The Investor Community. January 15, 2013

Transcription

1 The Investor Community January 15, 2013

2 Agenda Introductions Strategic Rationale for Lowell General / SMC Merger Governance Corporate Organizational Structure and Agreements Awards and Recognition Medical Staff Considerations Market Share and Competition Capital Structure and Debt Restructuring Legacy Project Update Tour of Legacy 2

3 Participant Introductions Norm Deschene, President and CEO (LGH) George Duncan, Chair, Board of Trustees (LGH) Raymond Anstiss, Jr., Board of Trustees (LGH) Susan Green, Treasurer and Chief Financial Officer (LGH) Jody White, Executive VP Chief Operating Officer (LGH) Amy Hoey, Senior VP Chief Nursing Officer (LGH) Peter Zarrilla, VP and CHRO John Hanley, Managing Director (Ziegler) Craig Standen, Director (Ziegler) Mike Quinn, Director (Ziegler) 3

4 Lowell General Hospital Profile (Post merger) Key Statistics Current Licensed Beds 434 Inpatient Discharges 23,000 Surgeries 14,000 Births 2,300 Emergency Department Visits 100,000 Physicians on Medical Staff 670 Employees 3,300 PSA Population 290,000 SSA Population 340,000 Net Patient Service Revenue $432M 4

5 8 th Largest Hospital in MA 2 nd Largest Community Hospital in MA Ranked by Total Discharges Actual FY11 Rankings (out of 76 MA hospitals) LGH ranks 16,473 discharges SMC ranks 6,520 discharges Combined LGH/SMC ranks as the 8 th largest hospital and 2 nd largest community hospital in MA Source: FY11 MA Inpatient Database Rank Hospital FY11 Discharges 1 Brigham and Women's Hospital MA012 51,665 2 Massachusetts General Hospital MA055 50,304 3 UMass Memorial Med Ctr-Univ Campus MA092 46,161 4 Beth Israel Deaconess Med-East Campus MA009 41,064 5 Baystate Medical Center MA007 36,238 6 Boston Medical Center-Harrison Ave Campus MA011 28,922 7 South Shore Hospital MA080 26,297 8 Circle Health 22,993 9 Southcoast Hsp Grp-St. Luke's MA086 22, Lahey Clinic-Burlington Campus MA043 21, North Shore Medical Center-Salem MA078 21, Tufts Medical Center MA069 21, Newton Wellesley Hospital MA071 21, St. Vincent Hospital MA077 19, Northeast HS - Beverly MA010 18, Children's Hospital Boston MA020 17, Southcoast Hsp Grp-Charlton MA019 17, Cape Cod Hospital MA016 16, Winchester Hospital MA096 15, MetroWest Med Ctr-Framingham MA060 14, Mount Auburn Hospital MA064 14, Caritas St. Elizabeth's Medical Ctr MA083 13, Signature Hlthcare Brockton Hospital MA013 13, Caritas Good Samaritan MC-Brockton Campus MA031 13, Caritas Norwood Hospital MA074 13,173 All Other Hospitals 253,552 MA FY11 Total 853,207 5

6 Strategic Rationale for LGH/SMC Affiliation Create a combined organization ideally suited to: Deliver broader access to locally controlled and integrated healthcare services Coordinate community outreach to improve health and wellness Provide access to tertiary services to be developed based on combined volumes Maintain charitable assets that will continue to benefit local community Maintain capital allocation and strategic operating decisions in the Greater Lowell community The combined SMC/LGH organization will be able to: Leverage and build upon SMC s and LGH s core competencies Achieve a lower cost structure/economies of scale from combined best practices Enhance high value provider status to payers and employers of the Great Lowell community Stem service outmigration from the market Expand and grow utilization and outreach in the broader service area Create a platform to facilitate ACO development Increase occupancy/utilization through COEs and service line growth Support physician staff recruitment & employee retention Enhance support for physician integration initiatives Reduce healthcare costs for consumers 6

7 Governance, Corporate Organizational Structure and Agreements 7

8 Structure of Transaction LGH Corp., Inc. and Saints Health Systems, Inc. merged into Circle Health All current subsidiaries of LGH and SHS have become subsidiaries of Circle Health except Saints Medical Center SMC transferred all assets to Lowell General Hospital LGH SMC Campus at One Hospital Drive maintains its Catholic identity 8

9 Governance of Circle Health Saints Health System, Inc. merged into LGH Corp., Inc. Name changed to Circle Health Board Composition: 6 members from Lowell General 6 members from SMC 1 CEO (Normand E. Deschene) voting member Creation of a Board of Governors Not less than 25 or more than 40 members Creation of Corporators of up to 200 people Mirror board composition between Circle Health and Lowell General Hospital 9

10 Post Merger: Circle Health, Inc. * Circle Health, Inc. (f/k/a LGH Corp., Inc.) Visiting Nurse Association of Greater Lowell, Inc. Lowell Community Health Center Circle Health Physicians, Inc. LGH Services, Inc. The Lowell General Hospital (Obligated Group) Lowell General Foundation, Inc. (f/k/a Saints Foundation, Inc.) LGH Physician Associates, Inc. (f/k/a Saints Memorial Health Services) Lowell General Hospital Special Services, Inc. (f/k/a Saints Memorial Special Services) *This chart does not list all LGH Corp., Inc. affiliates and is provided to illustrate the proposed transaction to which the enclosed notices/applications relate 10

11 Stewardship Agreement Sets out the understanding of the RCAB regarding maintenance of the Catholic Identity of the SMC Campus Outlines obligation to adhere to the Ethical and Religious Directives for Catholic Health Care Services solely at the SMC Campus Maintenance of Pastoral Care and Community Benefit Programs at defined levels Creates roles for VP for Mission and RCAB Ethicist at Saints Campus Stewardship Agreement may be terminated by either party if: RCAB determines that LGH has not adhered to the Ethical and Religious Directives LGH determines that adhering to the Directives are materially burdensome $2 million termination fee payable to charity designated by RCAB if Agreement is terminated on these grounds Stewardship Agreement executed and Holy See (Vatican) approval granted on May 3, 2012 Allows SMC defined benefit pension plan to maintain Church Plan status 11

12 Awards and Recognition 12

13 Awards and Recognitions Lowell General Hospital Joint Commission reaccreditation July 2012 Magnet Recognition status in October 2010 Modern Healthcare Best Places to Work in Healthcare, 2011, 2012 Boston Business Journal Best Places to Work, 2010, 2011, 2012 Boston Globe Top Places to Work 2009, 2010 Becker s Hospital Review/Becker s ACS Review Best Places to Work in Healthcare, 2011 American Hospital Association Most Wired Award 2011, 2012 Numerous national quality recognitions and certifications throughout clinical areas 13 13

14 Awards and Recognitions Saints Medical Center 2010 Premier Award for Quality Harvard Pilgrim Hospital Honor Roll Leapfrog Patient Safety Measures Recognition Five Diamond Patient Safety Program Award for Dialysis Top 10% patient satisfaction ranking of all Press Ganey participating hospitals All 18 CMS patient satisfaction measures above national average 2010 Press Ganey patient satisfaction recognition for Best in Value First Hospital in US to partner with Immigration Customs Enforcement for best hiring practices First Hospital with FDA approved Zoll Medical monitor/defibrillator device Best Practice recognition by Federal and State governments for Therapeutic Hypothermia in the field and Door to Balloon response times 14 14

15 Medical Staff Considerations 15

16 Medical Staff Comparison: Primary Care» Primary care medical staff at the two hospitals are largely separate» Less than a quarter of the total primary care staff physicians are on staff at both hospitals» In general, primary care staff who are on staff at LGH only far outnumber those on staff at Saints only Specialty On Staff at Both Total Medical Staff On Staff On Staff at LGH at Saints Only Only Total PSA Office Locations Only On Staff On Staff On Staff at LGH at Saints at Both Only Only Total Family/General Practice Internal Medicine Pediatrics OB/Gyn Total Only 49/259 total primary care staff physicians are on staff at both hospitals Page 16

17 Medical Staffs: Need for Succession Planning» There are currently 75 (out of 670 total) physicians from the two medical staffs that are age 65+ now.» An additional 63 doctors are currently in the age cohort and are nearing retirement age.» Together, doctors age 60+ currently represent 21 percent of the combined medical staffs (138 out of 670) Combined Medical Staffs by Specialty and Age Category Proportion of Doctors Currently Row Labels Age less than Grand Total Age 65+ Age 60+ Primary Care % 18.5% Medical % 23.5% Surgical % 29.3% Hosp Based/Other % 18.6% Grand Total % 20.6% Page 17

18 Market Share and Competition 18

19 LGH & SMC Overall Service Area The following discussion is based on an analysis of LGH and SMC s combined service area. The combined Primary Service Area (PSA) accounts for nearly 90% of the LGH/SMC inpatient volume. The focus of our analysis is on the PSA. Service Area Population Summary Service Area Total Population 2010 PSA 288,000 SSA 339,000 Total 628,000 Sources: LGH/SMC; AHA 2012; Navigant Analysis, 2012 Page 19

20 Primary Service Area Population Trends According to the U.S. Census, LGH s PSA had a total population of over 288,000 in 2010 that is projected to increase to over 302,000 by Growth will be in the 45+ age groups. Total Population Trends Population Trends by Age Group Actual Baseline Projected CAGR MA Proj Age Cohort ,490 58,882 59,379 59,337 59,295 59,253 59,211 59,169 59,128 59,086 59,044 59,002 58,961 58, % -0.1% -0.2% , , , , , , , , , , , , , , % -0.8% -0.5% ,064 77,688 78,630 79,616 80,614 81,624 82,648 83,684 84,733 85,795 86,870 87,960 89,062 90, % 1.3% 0.7% ,386 28,000 28,656 29,508 30,385 31,288 32,219 33,177 34,164 35,180 36,226 37,304 38,413 39, % 3.0% 2.9% 85+ 4,069 4,123 4,281 4,391 4,503 4,619 4,738 4,860 4,985 5,113 5,244 5,379 5,518 5, % 2.6% 1.8% TOTAL: 286, , , , , , , , , , , , , , % 0.4% 0.4% Sources: US Census Bureau; Claritas CAGRs; Navigant Analysis, 2012 Page 20

21 LGH & SMC Discharge Distribution LGH Inpatient Origin, FY 2011 SMC Inpatient Origin, FY 2011 LGH SMC LGH + SMC Discharges % of Total Discharges % of Total Discharges % of Total PSA 14,594 89% 5,970 92% 20,564 90% SSA 998 6% 231 4% 1,229 5% Outside 881 5% 319 4% 1,200 5% Total 16, % 6, % 22, % Note: Includes Normal Newborns; Sources: LGH, SMC; Navigant Analysis, 2012, FY11 MA inpatient database Page 21

22 LGH/SMC FY10 - FY11 Market Share by Hospital In 2011, Circle Health captured an additional 1.2% market share in the Primary Service Area. 60.0% 50.0% Primary Service Area Total Acute Discharge Market Share 40.0% 30.0% 20.0% 10.0% 0.0% LGH SMC Circle Health Winchester Emerson Lahey All Other FY % 17.4% 57.3% 5.2% 4.0% 8.9% 24.6% FY % 17.0% 58.5% 4.8% 3.6% 9.0% 24.1% Hospitals FY10 FY11 FY10-FY11 Source: MA Hospital Inpatient Database 22

23 Core Service Area Principal Competitors The integration of LGH and SMC will position the combined entity to capture volume from the core service area that is currently going to other providers. Core Service Area Principal Competitors LGH SMC Tufts Lahey MGH Other Boston AMCs* Other FY11 Total Market Discharges = 18,857 Discharges 10,051 3, ,151 1,843 Note: Includes Normal Newborns; Sources: LGH/SMC; Massachusetts State IP Database; Navigant Analysis, 2012 Share 53.3% 20.9% 3.9% 3.4% 2.6% 6.1% 9.8% FY11 MA Inpatient Database Page 23

24 Utilization Statistics LGH/SMC Combined FY11 to FY12 FY10 FY11 FY12 % Change Patient Days Med Surg/ICU 60,019 61,973 63,428 2% Maternity 7,324 7,454 6,987 6% Pediatric 2,444 2,110 2,095 1% Special Care Nursery 2,902 2,493 2,692 8% Well newborn Nursery 5,899 6,082 5,695 6% Total excluding well newborn Nursery 72,689 74,030 75,202 2% Total Patient Days 78,588 80,112 80,897 1% Discharges Med Surg/ICU 16,000 16,969 17,063 1% Maternity 2,463 2,491 2,361 5% Pediatric 1,320 1,106 1,017 8% Special Care Nursery % Well newborn Nursery 2,207 2,276 2,140 6% Total excluding well newborn Nursery 19,966 20,725 20,618 1% Total Discharges 22,173 23,001 22,758 1% Average Length of Stay (ALOS) Med Surg/ICU % Maternity % Pediatric % Special Care Nursery % Well newborn Nursery % 24

25 Utilization Statistics (Continued) LGH/SMC Combined FY11 to FY12 FY10 FY11 FY12 % Change Emergency Department Visits 95,260 95,410 99,310 4% Medicare Case Mix Index (CMI) % Outpatient Surgery 10,793 10,396 10,021 4% Inpatient Surgery 4,274 4,088 4,029 1% Billable Registrations 562, , ,191 0% Avg Daily Census (Inpt & Observation) % % Occupancy (Inpt beds excl well nursery) 72% 73% 75% 2% Cardiology Tests 59,964 62,655 65,483 5% Medical Oncology 27,446 28,604 28,442 1% Diagnostic Radiology 128, , ,444 1% Interventional Radiology 3,395 3,715 4,022 8% Outpatient Ultrasound 29,819 30,574 32,458 6% Outpatient MRI 12,592 12,410 11,402 8% 25

26 Payment Relativity Blue Cross 2010 Hospital Relative Price Relative Pmt Lahey Clinic North Shore Medical Center South Shore Hospital Newton Wellesley Hospital Southcoast Hospitals Group Hallmark Health Mount Auburn Hospital Northeast Hospital Emerson Hospital Steward Good Samaritan Medical Center Winchester Hospital MetroWest Medical Center Signature Healthcare Brockton Hospital Lowell General Hospital Saints Medical Center Boston Childrens Mass General Tufts Medical Center Source: Commonwealth of Massachusetts, Center for Health Information and Analysis, Health Care Provider Price Variation in the Massachusetts Commercial Market, November

27 Payment Relativity (continued) Tufts Health Plan 2010 Hospital Relative Price Relative Pmt South Shore Hospital Mount Auburn Hospital Winchester Hospital North Shore Medical Center Lahey Clinic Newton Wellesley Hospital Hallmark Health Southcoast Hospitals Group Northeast Hospital Steward Good Samaritan Medical Center Emerson Hospital MetroWest Medical Center Signature Healthcare Brockton Hospital Lowell General Hospital Saints Medical Center Tufts Medical Center Mass General Boston Childrens Source: Commonwealth of Massachusetts, Center for Health Information and Analysis, Health Care Provider Price Variation in the Massachusetts Commercial Market, November

28 Payment Relativity (continued) Harvard Pilgram Health Care 2010 Hospital Relative Price Relative Pmt South Shore Hospital Lahey Clinic North Shore Medical Center Newton Wellesley Hospital Winchester Hospital Southcoast Hospitals Group Mount Auburn Hospital Hallmark Health Steward Good Samaritan Medical Center Lowell General Hospital Northeast Hospital MetroWest Medical Center Signature Healthcare Brockton Hospital Emerson Hospital Saints Medical Center Boston Childrens Mass General Tufts Medical Center Source: Commonwealth of Massachusetts, Center for Health Information and Analysis, Health Care Provider Price Variation in the Massachusetts Commercial Market, November

29 Financial Performance & Capital Structure 29

30 Summary Financial Statements SUMMARY BALANCE SHEET FY10 FY11 FY12 (1) Unrestricted Cash & Investments $77,241,587 $78,657,629 $114,113,546 Patient A/R net $22,316,702 $24,689,308 $46,882,956 PP&E net $67,421,898 $111,266,663 $226,878,358 Total Assets $282,901,357 $296,102,522 $447,097,770 CP Long term Debt $2,149,810 $2,847,913 $9,146,242 Long term Debt net of CP $111,173,668 $109,964,293 $147,732,408 Total Liabilities $185,377,078 $189,109,691 $309,974,732 Unrestricted Net Assets $87,022,350 $95,114,255 $125,489,117 Total Net Assets $97,524,279 $106,992,831 $137,123,038 SUMMARY INCOME STATEMENT FY10 FY11 FY12 (1) Net Patient Revenue (2) $224,129,061 $243,350,422 $297,259,023 Total Operating Revenue $228,851,982 $248,527,419 $307,980,805 Depreciation & Amortization $10,368,085 $10,736,442 $12,936,064 Interest $1,156,167 $1,089,672 $2,258,237 Total Operating Expenses (2) $219,410,758 $238,147,920 $295,550,541 Operating Income $9,441,224 $10,379,498 $12,430,264 Nonoperating Gains $2,174,569 $3,269,556 $16,220,792 Excess of Revenue over Expenses $11,615,793 $13,649,054 $28,651,056 EBIDA $23,140,045 $25,475,168 $43,845,357 (1) Unaudited; includes three months SMC financial performance (2) Excludes provision for bad debt 30

31 Key Financial Ratios KEY FINANCIAL RATIOS FY10 FY11 FY12 (1) Operating Margin 4.1% 4.2% 4.0% Excess Margin 5.0% 5.4% 8.8% EBIDA Margin 10.0% 10.1% 13.5% Days Cash on Hand Cash to Debt 69.5% 71.5% 77.2% Debt to Capitalization 56.1% 53.6% 54.1% Debt Service Coverage Ratio (1) Unaudited; includes three months SMC financial performance 31

32 Long Term Debt Series C Legacy 4.99% $ 63,085,000 Series D Legacy 3.22% 47,025,000 Series E Siemens 3.79% 25,000,000 Series F GE 3.92% 12,500,000 Other notes payable 7,850,899 Capital leases 2,259,087 Discount (841,336) Total LTD 156,878,650 Less Current Portion (9,146,242) Total LTD $ 147,732,408 32

33 Capital Structure LGH Capital Structure Summary (as of January 11, 2013) Series Par Out. ($000) Type LOC Provider Expiration Bond Maturity Hedge Pay Receive Notional ($000) Counterparty Termination Cost of Capital 2010C $63,085 FX 7/1/ % 2010D 47,025 VR - DP JPMorgan 12/1/2018 7/1/2044 Fixed Pay 3.22% 68% 1M LIBOR $39,000 Deutsche Bank 8/1/ % (1) ,500 FX - DP Siemens/GE 10/1/ % Total $147,610 $39,000 Wgt Avg Cost of Capital 4.12% LGH Debt Service Underlying Capital Structure $10,000,000 $9,000,000 $8,000,000 $7,000,000 $6,000,000 MADS: $9.51mm (2019) (2) Variable $47,025 32% Fixed $100,585 68% $5,000,000 $4,000,000 $3,000,000 Effective Capital Structure $2,000,000 $1,000,000 $0 Series 2010C Series 2010D Series 1993A Series 2012 Variable $8,025 6% Syn. Fixed $39,000 26% Fixed $100,585 68% (1) Interest calculated at a blended rate of 3.39% based on $39mm swapped to fixed and $8.025mm as variable rate and unswapped (2) Calculated in accordance with the Master Trust Indenture 33

34 Conclusion 34

35 Conclusion LGH/SMC merger creates a regionally strong healthcare delivery network Creates a provider with greater than 60% PSA market share Grants the organization critical scale and competitive strength as the 8 th largest provider in the rapidly consolidating Massachusetts marketplace Maximizes the opportunity for clinical and physician integration Enhances leverage with Boston tertiary providers for clinical affiliations Serves the best interests of the local community Positions the combined organization to become an A rated hospital system LGH is a proven operator and is led by a deep and seasoned management team SMC merger activities and Legacy Project have not disrupted strong financial / operational trends LGH has developed a highly structured and disciplined plan to effectively implement the merger and has identified, and is securing, the resources required for successful implementation There is a shared belief in the merits of the LGH/SMC merger and an unwavering commitment to its success 35

36 Legacy Project Update 36

37 About the Legacy Project The Legacy Project was developed to meet the increased demand for hospital services, improve patient flow to clinical areas, and provide more private patient rooms. The hospital has seen significant growth over the past five years in areas such as Maternity, Pediatrics, Inpatient Surgical Services, Diagnostic Testing, Outpatient Registrations, as well as a large increase in Emergency Department visits. In addition, the hospital was faced with the challenges of aging facilities. A significant electrical upgrade and overhaul of our facilities infrastructure in 2011 allows a seamless transition as the hospital expands. 37

38 38

39 DB (Basement Level) Operating Room Connects to our existing operating rooms 3 new ORs + 10 existing ORs = Total of 13 OR Rooms Large OR waiting room Shell Space 7,761 square feet of space to expand for future needs A view of the new Orthopedic Suite New Surgical Day Care Unit with 26 bays for closer proximity to OR improved patient privacy and flow 39

40 DG (Ground Floor), Patient Service Center, Lobby New main lobby and primary entrance New Gift Shop New Coffee Shop Larger Patient Service Center with increased Services Expanded imaging services with new MRI New Lobby rendering New Lobby in progress 40

41 D1 Emergency Department Approximately 50 new private exam rooms with sliding doors. Includes pediatric rooms, trauma rooms, and holding rooms to accommodate up to 75,000 visits per year New Exam rooms average 165 square feet (current rooms average 80 square feet) Ambulance entrance will have wider accessibility Close proximity to Cardiac Cath lab ED will have own CT Scanner and 2 regular radiology rooms Nurses areas 6 new large nurses stations/care centers Helipad to support Level III Trauma Center 41

42 D3 and D4 Inpatient Units D3 30 bed Medical Surgical Unit D4 30 bed Intermediate/Step Down Unit Telemetry monitors Rendering of patient room 42

43 D5 New Labor and Delivery Unit 2 new C section ORs Expansion from 8 L&D rooms to 12 L&D rooms (double current size) 4 Antepartum Rooms These units will have: All private rooms Infection Isolation Rooms Two nurses desk areas 43