Financial Outlook for U.S. Not-for-Profit Healthcare Sector

1. Financial Outlook for U.S. Not-for-Profit Healthcare Sector • Drew Corrigan • May 5, 2011

2. Generally, rating agencies continue to have a negative outlook for the U.S. Not-for-Profit Healthcare sector. Slow economic recovery Ongoing revenue pressures

3. U.S. Quarterly Unemployment Rate Source: United Status Bureau of Labor Statistics

4. Patients defer elective healthcare services Rising charity care and bad debt expense Budget pressures at federal and state levels impacting Medicare and Medicaid reimbursement rates Unfavorable changes in payer mix away from commercial payers Increased reimbursement pressures across all payers Financial pressures and decreasing membership at health insurers Slow Economic Growth Adds Pressure to Volume and Payer Mix Measures

5. Declining Medicare Reimbursement Rates Source: Centers for Medicare and Medicaid Services

6. Hospital Revenues Threatened with Rate Reductions • Medicare payment rates declined for first time since 1998 • Major hospital revenue sources under pressure • Medicaid rates at risk due to state budget deficits and expiring stimulus funds

7. Revenue Growth Declining – Performance Sustained by Cutting Expense Growth % Source: Moody’s Not-for-Profit Healthcare Medians for 2009

8. Many systems have already done much to contain cost in areas of wages and supply chain Other areas of anticipated increased expense: Pension expense due to declining interest rates Interest expense reflecting higher cost from shift to fixed rate bonds Bad debt expense Physician related costs due to increased alignment strategies IT expense of new systems to satisfy “meaningful use” requirements Strategic expense related to considerations of Accountable Care Organizations Expense Management will Likely Become More Difficult

9. LOC Expirations/Renewals Source: Citigroup

10. Bank LOC renewal risk Pension obligations Exposure to non-cancelable operating leases Negative valuation of swap portfolios Increased capital spending funded with cash reserves Changing views on “quality” of days cash metrics Balance Sheets Retain a Number of Heightened Risks

11. Risks surrounding the legislation itself (additional management distraction or possible missed opportunities) Legal challenges to the legislation and constitutionality Many questions remain: How will it be implemented? How will compliance be defined? How should organizations proceed? Many Uncertainties Remain Regarding Healthcare Reform

12. Strong management teams respond well to challenges Strong liquidity and stable investment returns Provider fees in many states create short-term relief from Medicaid pressures Generally stronger balance sheets emerging even in challenging environment Positive Factors for the Not-for-Profit Healthcare Sector

13. Increased need for capital relating to plant modernization and IT systems Greater limitations on access to capital due to wider credit spreads and more expensive bank liquidity Cost of compliance with Medicare audits and new requirements under health care reform Increased reimbursement pressures across all payers Large unfunded pension liabilities Possibility that benefits of tax-exemption will further diminish Benefits of economies of scale, including increased bargaining power with suppliers, payers, and labor Factors Contributing to Greater Consolidation Within Healthcare