Boston Medical Center HFMA Capital Conference April 10-11, 2014

Chicago, Illinois

April 10, 2014

Presentation by Mary Beth Begley

Director of Treasury Operations

Presenters and Agenda Today’s Agenda Items

Overview of Boston Medical Center

Utilization and Financial Statistics

Current Challenges

Strategic Initiatives

Clinical Campus Consolidation Project

Conclusion

1

Overview

Boston Medical Center (“BMC”) is a private, not-for-profit academic medical center located

in the South End neighborhood of Boston

BMC provides a full range of primary, secondary and tertiary services

611 licensed beds in 2 inpatient facilities on an integrated medical center campus

21% market share in PSA of Suffolk County in 2011

Volume remains strong with 26,000 discharges, 132,000 emergency room visits and 678,00

clinic visits in FY2013

BMC serves as the principal clinical teaching site for the Medical and Dental Schools of

Boston University

Operates 43 accredited residency programs with approximately 700 resident and fellowship

positions

Campus consists of BMC facilities and university academic and research facilities

BMC and Boston University are members of the Faculty Practice Foundation

(approximately 850 MDs)

Critical role in the Boston market as a safety net provider

2

Boston Medical Center Corporation

Faculty Practice

Foundation, Inc.

BMC Insurance

Company Ltd.

Boston

University

Steward Research

Specialty Projects

Corp

Univer Development

Foundation, Inc.

East Concord

Medical

Foundation, Inc.*

BMC Integrated Care

Services, Inc.

BMC

NAB

Business

Trust

Sole

mem

ber

70%

SH 30%

SH 90%

SH

10%

SH

Member Shareholder Other

* BMC and BU each appoint ½ of the Directors

Note: The chart does not include BMC entities or affiliates that are inactive or financially immaterial

BMC HEALTH SYSTEM, INC.

Boston Medical Center Health Plan, Inc.

Obligated Group Entity

Affiliates included in

BMC (Parent

Company Only)

Financial

Statements, but not

members of the

Obligated Group

3

BMC is the principal teaching hospital of Boston University School of Medicine (“BU

Medical School”) and the Boston University Goldman School of Dental Medicine (the

“BU Dental School”)

Boston University and BMC are corporate members of the Faculty Practice

Foundation (approximately 850 MDs)

Virtually all faculty of BMC’s active medical-dental staff are members of one or the

other school

The chiefs of BMC’s clinical divisions serve as the chairpersons of the

corresponding academic departments in the BU Medical School and BU Dental

School

The Dean of BU Medical School is an ex-officio member of the BMC Board

BMC and BU have engaged in a joint development project at BioSquare for research

and business that will facilitate collaboration between researchers and clinicians of

BMC

Relationship with Boston University

4

BMC’s unique role as the largest safety net hospital

in New England

Created in 1996 as country’s first full asset merger of two public hospitals with a

private academic medical center. The merger continues the 100+ year mission of

Boston City Hospital to serve all regardless of their ability to pay.

Largest and busiest provider of trauma and emergency services in New England with

over 129,000 emergency room visits last year.

Safety Net focus: 150,000 low-income patients/year; 65% of patients from Boston’s

neighborhoods with greatest levels of mortality and health disparities; specialized

programs include grow clinic, child witness to violence, preventive food pantry, social

workers and 200,000 translations in 21 languages/year.

BMC is a leader in medical research and teaching: $132M in grant awards in FY12

with research specialties including infectious disease, cardiology, Parkinson’s

disease, geriatrics and endocrinology. 772 residents and fellows part of 73 residency

training programs. Over $300m of research on campus

5

Boston Medical Center Service Area

3

Boston Medical Center Market

PLYMOUTH

MIDDLESEX

NORFOLK

BRISTOL

SUFFOLK

ESSEX

County Discharges

Percent of

Total BMC

Patients

Primary Service Area

Suffolk 17,952 62.0%

Secondary Service Area

Bristol 328 1.1%

Essex 725 2.5%

Norfolk 2,709 9.4%

Middlesex 4,076 14.1%

Plymouth 2,054 7.1%

Total SSA 9,892 34.2%

All Other 1,119 3.9%

Total 28,963 100.0%

Boston Medical Center

2011 Patient Origin

6

Key Volume Indicators

Outpatient Visits (000s)

Emergency

Ambulatory Surgery Clinic

131.3 132.3 128.2 129.7 132.0

568.6 612.1 635.0 662.1 682.2

25.0 24.8 26.0

28.4 27.8

2009 2010 2011 2012 2013

30.3 30.2

29.0

26.1 26.0

2009 2010 2011 2012 2013

Discharges (000s)

Source:

BMC Records

7

Financial Performance

Total Operating Revenue

($000s)

1,078

993

1,006

975

1,006

1,054

2008 2009 2010 2011 2012 2013

69.3

-24.7 -34.9 -30.3

2.6 4.8

-3

-2

-1

0

1

2

3

4

5

6

-60

-40

-20

0

20

40

60

80

2008 2009 2010 2011 2012 2013

($000s)

EBITDA Net Income

($000s)

Excess Margin

(%)

Cash Flow Margin

(%)

117.5

53.9 53.0 52.4

81.5 79.9

0

2

4

6

8

10

12

0

20

40

60

80

100

120

140

2008 2009 2010 2011 2012 2013

Source:

Boston Medical Center audited financial statements for FY 2008 – FY 2013, FY13 Operating Revenue adjusted to exclude bad debt expense for comparison purposes. 8

Financial Performance

MADS Coverage

(x)

Cash on Hand

(Days)

92.4

113.7

82.7

119.9

174.0

192.0

2008 2009 2010 2011 2012 2013

4.12

1.89 1.86

1.43

2.60

2.90

2008 2009 2010 2011 2012 2013

Source:

Boston Medical Center (Parent Company Only) audited financial statements for FY 2008 – FY 2013, 9

BMC’s Role In MA Health Care Reform

Coverage

Moved more patients to coverage than all other hospitals in Massachusetts

combined

150,000 low-income patients served annually

BMC HealthNet Plan is the largest insurer of care to Medicaid and

Commonwealth Care with almost 300,000 statewide members.

Financial Impact

Since 2008, BMC took a disproportionate share of Medicaid cuts

$140m/year decrease in payments to address impact of low Medicaid base

rates

33% cut in inpatient rates

10

BMC’s completes one of the biggest hospital turnarounds

in the nation…

Finished FY12 and FY 13 with a small surpluses in each year---without cutting

back on care.

Implementation of numerous cost savings and efficiency strategies to reduce

total medical expense through routine cost reduction and the development of

novel programs designed to reduce unnecessary hospitalization, emphasis on

prevention and screening:

Project RED to cut costly hospital readmissions

Patient Centered Medical Home Programs

Diabetes management program

Yoga for back pain, on campus and at five CHC’s

We know that access to high quality health care for our patients and our

future depends our ability to get people healthy and keep them well

11

12 2012 BCBS Relative Hospital

Prices • AG report shows BMC’s BCBS price is ~50% lower than BWH’s and ~25% lower than Beth Israel’s

• DHCFP report shows BMC’s commercial prices are 20-28% lower than BI’s for key DRGs (severity adjusted)

2012 Leapfrog Patient Safety Ratings

• Named a 2012Top Hospital by the Leapfrog Group and received an “A” score for safety

• Publicly reported patient safety ratings show BMC performs on par with MGH, BI and BWH and substantially better than Tufts

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

BWH BIDMC BMC

Re

lati

ve P

rice

Pai

d

And has demonstrated our value…

12

MA health reform law advances needed cost controls, but BMC’s challenges

remain largely unaddressed

▪ Continued downward pressure on Medicaid rates and MCO rates

disproportionately affect BMC

• Federal cuts could total $40m/year

- - DME, IME, NIH and sequestration

- - In 2014 federal reform reduces Medicare reimbursements (BMC’s best

payer)

▪ Low commercial rates and no opportunity for cost-shifting

▪ Projected operating losses in futures years will be mitigated by ongoing

performance improvement efforts and substantial and complex campus

consolidation plan

…but BMC faces continued revenue and cost pressures

13

FY2013 Accomplishments Strategic Initiatives

Patient satisfaction scores improved dramatically Received certification for Patient Centered Medical Home

for Family Medicine & General Internal Medicine practices Family Medicine Chair won Peter Drucker award for work

on re-engineered discharges (Project RED)

Provide the right care for every patient. No Less…No More.

14

Opened a state-of-the art specialty pharmacy in the

Shapiro building that offers prescriptions for patients, staff and the general

Completed substantial improvements to our billing and collections systems

Received Board approval for clinical campus redesign project

Be the lowest cost, highest

performance health care

provider

Mission and Performance Based Funding. Preferred Provider in Target Commercial Markets

Successfully achieved all year two benchmarks of the Medicaid Waiver process to receive the full funding of $103 million for FY13

Received year one payment for meeting goals associated with “Meaningful Use” standards to expand EHR

Inpatient volumes increased

Lead in integrated care Revised board governance structure to better position

BMC for state payment reform and national health care reform

Continue to work with community health centers on development of an ACO

Campus Redesign Rationale

• The redesign of BMC’s campus is the culmination of the 1996 merger of Boston City Hospital and

Boston University Medical Center Hospital---and a critical component of the hospital’s strategic

plan.

• The redesign project will yield at least $25m/year in savings while maintaining patient services at

current levels on a more rational, operationally efficient, and patient-centered footprint.

• The redesign will position BMC for new models of health care delivery and state-mandated cost

controls.

• The redesign will address vast differences in the current state of facilities and create a state-of-

the-art clinical workspace to solve BMC’s most pressing care delivery needs.

• The project’s innovative approach provides a coordinated, comprehensive solution to BMC’s care

delivery needs.

• The construction process itself will be innovative---the first hospital project in Boston to use an

Integrated Project Delivery (IPD) approach to maximize efficiency.

15

Real Estate Strategy:

Overview of the plan and major real estate changes

• Improve operational efficiency by

consolidation of inpatient and surgical

operations on a single site

• Improve patient experience through

increased private room availability, an

expanded ED, modernized patient care

areas, and improved patient accessibility

• Sustainable design and a reduced

carbon footprint through the use of

green technologies and energy efficient

upgrades

70,000 sqft addition to Menino

20,000 sqft addition to Moakley

Renovations to Menino and Yawkey

Exiting East Newton facility and

potential sale/lease back

Overall goals of real estate plan Major real estate changes

16

Our split clinical campus is associated with over $25M of

excess operating costs

• Ambulance transports 2.1

• Two Dietary depts 1.9

• Two Pharmacies 1.7

• Two OR suites 1.4

• Two Radiology depts 0.5

• Patient transport 0.5

• Lab inefficiencies 0.5

• Public Safety 0.5

• Two Receiving depts 0.3

• Two Respiratory depts 0.2

Example Operating Inefficiencies

$ Millions

17

Our clinical campus redesign plan would consolidate

operations on the Menino campus

18

… and requires an incremental capital expenditure of $170M

over 5 years

36

34

4 13

100

107

38

35

3

170

Menino Yawkey Moakley Dowling Enabling Total budget*

Baseline spend

Incremental spend

* The baseline spend in total budget includes $13M of capital avoidance from projects on the East Newton side of

campus (Evans electric vault, EN MRI, EN air handling, EN rook)

Capital requirements for clinical campus consolidation

$ Millions • The total plan

requires ~$270M

capital

• $100M of the total

is spending that

would be required

over the same

period on existing

buildings (including

$13M on Newton)

• The total

incremental

capital required to

execute the

consolidation is

$170M

19

Funding would be a mix of framework capital, sale of

assets, philanthropy and potentially debt financing

270

75

40

50

105

Total

Philanthropy / Bond Financing

Endowment

Sale of In-Patient Bldg.

Framework Capital

Sources of capital for BMC campus consolidation

$ Millions

• $100M of the capital

would come from

hospital’s available

funds

• Sale of In-patient

building is estimated

to yield $50M+

• There are relatively

modest additional

funding requirements,

but timing would

require borrowing

from Board

designated funds or

debt financing

20

Overview of impact of clinical campus redesign on BMC’s

FY14-17 capital framework

540

(107)

(58)

(88)

792

458

(163)

(415)

912

Net cash available**

Clinical campus redesign plan (net)

Potential strategic initiatives

Approved strategic initiatives

Total cash available before strategic initiatives

Board designated funds

Routine capital

Required commitments

Net cash from operations*

21

Summary of BMC Multi-year capital framework (FY14-FY17)

$ Millions

* Includes prior year cash for all entities.

.

Conclusion

Academic medical center with unique focus on vulnerable, indigent populations

Strong commitment from Commonwealth of Massachusetts

Integrated relationship with Boston University as primary teaching hospital site

Successfully managed through the fiscal crisis and reduced state funding by adjusting

service lines and costs

Remains an integral provider of services to the City of Boston and an integral source of

research funding and training for Boston University

Continued focus on margin improvement through implementation of strategic initiatives

including the clinical campus redesign project

22