CONSOLIDATION IN HOSPITALS AND HEALTH SYSTEMSThe Impact on Quality, Accessibility and Cost of Care

Robert J. Henkel, FACHE

President and Chief Executive Officer, Ascension Health

Executive Vice President, Ascension

PRESENTATION OUTLINE

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I. Ascension Overview

II. Healthcare Changes: Past, Present and Future

III. Healthcare Consolidation

IV. Ascension Consolidation

OUR VISION CALLS US TO STRENGTHEN THE CATHOLIC HEALTH MINISTRY

OUR MISSION

Rooted in the loving ministry of Jesus as healer, we commit ourselves to serving all persons with special attention to those who are poor and vulnerable. Our Catholic health ministry is dedicated to spiritually centered, holistic care which sustains and improves the health of individuals and communities. We are advocates for a compassionate and just society through our actions and our words.

OUR VISION We envision a strong, vibrant Catholic health ministry in the United States which will lead to the transformation of healthcare. We will ensure service that is committed to health and well-being for our communities and that responds to the needs of individuals throughout the life cycle. We will expand the role of the laity, in both leadership and sponsorship, to ensure a Catholic health ministry of the future.

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OUR VALUES Service of the PoorGenerosity of spirit, especially for persons most in need

ReverenceRespect and compassion for the dignity of diversity of life

Integrity Inspiring trust through personal leadership

WisdomIntegrating excellence and stewardship

CreativityCourageous innovation

DedicationAffirming the hope and joy of our ministry

ASCENSION’S CALL TO ACTION

ASCENSION AND ITS DIRECT SUBSIDIARIES

Ascension Leader

Institute

ASCENSION SPONSOR

Ascension Information

Services

Ascension Investment

Management

The Resource

Group

Ascension Ventures

ASCENSION

AscensionHealth

Ascension Global Mission

Ascension Care

Management

Ascension Risk

Services

Ascension Holdings

Ascension Ministry

Service Center

AscensionHealth

At Home

AscensionHealth

Senior Care

Ascension Medical Group

Ascension Clinical

Holdings

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ASCENSION’S CARE DELIVERY MAP

9-17-15

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CHANGES IN HOW WE OPERATE

We’re making changes to our operating model and governance structure to support our

journey to operate effectively and efficiently in a changing environment – demonstrated

by further centralization of functions, standardization and adherence to best practices.

GovernanceStructure• Goal-setting set at System level; local boards monitor and provide oversight on System-wide goals

• Movement toward “quality-focused” local boards

• Strategic planning driven by System

• Flatter governance and committee structures

Delivery-wideClinical Service Units• Organized our Senior Care capabilities within Ascension Health Senior Care, second-largest non-profit long-term care provider

• Partnering with Evolution Health to create Ascension Health At Home, a joint venture focused on post-acute services including home care, hospice care and infusion therapy

Delivery-wide Support Units and Ministry-wide Functions• Establishing Delivery-wide Support Units in the areas of Care Excellence, Performance Excellence, Physician Services and Payer & Network Contracting

• Designing and implementing functional support across the System for areas of Mission Integration, Human Resources, Finance, Legal, Clinical and Communications

GOVERNANCE CHANGES TO HELP USACHIEVE “THE QUADRUPLE AIM”

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HOSPITAL BOARD

ASCENSION HEALTH BOARD

MINISTRY MARKET BOARD

ASCENSION BOARD Improved Health Outcomes

Enhanced PatientCentered Experience

Enhanced Provider Experience

Lower OverallCost of Care

CLINICALLY INTEGRATED SYSTEMS OF CARE

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Networks of physicians and other caregivers who work together systematically with other healthcare organizations and professionals to improve their collective ability to deliver high-quality, safe and valued care.

Ascension-managedCollaborative effort

Partnership model of clinically integrated system of care

HEALTHCARE: PAST, PRESENT, FUTURE

MINISTRY-WIDE FUNCTIONSEnhancing Capabilities and Expertise Across Ascension

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Delivery Services Solutions

  Clinical

  Communications

  Finance

  Human Resources

  Legal

  Mission Integration Currently organizing and implementing Centers of Expertise and other functional support across the System in the areasof these Ministry-wide functionsto increase standardization, collaboration and the level of expertise throughout Ascension

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HEALTHCARE REFORM

Affordable Care ActExpansion in coverage funded through less reimbursement per unit of service

Finance ReformInsurance reform and exchanges drive “individual insurance” products and consumer exposure

Innovative Payment ModelsNext generation ACOs, Value Based Purchasing, etc.

Payer/Provider Convergence Healthcare providers becoming payers; payers becoming providers, both seeking new sources of revenue

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WHAT IS THE FUTURE OF HEALTHCARE?

“The combination of economic and technological changes is creating much more of a empowered, informed consumer market.”

- McKinsey & Co.

“In 2020, informed and demanding patients are now partners in their own healthcare….Health data is pervasive – requiring new tools and provider models.”

- Deloitte

“Multiple, intersecting pressures will drive the transformation of health care delivery and financing from volume- to value-based payments over the next decade.”

- American Hospital Association

“All signs point to a retail market.”- Health Care Advisory Board

HEALTHCARE CONSOLIDATION

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THE CHANGING HEALTHCARE LANDSCAPE IS DRIVING INDUSTRY CONSOLIDATION

Source: http://www.pwc.com/us/en/healthcare/publications/assets/pwc-health-services-deals-insights-q1-2015.pdf

1. Provider Consolidation Nationally, the trend of provider consolidation has continued to increase in both pace and scope. The traditional rationale of increased scale remains important and is further reinforced under new, value-based models. Those models have also led to innovative forms of consolidation moving beyond traditional M&A activity to multi-system collaboratives.

2. Payer Consolidation Like providers, payers are increasingly consolidating to spread risk through increased scale and to enhance product mix diversification.

3. IntegrationThe health care industry is experiencing increased convergence as providers seek to expand capabilities along the continuum of care to gain control of a larger proportion of health care spend. There is also vertical integration with both payers and companies from other segments (retail health) acting more like providers.

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PROVIDER CONSOLIDATION TRENDS

Hospitals Physician Practices

Source: http://www.pwc.com/us/en/healthcare/publications/assets/pwc-health-services-deals-insights-q1-2015.pdf

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PAYER CONSOLIDATION TRENDS

Managed Care (through 2015 Q2)

• Aetna to acquire Humana for $37B, announced July 2, 2015

• Will create largest Medicare managed care company and second largest managed care company in US with a combined 37.5M members and a combined $115B in revenue

• Anthem announced acquisition of Cigna for $48.3Bo Cigna: 14.5M medical

customers; $35B revenue

o Anthem: 38.5M medical customers; $73B operating revenue

Managed Care (2015 Q3 Highlights)

Source: http://www.pwc.com/us/en/healthcare/publications/assets/pwc-health-services-deals-insights-q1-2015.pdf

TRENDS IN VERTIGAL INTEGRATIONThe lines among different players involved in healthcare delivery are increasingly blurring with payers and companies from other segments converging on the provider space.

Providers are becoming payers

Payers are becoming providers

Companies from other segments are becoming providers

“1 in 5 Health Systems to Become payers by 2018”1

Source: http://www.healthleadersmedia.com/content/HEP-295415/1-in-5-Health-Systems-to-Become-payors-by-2018##

THE NUMBER OF INDEPENDENT HOSPITALS IN THE U.S. HAS DECLINED SIGNIFICANTLY SINCE 1999

1999 20130.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

50.9%

63.2%

49.1%

36.8%Hospitals in SystemsIndependent Hospitals

Source: http://www.aha.org/research/reports/tw/chartbook/ch2.shtml

N = 4,956 N = 4,974

RURAL HOSPITAL CLOSURES, 2010-2015

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Red pins designate rural hospitals that have closed since 2010, according to the North Carolina Rural Health Research Program.

• The North Carolina Rural Health Research Program says that 57 rural hospitals have closed since 2010 – the majority in Southern states.

• A recent study by iVantage Health Analytics indicates that another 283 are vulnerable to future closures.

ASCENSION CONSOLIDATION

CONSOLIDATION/INTEGRATION ACTIVITY IN ASCENSION’S MARKETS

• Together Health Network• Integrated Health Network of

Wisconsin

• Abouthealth in WI• The Federation in MI• Baylor Quality Alliance in TX

• AMITA Health

• Baptist – Tenet in Birmingham

• Duke LifePoint – Portage Health in MI

• Crittenton in Michigan• Capella in Tennessee

• Beaumont, Oakwood and Botsford in MI

• Baylor – Scott & White in TX• Advocate – Northshore &

Cadence – Northwestern in IL• CHS – HMA in TN, OK• Trinity – St. Francis in CT• Providence – Kadlec in Pasco

Clinically Integrated Network

Joint Operating Agreement/Joint

Venture

Merger/Sale of Assets

Ascension Examples

Competitor Examples

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Statewide Access and Geographic Reach:• Approximately 75% of Michiganders will be

within 20 minutes of a Together Health Network provider.

• Includes 25 hospitals, numerous outpatient centers, and anticipated participation of more than 5,000 physicians statewide.

Population Health Focus:• Includes cross-continuum services• Hundreds of physician practices designated as

patient-centered medical homes (PCMH).

Value-Leading Network:• All hospitals received Joint Commission Gold

Seal of Approval™, including five recognized as a Top Performer on Key Quality Measures®.

• 96% or higher by The Commonwealth Fund in Overall Recommended Care for all hospitals

• Lower than average cost per Medicare beneficiary at Together Health Network hospitals23

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ASCENSION MEDICAL GROUP

• As One Ascension, we have committed to accelerate change, engage collaboratively and work together as one integrated ministry.

• The creation of the Ascension Medical Group is an essential part of this journey, as it will enable us to leverage our collective gifts and resources while providing the foundation to deliver high quality, low cost, person-centered care for those we serve.

• Our 5,900 employed providers are one of our ministry’s greatest resources; yet, our current structure and ways in which we work today will not enable our organization, our ministry markets and our providers to successfully make the transition to a fee-for-value, population health-focused world in the timeframe required.

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CMS HOSPITAL ENGAGEMENT NETWORK

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Through the dedicated efforts of our healthcare professionals and Ascension Health’s participation in the CMS Hospital Engagement Network contract, we are leading healthcare’s transformation.

SYMPHONY INITIATIVE

The Symphony initiative is integral to Ascension Health’s Vision, providing knowledge on demand and making us a connected ministry

Symphony is a pioneering program for Ascension Health with Business Transformation, System Standardization, Centralization and multiple parallel deployments

Human Resources

Finance/Payroll

Supply Chain

23 Health Ministrieswith Disparate Systems

Ministry Intelligence Center

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COST SAVINGS: FISCAL YEARS 2009-2018

13.40%

16.23%

3.24%

3.46%

1.53%

62.14%

Position Efficiencies

Single Health Plan

Non Medical Benefits

Process Improvements

IT Hardware & Software Retirements

Strategic Sourcing/Contract Compliance

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CONSOLIDATION IN HOSPITALS AND HEALTH SYSTEMSThe Impact on Quality, Accessibility and Cost of Care

Robert J. Henkel, FACHE

President and Chief Executive Officer, Ascension Health

Executive Vice President, Ascension