Matthias Heil, Studienseminar für Gymnasien Fulda

Service Line Strategy Advisor Surgical Services Market Trends Prepared August 2014

Clinical Innovation Care Quality Growth and Financial Outlook Service Line Strategy

Growth and Financial Outlook Overview Overlapping data point with Neurosurgery/Spine General Surgery a Growing and Profitable Business Source:Advisory Board Inpatient and Outpatient Market Estimators; Service Line Strategy Advisor Research and Analysis Inpatient Service Line Opportunity Comparison Bubble Size Equals National IP Volumes, 2013 General Surgery Orthopedics Cardiovascular Women’s Services2 Oncology1 Neurosurgery/Spine 5-Year Growth

Select, Complex Cases to Remain Inpatient Inpatient Growth Outlook New Pressures Driving Volumes to Outpatient Setting Source; Advisory Board Inpatient and Outpatient Market Estimators; Service Line Strategy Advisor Research and Analysis Inpatient Volume and Growth Projections Estimate Growth Rate, 2013-2018 259K 371K 108K 133K 114K 439K 174K 52K 93K 106K 62K 459K 2013 Volume 2.6M Number of general surgeries performed inpatient in 2013 28.3% Inpatient procedures performed as percent of total general surgery procedures

However, GI Surgery Holds Growth Potential Across Care Settings Basic General Surgery category includes appendectomy, breast, cholecystectomy, hernia; Complex General Surgery category includes adhesions, endocrine, skin, splenectomy, tracheostomy, transplant, trauma. Source: Advisory Board Inpatient and Outpatient Market Estimators; Service Line Strategy Advisor Research and Analysis Outpatient Shift Future Growth Concentrated in Outpatient Arena Projected 5-Year Growth Rate in General Surgery-Related Services Inpatient Procedures1 Outpatient Procedures 15% 6% -1% 10% 15% 4% 10% -5% 6% 8% 6%

Care Shifting to Non-HOPD Setting Non-HOPD Growth Outlook Continued Rise of ASCs Contributing to Significant Non-HOPD Growth Source: Advisory Board Inpatient and Outpatient Market Estimators; Service Line Strategy Advisor Research and Analysis Volume Growth by Key Sub-Service Lines1, 2013-2018 Positive HOPD Growth Positive non-HOPD Growth 25.3% 5.6% Aggregate non-HOPD Growth by Key SSLs Aggregate HOPD Growth by Key SSLs

Key Trends Fuel Growth in General Surgery Key Trends in General Surgery Growth and Finances Source:Advisory Board Inpatient and Outpatient Market Estimators; Service Line Strategy Advisor Research and Analysis 1 2 3 4 Patient Demographics Clinical Innovation Continued Profitability Shifting Care Environment • Aging population leading to larger number of surgical interventions • Increased prevalence of obesity and reflux driving volumes in bariatrics and GERD, respectively • Continued innovation in minimally invasive techniques, robotics, and imaging • Innovation in endoscopic techniques broadening range of less-invasive modalities • Greater surgeon employment mitigates threat of non-hospital competition • Outpatient shift drives downstream growth of profitable surgeries, specifically with GI and colorectal procedures • Expanded referral network due to shift to value-based care, greater alignment with primary care, and more pressure to perform procedures outpatient 51M 96% 32% 7.1% Total number of inpatient procedures performed annually Percent of cholecystectomy procedures performed using MIS lap techniques Growth in employed general surgeons in last five years Growth in U.S. ambulatory surgery centers since 2011

Unbundling the General Surgery Service Line Service Line Strategy Overview Source: Service Line Strategy Advisor research and analysis. Bariatric GI Screenings Urology Wound Care • Procedures: • Gastric bypass • Gastric banding • Vertical sleeve gastrectomy • Procedures: • Colonoscopy • EGD • GERD treatment • Procedures: • Prostatectomy • Renal procedures • Urinary system procedures • Procedures: • Hyperbaric oxygen therapy (HBOT) • Debridement Gynecology Basic General Surgery Complex General Surgery • Procedures: • Appendectomy • Breast • Cholecystectomy • Hernia repair • Procedures: • Hysterectomy • Uterine fibroid procedures • Pelvic floor procedures • Procedures: • GI surgeries (colorectal, upper GI) • HPB Surgery • Transplant • Trauma Surgery

Service Line Strategy Imperatives Source: Service Line Strategy Advisor research and analysis. Four Key Imperatives of General Surgery Strategy Build Comprehensive Offerings Strengthen Referrals Management Aligned offerings and infrastructure retain patients seeking various procedures and promote multidisciplinary care Streamlined referral pathways incentivize providers to keep patients in the system and reduce loss to follow up Engage Physicians Cover Care Continuum Aligned physicians improve relations with administration and increase likelihood of success of new programs Cross-continuum infrastructure drives differentiation and enables appropriate site of care designation

Robust Analyses Can Improve Pursuit of New Offerings Imperative #1: Build Comprehensive Offerings Colorectal/Lower GI Still Sound Investment Source: Advisory Board Inpatient and Outpatient Market Estimators; Service Line Strategy Advisor research and analysis. 1) Center of Excellence Prioritizing SSL Opportunities for General Surgery Program Bubble Size Equals National IP Volumes, 2013 Upper GI Often overlooked high growth area with relatively easy entry into market given changes in COE1 standards Trauma Chole Revenue Per Case, 2013 Skin Appendectomy Hernia Breast Gen Surg. Gyn Forecasted Combined 5-Year Market Growth Rate (2013-2018)

Pointing Sites to Growth Reservoirs Untapped Opportunities Exist in GI Screenings, Bariatric Surgery Colorectal Surgery GI Screenings Bariatric Surgery Source: Advisory Board Inpatient and Outpatient Market Estimators; Service Line Strategy Advisor research and analysis. Imperative #1: Build Comprehensive Offerings Summary of General Surgery SSL Opportunities • Fuels highly profitable IP business downstream • High contribution profit per inpatient case: $8.6K • High contribution profit per inpatient case: $4.8K Profitability Growth Projections • Large 5-year national growth rate: 8% • Rising obese population has increased demand • Large 5-year national growth rate: 15% • Large 5-year national growth rate: 14% Required Investment • High weight capacity equipment • GI lab and/or outpatient clinic • Colorectal surgery specialist Differentiating Potential • Strong differentiator, especially when developed in conjunction with MWL program • Strong differentiator, especially as part of larger digestive disease center • Strong differentiator, especially as part of larger digestive disease center

Source: Service Line Strategy Advisor research and analysis Strong PCP Relations Key to Boosting Referrals Imperative #2: Strengthen Referrals Management General Surgeon Should Serve as Advocate for Program’s Offerings Strategies for Capturing Referrals Build and Manage PCP Relationships Foster positive relations with PCPs to ensure buy-in; align physicians on referral protocols Promote Services through Gen. Surgeon Given general surgeon is face of program, pursue general surgeon-driven marketing Physician-Driven Marketing Tactics Surgeons deliver lectures on issues, such as digestive health, at public events Surgeons meet with referring physicians to provide education on offerings Educational brochures disseminated from surgeons’ offices

Source: Service Line Strategy Advisor research and analysis Engagement a Prerequisite for Surgeon Champions Imperative #3: Engage Physicians Top-of-License Care Critical for Physician Engagement Drivers of Physician Disengagement Strategies to Resolve Challenges • Employing clerical staff, nurse navigators can offload physician responsibilities Onerous, time-sensitive tasks Appointment prep, patient follow up fall by the wayside for occupied physicians • Monthly meetings for physicians can improve communication and involvement on key decisions Limited transparency Physician involvement in programmatic decisions, technology acquisition process is limited • Ensuring top-of-license care and increased efficiencycan reduce physician objections to performing inpatient procedures Surgeon’s primary attention is to private practice Physicians prefer to perform profitable procedures in their own offices, ASCs

Source: Service Line Strategy Advisor research and analysis Minimize Loss to Follow Up in Transitions Across Care Settings 1) Length of Stay Cross-Continuum Care Can Increase Fragmentation Imperative #4: Cover Care Continuum Patient Pathway with Key Care Management Challenges Patient sent home prematurely and/or with unsatisfactory discharge summaries due to lack of planning around discharge process Patient loss-to-follow-up due to inadequate staffing to facilitate transitions across care settings Patient transitioned to post-acute care setting; OP procedure performed Patient referred by PCP; surgery scheduled; pre-op appointments coordinated Admission Inpatient Outpatient/Ambulatory Discharge Surgeon performs IP procedure on patient Patient post-op conducted; discharge processed Missed appointments or last-minute procedure cancellations due to variable scheduling processes and duplicative information exchanges Prolonged LOS1, wrong subspecialist or inappropriate site of care due to limited cross-specialty collaboration Key Challenges

Source: Service Line Strategy Advisor research and analysis Mitigate Risks Inherent in Cross-Continuum Care Imperative #4: Cover Care Continuum Nurse Navigators Enable Comprehensive, Streamlined Care Impactful Tactics for Minimizing Patient Loss to Follow Up • Facilitate interdisciplinary care coordination • Direct patient flow along entire care pathway, including pre-op screening process and post-op patient transitions Hire Midlevel Providers • With expanding patient access points, use same centralized electronic system to expedite transfer of information • Ensure timely physician or nurse practitioner review of pre-op patient file to reduce last-minute cancellations Streamline Scheduling • Improve case management processes and organize discharge planning to ensure appropriate transitions and minimize risk of readmissions Standardize Discharge Process

Source: Service Line Strategy Advisor research and analysis Coordination Key to Patient Retention Imperative #4: Cover Care Continuum Attributes of a Successful Cross-Continuum Program Enhanced Access Organization attune to increasingly access-conscious patients, especially for low-acuity settings High Level of Coordination Organization encourages improved provider communication across settings to retain patient in pathway Appropriately Designated Setting Organization ensures patient receives high-value care in appropriate setting, minimizing prolonged LOS Provider Accountability of Discharge Organization has standardized processes, facilitating clinically sound discharge decisions

Value of Care to Drive Changes in Utilization, Setting of Care Care Quality Overview Source: Service Line Strategy Advisor research and analysis Measuring Quality Integral to Defining Value Cost Conscious Care Delivery Quality of Outcomes Shifting Imperatives for Measuring Value • Patient input • Episodic care/readmissions • Value of premium technology • Surgical vs. conservative care Value Financial Incentives Tied to Quality Metrics Patient Perception Clinical Results

Internal Governance Now Top Prerogative for Robotics Programs Robotic Surgery Quality Tracking Sources: Intuitive Surgical earnings calls; Langreth R, “Intuitive Surgical’s Robot Surgeons Encounter Human Lawyers,” Bloomberg Business Week, March 2013; Service Line Strategy Advisor research and analysis. Robotic Controversy Emerges from Weak Oversight Timeline of High Impact Research Studies on Robotic Surgery 2010 Research shows that the body of literature on dV prostatectomy lacks randomized controlled trials February 2013 Study shows that dV hysterectomy costs more than laparoscopic surgery without superior outcomes March 2013 Increased reports of adverse events related to robotic surgery trigger FDA probe 2000 da Vinci cleared by FDA; first studies demonstrating safety and efficacy published 2011 Studies conclude that Intuitive’s marketing materials exaggerate benefits of robot and influence hospital websites February 2013 Reporting on Intuitive sales tactics exposes lack of rigor, clinical evidence behind physician training & credentialing process April 2013 Hospitals begin to examine improving governance and quality-monitoring for their robotics programs

Hospitals Ultimately Responsible for Self-Monitoring Role of Hospital Quality Monitoring Committees Medical Societies Filling Void in Quality Guidance Source: Service Line Strategy Advisor research and analysis Scope of Hospitals’ Quality Monitoring Responsibilities by SSL No National Standards • Robotic Surgery • General Surgery • Urologic Surgery • GI External Quality Standards • MBSAQIP for Bariatric Surgery Centers of Excellence • AAGL COE accreditation for gynecological laparoscopic surgery • National College of Surgeons’ National Accreditation program for Breast Centers 2 1 Quality Committee

ASMBS Hopes National Quality Registry Will Broaden Acceptance Bariatric Surgery Quality Tracking Source: Service Line Strategy Advisor research and analysis Metabolic and Bariatric Surgery Accreditation and Quality Improvement Program MBSAQIP Seeks to Mainstream Bariatric Surgery Percent of Eligible Patients Who Receive Bariatric Surgery Key Components of MBSAQIP1 Accreditation 1% Estimated percentage of the bariatric surgery-eligible patients who receive surgery

Formal Data Tracking Aids MIS Expansion, Standardization MIS Quality Tracking Source: Service Line Strategy Advisor research and analysis Minimally invasive surgery MIS1 Committee Weighs Cost, Quality for New Tech Sample MIS Center Scope • Urologists Gynecologists • ENTs • General Surgeons • Thoracic Surgeons Program Coordination Medical Director Dedicated Administrator MIS Steering Committee

Quality Improvement Spans Care Episode Internal Leadership Prerequisite to Inflecting Improvement Source: Service Line Strategy Advisor research and analysis. Comprehensive Care Quality Worksheets Key Items for Inclusion in Care Quality Worksheet Preoperative Perioperative Postoperative • Discharge • Postsurgical assessment • Long-term follow-up survey Interface Opportunity: • Referral • Initial consultation • Pre-surgical visit • Intake • Surgery • Inpatient stay Measures for Tracking: • Time to appt. • Visit wait time • Patient health habits • Patient mental state • OR time • Blood loss/transfusion rate • Turnover time • Time to IP unit • Length of Stay • Readmissions • Pain/mobility • Return to normal activity • Patient satisfaction • Weight Loss

Technology Pipeline for General Surgery Future-Looking Surgical Technologies and Procedures Clinical Innovation Overview Endoscopic Techniques • LINX and Stretta, currently accepted endoscopic treatments, lower the cost of treatment for patients Medigus MUSE • New endoscopic stapling system that is a minimally-invasive, nonsurgical alternative for treatment of GERD offers potential for more patients to seek long-term solution Growing Applications of Bariatric Surgery • Market Conditions and AMA designation of obesity as a disease will increase innovation in bariatric surgery Diabetes Treatment • Bypass and duodenal switch may resolves type 2 diabetes in the majority of patients GERD Treatment New treatment option adds to pre-existing surgical alternatives Bariatric Surgery Bariatric surgery determined to effectively treat type 2 diabetes Single-Site • Single port technology offers improved cosmesis but yet unclear clinical benefit New Xi Model • Though higher cost model with improved maneuverability and visualization allows hospitals to differentiate in saturated market, added features may not warrant the cost Robotic Surgery Single-site capabilities expand usage of the robot across specialties Source: Service Line Strategy Advisor research and analysis

Symptoms Resolved with Endoscopy or Minimally Invasive Surgery GERD Treatment Innovation Endoscopic Treatment Lowers Lifetime Costs Source: SAGES presentations; Technology Insights research and analysis. Relative Cost, Patient Satisfaction in GERD Treatment ~25% Satisfied ~70% Satisfied In-Office Testing ($1000) Nissen Fundoplication($5000-$8000) In-Office Testing ($1000) ~75% Satisfied Total Treatment Cost In-Office Testing ($1000) Stretta, LINX ($300-$1000) In-Office Testing ($1000) In-Office Testing ($1000) Medical Management Endoscopy Surgery Less Invasive More Invasive

Medigus MUSE Enables Endoscopic Fundoplication GERD Treatment Innovation MUSE a Long-Term, Nonsurgical GERD Solution Source: SAGES presentations; http://www.medigus.com/news-events/news/141-study-presented-at-sages-2014-shows-anterior-fundoplication-with-medigus-muse-system-can-reduce-gerd-patients-use-of-ppis,Service Line Strategy Advisor research and analysis. GERD Prevalence and Therapeutic Breakdown SAGES 2014 Highlights MUSE in Oral Presentation • 1% • Estimated percentage of the national GERD population which has received surgical or endoscopic treatment The Society of American Gastrointestinal and Endoscopic Surgeons (SAGES) Emerging Technology Session highlighted the Medigus MUSE (formerly SRS) system as an effective trans-oral treatment option for GERD. In a study of 69 subjects, 85% of patients reduced GERD medication use by over 50%, with 65% of subjects eliminating GERD medication entirely after 6 months. The device performs an anterior fundoplication with just a few staples and in under an hour, potentially lowering length of stay and costs relative to traditional fundoplication surgery. 99% The vast majority of the GERD population finds sufficient relief in medical therapy, but new endoscopic treatments are offering long-term relief of symptoms without surgical intervention, causing this figure to decrease 15 million Approximate number of people affected by GERD in the United States New Treatment *Recently granted FDA 501k approval Growingly Accepted Treatments LINX Stretta Medigus MUSE

Market Forces Lead to Further Bariatric Innovation Obesity Recognition May Increase Accessibility, Applications of Treatment Sources: Pollack, Andrew. “A.M.A. Recognizes Obesity as a Disease,” The New York Times, June 18, 2013. Service Line Strategy Advisor research and analysis. BariatricSurgery Innovation 1 2 3 4 5 ” Economy Recovery Post-Recession Research Supporting Broader Clinical Implications Rising Obesity Rate & Classification of Obesity as a Disease Favorable Reimbursement Growing Cultural Acceptance of Bariatric Surgery AMA: Obesity is a Disease “Recognizing obesity as a disease will help change the way the medical community tackles this complex issue that affects approximately one in three Americans.” Patrice Harris, MDBoard Member American Medical Association

Diabetes Resolution a Holy Grail for Surgery Role of Gastric Bypass Debated in Metabolic Management Source: Buchwald et al., “Weight and Type 2 Diabetes after Bariatric Surgery,” Am Journal of Med,2009, 122,3:248-56; Okerson et al, “Effect of early weight loss on type 2 diabetes mellitus after 2 years of gastric banding, Postgrad Med, 2012, 124(6):73-81; Rubino et al, “Bariatric Surgery versus Conventional Medical Therapy for Type 2 Diabetes,” NEJM, 2012 366:1577-1585; Bhatt et al, “Bariatric Surgery versus Intensive Medical Therapy in Obese Patients with Diabetes,” NEJM, 2012 366:1567-1576; Kashyap et al, “Metabolic Effects of Bariatric Surgery in Patients with Moderate Obesity and Type 2 Diabetes,” Diabetes Care, February 2013;Hand L, “Diabetes May Recur After Bariatric Surgery,” Medscape.org, 12/06/2012; Service Line Strategy Advisor research and analysis. Bariatric Surgery Innovation Bariatric Surgery Can Lead to Diabetes Remission… …But Does It Last? • Several studies have found that up to 95% of patients may experience remission from diabetes two years after bariatric surgery • Gastric bypass uniquely restores pancreatic B-cell function and reduces truncal fat • Medical therapy rarely achieves similar results • Follow up studies have shown that with weight regain, up to 35% of patients experience a relapse into diabetes • Two-year studies are insufficient to show long-term durability of diabetes remission VS

Perceived Cosmetic Benefit Drives Demand Minimal Clinical Benefits Undermine Business Case for SS Tech Investment Source: Lee PC, et al., “Randomized clinical trial of single-incision laparoscopic cholecystectomy versus minilaparoscopic cholecystectomy,” British Journal of Surgery 2010; 97: 1007–1012; Joseph M, et al. “Single Incision Laparoscopic Cholecystectomy Is Associated With a Higher Bile Duct Injury Rate,” Annals of Surg. 2012 July; 256 (1):1-6; Henriksen NA, et al., “Cost assessment of instruments for single-incision laparoscopic cholecystectomy,” JSLS, 2012 Jul-Sep;16(3):353-9; Tamini N, et al., “Single-Incision Versus Standard Multiple-Incision Laparoscopic Cholecystectomy,” Surgical Innovation 2014; Service Line Strategy Advisor research and analysis. Robotic Surgery Innovation Visual analogue scale is a pain scale that measures a patient's pain intensity. A higher number indicates a high postoperative pain level. p > 0.05 Cosmetic result based on patient satisfaction scores. A higher score indicates greater patient satisfaction regarding cosmetic result. p < 0.05. Device Costs Limit Single-Incision Profitability for Cholecystectomy Single Incision Versus Conventional Laparoscopic Cholecystectomy Randomized, Controlled n = 70 Retrospective n = 2,626 Single-Site (SS) Capable da Vinci Si Surgical System $1,750,000 $1,100 Single incision device costs Conventional laparoscopic device costs 2 1 $400

Despite Added Feature of Xi, Cost is Exorbitant New Model Intuitive’s Attempt to Reenter a Fairly Saturated Market Robotic Surgery Innovation Source: Intuitive Surgical website; Service Line Strategy Advisor Interviews and Analysis. Pending approval in the US No longer for sale in the US Assumption Added Features and Cost of da Vinci Over Time $1.85 – 2.3 million + $500K 2nd console3 • Magnified 3D HD Vision • EndoWrist1 Instrumentation • Mobile Platform • Firefly Fluorescent Imaging1 $1.75 million + $500K 2nd console • Single Site Capabilities • Second console • Tactile Sensor • Customized Ergonomic Settings N/A2 • Enhanced 3D HD Resolution 2009 da Vinci Si System 2006 da Vinci S System 2014 da Vinci Xi

Matthias Heil, Studienseminar für Gymnasien Fulda