Michigan Critical Access Hospitals

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Michigan Critical Access HospitalsFinancial Benchmarking 2015Michigan Center for Rural HealthNovember 5, 20151

Agenda Update on Credit Analysis & Market Michigan Hospital Review 10 Year Trends Summary & Questions2

Credit Evaluation3

Hospital Operational rgersStaffingPrioritiesService LineOfferingsBudgetStrategies iesDebt PoliciesStrategic oryChanges4

Rating Agency MediansStandard & Poor’s Sept. 1, 2015 476 ratings (501 prior year) 494.4 million Net PatientRevenue ( 474.8) 12.0% EBIDA margins (11.1%) 214.0 Days Cash on Hand(197.6)Fitch Ratings August 10, 2015 235 hospitals (243) 642.1 million Total Op Revenue( 575.7) 11.7% EBIDA margins (10.9%) 203.4 Days Cash on Hand(193.9)Numbers in parenthesis represent prior year medianMoody’s Sept. 10, 2015 366 hospitals (383) 604.2 million Net PatientRevenue ( 576.2) 9.6% Operating Cash FlowMargin (9.0%) 205.8 Days Cash on Hand(201.4) 5.1% 3 Yr. Operating RevenueGrowth (5.0%) 5.2% 3 Yr. Operating ExpenseGrowth (5.4%)5

Rating Agency Commentary Fitch still negative outlook butsome positive trends Widening credit gap Strengthened liquidity Lower capital spending Revenue cycle management Improved leverage ratios Medicaid expansion positive Improved investment returns Risk based payer contractsSource: Moody’s report 9/10/15; S&P Report 9/1/15; Fitch report 8/10/156

S&P Change in CriteriaEnterprise Profile Industry Risk 20%Econ Fund 20%Market Pos. 50%Mgt & Govern. 10%Financial Profile Financial Perf. 40%Liquidity & Flex. 30%Debt & Cont. Liab. 30%Financial PoliciesSmall hospitals under 125 million in net patient revenue and/or DCOH under 75 days weaker creditsSource: S&P Report 12/15/14 – “U.S. Not-for-Profit Acute-Care Stand-Alone Hospitals – Methodology AndAssumptions”;7

S&P Small Hospital MetricsSample SizeNet Patient Revenue ( 000s)Profitability RatiosOperating Margin (%)Excess/Profit Margin (%)Cash Flow (EBITDA) Margin (%)Liqudity RatiosDays Cash on HandCushionCash to Debt (%)Days in Accounts ReceivableCapital Structure RatiosDebt Service Coverage (EBITDA)Debt Service to Revenue (%)Debt to Capital (%)Average Age of PlantCap Expend to Depreciation (%)Operational RatiosPersonnel Costs/Revenues (%)S&P 9.1.15 Rating medians for fiscal year ended 2014; smallhospital 125 million net patient rev or lessStandard & Poor'sSmall Hospital"BBB""A"1211 73,147 .202.5018.2010.3091.6057.3057.708

Market Conditions9

Bloomberg Economic Survey October 13, 2015Fed RateOctober 28th meeting has slim chance of Fedmoving rate up; many will look to press release onBloomberg Monthly SurveyMedian Rate Summaryhints of a mid-December rate hike.Mixed bag of economic indicators:Positive: Housing market continues to strengthen(housing starts are at their highest since2007) Jobless claims are at a 41-year low Better-than-expected purchasing managersreports provided a hopeful sign of someFed Funds2-Year Note10-Year Note30-Year Note3-Month LiborSource: Bloomberg GDP growth for the third quarter to bereleased 10/29 will probably bedisappointing, real growth might be only1.5%, versus 3.9% for the second quarter PCE core deflator, will be released two daysafter the FOMC meeting and at 1.4% YOY,would still be well short of the 2% target1Q20160.50%1.08%2.50%3.20%0.65%Bloomberg Monthly SurveyMedian Economic Indicator 0.42%UnemploymentConsumer SpendingCPI (YOY)PCE (YOY)Core PCE (YOY)GDPBudgetSource: %1.8%2.5%-2.5%SOURCES: Bloomberg as of October 13, 201510

Interest Rates are Still Very Attractive!Source: Bloomberg, October 22 201511

Ability to Afford?ProfitabilityDebtLiquidityDo You HavePositiveMargins?YesWhat is YourCashPosition?EnoughToo MuchDebt Now?NoShortYesNeed toFocus onOperationsNeed to BuildCashReservesFocus onReducingDebtNoWhat OptionsAreAvailable?12

Michigan CAH Analysis13

Methodology Obtained 2014 financial reports from 29 hospitals Hospitals self-selected based on request from Michigan Center forRural Health Created percentile rankings for each hospital based on key attributes Historical trends based on 10 years of data; not all the same hospitalsparticipated each year14

Revenue Analysis15

Patient Revenue - All16

System vs Non System17

Charity Care DollarsOnly 23 hospitals reported charity care dollars18

Contractual Allowances as % of Gross RevenueOnly 23 hospitals reported details of patient revenue; median 39.3%19

Medicare Revenue Payer MixOnly 19 hospitals reported Medicare revenue details20

Operating Margin - AllAverage 1.30% across hospitals21

Operating Margin22

EBITDA - AllAvg. EBITDA 3.07 mill23

EBITDA24

Debt Service Coverage - All25

Debt Service Coverage26

Bad Debt Expense - All27

Bad Debt Expense28

Personnel Expense29

Total Operating Expenses30

Balance Sheet Analysis31

Liquidity is Critical – DCOH - All32

Liquidity - DCOH33

Liquidity Support - Cash & Investments34

Cash on the Balance Sheet – Days AR35

Days AR System vs Non-System36

How Much Leveraged?37

How Old Are Your Facilities?S&P 2014 BBB rated stand alone average age of plant 11.6 years;38

Age of Plant Getting Older at Systems39

Are You Reinvesting in Your Facilities?S&P 2014 BBB rated stand alone median 74.6%; Michigan CAHs 72.5%40

Independent Hospitals Reinvesting More!41

Stronger Entities Continue to Strengthen42

10 Year Historical Trends**trends of all Michigan Critical Access Hospitals whohave participated in the study over the past 10 years.43

Revenue vs Cash FlowAnnual growth rate of 5% per year in total revenue; 9% for EBITDA44

Net Patient RevenueData gathered for years reflected in the chart45

Liquidity46

Debt OutstandingAmounts in millions of dollars47

Debt Repayment (Average)48

Key Expense Ratios49

Do You Have Creeping Deferred Maintenance?50

Keep Re-investing!Only data for last 5 years collected51

Thanks for participating!Tanya K. Hahn, CPA, MBAChief Financial OfficerNational Church ResidencesColumbus, OHPH: 614-273-3640 (office)PH: 614-582-7892 (cell)Email:thahn@nationalchurchresidences.org52

Michigan Critical Access Hospitals Financial Benchmarking 2015 Michigan Center for Rural Health. November 5, 2015. 2 . Mixed bag of economic indicators: Positive: . *trends of all Michigan Critical Access Hospitals who have participated in the study over the past 10 years. 44.

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