a presentation to hfma maryland chapter 2016 fall...
TRANSCRIPT
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
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
Health Care Industry Trends
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
Health Care Industry Trends
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
Health Care Industry Trends
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
Health Care Industry Trends
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
Health Care Industry Trends
Health Care Industry Trends
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.
Diagnostics,Pharmacy,DME, Etc.
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
Health Care Industry Trends
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
Health Care Industry Trends
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
$4.2 Billion $8.9 Billion
Combined:
$13.1 Billion
$9.8 Billion $1.3 Billion
Combined:
$11.1 Billion
$5.1 Billion $1.9 Billion
Combined:
$7.0 Billion
$4.1 Billion $2.0 Billion
Combined:
$6.1 Billion
CompetitorConsolidation
Health System M&A Market Update
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
Health System M&A Market Update
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
Transaction Structure
42
Cain Brothers represented BJC in this transaction.
Health System Strategic Partnership Models
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
Transaction Structure
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.
Health System Strategic Partnership Models
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
Transaction Structure
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
has been acquired by
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
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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.
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• 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
has been acquired by
Innovative Health Strategies
Distressed Credit Advisory
and
have acquired in a restructuring
has acquired
Buyside M&A Advisory
Sellside M&A Advisory
has announced the transfer of ownershipof
to
Buyside M&A Advisory
has repurchased its physicianpractice assets from
Fredericksburg, Virginia
Nashville, Tennessee
Sellside M&A Advisory
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
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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
BUYSIDE M&A ADVISORY
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
FHA-Insured Mortgage Loan
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
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$32,540,000
Fixed Rate Bonds
FINANCIAL ADVISOR
April 2015
Has been acquired by
SELLSIDE M&A ADVISORY
March 2015
Green Clinic Surgical Hospitalowned by
A subsidiary of
$72,000,000
Bank Financing
INVESTMENT BANKING ADVISOR
March 2015
Has been sold toa joint venture between
SELLSIDE M&A ADVISORY
January 2015
and
$14,260,000
Fixed Rate Bonds
SOLE MANAGER
January 2015
$85,105,000
Fixed Rate Bonds
FINANCIAL ADVISOR
January 2015
Has been acquired by
FAIRNESS OPINION
January 2015
SELLSIDE M&A ADVISORY
December 2014
A portfolio company ofNewSpring Capital, Petra CapitalPartners, Sofinnova Ventures and
Three Arch Partners
Has been acquired by
A portfolio company ofThree Arch Partners, Sterling
Partners, Pacific Venture Group,RiverVest, River Cities CapitalFunds and Sightline Partners
Has been acquired by
SELLSIDE M&A
December 2014
A portfolio company ofGenstar Capital
Has acquired
BUYSIDE M&A ADVISORY
May 2015
Has sourced development financingfor a new 69,000 square foot VA
Healthcare clinic in Savannah, GA
REAL ESTATE ADVISORY
May 2015
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J O H N S O ND E V E L O P M E N T
$18,630,000
Bank Financing
INVESTMENT BANKING ADVISOR
April 2015
$13,677,500
FHA-Insured Mortgage Loan
MORTGAGE BANKING
June 2015
(Lodge at Granite Bay)
Has merged with
FINANCIAL ADVISORY
May 2015
Ravenna, OH
SELLSIDE M&A ADVISORY
June 2015
Has been acquired by
Recent Transactions
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$71,345,000
Fixed Rate Bonds
SOLE MANAGER
November 2014
Has partnered with
SELLSIDE M&A ADVISORY
October 2014
A portfolio company ofAudax Group
Has acquired
BUYSIDE M&A ADVISORY
October 2014
$144,105,000
Fixed Rate Bonds
SOLE MANAGER
August 2014
Has signed a Letter of Intent with
M&A ADVISORY
pending
Has been acquired by
SELLSIDE M&A ADVISORY
August 2014
$84,745,000
Fixed Rate Bonds
SOLE MANAGER
November 2014
Has merged with
SELLSIDE M&A ADVISORY
June 2014
$47,430,000
Bank FinancingAnd Interest Rate Swap Execution
INVESTMENT BANKING ADVISOR
September 2014
$63,665,000Bank Financing
$9,289,390Taxable Term Loan
INVESTMENT BANKING ADVISOR& STRUCTURING AGENT
November 2014
Has been acquired by
SELLSIDE M&A ADVISORY
October 2014
Has sold nine medical real estateproperties to
REAL ESTATE ADVISORY
December 2014
$52,000,000Fixed Rate Bonds
$186,105,000Fixed Rate Bonds
PLACEMENT AGENTSOLE MANAGER
August / October 2014
$82,640,000Fixed Rate Bonds
$45,000,000Bank Financing
SOLE MANAGERINVESTMENT BANKING ADVISOR
December 2014
Has received DIP financing and hasbeen acquired under Section 363 of
the US Bankruptcy Code, by
SELLSIDE M&A ADVISORY
December 2014
Knowledge: Industry PublicationsInsightful industry research publications and “white papers”
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