Transcript May 17, 2016 - Advocate Health Care

Seventeenth Annual
Not-for-Profit Health
Care Investor
Conference
New York, New York
May 17, 2016
Jim Skogsbergh
President and Chief Executive Officer
Lee B. Sacks, M.D.
Executive Vice President and Chief Medical Officer
Dominic J. Nakis
Chief Financial Officer and Treasurer
The following material and presentation contains information which is
forward looking within the meaning of federal securities law. These forwardlooking statements are based on the current plans and expectations of
Advocate Health Care Network (“Advocate”) that, although believed to be
reasonable, are subject to a number of known and unknown uncertainties
and risks inherent in the operation of health care facilities, many of which
are beyond Advocate’s control, that could significantly affect current plans
and expectations and Advocate’s future financial position and results of
operations. These forward-looking statements speak only as of the date
made. Investors are cautioned not to unduly rely on such forward-looking
statements. This presentation should be reviewed in conjunction with
Advocate’s March 31, 2016 and December 31, 2015 continuing disclosure
reports.
Introduction and
Advocate Overview
Jim Skogsbergh
President and Chief Executive Officer
Advocate Health Care
Hospitals (11)
4 teaching
1 children's
1 critical access
5 level 1 trauma centers
Physicians
1,400 employed + 400 APCs
5,000 Advocate Physician Partners
6,300 medical staff
Post-acute
Home health, hospice, long-term
acute care hospital and palliative
care
35,000 associates
$5.5 billion total revenue
847,000 value based lives
Accolades
More than $783 M
community benefit
(2014)
2015 Report Card
2020 Strategy
Key Result
Area
SAFETY
ADVOCATE
EXPERIENCE
QUALITY
SERVICE
GROWTH
Measure
Target
Actual
-20%
-37%
Safety Event Reporting Rate
3.5
5.5
Health Outcomes Score
100
116
Patient Engagement
75
60
Associate Engagement
80
>90
Physician Engagement
75
79
Net Revenue Growth
3.3%
3.2%
System Operating Margin
4.0%
6.1%
$8,016
$7,701
$114
$116
$29
$29
100
87
Serious Safety Event Rate Change
ACCESS AND FUNDING OUR Hospital Cost per Discharge
AFFORDABILITY FUTURE
Medical Group Cost per Visit
Philanthropy (millions)
ADVOCATECARE® COORDINATED AdvocateCare® Index
CARE
Achieved
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Key Market Dynamics
• Provider & health plan consolidation
• Dominant health plan
• Narrow networks emerging
• Growing consumerism
• Revenue pressures – utilization, mix
and price
• Cost pressures – labor and drugs
Advocate Well Positioned
• Leader in safety and health outcomes
• Strong brand
• Population health leader
• High performance network product
• Pluralistic approach to physicians
• Robust ambulatory network & retail clinics
• Financial strength
Advocate Participates in a Variety of
Partnerships to Further Our Strategy
Collaborative
Relationships
Contractual
Relationships
Shared
Economics
Varied & Numerous Partnerships and
Collaborations
•
•
•
•
•
•
•
•
•
NorthShore Merger
Advocate Clinics at Walgreens
Advocate Physician Partners
Cerner Collaborative
High Performance Network w/Blue Cross
Surgery Centers w/SCA
Post-acute Care Network
Long-term Acute Care Hospitals w/Loyola
Laboratory Operations w/Aurora
Partnering and
Collaborating to
Drive Value and
Innovation
Lee B. Sacks, MD
Executive Vice President and Chief Medical Officer
Pluralistic Physician Care Platform
Aligned ~ 3,600
Employed
~1,400
Advocate Physician Partners ~ 5,000
Medical Staff ~ 6,300
Advanced
Practice
Clinicians
~ 400
Advocate Physician Partners
Optimizing health outcomes and value for the communities we
serve by integrating care across the continuum
Advocate Medical
Group
BroMenn
PHO PHO
Condell
Christ
PHO
Condell
PHO
Dreyer Medical
Clinic
Trinity PHO
Good Samaritan
PHO
Sherman PHO
Good Shepherd
Silver
PHO Cross
PHO
Illinois Masonic
PHO
South Suburban
PHO
Lutheran General
PHO
Trinity
PHO
Sherman
PHO
Future
PHO
Silver Cross
PHO
Future
Medical Group
Advocate/Cerner Collaborative (“ACC”)
• Readmission solution
• Transitions of care solution
• Medication adherence
• New models to be piloted in 2016
• Provisional patents
• Accepted peer reviewed
publications
Benefits Beyond the ACC
Cerner
Advocate
- Decrease in patient falls
- 20% reduction in high risk
readmissions
- Royalty stream
- “Jump-start” into big data
and advanced analytics
- Product speed to market
ACC
- Enhanced partnership with
Advocate
- Strong reference client
- New population health
products
High Performance Network
Competes On Value
• 2016 BlueCare Direct®
powered by Advocate
– Public exchange and small group market
– Lowest priced Blue Cross plan
– Enrollment approximates 58,000 lives
• 2017 market for the product expands:
– SHOP (small business health option program)
exchange
SCA Partnership Drives Outpatient
Surgery Strategy
• Broader and deeper network of high quality, low cost
centers
– Combined 13 surgery centers in metro Chicago
• Supports fee for service and population health goals
– Accretive to earnings
– Connect/partner with physicians
– Lower cost care setting vs. hospital-based
– Lower priced services vs. hospital-based
• Dedicated management and business development
teams
Post Acute Business Model
Owned
and in
place
Palliative
Care
Transition
Program
Home
Care
SNF
Build/
Partner
LTACH
IP
Hospice
Rehab
Assisted
Living
RT/HME
Infusion
Post
Acute
Network
Physician
at Home
Benefits of RML Investment
• LTACH appropriate cost setting for both FFS and
FFV
• Impact on Advocate Bethany Hospital
– Significant improvements in health outcomes/safety
– Growth in patient referrals
– Improved operating results
• RML leverages Advocate’s purchasing scale and
ACL lab to achieve significant cost savings
• Advocate and Loyola realize positive financial
returns
• May 18 ribbon cutting
• 56 locations throughout metro Chicago
• 250,000+ annual patient visits
• 200,000 unique lives
– 40% do not have PCP relationships
• Staffed by advanced practice nurses
• Improves access, integrates care & lowers
cost
Advocate/Aurora Lab JOA
• Provides high quality, low cost standardized operations
•
•
•
•
Test platforms/instrumentation
Supply chain and contracting
Policies, protocols and procedures
Pathology support
• Quality and cost improvements
• 5 and 10 year growth rates of 15% and 60%, respectively
• Workforce reduction of 11% (300 FTEs) over a 3 year period
• Quality defect performance improved from 4,500 DPM to 2,500
DPM
• 20% unit cost reduction
• $80 million annual savings
Partnerships Going Forward
• Health plans for Medicare, Medicaid and
commercial products
• Add capabilities critical for population
health
• Enhance operational excellence
• Improve access
• Maintain strong physician engagement
• Successful partnerships require care and
feeding
Financial Profile
Dominic J. Nakis
Chief Financial Officer and Treasurer
Volume to Value – Pro forma Total Enterprise*
900
$6,500
$6,000
800
$5,500
$5,000
600
457
500
343
400
295
32
300
200
100
$4,500
526
22
19
24
221
230
239
31
247
Revenues in millions
Value based Lives in thousands
700
$4,000
$3,500
$3,000
4,643
4,908
5,074
5,013
4,286
$2,500
$2,000
289
$1,500
$1,000
0
$500
2012
Full Risk
2013
2014
Partial Risk
2015
2016 Q1
Shared Savings
942
1,000
1,058
1,104
1,178
2012
2013
2014
2015
2016 Q1
Annualized
$0
Net Patient Service & Other Revenues including Shared Savings
Risk Based Revenues
*Pro forma Advocate Health Care and Advocate Physician Partners
Operating Performance Consistently Strong
$400
10%
6.3%
Dollars in Millions
$300
6.5%
6.1%
6.1%
$200
5%
3.0%
$100
$-
$298
$300
$339
2012
2013
2014
Operating Income
$331
$42
//
2015 2016 Q1
Operating Margin
0%
24
Dollars in Millions
Operating Cash Flow is Solid
$700
$600
$500
$400
$300
$200
$100
$-
11.6%
11.5%
12.0%
15%
11.7%
8.8%
10%
5%
$532
$567
$636
$633
2012
2013
2014
2015
Operating Cash Flow
//
$121
0%
2016 Q1
Operating Cash Flow Margin
25
Diversified Investment Portfolio
20%
$450
10.6%
Dollars in Millions
7.1%
10%
3.2%
$250
-0.8%
-2.6%
$50
$439
$343
0%
$188
$(184)
//
-10%
$(43)
$(150)
-20%
2012
2013
2014
Investment Income (loss)
2015
2016 Q1
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
15%
15%
Real Assets
20%
24%
Hedge Funds
25%
21%
Fixed Income
10%
8%
30%
32%
Target
2016 Q1
Private Equity
Public Equity
Investment Yield
Expected return of 7.0%
Risk/return ratio at 0.70
27
Debt Profile is Low, Level and Long
Tax-exempt debt is $1.6 billion, average annual debt service is generally
level through 2038 at $95 million and average life is 19 years.
$100.0
$90.0
Debt Service (in $millions)
$80.0
$70.0
$60.0
$50.0
$40.0
$30.0
$20.0
$10.0
$0.0
2016
2018
2020
2022
2024
Note: Debt profile is as of March 31, 2016.
2026
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
Diversified Debt Portfolio
Underlying Debt Mix
Liquidity Mix
Synthetic
Fixed,
$321.3,
20%
JP Morgan,
$185.4, 12%
Wells Fargo,
$49.2, 3%
Fixed Rate,
$924.9,
58%
Northern
Trust,
$86.6, 5%
Intermediate
$176.4,
11%
Product Mix
Variable
Rate
$170.0,
11%
Windows
VRDB
$70.0, 4%
Weekly
VRDBs
$321.3, 20%
Multi-Annual
Tender
$120.3, 8%
Note: Debt profile is as of March 31, 2016.
SelfLiquidity,
$346.4, 22%
Direct
Purchase
$100.0, 6% Annual
Tender
$56.0%, 4%
Fixed Rate
$924.9, 58%
None,
$924.9, 58%
Strong Coverage and Capitalization
12.0
24.4%
40%
24.0%
10.0
23.9%
8.0
Times
35%
23.2%
24.0%
30%
25%
6.0
20%
15%
4.0
10%
2.0
0.0
11.1
9.5
9.4
7.6
2012
2013
2014
2015
Debt Service Coverage Ratio (times)
//
6.9
5%
0%
2016 Q1
Debt as % of Unrestricted Capitalization
31
Robust Cash to Debt Ratio
300
295
Percent
290
285
280
275
270
265
260
32
287
283
296
280
2012
2013
2014
2015
//
273
2016 Q1
32
Pension Plans Well Funded
100%
$950
Millions
Dollars
Dollars in Millions
$900
96%
92%
97%
94%
100%
90%
$850
$800
80%
$750
$700
70%
$650
$600
$550
$500
60%
$768 $835
$840 $838
$899 $937
$916 $945
2012
2013
2014
2015
Assets
PBO
//
$915 $975
2016 Q1
Percent Funded
33
50%
Substantial Liquidity Position
390
383
in Millions
Dollars
in Millions
Dollars
$4,500
380
$4,000
368
370
$3,500
$3,000
360
351
$2,500
340
$2,000
340
$1,500
330
$1,000
$500
$-
350
$3,842
$4,518
$4,725
$4,712
2012
2013
2014
2015
Dollars
//
Days Cash and Investments on Hand
$4,590
320
310
2016 Q1
34
Days on Hand
386
$5,000
Significant Capital Expenditures Past
Three Years
$900
250%
212%
Dollars in Millions
$750
$600
196%
182%
200%
151%
150%
150%
$450
100%
$300
50%
$150
$0
$281
$386
$508
$504
2012
2013
2014
2015
//
$102
0%
2016 Q1
35
Cash Spending
Capital Spend Ratio
Summary
• National leader in safety, health outcomes
and population health management
• Market share leader and brand strength
• Growth through new risk based products
• Balance sheet strength and solid operating
performance
• AA bond ratings with stable (M/F) and
positive (S&P) outlooks
42