Eric Shell, CPA, MBA eshell@stroudwaterassociates

1. North Dakota Healthcare Association 72nd Annual Conference – Tomorrow’s Challenges CAH Financial Analysis Report on Margins September 8, 2006 Ramada Plaza Suites Fargo, North Dakota Eric Shell, CPA, MBA eshell@stroudwaterassociates.com

2. Project Overview • Question to be addressed: • “Why is the average margin in ND CAHs -(2.33%) while the average CAH margin in SD is -(.41%) and MN is +2.55%” • Source: CAH Financial Indicators Report, July 2006, Flex Monitoring Team • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

3. Project Overview • Other Key Financial Indicators – Our Neighbors • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

4. Project Overview • Approach • Random sample of ten ND CAHs selected by NDHA for participation in study • Review of most recent cost report, financial statements, strategic plan, and other relevant information • Conference call with CAH administrators to review findings and answer questions • Memos to each administrator documenting improvement opportunities (many still to come) • Presentation of common findings related to financial performance – today • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

5. Project Overview • Overview of CAH Sample • Margin Analysis • Sample slightly outperforms state average • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

6. Project Overview • Common Findings • Cost reports are well prepared • Third party payers generally result in marginal loss or profit on a fully allocated cost basis • For most CAHs, operating losses are primarily the result of clinics, nursing homes, and other non-hospital business • CAHs generally break even • Important opportunity related to treatment of Swing Bed SNF vs. NF • Mark up ratios at most CAHs are below peers • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

7. North Dakota Opportunities • Top 12 North Dakota CAH Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • CAH Departments with RCC > 1 • Non-Hospital Businesses • Medicare Skilled Level Care in Swing Beds vs. Nursing Homes • Nursing Home Losses • Rural Health Clinic Losses • County Subsidies • Bad Debt Expense • Interim Cost Reports or Net Revenue Model • Physician Recruitment • Growth in Outpatient Volume • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

8. Third Party Contracts • Guiding Principle • Commercial business is an important source of profits and profits generated on this business must more than compensate for non-allowable “costs” • Issue • One major third party payer in North Dakota with limited competition • Market power or market responsibility? • Reported that standard contract for all ND CAHs • Inpatient – DRG based system; Outpatient – Fee schedule • For CAHs that have analyzed allowed amounts relative to fully allocated costs, generally breakeven to losses • So how do they compare to other Blue Cross Plans across the County? • It depends on where you live! • Project Overview • ND Opportunities • Third PartyContracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

9. Third Party Contracts • Peer Comparison • Medicare Revenue Per Day below peer averages – WHY? • Project Overview • ND Opportunities • Third PartyContracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

10. Third Party Contracts • Peer Comparison (continued) • CAH economics • Aggressive third party reimbursement forces CAHs to be cost efficient as it drives CAH profitability • No margin in Medicare services • Medicare per unit revenue decreases as CAHs become more efficient • Project Overview • ND Opportunities • Third PartyContracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

11. Third Party Contracts • Outcomes • ND CAHs are generally more efficient than peer CAHs • How we know – look at Medicare revenue per day • ND strategies to reduce unit costs • Have gotten into other non-hospital businesses to dilute fixed costs (to be continued) • Limited non employee related costs (e.g., capital) • Not sustainable • Project Overview • ND Opportunities • Third PartyContracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

12. Third Party Contracts Evaluation of Third Party Contracts – Marginal Cost Analysis • Project Overview • ND Opportunities • Third PartyContracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary • Growing inpatient non-Medicare volume by 50 days paid at an average reimbursed rate of $900 contributes $5,340 to profit or approximately $107/day

13. Third Party Contracts Evaluation of Third Party Contracts – Marginal Cost Analysis • Project Overview • ND Opportunities • Third PartyContracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary • Growing outpatient non-Medicare radiology services by 50 tests paid at an average reimbursed rate of $82 contributes $2,178 to profit or approximately $44/test

14. Third Party Contracts Evaluation of Third Party Contracts – Marginal Cost Analysis • Project Overview • ND Opportunities • Third PartyContracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary • Growing outpatient non-Medicare PT services by 50 units paid at an average reimbursed rate of $37 contributes $406 to profit or approximately $8/unit

15. Third Party Contracts • Opportunity • Essential for all ND CAHs to understand third party allowed amounts relative to fully allocated costs and marginal costs • Use cost report ratio of cost to charges on a departmental basis to determine profitability of services • Marginal cost analysis based on estimated variable costs plus dilution in Medicare cost-based reimbursement • Essential to generate enough profit on marginal costs to cover overhead costs • With full understanding of contract profitability (or losses), meet individually with Blue Cross representatives • Appeal for Market Responsibility • Project Overview • ND Opportunities • Third PartyContracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

16. Swing Bed SNF vs. NF • Issue • Non-Medicare Swing Bed SNF patients should be carved out of routine costs at regional rate and not average routine cost • General Principles • 6-120 Rev. 1843 – “…To calculate SNF-like SB cost per day, adjusted routine costs are divided by the sum of the total number of inpatient routine days and total SNF-like SB days • S-3 Line 3 should be 100% Medicare • “Adjusted routine costs = total routine costs less NF-like SB days” • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

17. Swing Bed SNF vs. NF • Memo from CMS to upstate NY CAH • July 1, 2005 • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

18. Swing Bed SNF vs. NF • Cost Report Impact – Worksheet S-3 • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

19. Swing Bed SNF vs. NF • Financial Impact – ND Example • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

20. Swing Bed SNF vs. NF • Opportunity • It is essential that SNF-like and NF-like SBs are properly classified on Worksheet S-3 as NF-like SBs are reimbursed on a “PPS” basis while SNF-like SBs on a cost basis • High Medicare payer mix for SNF-like beds will increase reimbursement • Review prior period cost reports back to December 20, 2000 • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

21. Departments with >1 Ratio of Cost to Charges (RCC) • Issue • Outpatient departments with RCCs > 1 will generate losses on all non cost-based volume • Issues with • Charge Master not set high enough • Many ND CAHs use Blue Cross fee schedule as basis for charge master • All charges not being captured • Volume not adequate to offset department standby costs • Direct expenses too high • Ancillary departments with costs greater than charges often include: • Emergency Department • Physical Therapy • Observation beds • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

22. Departments with >1 Ratio of Cost to Charges (RCC) • Patient Deductions and Outpatient Cost to Charges • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

23. Departments with >1 Ratio of Cost to Charges (RCC) • Ancillary Service Mark-Up Ratio for ND CAHs • Direct correlation between ancillary service mark-up ratio and CAH operating margin • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

24. Departments with >1 Ratio of Cost to Charges (RCC) • ND benchmarked to national peer group • Overall ancillary service mark-up ratio • Mark-up ratio significantly below 25th percentile of peers • Ancillary service mark-up by key department • Benchmark source: Solucient, Comparative Performance of US Hospitals • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

25. Departments with >1 Ratio of Cost to Charges (RCC) • Opportunity • Evaluate charge master • Formal external charge master review • Blue Cross fee schedule inflated by ???% • Medicare APCs • Grow patient volume by working with physicians • Consider productivity incentives for physical therapists • Reduce expenses • Purchasing organizations, networks, etc. • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

26. Non-Hospital Businesses • Sample of Non-Hospital Businesses • Direct correlation between number of Non-CAH businesses and system-wide operating losses • However, in most rural communities, CAHs are the center of healthcare activity and core mission supports these services • Just recognize it! • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

27. Non-Hospital Businesses • Example 1 – Home Health Agency • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

28. Non-Hospital Businesses • Example 2 – Assisted Living Center • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

29. Non-Hospital Businesses • Guiding Principle • Important to understand the pros and cons of non-reimbursable cost centers (e.g., home health agencies, assisted living, nursing homes, etc.) • Pros – Mission objectives, potential direct gains/margin, and dilution of overhead costs to enable hospital profit on commercial business • Cons – Potential direct losses and decreased Medicare cost-based reimbursement from fixed costs allocated out of hospital • Opportunities • Understand true loss of non-hospital business performing analysis similar to prior pages • If net losses, consider spinning business out of hospital • If losses acknowledged as part of mission, maintain business • May be opportunity to give back to County • Can consider potential hospital subsidy to business • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

30. Skilled Care in CAH or NH • Issue • Several CAHs care for a majority of Medicare SNF patients in the nursing home vs. the CAH where patients may receive better rehabilitative care • Example • Financial analysis indicates that CAH would improve its overall reimbursement by $45K if Medicare patients were cared for in the CAH • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

31. Skilled Care in CAH or NH • For the CFOs • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

32. Skilled Care in CAH or NH • Opportunities • Have Swing Beds • Perform analysis on preceding pages to ensure swing beds will be financially beneficial relative to the distinct part skilled unit • If Medicare patients have flexibility, consider rehab services in the CAH swing beds • Target growth in swing bed services and promote services to larger community hospitals • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

33. Nursing Home Losses • Sample of Losses in Nursing Home • Losses in Nursing Homes are likely to create an overall negative operating margin • CAH cannot generate enough margin to cover nursing home losses • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

34. Nursing Home Losses • Losses – Its all in the definition of “losses” • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

35. Nursing Home Losses • Opportunities • Using analysis on prior slide, determine true Nursing Home losses • Grow Resident Volume • Adult day care programs • Senior exercise programs • Increase Charges – not allowed in ND as set by costs • Will only affect non-Medicaid reimbursement • Market may not allow • Ensure costs are below direct, other direct, and indirect caps • Differentiate room rate charges between private and semi-private • Hospital to “takeover” unused nursing home space • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

36. Rural Health Clinic Losses • Losses in Rural Health Clinics (RHCs) • Similar to Nursing Homes, losses created in RHCs are likely to create overall negative operating margin • CAH cannot generate enough margin to cover RHC losses • However, not a business to exit for most rural communities • Base primary care • Recruitment vehicle • Consolidation of key diagnostic services • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

37. Rural Health Clinic Losses • Opportunities • Understand operations and incrementally improve • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

38. Rural Health Clinic Losses • Realities of Successful Private Practice • Have had to keep overhead to a minimum • 130-140 patient encounters per week • Have had to control payer mix • Have had to add ancillary services • Tight collection policies • Current with Coding • For Hospital to pay physician private practice salary must meet all of the above criteria – otherwise you lose • Salary is always right because revenue-expenses = salary • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

39. Rural Health Clinic Losses • Provider Compensation • Benchmarking example • Benchmarking is essential for providers to understand their productivity relative to peers • “Scientific” data • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

40. Rural Health Clinic Losses • Provider Compensation (continued) • Create productivity-based compensation models • Best Performing Practices (BPP) frequently include physician incentives in provider compensation formulas to encourage physician efficiency and control costs • Positive effects • Revenue enhancement • If structured well, physicians like them • Rewards effort • Last patient seen • Accepting larger patient panels • Achieving higher efficiencies through better use of staff • Retaining more cases with less referrals • Expense management • Converts a portion of fixed costs to variable costs • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

41. Rural Health Clinic Losses • Charge Master • Establish appropriate charge master • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

42. Rural Health Clinic Losses • Establishing an Appropriate Fee Schedule (continued) • Goal • Establish charges that reflect overall market conditions including: • Third party payer fee schedules • Resource based standardization of fees • Community perception • CF below market rates = leaving “money on the table” • EOMBs tell the story • Opportunities • Consider developing a standardized conversion factor for E&M codes in a range between $42-$47 that is reasonable given local market conditions • Using RBRVS information, standardize Charge Fee schedule using these conversion factors • Continue to evaluate EOMBs to ensure charges are above “allowed” amount for all primary payers • Caution: Must meet market conditions • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

43. Rural Health Clinic Losses • E&M Coding Relativity • An estimated 50-60% of visits are actually under-coded • Overall distribution of E&M codes is often skewed towardslower level services when compared to rural peers • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

44. Rural Health Clinic Losses • E&M Coding Relativity (continued) • Opportunities • Work with the providers to develop a systematic, scientific review process that will identify physician-specific trends and target feedback • Evaluate coding relativity performance on a quarterly basis • Chart coding relativity • Standardize coding practices from provider to provider and site to site • Coding is also a compliance issue • Assigning an improper code is abuse/fraud – whether too high or too low • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

45. Rural Health Clinic Losses • Practice Expenses - Benchmarking • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

46. Rural Health Clinic Losses • Practice Expenses – Benchmarking (continued) • Various methods to consider clinic support staff • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

47. County Subsidies/Non Operating Revenue • Issue • Few CAHs in ND access county subsidies to support operations • Due to low patient volumes resulting from limited population, CAHs often do not have enough volume to offset high fixed cost of maintaining a profitable CAH • MT CAHs often rely on County Subsidies • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

48. County Subsidies/Non-Operating Revenue • Non-Operating Revenue • No correlation between non-operating revenue and total margin • Varying degree of non-operating revenue by CAH, however critical for some CAHs • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

49. County Subsidies/Non-Operating Revenue • Opportunity • Consider approaching county and present information to demonstrate CAH economics as rationale for a subsidy • In particular, non-hospital businesses that the organization has taken on as the community healthcare hub • Outreach to community for contributions either directly through hospital or foundation • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary

50. Bad Debt Expense • Issue • Varying degree of performance when comparing Bad Debt Expense relative to hospital and Clinic gross charges • No strong correlation between CAH operating margin and Bad Debt Expense • Project Overview • ND Opportunities • Third Party Contracts • Swing Bed SNF vs. NF • Departments with >1 RCCs • Non-Hospital Businesses • Skilled Care in SNF or NH • Nursing Homes • Rural Health Clinics • County Subsidies • Bad Debt Expense • Interim Cost Reports • Physician Recruitment • Outpatient Services • Summary