THE INS & OUTS OF AN OUT-OF-NETWORK STRATEGY FOR NON -GOVERNMENTAL PAYORS & PATIENTS

1. THE INS & OUTS OF ANOUT-OF-NETWORK STRATEGY FOR NON-GOVERNMENTAL PAYORS & PATIENTS

2. ABOUT PINNACLE III • PINNACLE III specializes in turnkey operational development, operational management and revitalizations for: • ASCs • Joint Ventures • Surgical/Specialty Hospitals • Equity & Non-Equity Models • Payer Relations/Contracts

3. DILEMMA…

4. AGENDA • Prevalence of Out-of-Network (OON) Strategy Throughout U.S. • Reasons For & Against Having An OON Strategy • Risk Management Considerations When Adopting An OON Strategy

5. NATIONAL PREVALENCE • Deutsche Bank’s ASC Sector Survey (Oct.2006) • Executives targeted at 500 ASCs throughout country • Questions focused on: • Facility type • Ownership profile • Outlook for organic volume and revenue growth • Effect of non-partner physicians • Revenue exposure from OON and workers’ compensation

6. STUDY RESULTS • 40% Response Rate • 204 participants, representing a diverse set of geographical regions, ASC types & sizes • Ownership • 58% locally owned/independent • 27% owned by hospital or health system • 15% represented ownership as part of a corporate chain • Local/independently owned ASCs most likely to pursue OON strategy (most of ASC chains, including publicly traded ones, have not pursued an OON strategy) • Smaller ASCs more likely than large ASCs to pursue OON strategy

7. NET REVENUE GENERATED FROMOUT-OF-NETWORK BUSINESS % ASCs % Net Revenue Source: Deutsche Bank

8. REASONS FOR… • Enhanced Patient Satisfaction/Choice • Anti-Competitive Behavior by Hospital Chains • Delays Associated With Contracting/Credentialing • Non-Economical Payor Contracts • “Super-sized” Reimbursement

9. REASONS AGAINST… • Undermines Cost-Effectiveness • Cost-Prohibitive to Patient • Billed charge greater than contract allowance • Larger co-pay/co-insurance • Reduced impact on deductible • “Patient obligation” relatively difficult to estimate

10. REASONS AGAINST…  • Some ASCs have attempted to “even the playing field” • Waiving all or part of patient’s obligations exposes ASC to― • Criminal liability • Civil liability • Fines/penalties • Refund of portion of amount collected

11. REASONS AGAINST…  • Insurance companies may thwart an ASC’s OON strategy by: • Refusing to pay whatsoever • Reducing payments proportionate to the amount that the patient is released from obligation to pay • Sending payment directly to patient • Commencing breach of contract actions against in-network physician-partners for making OON referrals

12. RISK MANAGEMENT CONSIDERATIONS

13. RISK MANAGEMENT CONSIDERATIONS • Exposure Avoidance • Arrange for a legal review of all pertinent state-specific statutes, regulations, AG opinions, and case law before adopting a “routine waiver” policy • Disclose all plans to waive co-pays or co-insurance to insurance company • When applicable, charge OON based on anticipated contractual payment

14. RISK MANAGEMENT CONSIDERATIONS • Provide proportionate discount to both patient and insurance company • Amount billed should always reflect the extent of the discount or waiver of patient’s obligation • Finally…

15. BE A LITTLE PIG…. NOT A BIG PIG…

16. LITTLE PIGS GET BIGGER… BIG PIGS GET SLAUGHTERED!!!

17. CONCLUSION • Insurance companies are likely to keep a close eye on the impact of these strategies on insurance costs. • To the extent that widespread implementation of OON strategies begin to adversely impact costs, further legislation or administrative action may be taken to prevent their long-term effectiveness.

18. CONTACT INFORMATION Dan Connolly, MHS, ARM Vice President, Payer Relations PINNACLE III Office: 303-805-7838 Cell: 720-260-2104 DConnolly@pinnacleIII.com