33rd Annual J.P. Morgan
Healthcare Conference
San Francisco, California
January 12, 2015
Jim Skogsbergh
President and Chief Executive Officer
Lee B. Sacks, M.D.
Executive Vice President and Chief Medical Officer
Dominic J. Nakis
Chief Financial Officer and Treasurer
The following material and presentation contains information which is forward
looking within the meaning of federal securities law. These forward-looking
statements are based on the current plans and expectations of Advocate
Health Care Network (“Advocate”) that, although believed to be reasonable,
are subject to a number of known and unknown uncertainties and risks
inherent in the operation of health care facilities, many of which are beyond
Advocate’s control, that could significantly affect current plans and
expectations and Advocate’s future financial position and results of
operations. These forward-looking statements speak only as of the date made.
Investors are cautioned not to unduly rely on such forward-looking statements.
This presentation should be reviewed in conjunction with Advocate’s
December 31, 2013 and September 30, 2014 continuing disclosure reports.
Introduction and Advocate
Overview
Jim Skogsbergh
President and Chief Executive Officer
Advocate Health Care
Hospitals (12)
4 teaching
1 children's
1 critical access
5 level 1 trauma centers
Physicians
1,350 employed/affiliated
5,175 APP
6,400 Medical staff
Post-acute
Home health, hospice, LTAC &
palliative care
33,400 associates
$5.3B total revenue
17.8% market share
®
Pluralistic Physician Approach
Employed
/Affiliated ~
1,350
Aligned ~ 3,825
Advocate Physician Partners ~ 5,175
Advocate Medical Staff ~ 6,400
Affiliation and Merger
• Silver Cross Partnership
• NorthShore Merger
Silver Cross - An Innovative
Partnership
• Joined Advocate Physician Partners
• Expands Advocate’s geographic
coverage
• Silver Cross physicians complement
Advocate Physician Partners
• Provides Silver Cross access to
contracts and population health
expertise.
• Silver Cross remains an independent
entity; financial statements not
consolidated into Advocate.
•
•
•
•
•
$300 million revenue
289 licensed beds
19,000 capitated lives
300 physicians
10 employed physicians
NorthShore Merger
• One board and management team
• Strategic direction
• Single signature managed care
contracting
• Consolidated financial statements and
system-wide capital allocation
• Combined obligated group planned
NorthShore Merger Objectives & Benefits
Increase competition by dramatically changing
the way that managed care products are
constructed and sold in the Chicago area.
• Population Health Management and Clinical
Integration
• New Health Plan Products
• Opportunities for Self-Insured Employers
• Broad and Complementary Geographies
Market Share - 2014 Q2
20%
17.8%
15%
9.4%
10%
9.2%
7.2%
4.9%
5%
0%
Advocate
Presence
Northwestern/
Cadence
Ascension/
Adventist
NorthShore
4.5%
4.2%
Rush
CHE Trinity
3.8%
3.6%
Edward/
Elmhurst
Tenet
Strong Financial Position
Advocate
NorthShore
Rating (M/S&P/F)
Aa2/AA/AA
Aa2/AA/NR
Net Revenue
$5 B
$2 B
Operating Margin
5.1%
6.8%
Operating Cash Flow Margin
10.8%
13.2%
Net Margin
8.2%
9.2%
Total Assets
$10 B
$3 B
Days Cash on Hand
385
298
Cash to Debt
300%
373%
Debt to Capitalization
23.0%
15.6%
Advocate & NorthShore Alignment
• Values
• Outstanding quality/reputations
• Highly integrated delivery systems with
large employed medical groups
• Strong management and governance
teams
• Excellent teaching and research
capabilities
AdvocateCare®
Advancing Value
Based, Coordinated Care
Lee B. Sacks, M.D.
Executive Vice President and Chief
Medical Officer
Strong Physician Engagement
To drive improvement in health outcomes, care
coordination and value creation through an
innovative and collaborative partnership with our
physicians and the Advocate System.
Advocate
Medical
Group
Dreyer
Medical
Group
BroMenn
PHO
Good
Samaritan
PHO
Sherman
PHO
Future
PHOs
Christ
PHO
Good
Shepherd
PHO
South
Suburban
PHO
Silver
Cross
PHO
Condell
PHO
Illinois
Masonic
PHO
Trinity
PHO
Future
Medical
Groups
Lutheran
General
PHO
Population Health Management
(“PHM”)
• PHM is the coordination or management of medical
care delivery to a population to improve clinical
outcomes at a lower total cost of care.
• Successful PHM is a key means by which to achieve
the “Triple Aim”:
1. Improving the patient experience.
2. Improving health outcomes.
3. Reducing the total cost of care.
• PHM and aligned incentives are essential
components for taking more financial risk.
Reimbursement Model Shift
2014
0.30%
1% 12%
32%
55%
Current Value Based Agreements
Contract
Lives
Total Spend
Commercial
388,000
$1.5 B
Medicare Advantage
35,000
$0.3 B
Advocate Employee
26,000
$0.1 B
Medicare ACO
137,000
$1.7 B
Medicaid ACE
62,000
$0.2 B
648,000
$3.8 B
Total
14
Value Based Agreement Results
• $2,000/case decrease in SNF costs
• Medicare Shared Savings Program
costs below benchmark
• PPO trend in cost of care is 1.4%
below market
• Over 1 million individuals in disease
and prevention registries
Tactics for Success
• Tactics are needed for the entire population
not just the 5% poly-chronic to move the
mean
• Enhance focus on ambulatory care
• Adjust skill mix of the care team
• Benefit Plan design is essential
• Behavioral health integration
• Leverage “Big Data”
Going Forward…
• Shared Savings is a transition
model
• Well positioned for managed
Medicaid
• Medicare Advantage is
opportunity for future growth
• Value/Narrow Network Products
for Public/Private Exchanges
Financial Performance
Dominic J. Nakis
Chief Financial Officer and Treasurer
Strong Operating Performance
Dollars in Millions
400
7.8%
300
10%
6.8%
6.5%
6.1%
5.1%
200
5%
100
0
335
301
298
300
2010
2011
2012
2013
Operating Income
//
195
0%
2014 YTD Q3
Operating Margin
Note: Operating income and operating margin for the nine months ended September
30, 2014 are not necessarily indicative of the results that may be experienced during the
year ending December 31, 2014.
25
Consistently Solid Cash Flow
Dollars in Millions
600
12.7%
11.7%
11.6%
11.5%
15%
10.8%
500
400
10%
300
200
100
0
5%
545
518
532
567
2010
2011
2012
2013
Operating Cash Flow
415
// 2014 YTD Q3
0%
Operating Cash Flow Margin
Note: Cash generated from operations and operating cash flow margin for the nine
months ended September 30, 2014 are not necessarily indicative of the results that may
be experienced during the year-ending December 31, 2014.
25
Diversified Investment Portfolio
100%
Dollars in Millions
550
20%
10.5%
-0.2% 10.6% 7.1%
3.4%
350
90%
80%
10%
70%
15%
16%
Real Assets
20%
22%
Hedge Funds
25%
24%
Fixed Income
10%
8%
Private Equity
30%
30%
Public Equity
Target
Actual Sept 30
60%
0%
150
40%
193
-10%
351
439
361
(34)
(50)
2010
2011
Investment Income
2012
//
50%
30%
20%
-20%
2013 2014 YTD
Q3
Investment Yield
Note: The 2014 Q3 YTD investment yield is not annualized. Both
investment income and yield are net of fees.
10%
0%
Expected return of 7.2%.
Risk/return ratio at 0.76.
27
Debt Profile = Low, Level and Long*
Tax-exempt debt is $1.5 billion, average annual debt service is generally level through
2038 at $90 million and average life is 19 years.
Maximum Annual Debt
Service: $90.2 million
$100
$90
Debt Service (in $millions)
$80
$70
$60
$50
$40
$30
$20
$10
$0
2014
2016
2018
2020
2022
2024
2026
* Debt profile as of December 18, 2014.
2028
2030
2032
2034
2036
2038
2040
2042
2044
2046
2048
2050
Well Diversified Debt Portfolio*
Underlying Mix
Liquidity Mix
JP Morgan,
$185.43mm, 12%
Synthetic Fixed,
$321.3mm, 21%
Wells Fargo,
$49.2mm, 3%
Fixed Rate
$839.4mm, 55%
Northern Trust,
$86.6mm, 6%
Intermediate,
$181.0mm, 12%
Self-Liquidity,
$355.5mm, 24%
Variable Rate,
$170.0mm, 11%
Product Mix
Windows VRDBs,
$70.0mm, 5%
Weekly VRDBs,
$321.3mm, 21%
Multi-Annual
Tender,
$120.3mm, 8%
Direct Purchase,
$100.0mm, 7%
Annual Tender,
$65.1mm, 4%
* Debt portfolio as of December 18, 2014.
Fixed Rate,
$839.4mm, 55%
None, $839.4mm,
55%
Strong Coverage and Capitalization
23.5%
26.1%
24.5%
24.2%
23.0%
12.0
40%
35%
10.0
30%
Times
8.0
25%
6.0
20%
15%
4.0
10%
2.0
0.0
10.1
8.7
11.1
9.5
2010
2011
2012
2013
Debt Service Coverage Ratio (times)
//
10.3
5%
0%
2014 Q3
Debt as % of Unrestricted Capitalization
Note: 2014 Q3 YTD is a rolling twelve month period.
31
Strong Cash to Debt Ratio
310
Percent
300
290
280
270
260
250
240
281
263
285
282
2010
2011
2012
2013
//
300
2014 Q3
32
Dollars in Millions
6,000
5,000
304
289
351
386
385
4,763
4,000
3,000
2,000
1,000
0
2,920
3,211
3,842
4,518
2010
2011
2012
2013
Dollars
//
450
400
350
300
250
200
150
100
50
0
Days on Hand
Substantial Liquidity Position
2014 Q3
Days Cash and Investments on Hand
34
Well Funded Pension Plans
Dollars in Millions
800
92%
86%
750
99%
100%
100%
90%
95%
700
80%
650
707
600
550
673
835
762
654
768
840
889
838
882
//
500
2010
2011
Assets
2012
PBO
2013
70%
60%
50%
2014 Q3
Percent Funded
33
Large Capital Commitments Past 3 Years
900
250%
208%
750
200%
Dollars in Millions
146%
182%
150%
600
150%
450
108%
100%
300
50%
150
0
310
179
640
2010
New Commitments
251
2011
853
281
2012
Cash Spending
487
386
2013
//
353
446
0%
Nov. 2014
Capital Spend Ratio
35
Summary
 National leader in:
– Health outcomes and safety
– Value based health care
 Metro Chicago market share leader and brand strength
 Growth through selective acquisitions and ability to
integrate new hospitals and physicians
 Pluralistic approach to physician relationships coupled
with a large and growing employed medical group
 Balance sheet strength and solid operating performance
 All of above reflected in our bond ratings of Aa2/AA/AA
(M/S&P/F), with stable (M/F) and positive (S&P) outlooks
42
Disclosure
Audited financial statements, quarterly reports along with
management’s discussion and analysis and the annual
continuing disclosure report are available on the Advocate,
Digital Assurance Certification, LLC and Municipal
Securities Rulemaking Board websites. To view online visit:
www.advocatehealth.com/body_full.cfm?id=2839
www.dacbond.com
www.emma.msrb.org
31
Thank you!