Thirteenth Annual Non-Profit Health Care Investor Conference

Thirteenth Annual Non-Profit Health Care Investor ConferenceMay 18, 2012

American Hospital AssociationHealthcare Financial Managers AssociationCitigroup Global Markets Inc.

Temple University Health System (“TUHS”)– Key Facts

• TUHS’s operates ambulatory, acute, tertiary and quaternary facilities on four campuses in Philadelphia• For 2011-2012, Temple University Hospital was ranked amongst the best regional providers in 13

specialties by U.S. News & World Report, including: cancer care; cardiology and heart surgery; gastroenterology; neurology and neurosurgery; orthopedics; and pulmonology

• The Temple Lung Center is one of the nation’s largest referral centers for lung disease• Fiscal Year 2011 Key Statistics:

• 36,360 discharges• 159,843 ED visits• 20,921 surgeries• 140 transplants• $994 million operating revenues

• TUHS maintains significant ties to its parent and sole member, Temple University, including the co-appointment of 8 out of 10 voting TUHS board members to the Temple University Board, a unified leadership team and a single strategic vision for the combined health services enterprise of TUHS and TU

TUHS is Under New Physician Leadership Who Bring Significant Experience to the Enterprise

• Larry Kaiser, MD – Chief Executive Officer of Temple University Health System; Dean, Temple University School of Medicine; Senior Executive Vice President for Health Sciences of Temple University

• President and Alkek-Williams Chair of the University of Texas Health Science Center at Houston, Professor of Surgery and a Professor of Cardiothoracic and Vascular Surgery

• John Rhea Barton Professor and Chair Department of Surgery, Surgeon in Chief University of Pennsylvania Health System

• Tulane Medical School Graduate• Verdi J DiSesa, MD, MBA – Chief Operating Officer, Temple University Health System; Vice Dean for Clinical Affairs,

Temple University School of Medicine• Chairman Surgery, Surgeon in Chief Harvard Medical School Dubai Center for Teaching and Research, Arab

Emirates• Previous surgical leadership positions at Hospital of the University of Pennsylvania, John Hopkins Hospital, The

Cleveland Clinic• University of Pennsylvania Medical School and Wharton School graduate

• Arthur M. Feldman, MD, PhD - Executive Dean Temple University School of Medicine; Chief Academic Officer Temple University Health System

• Chairman of Medicine, Jefferson Medical College• Director of the Heart Failure Research Program The John Hopkins University School of Medicine• Chief of Cardiology and Director Cardiovascular Institute University of Pittsburgh Medical Center and Health System• Louisiana State University School of Medicine Graduate

Today, Academic Medicine Is More Volatile and Complex…

• Health care reform and changing payment models

• Flat NIH funding coupled with greater scrutiny on costs and impact of research

• Increasing heath care as a percent of GDP

• Growing payer consolidation

• Increasing emphasis on prevention and population health

• Migration to lower acuity / cost settings

• Health system consolidation

• Emergence of accountable care organizations to improve quality and reduce waste

The Philadelphia Market Is Super Concentrated for Commercial Payers and Un-concentrated for Hospitals

Sources: US Department of Justice and Federal Trade Commission Horizontal Merger Guidelines (8/19/2010); AMA Competition in Health Insurance Study (2010); HealthLeaders Market Overview Reports; NCI Analysis, (Updated August 2011).

In August 2010, the DOJ and FTC issued revised horizontal merger guidelines that raised the HHI thresholds for classifying market concentration, which may enable more mergers to occur (or for fewer to be blocked).

The Herfindahl-Hirschman Index (HHI) the sum of the squares of each organization’s market share. The US DOJ and FTC define markets with an HHI of >2500 as Concentrated, 1500 to 2500 as Moderately Concentrated and <1500 as Unconcentrated. Navigant Consulting has created a fourth category “super concentrated” for markets with an HHI >3500.

Health Systems Commercial Payers

Super Concentrated (15)

Highly Concentrated(19)

Moderately Concentrated(34)

Unconcentrated(19)

Super Concentrated(21)

• Columbia, SC• Des Moines• Grand Rapids• Lansing

• Charleston• Harrisburg• Norfolk

• Richmond • Birmingham• Greensboro• Greenville• Hartford• Honolulu

• Nashville• Pittsburgh• Providence• Scranton

• Baltimore• Chicago• Oklahoma City• Philadelphia

Highly Concentrated(38)

• Cape Coral• Charlotte• Fresno• Portland, ME• Spokane• Wilmington

• Albuquerque• El Paso• Knoxville• Lexington• Madison• Memphis

• Orlando• Raleigh• Rochester• Springfield, MA• Tucson• Tulsa

• Baton Rouge• Dallas• Indianapolis• Jacksonville• Las Vegas• Little Rock• Louisville

• Milwaukee• New Orleans• Phoenix• San Antonio• Southern NJ• St. Louis• Tampa

• Atlanta• Boston• Detroit• Houston• Minneapolis• Northern NJ

Moderately Concentrated(28)

• Austin• Colorado Springs• Dayton• Toledo• Worcester

• Buffalo• Omaha• Salt Lake City

• Albany• Cincinnati• Cleveland• Columbus• Denver• Portland, OR

• Sacramento• San Diego• Southern CT• Syracuse• West Palm Beach

• Kansas City• Los Angeles• Miami• New York City• Orange County

• Riverside• San Francisco• Seattle• Washington, DC

Unconcentrated (0) • None • None • None • None

Philadelphia 5-County HHI Detail

Health System : ~800Comm. Payer : ~3,600

The leading commercial insurer commands 3x the market share of the leading provider

Philadelphia 5-County Area Health System Inpatient Market Share, 2010

17%

10%

10%

8%7%6%6%6%5%4%

21%

FY 2010

Others

TENET Healthcare

Aria Health System

Community Health Systems

Albert Einstein Healthcare Network

Temple University Health System

Crozer-Keystone Health System

Abington Health

Catholic Health East

University of Pennsylvania Health System

Jefferson Health System

* HHI calculation aggregates IBC and Keystone market shareNote: Keystone Health Plan East is owned by Independence Blue Cross.Source: HealthLeaders InterStudy Market Overview (2010) and Health Plan Data and Analysis.(July 2010).

Commercial Payer HHI: ~3,600*Health System HHI: ~800

Environmental factors require a transformative and future-looking approach

• Public and private payers continue to implement payment system reforms that put pressure on the revenue base of all providers particularly hospitals

• Entitlement programs are likely to see funding reductions given the instability of federal and state budgets, resulting in lower payments to hospitals and physicians and requiring Temple to structure its relationship with the Commonwealth to sustain its current funding base

• Southeastern Pennsylvania market is evolving and likely at a key inflection point that will drive further consolidation amongst the providers

• Un-concentrated provider sector• Super concentrated insurance payer sector• Heavy physician employment

• The “20th century” strategy of simply buying hospitals to gain managed care clout (without consolidation and creation of value) is insufficient to succeed in today’s environment

Temple is positioning to take advantage of these developing opportunities through emphasizing improved performance and alignment

• The Health System and the School of Medicine are newly unified under physician leadership

• The Health System and the School of Medicine have invested in enhancing the physician enterprise through aggressive recruitment, unified technology and metric-driven performance – to date, 77 physicians recruited

• Focused on enhancing overall acuity• Key recruits to date in Q3 2012 have blended acuity of 4.25

• The effectiveness of the Health System has been advanced through bending the cost curve by a cumulative $160,000,000 since 2008.

• As the largest safety net hospital in the Commonwealth, the Health System has consistently secured supplemental reimbursement for Temple University Hospital for the services provided to the Medical Assistance population and continues to seek opportunities to enhance and further stabilize this funding source

• Finally, the Health System and the School of Medicine are expanding their reach into markets outside of Philadelphia through disciplined acquisition and expansion of ambulatory sites

Temple Health Future Strategic Direction:“Plan on a Page”

The following strategies will continue to “transform” Temple Health while preserving its Clinical, Research and Academic missions.

• Transform the physician enterprise

• Recruit exceptional doctors providing innovative care

• Expand primary and develop urgent care networks

• Optimize cost structure

• Finalize Fox Chase acquisition

• Evaluate further expansion/alignment opportunities

• Continue Common-wealth funding strategies

• Enhance population management strategies and develop supporting infrastructure

• Expand capitation –based contracts

• Develop TUSM research plan

• Develop TUSM medical education plan

•Implementation of strong physician leadership, organizational and operations improvements, competitive compensation program and strict accountability for outcomes•Creation of a patient-centered physician organization aligned with hospitals to improve patient experience, throughput, quality•Holding physician leaders accountable for performance using clearly defined performance expectations and metrics with benefits yielded to date

• Increase of 10.9% in average weekly ambulatory visits to the physician practices

• Substantial reduction in time to an appointment with now only three practices having next appointment times out greater than 7 days

• Reduction in patient no shows from 25% to 18%•A total of 28 physicians have been separated from TUP and 13.3% of the remaining physicians did not receive the incentive component of their total compensation package

Strategies Employed To Transform the Temple University Physician Enterprise

Ambulatory Care Strategy

• Suburban ambulatory strategy was launched with the opening its Oaks Multi-specialty facility in October 2011

• Local provider of specialty services in rapidly growing part of Montgomery County (16% projected growth 2000-2015)

• Suburban point of access for Temple University Physicians• Total patient visits in Q2 2012 well ahead of plan• Favorable payor mix with 66% private payor, 31% Medicare and only 3% Medical

Assistance/Self Pay

• Strategy designed to drive expanded reach into surrounding areas with locally-provided specialty, urgent care, and ambulatory care services

Note: The Projected results are based on Version 6A dated April 17, 2012

TUHS has continued to focus on limiting expense growth, resulting in over $160 million out of the cost structure since 2008

000’s 2008 2009 2010 2011

Total TUHS Expenses As Adjusted (1) $1,006,257 $1,010,097 $986,275 $993,717

Year Over Year Change 0.4% (2.4%) 0.8%

FY 2008 Inflated At 5% $1,006,257 $1,056,600 $1,109,400 $1,164,900

1,056,600

1,109,400

1,164,900

1,006,257 1,010,097986,275 993,717

1,006,257

850,000

900,000

950,000

1,000,000

1,050,000

1,100,000

1,150,000

1,200,000

2008 2009 2010 2011

Total TUHS Expenses as Adjusted FY 2008 Inflated At 5%

$

1. FY 2009 excludes asset impairment of $32,735,000 from expenses

The clinical cycle offers the next opportunity for enhancing theoverall cost effectiveness of the enterprise

• Temple must have the capabilities to more effectively manage acute care length of stay and the cost of that acute care including hospital acquired conditions and complications

• Navigant Consulting benchmarked the clinical care processes using the Heath Care Cost Utilization Project Nationwide Inpatient Sample Database

• Peer Group of not for profit, urban, teaching hospitals in the Northeast with 450 or more beds

• Targeted a conservative 50th Percentile benchmark point

• Analysis disclosed an annual opportunity of $91.0 million at the Peer Group 50th Percentile benchmark

• Temple has established a target of achieving savings of approximately $50 M over four years through the redesign of the clinical cycle

Utilization and Financial InformationTemple University Health System

• Observation cases prior to 2010 were reflected as inpatient admissions

• In FY 2012 observation represent 20% of patients in beds

• In FY 2012 the clinical criteria changed resulting in a jump of observation cases

Strong emergency room volume and the beginning impact of physician recruitment efforts reverse declining inpatient discharges

50,42947,341

39,09036,360

27,122 27,795

5,2937,958

5,8716,813

34,608

44,383 44,318

32,993

0

10,000

20,000

30,000

40,000

50,000

60,000

Actual 2008 Actual 2009 Actual 2010 Actual 2011 3/31/2011 YTD 3/31/2012 YTD

Inpatient Discharges Observation/CDU

Increases in emergency room volumes dilute overall acuity and emphasize the need for program growth and physician recruitment

• Inpatient volumes have stabilized but with lower acuity volume coming through the emergency room

• Physicians recruited in FY 2012 will draw higher acuity activity in FY 2013 and beyond

• In the month of February 2012, TUHS acuity reported at 1.62

• Key recruits Q3 2012 acuity of 4.25


TUH Main 1.57 1.63 1.63 1.68 N/A N/A

TUH Episcopal 0.96 0.95 0.94 1.01 N/A N/A

Jeanes 1.34 1.33 1.36 1.38 N/A N/A

TUHS 1.41 1.43 1.55 1.59 1.59 1.51

1.511.591.591.551.431.41

0.00

0.40

0.80

1.20

1.60


TUHS – Diversifying the Payor Mix Requires an Ambulatory Strategy Focused on the Suburban Counties

Medicaid41%

Medicare39%

Commercial18%

Other2%

3/31/2012 YTD Acute Payor Mix - Discharges

The Health System has consistently improved its performance both on an as reported and normalized basis

(a) The FY 2008 adjusted figures exclude the $41,099 gain on the sale of Health Partners Medicare product. The FY 2009 adjusted figures exclude restructuring and impairment charges totaling $32,735. The FY 2010 adjusted figures exclude $22,260 of expenses related strike costs, $2,281 related to restructuring and impairment charges, and a $10,800 credit for the Resident FICA settlement.

(b) Excludes Temple University’s non-preferred appropriation that flows through Temple University Hospital

5,112

(479)

(28,298)

(52,104)

9,308

(60,000)

(50,000)

(40,000)

(30,000)

(20,000)

(10,000)

0

10,000

20,000

FY 2008 Actual FY 2009 Actual FY 2010 Actual FY 2011 Actual 3/31/2012 YTD

Net Income from Continuing Operations as ReportedTUHS Net Income$

5,112

(479)

(14,557)

(19,369)

(31,791)

(60,000)

(50,000)

(40,000)

(30,000)

(20,000)

(10,000)

0

10,000

20,000

FY 2008 Actual FY 2009 Actual FY 2010 Actual FY 2011 Actual 3/31/2012 YTD

Net Income from Continuing Operations as AdjustedTUHS Net Income$

Acquisition of TheFox Chase Cancer Center

Fox Chase – A Rich History of Research and Patient Care

• American Oncologic Hospital founded in 1904 as one of the first hospitals devoted entirely to the treatment of cancer in West Philadelphia

• The Lankenau Hospital Research Institute founded in 1928 at Lankenau Hospital and in 1945 is formally incorporated as the Institute for Cancer Research

• The Institute for Cancer Research relocates to the Jeanes Hospital Campus in 1947 followed by the American Oncologic Hospital in 1968 and together form the Fox Chase Cancer Center

• In 1974 Fox Chase receives one of the first National Cancer Institute designations as a Comprehensive Cancer Center

• Fox Chase investigators have won two Nobel Prizes: Physiology/Medicine in 1976 and Chemistry in 2004

Fox Chase Maintains a Leading Reputation and Stable Market Share in Oncology

• When thinking of health care needs with regard to cancer, Fox Chase is top of mind more than all other key competitors, with 56% unaided brand awareness (Kesselman Research and Strategic Planning survey, October 2010)

• In a December 2011 consumer survey sponsored by TUHS, Fox Chase was identified as the region’s best source for Cancer Care by 19.7% of respondents, followed by UPenn at 13.3% and Jefferson at 9.7% (Source: Professional Research Consultants)

• Over most recent five years for which data is available, Fox Chase has maintained a steady 5.0% market share in inpatient oncology (Source: Databay Navigant Resources)

• The combined cancer programs of Fox Chase and Temple maintain a market share of 8.7%, second in the market to UPenn (Source: Databay Navigant Resources)

B ra n d A w a re n e s s

0 1 0 2 0 3 0 4 0 5 0 6 0

D re x e l/ H a h n e m a n n U n ive rs i t y H o s p it a l

A lb e r t E in s t e in H e a lt h c a re N e t w o rk

V ir t u a

C h i ld re n ’s H o s p i t a l o f P h i la d e lp h ia

S t . M a ry ’s

A b in g t o n M e m o ria l H o s p it a l

J o h n s H o p k in sS lo a n K e t t e r in g

C o o p e r M e d ic a l C e n t e r

T e m p le U n ive rs i t y H e a l t h S y s t e m

C a n c e r T re a t m e n t C e n t e rs o f A m e r ic a

P e n n M e d ic in e / U P e n n H e a l t h S y s t e m

J e ffe rs o n H o s p it a l

F o x C h a s e C a n c e r C e n t e r

4.0 0%

5 .1 0% 4 .9 0%5 .3 0% 5 .1 0%

10 .1 0% 10 .0 0% 10 .2 0% 10 .10 % 10 .30 %

6. 70 % 7. 00 %

7.9 0% 7.9 0% 8.1 0%

4 .6 0%5 .1 0%

4 .1 0%

5 .3 0% 5 .1 0%

3.8 0%

3 .5 0%3 .3 0%

3 .5 0% 3 .6 0%

0%

2%

4%

6%

8%

1 0%

1 2%

2 006 20 06 2 00 6 2 006 20 06 2 007 20 07 2 00 7 20 07 20 07 20 08 20 08 2 00 8 20 08 20 08 20 09 20 09 2 00 9 20 09 2 00 9 20 10 2 01 0 2 01 0 20 10 2 01 0

T em ple HU P Jef fer so n Abin gt onF ox C ha se

In p a tien t O n co lo g y M a rke t S h are

$MM

The Fox Chase acquisition provides benefits to both the Health System and Temple University

• Temple’s research brand will be vastly and instantly enhanced with the acquisition of an NCI-designated cancer center - a “jewel in the crown” research asset that is universally recognized and valued

• Temple’s rankings in US News and World Report and other rankings that include research expenditures as a factor will increase significantly to #59 in the NIH rankings (currently #72)

• Temple’s research and its growth will be facilitated in the teaming of Temple researchers with their colleagues at Fox Chase

• Temple faculty will have better access to the Fox Chase core infrastructure supporting research including an outstanding bio-repository of annotated tissue, biostatistics & population studies and DNA sequencing

Guiding Principles for building a thriving integrated Fox Chase / Jeanes Campus

• Create an integrated approach to the market through service delivery coordination

• Strengthen Fox Chase through:

• Maintain the exemption from the Medicare PPS exemption• Fill in any gaps in the Fox Chase service offerings (e.g., cardiology, orthopedics)• Attract new patients through the creation of private beds for Fox Chase patients and the

enhancement of the physician staffs at Fox Chase and Jeanes• Re-vitalize philanthropic support to Fox Chase given its achievement of financial stability,

path towards “thriving” and long-term vision for growth and improving patient service

• Support organizational educational and research strategies

Fox Chase has a superior payer mix given its brand awareness and resulting regional patient draw

Medicare41%

Medicaid4%

Blue Cross36%

Commercial/Other7%

Aetna12%

FY 2011 Payor Mix Based on Discharges

Medicare33%

Medicaid2%

Blue Cross39%

Commercial/Other11%

Aetna15%

FY 2011 Payor Mix Based on Net Revenues

Fox Chase – Historic Utilization

Discharges

4,424

4,543

4,801

4,731

3,458

3,798

0

1,000

2,000

3,000

4,000

5,000

6,000

FY 2008 FY 2009 FY 2010 FY 2011 3/31/2011YTD

3/31/2012YTD

Chemotherapy Infusions

43,27

0

43,64

7

45,97

2

50,71

6

37,49

3

40,26

2

0

10,000

20,000

30,000

40,000

50,000

60,000

FY 2008 FY 2009 FY 2010 FY 2011 3/31/2011YTD

3/31/2012YTD

Physician Visits74

,417

77,00

3

84,25

6

88,49

7

65,41

5

70,89

40

10,00020,00030,00040,00050,00060,00070,00080,00090,000

100,000

FY 2008 FY 2009 FY 2010 FY 2011 3/31/2011YTD

3/31/2012YTD

Fox Chase – Historic Financial Performance

FY 2008 FY 2009 FY 2010 FY 20113/31/2012

YTD(1)

Operating Revenue 311.7 322.3 333.0 344.4 275.0

Operating Expenses 318.3 333.7 336.5 342.1 268.4

Income from Operations (6.6) (11.4) (3.5) 2.3 6.6

Investment Return - (15.1) (3.0) 2.0 (2.9)Change in Fair Value of Interest Rate Swaps(2) (5.5) (17.1) (4.3) (8.1) 11.5

Net Income (12.1) (43.6) (10.8) (3.8) 15.2 Cash and Short-term Investments 13.4 8.8 10.5 11.5 10.2

1. 3/31/2012 YTD operating results includes $8 million grant from Commonwealth of Pennsylvania2. Change in Fair Value of Interest Rate Swaps includes realized gain on debt forgiveness

Organizational Chart as of July 1, 2012

TTEMPLEEMPLE UUNIVERSITYNIVERSITY--OOFF TTHEHE CCOMMONWEALTHOMMONWEALTHSSYSTEMYSTEM OF HOF HIGHERIGHER EEDUCATIONDUCATION

501(c)(3)5/12/1888

Temple University Health System, Inc.Temple University Health System, Inc.501(c)(3)8/25/95

Episcopal Hospital501(c)(3) 12/7/98

Jeanes Hospital 501(c)(3) 6/30/96

Temple East, Inc.

501(c)(3)(7/1/98)

Temple East Real Estate,

Inc.501(c)(3) (10/14/04)

TUHS Insurance

Co., Ltd.** (Domiciled in

Bermuda)7/1/98

American Oncologic Hospital

D/B/A The Hospital of Fox Chase

Cancer Center501(c)(3)

Institute for Cancer

Research501(c)(3)

Fox Chase Cancer Center

Medical Group, Inc.

501(c)(3)pending

Fox Chase, Ltd.AOH is Sole Stockholder

FCC Select, Inc.501(c)(3)

Temple Health System

Transport Team, Inc. 501(c)(3) 10/3/02

Temple Physicians,

Inc. 501(c)(3)11/30/94

Temple University Hospital Auxiliary 501(c)(3)

Unincorporated

Temple University

Health System Foundation 501(c)(3)

7/9/97

Jeanes Hospital Auxiliary 501(c)(3)

Incorporated12/24/71

Temple University

Hospital, Inc. 501(c)(3)6/30/96

KEY: = Sole Member= not a controlled affiliate

** = Stock corporation; shares owned or beneficially owned by TUHS

Temple University School of MedicineTemple University School of DentistryTemple University School of PodiatryFaculty Practice PlanTemple University School of Pharmacy& Allied Health Professions

CORPORATE STRUCTURE OF

TEMPLE UNIVERSITY HEALTH SYSTEM, INC. (“TUHS”)

As of 07/01/12

Fox Chase Network, Inc.

501(c)(3)

TUHS will be in the markets in June to finance the acquisition of Fox Chase and other strategic needs

•Friday, May 25th: Publish preliminary offering statement

•Thursday, May 31st: Investor call

•Friday, June 1st: Investor site visit at Fox Chase

•Tuesday, June 12th: Price Series 2012 Bonds

•Transaction Effective Date: 12:01 AM July 1, 2012

*Schedule is preliminary, subject to change

Thirteenth Annual Non-Profit Health Care Investor Conference

Documents

Transcript of Thirteenth Annual Non-Profit Health Care Investor Conference