health Care (“CCHC”) has been acquired by a newlyformed affiliate of Cerberus Capital Management, L.P.

• CCHC is New England's largest community-based hospital network withsix hospitals and 13,000 employees

• Subject to customary closing conditions including approval fromMassachusetts Attorney General, Department of Public Health and theArchbishop of Boston

• Under the terms of the agreement, Caritas will receive approximately$830 million of capital support:

• Approximately $430 million generated through:

• Assumption of all Caritas employee pension obligations;

• Repayment of virtually all of CCHC’s outstanding debt; and

• Significant capital investment to help fund operations goingforward

• Commitment of approximately $400 million of capital projects inMassachusetts, including six major, immediate construction projects toimprove the facilities at each of CCHC’s hospitals

• CCHC will continue to be headquartered in Boston and led by itscurrent executive team, including CEO Ralph de la Torre, MD

• CCHC hospitals will retain their Catholic identities, maintaining theirexisting policies on charitable and pastoral care and communitybenefits

• The agreement marks the successful completion by CCHC of anextensive process to identify a capital partner to position the systemfor future growth

• Cain Brothers acted as exclusive financial advisor to Caritas Christi inthis transaction

Highlights


an affiliate of

59

Cain Advised Caritas Christi

Conclusion

ConclusionDrivers for Hospital Affiliations

61

• As facilities in MD shift away from payment per inpatient admission, in exchange for reducing per capita total hospitalcost growth, executing a comprehensive strategy is imperative

• Access to capital difficult to obtain for necessary ACO infrastructure

• Expansion of physician networks and outpatient facilities are needed to build out population health management andACO capabilities

• Extensive and continued investment in IT infrastructure needed to connect with physician groups and outpatientproviders in your network

• Economies of scale is required in lines of service that have now become cost centers like radiology, laboratory, andrehabilitation services

• Creating centers of excellence in value-added service lines

• Becoming an essential provider in your region

• Competitors and payors are merging around your institution

• Physician recruitment is getting more difficult especially in specific specialties

• Accumulating post-acute care capabilities will prevent readmissions and ensure better execution of bundles in a globalpayment model

Exhibit – Information about Cain Brothers

62

Jamie Sullivan joined the Hospitals and Physician Groups Team at Cain Brothers in 2014. Over the past20 years, Jamie has worked with health care systems, physician groups, and start-up ventures to obtaincapital for expansion and recapitalization.

Prior to joining the firm, Jamie spent 18 years at GE Healthcare Financial Services as a health carebanker focusing on tax-exempt revenue bond transactions. In addition, Jamie led several teams at GECapital and GE Healthcare.

Jamie received her MBA in Finance from the Stern School of Business, New York University andgraduated with honors from the University of Illinois, Urbana-Champaign with a B.S. in Finance andEconomics.

Jamie Sullivan, Managing Director

Andrew Labovitz, Senior Vice President

Andy Labovitz is a senior banker in the firm’s Hospitals and Physician Group practice, with a primaryfocus on strategic partnership transactions involving hospitals and healthcare systems. Andy joined CainBrothers in 2003 with more than 10 years of previous financial industry experience in the fixed incomeand derivatives markets.

Prior to joining Cain Brothers, Andy was a Vice President in AIG’s Structured Products Group, originatingand executing structured credit transactions. Andy’s career began at JP Morgan, working variously oninterest rate derivative analytics and asset-backed securitization transactions.

Andy earned his MBA in Finance from the New York University’s Stern School of Business, andgraduated from Bucknell University with a B.A. in Computer Science.

The Cain Brothers Difference

65

We are the pre-eminent investment bank focusedexclusively on healthcare, with one of the country’s

largest teams of senior investment bankers.

KnowledgeFocus on for-profit and not-for-profit sectors.

Deep understanding of all key areas ofhealthcare, from providers to payers toservices to technology.

Strong, long-term relationships withleaders in all key healthcare constituencies.

KnowhowBreadth of talent, with senior bankersaveraging over 20 years in experience.

Execution expertise: 100+ M&Atransactions and over $5 billion in capitalraised since 2012.

Rigorous process, with the flexibilityneeded to flawlessly execute complextransactions of all sizes.

+

• Hospitals and Health Systems• Post-Acute Care

• Senior Living• Physician Practices• Outpatient Services/Facilities• Behavioral Health• Clinical Laboratories• Dental and Vision Providers

• Medical Supplies & Devices• Cardiology• Orthopedics• Contract Manufacturing• Capital Equipment• Diagnostics• Technology-Enabled Services

• Managed Care• Healthcare IT• Payer Services• Outsourced Clinical Services• Pharmacy Benefit Management• Distribution• Consumer Health and

Engagement• Pharmaceutical Services

A 360-Degree PerspectiveOur comprehensive focus on the healthcare industry enables us to bring our clients uniqueand strategic ideas

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Positioning our clients for success through innovation before, during andafter the transaction

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• At the forefront of healthcareconvergence, bridging the for-profit andnot-for-profit sectors

• Deep domain knowledge leads to first-rate market intelligence

• Strong and long-standing relationshipswith key decision-makers and thought-leaders

• Innovative thinkers bring creativesolutions and opportunities to the table

• Senior banker leadership ensuressuccess

• Extensive M&A advisory and capitalmarkets expertise

• Relentless focus on execution

• Collaborative culture accessesunparalleled firm-wide knowledge acrossthe healthcare spectrum

• Maintain long-term relationships andcontinual dialogue with clients, investors,lenders and thought leaders

• Large firm reach and experiencecombined with small firm focus andindependence

• Integration of for-profit and not-for-profit banking teams offers holisticunderstanding of healthcare and strategicideas post transaction

Before During After

M&A AdvisoryA leader in mergers & acquisitions working with management teams, boards andshareholders across the healthcare spectrum

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Over 100 M&A transactions completedsince 2012

Mergers & Acquisitions Strategic Advisory Services Joint Ventures/Affiliations

Real Estate Advisory Fairness Opinions & Valuations

Deep knowledge of key players in healthcarecombined with the knowhow to execute

transactions flawlessly.

Capital MarketsA full array of services to meet the financing needs of for-profit and not-for-profithealthcare organizations

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Recent Transactions

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Maryland and Virginia Experience

Valuation Analysis

certain of Bon Secours Health System’smedical laboratory operations have been

acquired by

Sellside M&A Advisory

has affiliated with

Real Estate Advisory

were sold to

CAMERON GLENCOMMONWEALTH CARE CENTER

SNF CONs & Building Leasesin the

SMITH/PACKETT MED-COM, LLCand

COMMONWEALTH CARE OFROANOKE, INC.

$75,000,000ECONOMIC DEVELOPMENT

AUTHORITY OF THE CITY OFNEWPORT NEWS, VA

Health System Refunding Bonds(Riverside Health System)

Series 2012

$120,455,000Economic Development Authority of the

City of Newport News, VAHealth System Refunding Bonds

(Riverside Health System)Series 2011A, 2011B, 2011C

Private Placement

Placement Agent

Senior Manager and structuringagent for swap via competitive

bid.

$83,860,000PENINSULA PORTS AUTHORITY

OF VIRGINIAHealth System Revenue and

Refunding BondsSeries 2004

Sellside M&A AdvisoryReal Estate Advisory:

Developer Partner SelectionSellside M&A Advisory


Innovative Health Strategies

Distressed Credit Advisory

and

have acquired in a restructuring

has acquired

Buyside M&A Advisory


has announced the transfer of ownershipof

to

Buyside M&A Advisory

has repurchased its physicianpractice assets from

Fredericksburg, Virginia

Nashville, Tennessee


a health ministry of

has sold

St. AgnesNursing and Rehabilitation

Center

Real Estate Advisory

LaSalle Medical Office Fund, LLC, hassold its interest in four medical officebuildings totaling 266,000 square feet

Recent Transactions

71

A portfolio company ofGreat Point Partners

Has received debt financing from

FINANCIAL ADVISORY

July 2015

Has acquired

BUYSIDE M&A ADVISORY

June 2015

logo

$125,000,000

Fixed Rate Bonds

PLACEMENT AGENT

July 2015

Has signed a definitive agreement

to acquire


October 2015

Has formed a revenue cyclemanagement partnership with

FINANCIAL ADVISORY

June 2015

$95,244,940

FHA-Insured Mortgage Loan

MORTGAGE BANKING

June 2015

$223,230,000

Fixed Rate Bonds

SOLE MANAGER

June 2015

$17,546,600


MORTGAGE BANKING

June 2015

Has formed an

academic affiliation with

FINANCIAL ADVISORY

August 2015

Has completed an affiliationwith

SELLSIDE M&A ADVISORY

June 2015

A portfolio company ofSerent Capital

Has completed a transactionto merger with

FINANCIAL ADVISORY

August 2015

$27,635,000

Fixed Rate Bonds

SOLE MANAGER

August 2015

Has acquired

M&A ADVISORY

July 2015

has signed a Letter of Intent tocreate a Joint Venture with

M&A ADVISORY

pending

$22,900,000Bank Financing

$10,520,000Commercial Loan

INVESTMENT BANKING ADVISOR

July 2015

United Health Services Hospitals

Recent Transactions

72

$32,540,000

Fixed Rate Bonds

FINANCIAL ADVISOR

April 2015

Has been acquired by


March 2015

Green Clinic Surgical Hospitalowned by

A subsidiary of

$72,000,000

Bank Financing


March 2015

Has been sold toa joint venture between


January 2015

and

$14,260,000

Fixed Rate Bonds

SOLE MANAGER

January 2015

$85,105,000

Fixed Rate Bonds

FINANCIAL ADVISOR

January 2015


FAIRNESS OPINION

January 2015


December 2014

A portfolio company ofNewSpring Capital, Petra CapitalPartners, Sofinnova Ventures and

Three Arch Partners


A portfolio company ofThree Arch Partners, Sterling

Partners, Pacific Venture Group,RiverVest, River Cities CapitalFunds and Sightline Partners


SELLSIDE M&A

December 2014

A portfolio company ofGenstar Capital

Has acquired


May 2015

Has sourced development financingfor a new 69,000 square foot VA

Healthcare clinic in Savannah, GA

REAL ESTATE ADVISORY

May 2015

MM EE DD II CC AA LL OO FF FF II CC EE SS &&OO UU TT PP AA TT II EE NN TT FF AA CC II LL II TT II EE SS

J O H N S O ND E V E L O P M E N T

$18,630,000

Bank Financing


April 2015

$13,677,500


MORTGAGE BANKING

June 2015

(Lodge at Granite Bay)

Has merged with

FINANCIAL ADVISORY

May 2015

Ravenna, OH


June 2015


Recent Transactions

73

$71,345,000

Fixed Rate Bonds

SOLE MANAGER

November 2014

Has partnered with


October 2014

A portfolio company ofAudax Group

Has acquired


October 2014

$144,105,000

Fixed Rate Bonds

SOLE MANAGER

August 2014

Has signed a Letter of Intent with

M&A ADVISORY

pending



August 2014

$84,745,000

Fixed Rate Bonds

SOLE MANAGER

November 2014

Has merged with


June 2014

$47,430,000

Bank FinancingAnd Interest Rate Swap Execution


September 2014


$9,289,390Taxable Term Loan

INVESTMENT BANKING ADVISOR& STRUCTURING AGENT

November 2014



October 2014

Has sold nine medical real estateproperties to

REAL ESTATE ADVISORY

December 2014

$52,000,000Fixed Rate Bonds


PLACEMENT AGENTSOLE MANAGER

August / October 2014



SOLE MANAGERINVESTMENT BANKING ADVISOR

December 2014

Has received DIP financing and hasbeen acquired under Section 363 of

the US Bankruptcy Code, by


December 2014

Knowledge: Industry PublicationsInsightful industry research publications and “white papers”

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a presentation to hfma maryland chapter 2016 fall...

Documents