Eighteenth Annual Not-for-Profit Health Care Investor Conference · 2018-05-30 · Not-for-Profit Health Care Investor Conference ... •Dominant Blues Plan Opportunities •Benefit

EighteenthAnnualNot-for-ProfitHealthCareInvestorConference

JimSkogsberghPresidentandChiefExecutiveOfficer

LeeB.Sacks,M.D.ExecutiveVicePresidentandChiefMedicalOfficer

DominicJ.NakisChiefFinancialOfficerandTreasurer

NewYork,NewYorkMay24,2017

The following material and presentation contains information which isforward looking within the meaning of federal securities law. Theseforward-looking statements are based on the current plans andexpectations of Advocate Health Care Network (“Advocate”) that,although believed to be reasonable, are subject to a number ofknown and unknown uncertainties and risks inherent in the operationof health care facilities, many of which are beyond Advocate’s control,that could significantly affect current plans and expectations andAdvocate’s future financial position and results of operations. Theseforward-looking statements speak only as of the date made. Investorsare cautioned not to unduly rely on such forward-looking statements.This presentation should be reviewed in conjunction with Advocate’sDecember 31, 2016 and March 31, 2017 continuing disclosurereports.

Overview&StrategicFocus

JimSkogsberghPresidentandChiefExecutiveOfficer

MissionDriven

MISSION --- To serve the health needs of individuals, families and communitiesthrough a wholistic philosophy rooted in our fundamental understanding of humanbeings as created in the image of God.

VALUES --- Compassion, equality, excellence, partnership and stewardship guide ouractions as we work together to provide health services to others in our communities.

PHILOSOPHY --- Is grounded in the principles of human ecology, faith and community-based health care. These principles arise from an understanding of human beings as awhole person in light of their relationship to God, themselves, their families and thesociety in which the live.

AdvocateHealthCare

Illinois-BasedChicago/CentralIL

1,350Employed4,970PhysicianPartners

6,300MedicalStaff

11AcuteCare4Teaching/1Children’s5Level1TraumaCenters

HomeHealth/HospicePalliativeCare/LTACH

SNFPartnerships

Physicians Hospitals Post-Acute

37,000Associates

Associates

$5.6B.TotalRevenue$660+M.CommunityBenefits

Financials Location

Morethan$783Mcommunity

NationallyRecognized

HealthCareLandscape/MarketDynamics• Providerconsolidation• Intensephysicianacquisitionactivity• Decreasingutilization• Shiftingpayor mix/decliningpaymentrates• DominantBlueplans• Unstablepublicexchange• Increasingbaddebt&charitycare• Tightlabormarket

HealthCareTransformation

• Reinventourdeliverymodel(who,what,where,when&how)• Addresscoststructure

Advocate WellPositioned

• Nationalleaderinsafetyandhealthoutcomes• Topdecileworkforceengagement• Strongphysicianpartnerships• #1inbrandrecognition• Financialstrength

FocusedAreasLeeB.Sacks,M.D.ExecutiveVicePresidentandChiefMedicalOfficer

CurrentValue-BasedAgreements

Contract Lives TotalSpendCommercialHMO 286,000 $0.8BMedicareAdvantage 45,000 $0.3 BAdvocateEmployee 32,000 $0.1BCommercialShared Savings 370,000 $1.6BMedicareShared Savings 147,000 $1.6BMedicaidACO 93,000 $0.1BTotal 973,000 $4.5B

12

CommercialBasedInsuranceChallenges

• Attribution• Infrastructure• Leakage• SharedSavings• DominantBluesPlan

Opportunities• BenefitDesign• HMOProducts• TotalCost<marketmedian• ClinicallyIntegratedNetwork• GlobalCapitation

PublicExchangeChallenges

• IndividualMandate• CostSharingReduction• RiskTransferPayment• Complexity• Uncertainty• BadDebt

Opportunities• 110,000Lives• InNetworkUtilization• SupplementalInsurance• PremiumIncreases

MedicareChallenges

• Reimbursementincreaseslessthaninflation• BenefitDesign• MACRAImpactonPhysicians

Opportunities• MedicareAdvantage• MedicareSharedSavingsPlan• MACRASupportforphysicians• SNFUtilization

MedicaidChallenges

• StateofIllinois• DisproportionateGrowth• 12MCO’s• Denials• ObservationStatus• DelayedPayments

Opportunities• ImprovedQuality• ImprovedAccess• RFPfor2018MCOs• GlobalCapitation

ReducingClinicalVariation• ContinuedRedesignofJointReplacementSurgery• RoboticSurgery• EnhancedRecoveryAfterSurgery• AdultICUcare- eICU®• Glucosegeltoreduceneonatalhypoglycemia• Summary– betteroutcomesandlowercosts

BHAG:ZEROSeriousSafetyEventsby2020

• Currentdeclineat45%

• 2017declinetarget65%

• Cultureofsafety

SeriousSafetyEventVolumeHRU’sand

PhysicianChampionsincreaseevent

reporting

Safetyinitiativestodecrease

harm

$118$89

$32

$108$100

$89

$139

$156$165

$91

$460

50

100

150

200

250

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

InsuranceExpense(dollarsinmillions)

19

FinancialProfileDominicJ.NakisChiefFinancialOfficerandTreasurer

RiskBasedRevenuesGrowing

390 414 412 4881,275

4,548 4,816 4,981 5,100

5,164

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

$5,000

$5,500

$6,000

$6,500

$7,000

2013 2014 2015 2016 2017Projected

Revenu

esinm

illion

s

RiskBasedRevenues NetPatientService&OtherRevenuesincludingSharedSavings

$300 $339 $331 $264 $42 $49

6.1%6.3% 6.1%

4.7%

3.0% 3.2%

0%

5%

10%

$-

$100

$200

$300

$400

2013 2014 2015 2016 2016Q1 2017Q1

DollarsinM

illions

OperatingIncome OperatingMargin

StrongOperatingPerformance

24

//

OperatingCashFlowisSolid

25

$567 $636 $633 $587 $121 $136

11.5% 12.0% 11.7% 10.5%

8.8% 8.7%

0%

5%

10%

15%

$-$100$200$300$400$500$600$700

2013 2014 2015 2016 2016Q1 2017Q1

DollarsinM

illions

OperatingCashFlow OperatingCashFlowMargin

//

PositiveInvestmentYields

$343 $188

$(184)

$374

$(43)

$206

7.1%

3.2%

-2.6%

7.8%

-0.8%

3.4%

-20%

-10%

0%

10%

20%

$(200)

$(50)

$100

$250

$400

$550

2013 2014 2015 2016 2016Q1 2017Q1

DollarsinM

illion

s

InvestmentIncome InvestmentYield

27

32%

9%

19%

24%

16%

0%10%20%30%40%50%60%70%80%90%

100%

ActualMar31

RealAssets

HedgeFunds

FixedIncome

PrivateEquity

PublicEquity

//

$386 $508 $504 $402 $102 $87

182%

212%196%

149% 151%

121%

0%

50%

100%

150%

200%

250%

$0

$150

$300

$450

$600

$750

$900

2013 2014 2015 2016 2016 Q1 2017 Q1

Dol

lars

in M

illio

ns

Cash Spending Capital Spend Ratio

35//

CapitalSpendModerating

$0.0

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2051

DebtSe

rvice

(in$m

illion

s)

Tax-exemptdebtof$1.6billion,annualdebtserviceislevelandaveragelifeis18years

DebtProfile– low,level&long

DebtProfile– WellDiversifiedUnderlyingDebtMix NetInterestRateMix

RenewalRisk CreditProviderMix

9.5 9.4 7.6 8.5 6.9 10.0

24.0% 23.2% 23.9% 21.8% 24.0% 21.2%

0%5%10%15%20%25%30%35%40%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2013 2014 2015 2016 2016Q1 2017Q1

Times

DebtServiceCoverageRatio(times) Debtas%ofUnrestrictedCapitalization31

//

StrongCoverage&Capitalization

283 296 280 297 273 304

255

260

265

270

275

280

285

290

295

300

305

310

2013 2014 2015 2016 2016Q1 2017Q1

Percen

t

//

RobustCashtoDebtRatio

$840 $899 $915 $979 $1,009$838 $937 $945 $999 $1,007

100%96% 97% 98%

100%

50%

60%

70%

80%

90%

100%

$500$550$600$650$700$750$800$850$900$950

$1,000

2013 2014 2015 2016 2017Q1

DollarsinM

illions

Assets PBO PercentFunded

33//

PensionPlansWellFunded

$4,518 $4,725 $4,712 $4,692 $4,590 $5,065

386 383

368 370

340

327

290300310320330340350360370380390400

$4,200$4,300$4,400$4,500$4,600$4,700$4,800$4,900$5,000$5,100$5,200

2013 2014 2015 2016 2016Q1 2017Q1

DaysonHand

DollarsinM

illions

Dollars DaysCashandInvestmentsonHand34

//

SubstantialLiquidityPosition

AdvocateWellPositioned• Nationalleaderinsafetyandhealthoutcomes• Strongbrand• Physician&associateengagement• Balancesheetstrengthandsolidoperatingperformance• AA+(S&P),Aa2(M)AA(F)bondratingswithstableoutlooks 42