Strategy Meeting

1. Confidential Strategy Meeting Grady Health SystemBoard of Directors Nov. 1, 2010 CONFIDENTIAL

2. Threading The Needle What We Don’t Know: • Whether healthcare reform will be fully implemented • If the reform timetable will be changed What We Know: • Medicare, Medicaid and private insurance payments cannot continue to grow • Federal, state and county taxpayer support is not guaranteed What Grady’s Leaders Must Do: • Set direction now without full knowledge and make adjustments alone the way • Balance service and revenue now This is the toughest part of Leadership CONFIDENTIAL

3. Acknowledgements • Grady has a long and storied history of caring for patients, particularly those without choice • Grady’s medical school relationships have been critical to Grady’s success • Education, research and clinical leadership have been important to Grady • Grady and its physician colleagues are inter-dependent • The Authority, Corporation and Grady staff are all clearly dedicated to excellence in patient care While we may not acknowledge these points often enough today we do understand and appreciate them! CONFIDENTIAL

4. Our Initial Assumptions • GMHC and FDHA would act seamlessly • Counties would continue to support our Mission with adequate and timely funding as contracted • We could operate Grady without getting bogged down in politics (funding and programs) • We could raise sufficient funds from the local community to make up for previous underinvestment We would run Grady like a business CONFIDENTIAL

5. Setting The Stage • Grady’s future income is at risk - medical services and medical education will be directly affected. • Grady must adjust to fundamental shifts in the industry over the next 3 years – there is no choice • Care delivery must reflect new payment rates and methods • The current “resident driven” teaching and care delivery model is not sustainable at Grady • Grady must shift from treated those “who show up” to attracting paying patients to help off set safety net costs. • The new challenges will be considerably more difficult to manage than what we faced in the past. • There are immediate financial challenges that must be addressed now CONFIDENTIAL

6. Reform Can Be Good News For Grady … If We Are Prepared! Grady Has Choices CONFIDENTIAL

7. Key Questions Grady Must Answer • What is the right mix of care delivery, education and research? • What teaching, professional services contracts and medical relationships will be required? • Will Grady be permitted to retain earnings for re-investment and to support its mission? • Can we operate profitably? • Will funding sources allow it? • Can Grady be more than a charity hospital? • Does the safety net mission survive beyond 2014? What will Success look like for Grady? CONFIDENTIAL

8. Grady’s Current Funding CONFIDENTIAL

9. The Impact of Reform on Grady 9 CONFIDENTIAL

10. Market Overview Grady’s Current Position • Georgia’s undisputed leader for trauma care and the busiest trauma center in the Southeast. AND • Georgia’s undisputed leader in uncompensated care. Despite commitments to education and research, we fit the profile of a very large but not differentiated community hospital. CONFIDENTIAL

11. Grady’s Current Position • 5 county population will increase: 6.5% by 2013, 20% by 2019 • 14.6% of Fulton & DeKalb inpatients • Payer Mix ~ 40% uninsured • Utilization exceeds managed markets • Costs are higher than managed markets • Modest reduction in use rates could produce a surplus of 900 beds • We compete with hospitals, physicians and some community-based services CONFIDENTIAL

12. The March To Sustainability CONFIDENTIAL

13. 2007 At A Glance CONFIDENTIAL

14. Grady’s Response CONFIDENTIAL

15. Grady’s Remarkable Progress 2008 Focus - Stabilize Grady • New operating entity • New leadership • Stable funding • New capital 2009 Performance • Quality/LOS • Financial • Volume • Infrastructure • Hospital of Choice CONFIDENTIAL

16. Fundamental Challenges Have Not Gone Away • Disparity between services provided and funding received • Underinvestment makes Grady unattractive to patients with a choice • Medical leadership not well aligned or incented • Lack of clinical portfolio focus • Lack of physician referral relationships CONFIDENTIAL

17. The Roadmap To 2015: From Survival to Sustainability • 2010 - Making Grady Work • 2011 - Becoming A Preferred Destination • 2012 - Producing Results • 2013 to 2015 - Maintaining High (and Profitable) Performance Levels CONFIDENTIAL

18. The 2015 Goal: “Community Competitive” Grady • Clinically, our outcomes will exceed our peers. • Financially, our performance will permit annual investments in programs, people, technology, equipment, physical plant and reserves. • Operationally, customer service, business processes, patient access and ease of use are at community standards. • Customer Service, we serve a diverse population, maintain our historic safety net mission • Market Position, we are a growing “community competitive” network of hospitals, physicians and other providers attractive to patients and payers • We are essential to our community, state and local governments, fellow hospitals and medical schools Grady’s “Hospital of Choice” status for selected services provides revenue to support safety net mission. CONFIDENTIAL

19. “Community Competitive” Network • Patient Centered • Clinically Efficient • Connected • The Right Care • The Right Time • The Right Place CONFIDENTIAL

20. 2010 Status Report Quality LOS Financial Volume Infrastructure Hospital of Choice Uncertainty over Healthcare Reform CONFIDENTIAL

21. The 2011 Plan – 4 Major Thrusts Continued Performance Improvement Quality Satisfaction levels Financial Making Grady Grow Targeted clinical programs Prune selectively Ambulatory care network expansion Relationship development Balance Budget & Service Commitments Prepare for Reform CONFIDENTIAL

22. Base Performance Requirements Have Expanded Make Grady work for all patients Deliver services within the expected reduced payment structure Create alternative models of care delivery Meet financial performance targets Find alignment with government partners CONFIDENTIAL

23. The Immediate Challenge The Difficult Topics CONFIDENTIAL

24. The Immediate Challenge Matching services and resources in 2011 We face a 2011 budget shortfall of $20M We must make adjustments effective Jan. 1, 2011 We need to prepare for budget discrepancies longer term CONFIDENTIAL

25. The Immediate Challenge Expense (service reductions) Management has cut recommendations Will need Board action in December What we want Board to do Allow us to balance budget. Services must meet funding Provide direction and protection CONFIDENTIAL

26. The Immediate Challenge • Revenue • What we need the Counties to do: • Fulton • Follow 1984 contract • Pay based on annual allocations • Simplify/reduce time spent reporting • DeKalb • Continue support • What we need the State to do: • Eliminate ICTF rules that damage Grady • Fix Morehouse pass-through formula • What we want Board to do: • Make this a priority • Support Grady’s position • Use your Influence CONFIDENTIAL

27. Reminder: Threading The Needle What We Don’t Know: • Whether healthcare reform will be fully implemented • If the reform timetable will be changed What We Know: • Medicare, Medicaid and private insurance payments cannot continue to grow • Federal, state and county taxpayer support is not guaranteed What Grady’s Leaders Must Do: • Set direction now without full knowledge and make adjustments alone the way • Balance service and revenue now This is the toughest part of Leadership CONFIDENTIAL

28. The Impact Of Reform • Grady’s Patient Base will Change • Patient Service Revenues • Reduced • Payment Methods will Change • Safety Net Support Reduced CONFIDENTIAL

29. CONFIDENTIAL

30. Grady’s Potential Patient Base Will Change Expansion: Expanded coverage (but not universal) 37M new covered lives Expansion of Medicaid Eligibility (16M) 40% increase from 2010 to 2019 133% of FPL Expansion of Medicare & Commercial Benefits Contraction: Less Dependent - Have choices of providers More attractiveand more valuable to other providers Shift in Employer Benefit Plans CONFIDENTIAL

31. The Reform Opportunity in Grady’s Service Area CONFIDENTIAL

32. The Reform Growth Impact CONFIDENTIAL

33. Publicly Supported Patient Service Revenues Will Decrease Hospital payments reduced by $155B over 10 years; $100B from reduced payments, balance in “savings” from reduced subsidies for uncompensated care. Medicare payment per admission in 2019 - $1000-$1700 Medicaid rates increase by 2010 but then revert to 85% of 2008 rates Physicians payment rates will be reduced (except primary care) Note: Medicare cuts occur before coverage expands CONFIDENTIAL

34. Private/Commercial Business Coverage will expand via traditional markets or Health Care Exchanges Short term demand will increase Capacity could be a problem Business may abandon/reduce insurance benefits Commercial payers will pass their risks and costs to hospitals and physicians Commercial payers (Blue Cross and others) will not be able to raise rates Commercial plans will have to be competitive with public plans Rate pressure on providers will significantly increase Payers will look to bundled payment structures for relief. (ACOs and Medical Homes (Piedmont + Cigna)) CONFIDENTIAL

35. Payment Model Changes Providers get paid for services provided – no incentive for reducing costs CONFIDENTIAL

36. The Opportunity Providers get paid for right care, right time, right location – incentive for reducing costs CONFIDENTIAL

37. Safety Net Support Will Be Decreased Medicare DSH payments reduced (2014) Medicaid DSH payments will decrease from 2014 to 2020 Payment rates for Medicaid to be pegged at 89% of 2008 rates Medicaid payments to states 100% from 2014 -2016 then reduced to 90% by 2020 Support from State and County Government? CONFIDENTIAL

38. New Requirements For Providers Clinical and financial integration of physicians and hospitals (Piedmont) Bundled rates – pilots no later than 2013 Value based purchasing (2013) Readmission penalties (October 2012) Penalties for hospital acquired conditions (2015) 1000 hospitals will be in the bottom quartile and have reimbursement cut CONFIDENTIAL

39. New Requirements For Providers Accountable Care Organizations encouraged (2012) Medicaid Medical Homes Publicly reported outcomes Temporary increase in primary care reimbursement 10% ▬ 2011-2015 CONFIDENTIAL

40. New Requirements For Providers Bundled or global payments will require coordination and management of care (cost) Primary care Preventive services Acute care Post-acute care Chronic disease management If hospitals don’t take the lead or partner to make this work, others will set standards of care and price… (Peach State, Piedmont Physicians) CONFIDENTIAL

41. Post Reform Realities Grady and its physician partners must continuously improve performance and attract new patients Must be able to manage and deliver care competitively (Quality and Cost) Growth is Critical Demand will increase in the short term but fall in the longer term Patients will have and exercise choice ▬ Grady’s patient base could disappear Hospitals that rely on EDs and clinics for volume and growth will be at risk Outside support for safety net services will be reduced Grady will have to adjust services to income CONFIDENTIAL

42. The Challenges Are Greater CONFIDENTIAL

43. New Challenges And Risks • Further market consolidation of hospitals, physicians and/or payors • Increased competition for current safety net and newly insured patients • Acceleration of “value” based and/or bundled/captitated payment systems (Piedmont) • Rapid deployment of alternative payment methodologies by private insurance companies • Major change in external funding • State not prepared to implement reform CONFIDENTIAL

44. Grady’s Opportunity! A reform-ready Grady can be a formidable competitor and support most if not all of its service, teaching and research objectives The potential for Grady: More patients with coverage Fewer safety net patients Incentives for quality care = more investment opportunity Reduced funding Is Grady ready to accept this Challenge? CONFIDENTIAL

45. 2 1 5 3 4 CONFIDENTIAL

46. Option 1: Stay The Course What is it: Continue course of incremental improvement with heavy reliance on external funding to support safety net mission as long as possible. Implications: Reform may encourage other providers to care for insured former safety net patients. Grady may reach a point of non-recoverable insolvency in 3 +/- years Grady achieves its mission and declares victory and winds down CONFIDENTIAL

47. Option 2: Safety Net What is it: Continuously adjust services to reflect reality of funding Implications: The scope and volume of services will be reduced over time The educational mission will be reduced Patient population will be those that a can’t get service elsewhere This option is only sustainable with on-going community subsidies or Grady closes. CONFIDENTIAL

48. Option 3: Change Mission What is it: Grady becomes a competitive community hospital: Limited, if any, medical education research activity Grady no longer aspires to national clinical leadership GME investments used to hire physicians to serve its patients Implications: EUMS and MSM must find other teaching sites Grady is able to exert greater “control” over care delivery and program growth Safety net mission is sized to met economic reality Grady looks like Crawford Long or Atlanta Medical Center Is This Feasible in Atlanta? CONFIDENTIAL

49. Option 4: Part Of Something Else? What is it: Grady becomes part of a local system or is acquired by a national for profit chain Detroit Medical Center Implications: Control shifts to a third party. Funding for safety net service will be a risk Grady becomes profitable or goes out of business CONFIDENTIAL

50. Option 5: Grady Care 2020 • What is it: • Grady organizes a community competitive system of care that attract patients with choice, as well as, safety net patients. • Operates with committed physician and other provider partners • Provides high quality and cost effective care that attracts individuals and payers • Grady grows • Implications: • Grady makes the investments needed for transformation • Grady and its medical school and physician partners align their relationships and incentives to make this work • Grady and its partners must be “community competitive” CONFIDENTIAL