GAMES 2012 Annual Convention August 7, 2012

1. Round Two Survey Predictions, Projections, the Round 1 Recompete, and an update on the MPP Alternative GAMES 2012 Annual Convention August 7, 2012

2. Presented by Mark Higley Vice President – Development VGM Group, Inc. (O) 888-224-1631 (C) 319-504-9515 mark.higley@vgm.com

3. To begin…Round 2: Predictions & Projections

4. “And the survey says”… But, first let’s a take a look at some Statistics 101:

5. The Standard Normal Distribution(Z) Table is NOT applicable here… The Standard Normal distribution has a mean of 0 and a standard deviation of 1.

6. For NCB, It’s an “F” Distribution!(How far will take right skewed tail go???) The F distribution is a right-skewed distribution used most commonly in Analysis of Variance

7. Where will this one fall???

8. Our sampling surveys…

9. Three (3) Populations: • Large VGM Members (n=33) • Suppliers Who Attended VGM Bidding Seminars (n=123) • “Public” Supplier via Blog (n=70)

10. Oxygen Supplies and Equipment Suppliers Who Attended VGM Bidding Seminars (n=123)

11. 1). Your overall category discount from the current CBA allowable approximated: 1-10% 2.7% 10-15% 1.4% 15-20% 5.4% 20-25% 24.3% 25-30% 20.3% 30-35% 21.6% 35-40% 6.8% 40-45% 10.8% 45- 50% 6.8% >50% 0%

12. 2). Your actual $ bid for Payment Class “A” (stationary and portable) approximated: $165 - $175 (*) 1.3% $155- $165 5.3% $145 - $155 5.3% $135 - $145 13.3% $125 - $135 20.0% $115 - $125 20.0% $105 - $115 10.7% $ 95 - $105 6.7% $ 85 - $95 4.0% < $85 13.3% (*) This “top number” approximates the current allowable

13. 3). As compared to your current oxygen patient census, you submitted an indicated “unit bid capacity” by: An amount less than your current patient census 20.0% Identical to current patient census 24.0% Increased by 1% - 5% 22.7% Increased by 5% - 15% 6.7% Increased by 15% - 25% 12.0% Increased by 25% - 50% 6.7% Increased by 50% - 100% 5.3% Increased by 100% - 200% 2.7% Increased by more than 200% 0%

14. Standard (Power and Manual) Wheelchairs, Scooters, and Related Accessories

15. 1). Your overall category discount from the current CBA allowable approximated: 1-10% 5.6% 10-15% 9.5% 15-20% 13.1% 20-25% 14.3% 25-30% 22.6% 30-35% 14.3% 35-40% 3.6% 40-45% 10.7% 45-50% 5.6% >50% 0%

16. 2). Your actual $ bid for K0823 (standard power chair) approximated: $3500 - $3725 2.4% $3200 - $3500 5.9% $2900 - $3200 20.0% $2600 - $2900 11.8% $2300 - $2600 27.1% $2000 - $2300 16.5% $1800 - $2000 1.2% <$1800 15.3%

17. 3). As compared to your current PMD census, you submitted an indicated “unit bid capacity” by: An amount less than your current patient census 12.0% Identical to current patient census 32.5% Increased by 1% - 5% 25.0% Increased by 5% - 15% 12.5% Increased by 15% - 25% 3.7% Increased by 25% - 50% 2.5% Increased by 50% - 100% 2.5% Increased by 100% - 200% 1.3% Increased by more than 200% 0%

18. Enteral Nutrients, Equipment and Supplies-

19. 1). Your overall category discount from the current CBA allowable approximated: 1-10% 7.7% 10-15% 9.6% 15-20% 21.2% 20-25% 11.5% 25-30% 11.5% 30-35% 11.5% 35-40% 1.9% 40-45% 17.3% 45-50% 7.7% >50% 0%

20. 2). Your actual $ bid for B4150 Enteral Formula approximated: $.60 -.$.67 23.5% $.56 -.$.59 5.9% $.52 -.$.55 13.7% $.48 -.$.51 9.8% $.44 -.$.47 35.3% $.40 -.$.43 2.0% $.36 -.$.39 0% < $.36 9.8%

21. 3). As compared to your current enteral patient census, you submitted an indicated “unit bid capacity” by: An amount less than your current patient census 22.6% Identical to current patient census 28.3% Increased by 1% - 5% 22.6% Increased by 5% - 15% 3.8% Increased by 15% - 25% 9.4% Increased by 25% - 50% 3.8% Increased by 50% - 100% 3.8% Increased by 100% - 200% 0% Increased by more than 200% 5.1%

22. CPAP Devices, Respiratory Assist Devices, and Related Supplies and Accessories-

23. 1). Your overall category discount from the current CBA allowable approximated: 1-10% 4.0% 10-15% 2.7% 15-20% 14.7% 20-25% 25.3% 25-30% 21.3% 30-35% 20.0% 35-40% 6.7% 40-45% 0% 45-50% 5.3% >50% 0%

24. 2). Your actual $ bid for E0601 (Continuous Airway Pressure Device) approximated: $950 - $1020 2.6% $900- $950 1.3% $850 - $900 0% $800 - $850 7.8% $750 - $700 11.7% $700 - $750 15.6% $650 - $700 19.5% $600 - $650 14.3% < $600 27.3%

25. 3). As compared to your current PAP patient census, you submitted an indicated “unit bid capacity” by: An amount less than your current patient census 23.0% Identical to current patient census 23.0% Increased by 1% - 5% 28.4% Increased by 5% - 15% 9.5% Increased by 15% - 25% 5.4% Increased by 25% - 50% 5.4% Increased by 50% - 100% 4.1% Increased by 100% - 200% 1.4% Increased by more than 200% 0%

26. Hospital Beds and Related Accessories-

27. 1). Your overall category discount from the current CBA allowable approximated: 1-10% 1.1% 10-15% 6.7% 15-20% 12.4% 20-25% 27.0% 25-30% 14.6% 30-35% 13.5% 35-40% 9.0% 40-45% 9.0% 45-50% 6.7% >50% 0%

28. 2). Your actual $ bid for E0260 (Semi-electric hospital bed) approximated: $1200- $1250 0% $1150- $1200 2.2% $1100- $1150 5.6% $1050- $1100 4.4% $1000- $1050 15.6% $ 950- $1000 14.4% $ 900- $950 13.3% $ 850- $900 15.6% <$850 28.9%

29. 3). As compared to your current hospital bed patient census, you submitted an indicated “unit bid capacity” by: An amount less than your current patient census 22.3% Identical to current patient census 32.9% Increased by 1% - 5% 24.7% Increased by 5% - 15% 5.9% Increased by 15% - 25% 4.7% Increased by 25% - 50% 4.7% Increased by 50% - 100% 2.4% Increased by 100% - 200% 2.4% Increased by more than 200% 0%

30. Walkers and Related Accessories

31. 1). Your overall category discount from the current CBA allowable approximated: 1-10% 1.3% 10-15% 6.3% 15-20% 10.1% 20-25% 8.9% 25-30% 20.3% 30-35% 15.2% 35-40% 16.5% 40-45% 10.1% 45-50% 11.4% >50% 0%

32. 2). Your actual $ bid for E0143(Walker, Folding, Wheeled) approximated: $86 - $90 16.7% $81- $85 6.0% $76 - $80 16.7% $71 - $75 13.1% $66 - $70 15.5% $60 - $65 8.3% $56 - $61 3.6% < $56 20.2%

33. 3). As compared to your current walker patient census, you submitted an indicated “unit bid capacity” by: An amount less than your current patient census 19.0% Identical to current patient census 32.9% Increased by 1% - 5% 25.3% Increased by 5% - 15% 6.3% Increased by 15% - 25% 6.3% Increased by 25% - 50% 5.1% Increased by 50% - 100% 2.5% Increased by 100% - 200% 1.3% Increased by more than 200% 1.3%

34. Support Surfaces (Group 2 Mattresses and Overlays) -

35. 1). Your overall category discount from the current CBA allowable approximated: 1-10% 4.5% 10-15% 5.6% 15-20% 5.6% 20-25% 11.2% 25-30% 11.2% 30-35% 11.2% 35-40% 15.7% 40-45% 4.5% 45-50% 18.0% >50% 12.4%

36. 2). Your actual $ bid for E0277 (Powered Pressure-Reducing Air Mattress) approximated: $6200 - $6500 3.9% $5900 - $6200 0% $5600 - $5900 2.6% $5200 - $5600 5.2% $4900 - $5200 2.6% $4700 - $4900 13.8% $4500 - $4700 20.0% < $4500 51.9%

37. 3). As compared to your current support surface patient census, you submitted an indicated “unit bid capacity” by: An amount less than your current patient census 22.1% Identical to current patient census 33.8% Increased by 1% - 5% 20.8% Increased by 5% - 15% 7.8% Increased by 15% - 25% 5.2% Increased by 25% - 50% 3.9% Increased by 50% - 100% 5.2% Increased by 100% - 200% 0% Increased by more than 200% 1.3%

38. Negative Pressure Wound Therapy (NPWT) Pumps and Related Supplies and Accessories-

39. 1). Your overall category discount from the current CBA allowable approximated: 1-10% 17.1% 10-15% 0% 15-20% 14.3% 20-25% 11.4% 25-30% 22.9% 30-35% 8.6% 35-40% 11.4% 40-45% 0% 45-50% 14.3% >50% 0%

40. 2). Your actual $ bid for E2402 (Negative Pressure Electrical Pump) approximated: $14500 - $15500 9.1% $13500 - $14500 9.1% $12500 - $13500 3.0% $11500 - $12500 15.2% $11000 - $11500 21.2% $10500 - $11000 0% $10000 - $10500 15.2% $ 9500 - $10000 12.1% $ 9000 - $9500 0% < $9000 15.2%

41. 3). As compared to your current NPWT patient census, you submitted an indicated “unit bid capacity” by: An amount less than your current patient census 6.1% Identical to current patient census 27.3% Increased by 1% - 5% 42.4% Increased by 5% - 15% 6.1% Increased by 15% - 25% 9.1% Increased by 25% - 50% 3.0% Increased by 50% - 100% 0% Increased by 100% - 200% 0% Increased by more than 200% 6.1%

42. National Mail-Order Diabetic Supplies -

43. 1). Your overall category discount from the current CBA allowable approximated: 1-10% 0% 10-15% 0% 15-20% 0% 20-25% 0% 25-30% 0% 30-35% 0% 35-40% 0% 40-45% 50% 45-50% 50% >50% 0%

44. 2). Your actual $ bid for A4253KL (Blood Glucose Test Strips) approximated: $30 - $33 0% $27- $29 0% $24 - $26 0% $21 - $23 0% $18 - $20 0% $15 - $17 100% $12 - $14 0% < $12 0%

45. 3). As compared to your current patient census, you submitted an indicated “unit bid capacity” by: An amount less than your current patient census 50% Identical to current patient census 0% Increased by 1% - 5% 0% Increased by 5% - 15% 50% Increased by 15% - 25% 0% Increased by 25% - 50% 0% Increased by 50% - 100% 0% Increased by 100% - 200% 0% Increased by more than 200% 0%

48. Final predictions and projections… • Research analysts at Credit Suisse, in its recent coverage of Lincare Holdings (LNCR) suggest a projected 30% reduction in overall fees for Round 2. • Their sample consisted of 29 companies varying 500K to 100 million in revenues. Several VGM members were contacted.

49. The survey not only inquired as to whether the company bid, and, if it did, as to what discounts were offered, but requested information on the likelihood that the company would sell their business or reject participation at a certain level of “greater than” round two discounting. • Lastly: Did the company bid multiple CBAs?

50. From the report… • 68% of survey participants (29 companies varying 500K to 100 mil in revenues) would look to sell businesses / contracts or reject participating with a > 35% reduction in fees. • 36% surveyed submitted bids other than their residing MSA.