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Kh 110815 union county work session v7
 

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    Kh 110815 union county work session v7 Kh 110815 union county work session v7 Presentation Transcript

    • Union County Union County Work Session Overview of Long Term Lease of CMC-Union Monroe, North Carolina / August 15, 2011Copyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved.Copyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 1
    • Union CountyTopics for Discussion • Healthcare Industry Update • Overview of Current Lease • Development of CMC-Union During Current Lease • Review of County’s Stated Goals and Objectives • Summary of Proposed Lease Terms • ObservationsCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 2
    • Union CountyHealthcare Industry UpdateCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 3
    • Union CountyWe Are in a Period of Tremendous Challengefor Healthcare Providers • Declining volumes • Deteriorating payor mix • Compromised financial performance and position • Increased competitive pressures • A physician market “free for all” • A large capital appetite, but more limited/ difficult capital access • Uncertain impact of reformCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 4
    • Union CountyFeeling Squeezed Even Before the Impact of Healthcare Reform Reimbursement Bond covenants Pressures and RAC/ Investment losses Short Stay Issues Physician shortages/recruitment/ retention/ Capital access/ cost employment and the need to fund growth strategies Increasingly competitive markets Pension fundingSpecialty hospital/ Payor mixambulatory niche Impact on operating cash flow and balance sheet stability? deterioration with rising competition bad debt and charity Equipment Aging Infrastructure replacement/ new Information technology needs technology Copyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 5
    • Union CountyNational Healthcare Point of View 1. Healthcare is rapidly moving from a post-Medicare business model to a post-reform business model 2. Reimbursement will decline over time either on a “relative” or a “real” basis 3. Reimbursement mechanisms will migrate away from activity-based approaches towards those that reward quality and cost effectiveness 4. The hospital sector will consolidate significantly and size and scale matter 5. The basic relationships and care model between hospitals, doctors, and patients will change dramatically 6. Technology will become a major disruptive change agent in healthcare as it has been in other industriesCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 6
    • Union CountyNew Core Competencies Will Be Required Integration Attributes Key Characteristics of the Best Prepared A highly aligned medical staff characterized by shared goals, outcomes-based Physician/ Hospital Integration contractual arrangements, significant planning input, and adequately represented in organizational governance Care Coordination/ Management Use of care coordination tools and processes by an empowered and integrated Capability workforce to meet performance goals that are regularly measured and reported An IT platform that supports clinical decision making, information management, facile Information Systems communications, and access by all stakeholders (physicians, patients, administration) Sophistication to proper treatment and strategic decision making A right-sized organization-wide cost structure, highlighted by appropriate levels of Cost Management staffing, capital spending, overhead support, and supply chain costs; constantly reviewed based on comparative peer group studies and benchmarks A rational service distribution system that has accessible primary care and easy access Service Distribution System (both physically and through referrals) across the care continuum, delivered in Effectiveness contemporary facilities with contemporary equipment Sufficient scale to attract competitive clinical and administrative talent, realize Scale and Market Essentiality economies, drive marketplace innovation, and be an essential provider to health plans and patients Brand Identification Well recognized and respected, associated with high-quality and service excellence. Maintaining strong relationships with payors and the ability to negotiate support for Payor Relationships/ Contracts “new era” business practices Financial Strength/ Capital Strong appeal to capital markets through sustained operations, revenue growth, and Capacity balance sheet strengthCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 7
    • Union CountyThe Emerging Success Model in the New Era Will Likely Require… • Compelling, market-based and physician driven strategy • Scale and size to leverage fixed costs • A strong position in the geographies served • A solid, highly aligned physician platform • A care, cost, and quality management culture • Sophisticated IT and care management infrastructures • Acute attention to operations, cost structure and business portfolio management • A well-managed balance sheet to weather volatilityCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 8
    • Union CountyThe Expected Consolidation Trajectory: The Outlook Is for IncreasedConsolidation Activity in the Hospital Industry • Community hospitals that are unable to compete (financial distress or lack of access to capital) are consolidating with regional and national not-for-profit systems and for-profit entities • Strong stand-alone community hospitals are partnering with regional not-for-profit health systems • Strong community hospitals are forming new not-for-profit health systems with other strong community hospitals • Regional not-for-profit systems are consolidating with other regional not-for-profit systems • National not-for-profit systems are consolidating with regional and other national not-for-profit systems • Large for-profit hospital management companies have repositioned their portfolios and are poised for further acquisitions • New private equity financing is entering the marketCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 9
    • Union CountyIndustry Pressures Have Led to Hospital Consolidation Trends Number of M&A transactions, 1995-2010 System hospitals – percentage 60% 58% 58% 56% 54% 52% 52% 50% 2000 2010 Primary drivers of • Financially distressed community hospitals hospital consolidation in • Community hospitals requiring significant capital for the past decade investments, but unable to access the capital necessary to fund those projectsSources: The Health Care M&A Deal Search, Irving Levin Associates, Inc., 1995-11 and American Hospital Association 2011. Copyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 10
    • Union CountyRecent Consolidation Activity Supportive of Expected Trajectory Quarterly Number of M&A Transactions, 2009 to Date 30 120 105 25 24 24 24 100 74 20 18 18 80 16 50 15 60 12 10 8 40 5 4 20 0 0 2009 2009 2009 2009 2010 2010 2010 2010 2011 2009 2010 2011 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Annualized*Note: 2011 annualized data based on 46 total deals as of June 9, 2011.Source: The Health Care M&A Deal Search Online, Irving Levin Associates, Inc.Copyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 11
    • Union CountyWhy Are Many Stand-Alone Community Hospitals ConsideringPartners in Today’s Market? 1. Preservation of Access to Capital – The market is rewarding large providers through access to low cost capital under flexible terms to those that deliver on the promise of size and scale. 2. Insufficient Balance Sheets – Many independent hospital’s balance sheets have been impaired due to the economic crisis – and in tandem with limited capital access – these organizations are no longer able to maintain their credit rating and fund competitive capital needs. 3. Mitigation of Risk – Leaders of stand-alone community hospitals are becoming increasingly concerned with industry risks, including those related to healthcare reform, and their hospital’s ability to maintain consistently high operating cash flow.Copyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 12
    • Union CountyWhy Are Strong Stand-Alone Community Hospitals ConsideringPartners in Today’s Market? (continued) 4. Opportunity to Improve Quality – Larger organizations can afford the significant investment of time, manpower, infrastructure, and capital to truly drive improvement in the delivery of healthcare. 5. Expansion of the Platform for Physician Integration – Larger organizations established successful physician employment models, advanced information technology systems, and competitive physical plants are generally better positioned realize the full potential of highly integrated physician strategies. 6. Counter Payer Consolidation – The very strong position of major insurers has, in some markets, aversely impacted independent hospitals relative to larger systems which typically are in a better position to negotiate fair compensation by virtue of their size and market leverage.Copyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 13
    • Union CountyWhy Are Strong Stand-Alone Community Hospitals ConsideringPartners in Today’s Market? (continued) 7. More Expansive Market Presence and Competitive Position – Increasing access points and service area availability typically leads to better branding and reputation within a service area 8. Service/ Program Development – The sharing of best practices among multiple delivery sites enables organizations to learn quickly from others successes 9. Information Technology – Larger organizations are better positioned to leverage the fixed costs and infrastructure required for sophisticated information technology platformsCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 14
    • Union CountyThe Outlook Is for Increased Consolidation Activity in theHospital Industry • Community hospitals that are unable to compete (financial distress or lack of access to capital) are consolidating with regional and national not-for-profit systems and for-profit entities • Strong stand-alone community hospitals are partnering with regional not-for-profit health systems • Strong community hospitals are forming new not-for-profit health systems with other strong community hospitals • Regional not-for-profit systems are consolidating with other regional not-for-profit systems • National not-for-profit systems are consolidating with regional and other national not-for-profit systems • Large for-profit hospital management companies have repositioned their portfolios and are poised for further acquisitions • New private equity financing is entering the marketCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 15
    • Union CountyOverview of Current LeaseCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 16
    • Union CountyLease Term and Financial Considerations to Union County • The current hospital lease began on August 27, 1995 and is set to expire on August 26, 2020 (25 years from commencement date) • Union Memorial Regional Medical Center, Inc. (currently doing business as “CMC-Union”), a subsidiary of the Charlotte- Mecklenburg Hospital Authority (d.b.a. “Carolinas HealthCare System” or “CHS”) and Union County may renew for up to 9 years upon mutual written agreement 180 days prior to lease expiration • Union County receives an annual lease payment equal to the greater of: – $1.4 million; or – 10% of operating cash flow plus 7.5% of investment income • The annual rent payment is paid to the County in January of each year and any additional funds due are paid after the close of that fiscal year’s booksCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 17
    • Union CountyRecent Historical Lease Payments to Union County Union County Historical Lease Payments 2006 2007 2008 2009 2010 Minimum Payment - - $ 1,400,000 - - 10% of Operating Cash Flow $ 2,341,518 $ 2,134,777 - $2,809,175 $ 2,677,166 7.5% of Investment Income $ 490,954 $ 294,955 - $ 486,514 $ 479,164 Total $ 2,832,472 $ 2,429,732 $ 1,400,000 $ 3,295,689 $ 3,156,330Copyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 18
    • Union CountyFinancial Considerations to CHS • CHS receives an annual Network Development Fee equal to the greater of: – $1.2 million; or – 10% of operating cash flow plus 7.5% of investment income • Should the Network Development Fee payable to CHS reasonably pose a material financial risk to the hospital, CHS may agree to abate the payment equal to an amount the County agrees to abate its annual rental paymentCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 19
    • Union CountyOperating Surplus, Capital Approval and Governance • CMC-Union is required to invest the hospital’s net operating surplus in the facility for the provision of healthcare to the citizens of Union County – CHS cannot consolidate CMC-Union’s operating results – CMC-Union borrows on it own credit • CMC-Union is responsible for maintenance and any improvements and additions to the hospital – County maintains approval rights for any capital expenditure exceeding $500,000 • A five-member Board of Directors governs the hospital; two members are appointed by the Union County Commissioners and three members are appointed by CHS. • At lease termination, the County receives all hospital property, improvements, long-term debt and moniesCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 20
    • Union CountyDevelopment of CMC-Union During Current LeaseCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 21
    • Union CountyDevelopment of CMC-Union During Current LeaseService Lines and Clinical Services The following service lines and clinical services have been added at CMC-Union since 1995 • Cardiac rehabilitation • Advancements in diagnostic and treatment technologies • Diabetes center • Palliative care • Sleep center • Waxhaw Health Pavilion • Cancer center (pending) • Family Practice rural • Union West Ambulatory residency Surgery Center (pending) • Wound Care center • Hospice of Union County • Pain Management center acquisition by CHS • Urgent care clinicsCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 22
    • Union CountyDevelopment of CMC-Union During Current LeaseFacility Investments During the current lease term, the facility improvements and additions noted below have been completed at CMC-Union • Outpatient Treatment Pavilion • Oncology services • Women and children’s center • Materials management renovation and expansion • Coronary care and intensive care units • Wound care center • 24/7 emergency department • New Medical Office building • Therapies expansion • Emergency department expansion and renovation • Information Technology upgrades • Day surgery and surgery department expansion • Jesse Helms Nursing Center • Union EMS base station • Endoscopy department • First Step renovation • Cardiac diagnostic servicesCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 23
    • Union CountyDevelopment of CMC-Union During Current LeaseMedical Staff Advancement • The CMC-Union Medical Staff has increased from 75 in 1995 to 475 as of the second quarter of 2011 • Growth has occurred in both specialists and primary care physicians • Specialties not currently represented include: – Neurosurgery – Endocrinology – Psychiatry – Thoracic surgeryCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 24
    • Union CountyDevelopment of CMC-Union During Current LeaseMedical Staff Advancement (continued) 75 160 331 458 475 450 393 404 400 350 300 275 250 200 150 103 100 57 56 65 71 35 40 50 0 1995 1998 2008 2010 2Q 2011 Primary Care SpecialistsCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 25
    • Union CountyCMC-Union Capital Spending Ratio as Percent of TotalOperating Revenue $66M+Copyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 26
    • Union CountyFuture and Continued Development of CMC-Union • Over the past 15+ years CMC-Union has noted significant growth in its operations, medical staff and facilities • In order to build on the momentum and growth created during the current lease and transition towards a facility that provides higher acuity treatments and tertiary-like services, CMC-Union will likely need access to capital beyond what it can generate independently • As noted in the industry update section, many community hospitals faced with similar capital (and other operational) decisions are determining to become member hospitals of larger health systems to access the capital required to expand and the expertise needed to navigate the healthcare industry’s uncertain futureCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 27
    • Union CountyReview of County’s Stated Goals and ObjectivesCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 28
    • Union CountyUnion County Goals and Objectives At our work session in February, the County Commissioners articulated the following as their primary goals and objectives for a “new” lease regarding CMC-Union: • Continuity in the delivery of healthcare within Union County • Preservation of the existing clinical services in the County • Additional services/ programs made available in the future in the County, as clinically appropriate • Continued high quality of care delivered to the hospital’s patients • County should maintain ownership of the hospital • Financial terms and conditions should benefit the County • Term of lease should be long in nature and should not initially exceed 50 yearsCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 29
    • Union CountySummary of Proposed Lease Amendment TermsCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 30
    • Union CountyFinancial Considerations • On the following slides we have outlined our understanding to the key terms under which CHS and Union County would extend the existing lease agreement. • If the County and CHS elect to move forward, these terms will be incorporated into an Amended and Restated Lease Agreement between the parties, which will be submitted to the County Commissioners to consider. • This agreement will further define these terms as well as others that are typical in these agreements. • It should be understood that these terms may change in the Amended and Restated Lease Agreement as the document is negotiatedCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 31
    • Union CountyFinancial Considerations • CHS will deliver to County, at closing, the amount of $54 million, which represents the agreed upon cash net of outstanding indebtedness of the operating entity – CHS will assume or extinguish the outstanding indebtedness of the hospital • The County will receive a total lease payment of $6.1 million per annum for the initial 50-year lease extension (the Extended Term), growing by 3% every five years should the lease be renewedCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 32
    • Union CountyHistorical and Projected Lease Payments to Union County Union County Historical and Projected Lease Payments 2006 2007 2008 2009 2010 2012 & BeyondMinimum Payment - - $ 1,400,000 - - -10% of Operating Cash Flow $ 2,341,518 $ 2,134,777 - $2,809,175 $ 2,677,166 -7.5% of Investment Income $ 490,954 $ 294,955 - $ 486,514 $ 479,164 -Total Proposed Payment -- Operating Rent and Premium Payment - - - - - $ 6,100,000Total $ 2,832,472 $ 2,429,732 $ 1,400,000 $ 3,295,689 $ 3,156,330 $ 6,100,000Copyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 33
    • Union CountyFinancial Considerations • All of such funds – rent and the cash delivered at closing – can be used by County in its sole discretion provided that such payments cannot be used to compete with CHS • The annual Operating Rent and Premium Payments will be paid in full within the first 90 days of each calendar year during the Extended TermCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 34
    • Union CountyPut Option • County will have the unilateral right within the first nine months of each calendar year during the Extended Term to require that CHS purchase CMC-Union for a purchase price to be determined as of December 31 of such year (the Put Price) • The initial Put Price will be an amount equal to $133 million (the Initial Price) minus a portion of the lease payments that have been paid by CHS according to a formula that will be contained in the lease agreement. – So long as North Carolina Certificate of Need laws regulate in-patient beds (“CON laws”), the Initial Price will be increased annually by 2%; upon the repeal of the CON laws, the Initial Price will not be further increased • The Put Price varies by year and will be included as a schedule to the lease agreement – From the Initial Price of $133 million the net Put Price declines to as low as $128 million before increasing to $218 million by the end of the Extended TermCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 35
    • Union CountyExpiration • Upon the expiration of the Extended Term of 50 years, CHS will have the right to renew the Amended and Restated Lease Agreement for an additional period of 25 years (the Renewal Period) • During the Renewal Period, the rights and obligations of the parties will continue as set described except that the total lease payment will increase to $6.283 million for the first year of the first renewal period and will be increased by 3% every 5 years thereafter during the Renewal PeriodCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 36
    • Union CountyExpiration (continued) If CHS does not elect to renew the Amended and Restated Lease Agreement upon the expiration of the Extended Term, County will have the following two options: 1.Termination of Amended and Restated Lease Agreement – Terminate the Amended and Restated Lease Agreement and require CHS to transfer all CHS health-related operations and assets located in Union County (the Union HealthCare Enterprise) to County and pay to CHS an amount equal to the Fair Value of the Union HealthCare Enterprise on the termination date, minus the net Put Price as of the termination date – If County elects to require CHS to make this transfer to County, County would not accept any direct or indirect financing assistance from a health system in terms of loan guarantees, direct loans or other means to facilitate the transfer of the Union HealthCare Enterprise to County – In addition, County would agree, in writing, to operate all such assets for a transition period of at least 5 years after the termination date with no indirect or direct involvement in operations of such assets by another healthcare provider or operator that is a competitor of CHS – CHS agrees to provide any requested transition services at fair market value during the transition period – County may engage or hire a manager who is not a competitor of CHS to operate Union County HealthCare Enterprise; or 2.Put Option – Exercise Put Option as previously outlinedCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 37
    • Union CountyExpiration (continued) • Upon the expiration of the first 25-year Renewal Period, the County and CHS will have the option to mutually agree to renew the Amended and Restated Lease Agreement for one term of 25 years followed by successive 10-year terms at the then current Operating Rent Rate to be increased by 3% every 5 years thereafter • If County and CHS do not mutually agree to any extension of the Amended and Restated Lease Agreement, County will have the following two options: 1. Termination of Amended and Restated Lease Agreement – Upon at least 12 months prior written notice to CHS, terminate the Amended and Restated Lease Agreement and require CHS to transfer all Union HealthCare Enterprise to County and pay to CHS an amount equal to the Fair Value of such assets on the termination date minus the net Put Price as of the termination date 2. Put Option – exercise Put Option as previously outlinedCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 38
    • Union CountyCapital Investment • During each 15-year period, CHS’s capital investments in the Union HealthCare Enterprise will be no less than 75% of the capital spend at other CHS facilities. – This will be measured as the percentage of revenue spent at the Union HealthCare Enterprise as compared to the percentage of revenue CHS spends on capital for the entire system. – However, the minimum capital spend will be limited to 75% of operating margin of the Union HealthCare Enterprise • Within 90 days after the end of each 15-year period during the extended Term, CHS will submit a report to County summarizing the investments made by CHS during the prior 15-year period – CHS will have 5 years to make up its investment obligation if it is not met for the 15 year periods.Copyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 39
    • Union CountyCapital Investment (continued) • CHS will use reasonable efforts to complete the CON approved bed tower project and the deferred capital expenditures including, but not limited to: – PET/ CT scanners – Second ambulatory surgery suite – Waxhaw emergency department – Will endeavor to determine the unmet needs and determine the feasibility of providing new and improved healthcare servicesCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 40
    • Union CountyAssumption of Liabilities • CHS will assume all of the liabilities of Hospital, known and unknown, fixed and contingent, accrued or pending, including, but not limited to: – The existing long-term debt, arising out of the ownership or operation of CMC-Union, including outstanding bond debt. CHS will take all steps necessary to permanently remove the County from the outstanding bond debt. – Professional liability – Compliance related issues from prior years, if any. – Medicare and Medicaid RAC arising during the term of the LeaseCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 41
    • Union CountyEmployee Commitments • CHS will offer to employ each existing staff employee at CMC-Union who meets CHS’s criteria for hiring comparable employees and who CMC-Union recommends for hire at CHS’s current compensation rates and benefits • Within a reasonable time depending on benefit plan years and third party approvals, if any, CHS will provide to all CMC-Union employees the full array of CHS benefits at the same levels of all other CHS employees of the CHS • CHS commits to maintain staffing levels at levels comparable to similar CHS facilitiesCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 42
    • Union CountyGovernance • The existing Community Trustee Council will be converted to an Advisory Council – The Advisory Council will include one sitting member of the Union County Commission and at least two Medical Staff representatives – The Advisory Council will regularly advise CHS concerning policy matters and the operation of CMC-Union • CHS also commits to nominate and support approval of a resident of Union County to the CHS Board of Commissioners • During the first six years of the extended Term, CHS will nominate, as the Union County member on the Board, one of the three Union County residents who have been recommended to CHS by the Advisory Council – In addition, for the purposes of maintaining community involvement and further integrating the strategic planning process in a unified manner between CMC-Union and CHS, during the first six (6) years of the extended Term, the Union County member of the Board will have a seat on the CHS Strategic Planning CommitteeCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 43
    • Union CountyOther Key Terms • Financial Assistance: CMC-Union will continue to provide financial assistance to patients consistent with CHS policies in offering discounted and free care to patients • Prisoner Care: CHS will provide care to patients from the Union County Jail at a discount equal to the discount given by CMC- Union to patients who do not have insurance • Medical Staff: The Medical Staff President of CMC-Union will have the same rights to attend all CHS Board of Commissioners meetings as other CHS Medical Staff Presidents – CHS will continue to complete Medical Staff needs assessments and will use reasonable efforts to recruit and retain needed physicians, including specialists, to Union County • IT: CHS will ensure that CMC-Union will be on the overall system IT platformCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 44
    • Union CountyOther Key Terms (continued) • Quality and Safety: CHS will ensure that CMC-Union and Union Physicians Network, Inc. are included in all CHS system wide quality, safety and clinical integration initiatives, clinical integration including, but not limited to, accountable care organizations • Commitment to Maintain Services: For a period of not less than five years of the Extended Term, CHS will continue to provide all the material clinical services and programs currently being provided by CMC-Union so long as appropriate levels of clinical quality and patient safety can be maintained with respect to each of such services – Any deletion of such services and programs within such time period will be based upon clinical quality and patient safety factors and will require the approval of the CMC-Union Advisory Board – The final lease document will define how the services offered at CMC-Union will be determined after the initial 5-year period.Copyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 45
    • Union CountyOther Key Terms (continued) • Partnership Relations: County recognizes the importance of supporting CHS as a lessee of County owned assets. As such, County will: • Ensure CHS is not excluded from any bidding of health related services for County employees • Make reasonable efforts to ensure that County employees are encouraged to access to CMC-Union facilities and programs • Support the investment and expansion of health facilities and programs by CHS in Union CountyCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 46
    • Union CountyObservationsCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 47
    • Union CountyAdvantages of Proposed Lease Amendment• While we recognize there are key terms that must be negotiated, Kaufman Hall believes that there could be significant advantages to the proposed Lease Amendment – Perhaps chief among them is that it eliminates the going forward challenges facing standalone hospitals – Further, it should enhance the level of healthcare services available to the citizens of Union County through a more complete and comprehensive clinical and operational integration of CMC-Union with other healthcare providers in the CHS healthcare system – Finally, a robust healthcare system in Union County should provide relatively high-paying jobs and also assist in attracting other employers to the county• In addition, the proposed lease: – Compels CHS to invest in the hospital and in Union County as incentives between CHS and the County are aligned and CHS will consolidate the hospital’s operations into its overall system financials – Removes the County’s financial obligations relative to operating a hospital – Provides a meaningful capital source to the County at the inception of the lease as well as in years to come while allowing future Union County Commissioners to monetize the asset at a predetermined priceCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 48
    • Union CountyOther Considerations • While we believe there are substantial benefits to Union County in proposed Lease Amendment, there are other factors that should be carefully considered • We believe the most significant issues relate to control – Amending the existing lease will extend the period during which Union County has little operating control of CMC Union – If Union County decides not to renew the lease in the future, the amount required to reimburse CHS for the value it has added during the term of the lease is uncertain • However, we believe these considerations should be balanced by the fact that many counties across the country are seeking to separate themselves from the burdens of operating a hospital and Union County currently has little operating control over CMC Union in the current leaseCopyright 2011 Kaufman, Hall & Associates, Inc. All rights reserved. 49