Nashville, Tn.April 301, 2012

John I. Pritchard

Objective: Objective: To Better Understand the To Better Understand the

Increasingly Complex Increasingly Complex Healthcare Supply ChainHealthcare Supply Chain

Medical Distribution Solutions, Inc.

Distribution Products Contracting Products

The MAX by the Numbers…The MAX by the Numbers…

• 161,000 facilities….

Laboratory 28,020

Clinic/Physicians-Primary Care 18,308

Supplier 17,442

SNF/long-term care (LTC) unit 17,117

Home health (HHA) 13,817

Surgery center/ASC 9071

Assisted living center 5886

Hospital (Acute + Specialty Acute) 5679

Imaging Location 5230

The State of Healthcare The State of Healthcare Contracting-IDN’sContracting-IDN’s

Total IDNs Shareholders of a GPO

System IV 122 68

System III 688 146

System IIIA 458 46

System II 116 9

System I 66 1

Medical Distribution Medical Distribution Solutions, Inc.Solutions, Inc.

HIDA GPO Report

Average # of GPOs per Hospital is 2.4

Average # of GPOs per IDN is 1.7

Estimated GPO Compliance is 55%-60%

Overall Comparison of Major GPOs 2009 and 2010

Rank by Volume GPO

Contract Volume ($B) Acute* Non-acute

2009 2010 (est.) 2009 2010 2009 2010

1 Novation $37.8 $39.0 1,600 1620^ 23,000^ 30,000^

2 Premier $36.0 $39.0 2,400 2,400 79,388 80,000^

3 MedAssets** $24.0 $25.0 2,595 3,071^^ 32,278 36,6844 Healthtrust $17.0 $18.0 1,339 1,370 3,880 6,416

5 Broadlane** 10.3^ $11.0 1,132 1,100^ 43,377 45,000^6 US Govt $8.7 $9.4 212 210^ 134,900 134,8637 Amerinet $7.0 $7.5 2,092 2,613 39,602 33,451

*Hospitals + IDNs; **MedAssets & Broadlane to merge by 2011; ^Estimated;

^^ Includes Spend-Management members

Memberships from member lists except Novation and Premier -- from company PRs. Govt includes DoD & VA, from 2010 Federal Budget Request.

Copyright MDSI 2010. All rights reserved.

2010 Alternate Care Types by GPO

GPO Acute LTC Alt Care PhysiciansTotal Alt

CareTotal

Healthcare

US Govt 212 226 1,137 133,500 134,863 135,075

Premier 2,410 14,826 24,289 40,273 79,388 81,798

Broadlane 1,132 n/a 43,377 n/a 43,377 44,509

MedAssets 3,199 6,442 3,199 27,043 36,684 39,883

Amerinet 2,614 4,697 2,176 26,578 33,451 36,065

Novation 1,600 n/a 30,000 n/a 30,000 31,600

HealthTrust 1,695 274 1,390 4,752 6,416 8,111

GPO VolumeGPO Volume

GPO Name Location 2011 APV

1. MedAssets Alpharetta, GA $45.0B

2. Premier Inc. Charlotte, NC $43.0B

3. Novation LLC* Irving, TX $40.1B

4. HealthTrust Purchasing Group Nashville $19.0B

5. Amerinet Inc. St. Louis $7.6B

7. U.S. Department of Veterans Affairs Washington $5.4B

8. U.S. Department of Defense Washington $4.8B

9. Resource Optimization & Innovation St. Louis $693M

Source: Healthcare Purchasing News October, 2011

September 2008 September 2008 MeltdownMeltdown

:The Advisory Board, Implications for Hospitals The Financial Meltdown 2008

Catholic Contracting GroupCatholic Contracting Group5 IDNs (200 hospitals, 2,600 Alt.

Site)

-Bon Secours

-Catholic Healthcare West

-Catholic Healthcare Partners

-PeaceHealth

-SSM Healthcare

$16b in Net Patient Revenue

$3b in Supply Expense Budgets

$40m in Savings

80 Contracts

Regional Purchasing CoalitionsRegional Purchasing Coalitions

We Have Identified 157 RPCs that Represent

• 1.06m Beds

• 34m Admissions

• 161m Outpatient visits

Co-operative Services of Florida (LeeSar)

Carolinas Shared Services

Illinois Purchasing Collaborative

Coastal Cooperative of New Jersey

AL - 2

AZ - 1 AR - 1

CA - 6CO - 4

FL - 7

GA - 4

ID - 0

IL - 3 IN - 3

IA - 2

KS - 3 KY - 1

LA - 5

ME - 2

MA - 3 MI -6

MN -2

MS - 0

MO - 2

MT - 0

NE - 1 NV - 1

NH – 1

NM - 0

NY – 10

NC - 6

ND - 1

OH - 7

OK - 2

OR - 0

PA - 7

SC - 0

SD - 2

TN - 1

TX - 7

UT - 0

VT - 1

VA - 2

WA - 6

WV – 2

WI - 2

WY - 0

CT - 1

DE - 0MD - 5

NJ – 5

RI – 1

HI - 0

AK - 0

Regional Purchasing Coalitions by StateCopyright 2010 MDSI.

All rights reserved.

DC- 2

2010

Alignment of RPCs with Beds and Discharges

Rank by Discharge

sPrimary

AlignmentMinimum # of RPCs Est. Beds

Est. Discharges

1 Novation 26 268,568 11,776,177

2 MedAssets 15 185,548 7,379,547

3 Premier 34 147,405 5,799,292

4 Nonaligned 8 35,662 1,605,925

5 Amerinet 12 41,002 1,480,523

6 MHA 2 24,236 994,906

7 Govt 19 7,290 861,618

8 HealthTrust 11 11,759 540,650

9 Broadlane 1 448 18,948

RPCs by the NumbersRPCs by the Numbers

We Surveyed 226 Hospital/IDN Supply Chain Executives:

• 40% were not part of an RPC

• Less than 25% of their purchases are currently through RPC Contracts

• Very high level of satisfaction for their RPC

MedtronicMedtronic

Accountable Care OrganizationsAccountable Care Organizations

Health Reform - A Different Strategic Health Reform - A Different Strategic Posture?Posture?

• The Triple Aim Focuses on Cost, Quality and Patient Experience, key elements in the evaluation of ACOs.

• 5 Guiding Principles have been Framed to Guide the Development of Qualifying and Monitoring Criteria :• ACOs Have a Strong Foundation of Primary Care

• ACOs Report Reliable Measures to Support Quality Improvement and Eliminate Waste and Inefficiencies to Reduce Cost

• ACOs are Committed to Improving Quality, Improving Patient Experience and Reducing Per Capita Costs

• ACOs Work Cooperatively Towards these Goals with Stakeholders in a Community

• ACOs Create and Support a Sustainable Workforce

• Pursuing these Objectives Requires a Review of Operational Services to Align and Develop Functional Competencies with an ACO Model

23

http://www.ncqa.org/tabid/1266/Default.aspx

October 2012 October 2012 Final Regulations PublishedFinal Regulations Published

• Greatly Softened for Wider Adoption

• Higher Rewards and Less Risk

• Less Measures

• IT Requirements Reduced

• Advanced Payment Program

Cost vs. ReturnCost vs. Return

• According to CMS, Start-Up Costs for New ACOs Would be $1.8 Million in the First Year; according to the American Hospital Association that is Too Low

– The Real Costs Will Be Anywhere from $11.6 Million to $26.1 Million for the First Year — Per ACO.

Types of ACOsTypes of ACOs

• Physician Practice Managed

• Hospital-IDN Managed

• Employer Managed

Launched September 2010

•Received by Over 23,000 Stakeholders

•3 Issues in 2010

•9 in 2011

•The Only Publication Dedicated Solely to ACO Development

WWW.ACOInsights.com

ACO InsightsACO Insights

How Reform and ACOs will How Reform and ACOs will Affect the Supply ChainAffect the Supply Chain

• Consolidation (MedAssets/Broadlane)

• Regionalization of Contracting

• Alternate Site Standardization

• Share Services with ACO Model

• Physician Preference Items Power Shift with Docs Joining Hospitals?

• Will Price Outweigh Preference?

How Are Health Systems Across the U.S. How Are Health Systems Across the U.S. Preparing for Reform?Preparing for Reform?

Reduce Operating Costs

Study Avoidable Readmission to Avoid Penalties

Obtain Stimulus Law Funding for Electronic Records

Study Avoidable Infections to Avoid Penalties

80%

76%

68%

66%

72%More Closely Align with Physicians

Hospital CEOs’ Priorities According to ACHE Survey:

Top Financial Worries of Hospital CEOs’ as Identified by Latest ACHE Survey

2011 ACHE Survey2011 ACHE Survey

Source: American College of Healthcare Executives

Medicaid Reimbursement88%

Government Funding Costs88%

Medicare Reimbursement

Bad Debt

Decreasing Inpatient Volume

78%

71%

54%

Concern Percentage of Respondents

Physician Alignment Physician Alignment StudyStudy

Key Drivers:

• 46% Survive Reform

• 35% Managing Practice and Delivering Exceptional Care is Too Difficult

• 12% Other

Physician Alignment Physician Alignment StudyStudy

• Changing Expectations of Distribution

• System Wide Service

• Class of Trade Pricing Collapsing

• Low UOM

• Self Distribution is an Option

Atlanta, Ga.March 15, 2012

John I. Pritchard