Leveraging a CAH Health System Affiliation to Modernize Rural Health Care Alisa Coleman President & CEO Ferrell Hospital Alan P. Richman President & CEO InnoVative Capital, LLC February 7, 2016 Jared Florence VP Business Development Deaconess Health System
Ferrell Hospital At a Glance Ferrell Hospital is an independent critical access hospital located in southern Illinois. Ferrell was first established in 1928 and has undergone some modifications since that period: 1957, 1974 and 2011. CAH designation was received in 2005. Service area has a population of almost 45,000. Two other hospitals share portions of the service area Annual revenue is $20 million. Annual operating margin averages around 5% (Was negative prior to Deaconess relationship). Annual discharges are 650. 2
Ferrell Hospital Issues that made affiliation a viable option for Ferrell: Economic conditions, Ability to recruit physicians, Stabilize market share, Improve leverage with payers, Long-term operating income sustainability, Shared best practices, Facility upgrade needs and enhance quality, and Cost of population health infrastructure. Key Success Factors: Having a shared vision for success, Open and honest communication, Accountability, Commitment, and Willingness to work together. 3
Ferrell Hospital Critical Outcomes Key Objective Milestones On Our Journey: Key Management Positions Strategic Planning Facility Improvement Physician recruitment Access to key operational assets: i.e. EPIC, access to purchasing group, equipment Ongoing education of hospital staff and board on relationship Commitment to quality standards Align with OneCare, a Deaconess Accountable Care Organization Co-Branding with Deaconess Illinois Eventual Accreditation. 4
Ferrell Hospital - Strategic Initiatives 2016-2018 Ferrell CARES Care: To achieve a higher level of community trust through demonstrated processes and outcomes for our patients. Accountability: To achieve sustainable stewardship and reinvestment capabilities. Rewards and Recognition: To demonstrate exceptional, consistent and expected service delivery for patients entrusting their care to us. Exceptional and engaged staff: To have compassionate, competent, dedicated associates with the stated goal of patient first. Services and Growth: To enhance service availability so patients can receive most of their care at Ferrell Hospital 5
Overview 6
Deaconess Health System Deaconess Health System Deaconess Hospital 350 beds Deaconess Cross Pointe 60 beds HealthSouth Deaconess 96 beds 7
Deaconess Health System Deaconess Health System Deaconess Gateway Hospital 182 beds Gateway Heart Hospital 24 beds The Women s Hospital 74 beds 8
Deaconess at a glance... Not-for-profit, governed by a local board of directors 48,000 discharges annually 100,000 Emergency department visits $950 million in net revenues Typically produce a 10% operating margin 5500+ employees 63% market share in primary service area 26 county service area 9
Deaconess Health System Key Strategic Initiatives Strategies 2012-2015 Develop and refine robust chronic conditions programs Explore and implement alignment with other organizations as a means toward increasing community value Explore and implement economic and/or organizational alignment with regional communities hospitals and physicians. Develop infrastructures and systems by which to manage risk-based reimbursements Develop physician economic alignment models that will incentivize collaborative efforts to achieve DHS goals Undertake comprehensive operations restructuring to lower unit cost Community Value Financial Strength Strategic Goals Superior Physician Hospital Relationships Exceptional Quality and Service Mission / Vision 10
Deaconess Service Area Deaconess Ferrell 11
Affiliation Model Between Deaconess and Ferrell 12
Principles of Collaboration Ferrell and Deaconess are community oriented, mission driven healthcare providers Local Control is important Local Healthcare is important Strategically align to progressively increase affiliation short of full merger/acquisition Retain local institutions identities and flexibility going forward Long term financial stability and facility enhancement Implement best practices to enhance quality, safety, access & efficiency for us and our patients 13
Collaboration Continuum More Complex Formal Management Agreement with Clinical Integration Joint Hospital Operating Company Hospital Merger Contractual Arrangement for Sharing Clinical Best Practices Contractual Arrangement for Shared Administrative Services Hospital Affiliation Models Less Complex Hospital Transfer Agreements Less Integration More Integration 14
Goal: Goal and Premises To develop a formal, long-term, affiliation which will benefit the Eldorado community and the people of Southeastern Illinois. This will secure Ferrell s long term viability and success and solidify Deaconess presence in the area. Premises of Proposed Affiliation Model: Meets both parties respective mission objectives Strengthens Ferrell s position as a sustainable community asset Permits Deaconess to devote its financial, clinical and human capital to this joint effort 15
Process Initially, Ferrell and Deaconess enter into: Strategic Affiliation Agreement & Management Agreement Strategic Affiliation Agreement Joint Affiliation Council (JAC) Management Agreement Ferrell receives management and other services from Deaconess Contribution Agreement This is the agreement that creates the long term partnership, clinical integration and board participation 16
Leveraging a CAH to Modernize Ferrell Facilities 17
REPLACEMENT FACILITY DISCUSSION An initial independent study by the Joint Affiliation Council, revealed: Ferrell Hospital needs to enhance it s facilities and outpatient capabilities. Ferrell s facility is aging and will require increasing levels of capital investment Southeastern Illinois is a significantly underserved region with the majority of patients leaving the area to obtain healthcare With a modernization project, patients will be inclined to remain local for their healthcare services A modern facility will improve Quality, Safety, Satisfaction and enhance growth potential 18
REPLACEMENT FACILITY INITIAL PROCESS Deaconess funded initial feasibility study performed by ADAMS, which indicated that a modernization project financing was viable. After these positive findings, InnoVative Capital was selected by Ferrell as its financial advisor, and our responsibilities have included: 1. Researching potential financing options and debt. 2. Guiding hospital management in the RFP process for project members and feasibility consultant. 3. Providing ongoing education and advocacy for hospital management and board. 4. Analyzing, selecting and designing the appropriate and fiscally responsible financing (USDA s Community Facilities Direct Loan Program) 5. Reviewing construction budgets, financing framework, project sequencing, and feasibility study. 6. Soliciting commercial banks to provide construction loans and compare proposals with tax-exempt construction note option. 19
REPLACEMENT FACILITY TIMELINE Accomplishments to date: Overall project financing will be $37M Pre-Application meeting and submission approval by USDA Facility design completed Feasibility study underway for USDA CON hearing for Illinois on 1/24/17 Milestones to be completed: USDA application to be submitted - 4/1/17 Expected receipt of USDA approval - 7/1/17 Bank construction closing and groundbreaking 9/1/17 20
Ferrell Hospital The Results CEO and CFO were recruited and are employees of Deaconess Illinois. The Contribution Agreement signed in December 2015. Strategic initiatives in place for the next three years. Two primary care physicians recruited through Deaconess Residency Program. Expanded surgery and added digital mammography on site. Hospital staff have access to education on health topics, leadership, quality and access to EPIC in physician clinics (with plans to expand). Ferrell Hospital has re-branded with new logo and began co-branding services with Deaconess such as our Comprehensive Pain Center and currently working on a rural health clinic in White County. 21
More Results Net profit margin year at the end of first year: 5.2% Ferrell is a part of the Deaconess OneCare Network. Added two general surgeons. A $37 million new construction and modernization plan is in the final planning stages. Groundbreaking estimated to be Fall 2017. 22
Present Day Ferrell 23
The Future of Ferrell 24
Discussion/Q&A Ferrell Hospital Alisa Coleman President & CEO Tel: 618-297-9615 acoleman@ferrellhosp.org www.ferrellhosp.org Deaconess Health System Jared Florence Vice President Business Development Tel: 404-504-7621 marc.florence@deaconess.com www.deaconess.com InnoVative Capital, LLC Alan P. Richman President & CEO Tel: 610-543-2490, Ext. 101 arichman@innovativecapital.com www.innovativecaptial.com