Key Growth Sectors in the Health Care Services M&A Market

Key Growth Sectors in the
Health-Care Services M&A Market
Sponsored by Regions Bank
May 1, 2014
The Merger & Acquisition Webcast Series 1

Webcast Information:
 The webcast can be accessed online and/or by phone.
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account at www.levinassociates.com/user.
 If you have any trouble with the webcast, please call (800)248-
1668 for assistance.
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or fax them to THE MERGER AND ACQUISITION WEBCAST at
(203)846-8300.

Key Growth Sectors in the Health-Care M&A Market
May 1, 2014
Agenda:
 Introduction: Today’s market
 When to buy, when to sell
 M&A activity: Hospitals and physicians group sectors
 M&A activity: Managed care sector, financing
PLEASE NOTE: You will be given the opportunity to ask questions live during the call. You may also fax
your questions to (203)846-8300 at any time.

Christopher Carnahan
President
Carnahan Group
chris.carnahan@carnahangroup.com
www.carnahangroup.com
Christopher Carnahan has more than 21
years of experience in health care and
finance. He has held executive-level
positions in health care, technology, and
manufacturing. Chris is the founder of
Carnahan Group, Inc. and is responsible for
the leadership, strategic direction, and
financial matters of the firm. Chris has been
involved with more than 150 medical staff
demand analyses for not-for-profit and for-profit
entities, including modeling demand
and supply analysis for health-care services
within diverse communities.

Robert James Cimasi
Chief Executive Officer
Health Capital Consultants
rcimasi@healthcapital.com
www.healthcapital.com
Robert James Cimasi, MHA, ASA, FRICS,
MCBA, CVA, CM&AA, serves as Chief Executive
Officer of Health Capital Consultants (HCC), a
nationally recognized healthcare financial and
economic consulting firm headquartered in St.
Louis, MO, serving clients in 49 states since
1993. Bob has over thirty years of experience in
serving clients, with a professional focus on the
financial and economic aspects of healthcare
service sector entities including: valuation
consulting and capital formation services;
healthcare industry transactions including joint
ventures, mergers, acquisitions, and
divestitures; litigation support & expert
testimony; and, certificate-of-need and other
regulatory and policy planning consulting.

Court Houseworth
Managing Director
Cain Brothers
chouseworth@cainbrothers.comw
ww.cainbrothers.com
Court Houseworth, Managing Director,
joined Cain Brothers in 2004 in San Francisco
and serves as the co-head of the firm’s
Managed Care and Behavioral Health
investment banking practices. Prior to
joining the firm, Court had been a managing
director at Lehman Brothers and Bear
Stearns. Over the past 25 years, Court has
been involved in mergers and acquisitions,
debt and equity financings, restructurings,
valuations, and not-for-profit conversions.
Cain Brothers has more experience with
mid-market health-care transactions than
any advisory firm.

Scott Li
Vice President
Hammond Hanlon Camp LLC
sli@h2cllc.com
www.h2cllc.com
Scott Li is a vice president in the New York
office of Hammond Hanlon Camp LLC. With
more than 10 years of experience across roles
in investment banking and the health-care
industry, Scott provides strategic and financial
advisory services to a variety of health-care
clients. He has recently completed or is
actively working on engagements for clients in
the hospital, senior living, and health IT
sectors. Prior to joining Hammond Hanlon
Camp LLC, Scott was Chief Financial Officer of
pingmd, a provider of an online
communication platform for primary care
physicians. .

Investing In
Christopher Carnahan Court Houseworth
(Moderator)
Scott Li
Robert Cimasi
8

Healthcare Continuum
Prevention
Diagnosis
Treatment
Cure
Death
© 2014 Carnahan Group 9

Patients Drive $

Patient Lifetime Expenditures

Personal Economics

The Economics
• Total Healthcare spending $2.8
trillion
• Population: 318,892,103
• Life Expectancy: 78.5
• Average healthcare spending per
capita: $8,233
• Growth rate: Depends on who you
ask
– Assume long term growth of 3%
• Total life time spending: $2,793,566

Impact of Growth
2% Growth Rate
Growth Rate i 2%
Life Expectancy n 78.5
Average Spending per Capita PMT $ 8,233
Future Value FV $ 1,948,236
3% Growth Rate
Growth Rate i 3%
4% Growth Rate
Growth Rate i 4%

Macro Economics 2012
• Hospital Care: increased 4.9 percent to $882.3 billion
• Physician and Clinical Services: increased 4.6 percent to
$565.0 billion
• Other Professional Services: $76.4 billion
• Dental Services: increased 3.0 percent to $110.9 billion
• Other Health, Residential, and Personal Care Services:
grew 4.5 percent to $138.2 billion
• Home Health Care: increased 5.1 percent to $77.8 billion
• Nursing Care Facilities and Continuing Care Retirement
Communities: increased 1.6 percent to $151.5 billion
• Prescription Drugs: grew 0.4 percent to $263.3 billion
• Durable Medical Equipment: Retail spending reached
$41.3 billion
• Other Non-durable Medical Products: Retail spending for
over-the-counter medicines, medical instruments, and
surgical dressings grew 1.8 percent to $53.7 billion
Source: CMS National Health Expenditures 2012 Highlights

Trends …Consolidation
• “Healthcare is a low-margin economic
activity. Almost a quarter of American
hospitals are already losing money.
With that number bound to increase in
coming years, we already know what
to expect because we’ve seen it
before in the airline, supermarket,
phone and electronics businesses.
There will be a wave of mergers and
acquisitions to improve quality and
lower costs.” Delos Cosgrove, M.D. – CEO and President at
Cleveland Clinic (Article: The Great Consolidation Begins)

Deal Winners
M&A Deal Volume for 2011 and 2012
Deal Volume Dollar Volume
Sector 2012 2011 %
Changed
2012 2011 %
Changed
Behavioral Care 17 13 30.8% $1,005,650,000 $304,488,600 230.6%
Home Health & Hospice 35 29 20.7% $5,718,950,000 $289,992,000 1872.1%
Managed Care 27 20 35.0% $18,815,500,000 $7,906,000,000 138.0%
Physician Medical Groups 68 108 -37.0% $4,411,539,350 $466,534,545 845.6%
Selected items from
Source: Irving Levin Associates, January 2013
Pasted from <http://www.levinassociates.com/pr2013/pr1301mamyearend>

Perspectives on Healthcare Services M&A Trends
HAMMOND HANLON CAMP LLC h2cllc.com
May 1, 2014

Overview of Hammond Hanlon Camp
 Hammond Hanlon Camp (“H2C”) LLC is a healthcare-focused strategic advisory and investment banking firm with
a particular emphasis on the not-for-profit sector
 H2C traces its heritage back almost 30 years through its predecessor organizations, including Shattuck Hammond
Partners
 H2C has assembled a team of professionals that have worked with leading health systems across the country and
executed many of the most creative transactions in the not-for-profit healthcare industry
– Senior professionals average over 20 years of experience serving not-for-profit health systems
 Offices in Atlanta, Chicago, New York and San Diego
 Lead advisor on hundreds of transactions in the healthcare industry representing billions of dollars in value
Strategic Advisory
 Services designed to assist
organizations in evaluation of
options prior to transaction
Capital Markets & Derivatives
 Financial advisor and/or
placement
agent on all types of debt and
derivative transactions
Mergers & Acquisitions
 Advisor on all types of
affiliations, joint ventures,
acquisitions and divestiture
transactions
Restructuring
 Financial advisor to restructure
distressed credits / sell assets
Real Estate
 Advisor on monetization and
project financing of real estate
assets
Healthcare M&A Trends HAMMOND HANLON CAMP LLC h2cllc.com 19

Healthcare Provider Strategic Context
Tailwinds
 Demographics: aging
population, increasing
life expectancy, etc.
 Push to lower cost of
care settings (for certain
sectors)
 Newly insured
population growing
Headwinds
 Reimbursement
uncertainty due to ACA
 Shift from volume to
value
 Intensifying focus on
cost and choice for
consumers and insurers
Econom
y
Post-Reform
Environment

The New Normal
The realities of shifting from volume to value are causing financial forecasts to evolve
Illustrative Hospital Operating Income Projections
Challenging
reimbursement
environment
Inpatient
admissions
under pressure
Shift from
commercial to
exchanges
Increasing
consumerism
2012 2013 2014 2015 2016
Projected Operating Income
Prior Forecast Post-Reform Revised Post-Reform Downside

Not THAT Kind of Sustainability: the New Model for Survival
Across the continuum of care, providers will need to possess or develop many
attributes to achieve sustainability or permanence in serving their community or
customers
Essential
market
position and
critical mass
Capital
Integrated
physicians
High quality
leadership
and staff
Measurable
quality and
cost
effectiveness
Alignment
with other
providers /
payors
IT and care
managemen
t
infrastructur
es

2, 4, 6, 8…Who Do We Integrate?
There are many ways for providers to access or offer these skills and attributes
 With the ACA sparking new payment systems – bundled payments, capitation,
narrow networks – the delivery of and payment for service is becoming
significantly more challenging
 Hospitals have been and will continue to be the core of the health care system
but the system will be different
 A blurring of traditional lines between healthcare service sectors has continued
with upstream or downstream diversification increasingly common
– Revenue diversification via cross-sector activity
– Payer-provider convergence
– Post-acute or behavioral health capabilities via ownership or partnership
 The critical questions are:
– Which of these components will hospitals integrate into their systems?
– How will providers in other parts of the continuum respond?
 Overall, providers will be joining together in vertically stacked organizations
or networks to provide and bill for service

New Kinds of Dance Partners
 Once upon time, consolidation meant organizations in the same business joined
forces
 No longer as simple as saying bigger is better, even though that is often true
 The new paradigm dictates that providers will need to align, partner, or merge
with others in the continuum of care for a variety of skills and competencies
– Population health management capabilities
– Marketing capabilities to respond to increasing consumerism
– IT impacting strategic decisions
– Acquiring or refining activities in other parts of the continuum
 Access to capital is critical and whether the debt and equity markets are
supportive will be an especially important consideration
 Comfort with for-profit operators is growing
– For-profit management style for not-for-profit organizations – “No Margin, No
Mission” has never been more applicable
 Private equity will continue to be a growing force across the continuum of care

Reassessing the Toolkit
Monetization to
Improve Balance
Sheet
Sharpen Focus on
Core Businesses
Harvesting
Non-Core Assets
Enhance Service
Quality and/or
Reduce Cost
Increase Managerial
Bandwidth

Will the M&A Activity Work?
“Only time will tell whether this merger makes sense or not”

The Four Pillars
27

28
Physician Primacy
Integration & Coordination Driving Consolidation
“Healthcare Valuation: The Financial Appraisal of Enterprises, Assets, and Services,” Robert
James Cimasi, John Wiley & Sons, 2014, p. 980.

Supply of Physicians, 1975 – 2011
29
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
-
1975 1980 1985 1990 1995 2000 2011
Primary Care
Specialty Care
Surgeons
“Physician Characteristics and Distribution in the U.S.: 2013 Edition,” Derek R. Smart, American
Medical Association, 2013, p. 288, 441.

Physician Supply and Demand
1,000,000
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
2008 2010 2015 2020 2025
Supply Demand
-The difference
between supply and
demand represents
the anticipated
physician shortage.
“Physician Shortages to Worsen Without Increases in Residency Training” Association of American Medical College,
https://www.aamc.org/download/153160/data/physician_shortages_to_worsen_without_increases_in_residency_tr.pdf
(Accessed 4/30/14) 30

Physician Shortage
70000
60000
50000
40000
30000
20000
10000
0
2008 2010 2015 2020 2025
Specialist Shortage PC Shortage
Total Physician Shortage
7,400 13,700 62,900 91,500 130,600
“Physician Shortages to Worsen Without Increases in Residency Training” Association of American Medical College,
https://www.aamc.org/download/153160/data/physician_shortages_to_worsen_without_increases_in_residency_tr.pdf
(Accessed 4/30/14)
31

Percent Change in Physician Practice Setting
Since 2000
“Physician Characteristics and Distribution in the US” American Medical Association, 2002-2003 edition, p. 329; 2003-2004
edition, p. 320; 2004 edition, p. 322; 2005 edition, p. 311; 2006 edition, p. 311; 2007 edition, p. 311; 2008 edition, p. 403; 2009
edition, p. 406; 2010 edition, p. 438; 2011 edition, p. 436. 2011 edition, p. 436; 2012 edition, p. 440; 2013 edition, p. 440.
125%
120%
115%
110%
105%
100%
95%
1998 2000 2002 2004 2006 2008 2010 2012
Physicians in
Office-Based Practices
Physicians in
Hospital-Based Practices
Total Patient
Care Physicians
32

Organizational Models of Alignment
Emerging Models in an Era of Reform
Degree of
Hospital
Control
MOST LEAST
"A Guide to Consulting Services for Emerging Healthcare Organization," By Robert James Cimasi, John Wiley & Sons, New
York, NY, 1999, p. 51-56, 163. “Healthcare Valuation: The Financial Appraisal of Enterprises, Assets, and Services,” Robert
James Cimasi, John Wiley & Sons, 2014, p. 646. “Hospital/Physician Integration: Three Key Models” by Michael A. Cassidy et
al., American Health Lawyers Association, October 2011, p. 9.
33
Model Description
Solo/Group Medical Practice Physicians practice independently
Independent Practice Association (IPA)
Legal entities of independent physicians that contract with health insurance companies to
provide medical services
Co-Management Arrangement
Typically formed through a contractual agreement between a group of physicians and a
hospital, for the purpose of the physicians providing management services to a specified
hospital service line related to the specialty of the contracted physicians
Management Services Agreement
(MSA)/Organization (MSO)
A legal entity that provides administrative and practice management services to a
physician entity that is owned by participating physicians and that contracts with the MSO
for services
Accountable Care Organization (ACO)
Participant
A legal entity recognized and authorized under applicable State, Federal, or Tribal Law
that is identified by a Taxpayer Identification Number (TIN) and is formed by one or more
ACO participant(s)
Physician Practice Management
Company (PPMC)
Company specializing in physician practice management with the goal of earning a profit;
often purchase or affiliate with physicians, offering capital, management experience,
economies of scale, and economic security
Physician Hospital Organization (PHO)
(“Clinically Integrated Network”)
Unites Hospital with Physician through a contractual relationship. Usually owned by
Physicians and Hospitals, and in many cases non-profit
Professional Service Agreement (PSA)
An agreement in which an entity contracts with a physician practice, requiring the
physician practice to provide professional medical services on behalf of the contracting
entity
Physician Hospital Organization (PHO)
(“Clinically Integrated Network”)
Unites Hospital with Physician through a contractual relationship. Usually owned by
Physicians and Hospitals, and in many cases non-profit
Physician Employment Agreement (PEA)
Hospital purchases some or all of a medical practice’s assets and begin employing the
former medical group’s physicians directly

Provider Consolidation
Accountable Care Organizations (ACOs)
• Healthcare organizations with a coordinated set of
providers
• Provider mix dependent on whether it is a federal or
commercial ACO structure
• Share responsibility and accountability for the
continuum of care
• Clinical accountability – Quality of care
• Financial responsibility – Cost of care
“Perspectives on Accountable Care Organizations-ACO Overview” by Robert James Cimasi, 2011 International Expo, Health
Industry Group Purchasing Association & healthcare Industry Supply Chain Institute, Washington, D.C.: Oct. 12-14, 2011, p. 2.
34
34

Different Approaches to Managing the
Entire Continuum of Care for the Patient
Historical Forces:
• Practice of medicine has historically been viewed as a learned profession,
with physicians perceived as professionals who applied their training and
knowledge to provide quality patient care within their independent
practices.
• Shift from physician-owned, independent private practices to captive
practices with multiple affiliations within larger integrated health systems;
another step towards the “corporatization” of professional practices, in
contrast to the “cottage industry” healthcare delivery system of the past.
• Healthcare costs continue to rise faster than inflation, driven by advances in
technology and treatment, as well the increased demand for services from
the growing baby-boomer population
Result: A new healthcare delivery paradigm that promotes a
managed “continuum of care,” in contrast to the current system of
segmented independent provider “silos.”
35

Different Approaches to Managing the
Entire Continuum of Care for the Patient
• Provider affiliations are likely to increase due to:
• Disproportionate number of physicians retiring
• An inadequate supply medical graduates
• Expected continuing growth in patient demand
• The diversification, specialization, and collaboration of
physician and non-physician practitioners will continue
to grow to meet the compounding demand, including:
• Allied health professionals
• Mid-level providers
• Technicians and paraprofessionals
• Complementary and alternative medical practitioners
36

What Has Changed This Time Around?
• Alignment is being seen as an offensive strategy,
not merely as a defensive one
• Large single and multi-specialty groups are
becoming more common and are often considered
necessary to achieve optimal results
• The loss of autonomy is seen as a fair trade-off for
the benefits of being an employee
• Much more experimentation
• Direct employment is no longer the only option
37

Direct Employment
A Fresh Look at an Old Concept
• Hospitals like the ability to require employees to use their
facilities (except when patient needs dictate otherwise)
• Employment supports the use of clinical guidelines and
emerging concepts such as the medical home
• Provider-based reimbursement is sometimes available
• Easier to invest in EMR technology
• Avoids some of the more difficult aspects of Stark, e.g.,
the severe limits placed on under arrangement deals
38

39

Merger & Acquisition Volume, 2011-2013
As derived and calculated from reported transactional data from The Healthcare M&A Report by
Irving Levin Associates, INC. Quarterly Reports from 2011 to 2013; Note that of the MD
purchasers, approximately 2/3 were reported as being the original group. As to the remaining 1/3
of reported transactions, that fact may have been true, but was not reported.
40
A B C D E
Year
Total
Deals
Physician
Medical Group
Acquisition
Non-Physician
Medical Group
Acquisition
Reported Dollars
Spent on
Physician Medical
Groups M&A
1 2011 107 6 101 $464 Million
2 2012 68 8 60 $4.4 Billion
3 2013 65 3 62 $583 Million
4 Total 240 17 223 $5.447 Billion

Marcus Welby is Dead
Increasing Complexity of Integration Transactions
41

Types of Tangible and Intangible
Property/Assets in Healthcare
“Valuation of Healthcare Entities and Assets: The Impact of 2010 Legislation” By Robert James Cimasi,
CPA Leadership Institute (11/6/2012) p. 55.
42

43

44

Managed Care
Agreements and
Provider Service
Agreements
HMO Enrollment
Lists
Assets
Human Capital-
Related Intangible
Assets
Employee and
Provider
Employee
Agreements
Trained and
Assembled
Workforce In-
Place
Non-Copyrighted
Policies and
Procedures
Depth of
Management
Intellectual
Property-Related
Intangible Assets
Clinical
Practice
Protocols and
Treatment Plans
Copyrights
Trademarks and
Trade names
Patents
Trade Secrets or
Other Know
How
Payor or Client
Related
Operations and
Location Related
Intangible Assets
Historical
Information and
Documentation
Supplier
Contracts
Asset
Assemblage
Factors and
Going Concern
Value
Governance or
Legal Structure
Related Intangible
Assets
Organizational
Documents
Income
Distribution
Plans
Right of First
Refusal
Covenants-Not-
To-Compete
Marketing and
Business
Development
Related Intangible
Assets
Advertising
Franchise/
Licensing
Agreements
Joint Venture
Alliances
Regulatory or
Legal-Related
Intangible Assets
Provider or
Medical Licenses
Certificates of
Need
Medicare
Certification
Other
Certifications and
Accreditations
Financial or
Revenue Stream-
Related Intangible
Assets
Office Share
Arrangements
Management
Service
Agreements
Financing
Agreements
Financial
Derivatives
Technology-
Related Intangible
Assets
Computerized
Management
Information
Systems
Electronic
Medical Records
Maintenance and
Support
Relationships
Patient-Related
Intangible Assets
Custodial
Rights to the
Patient Medical
Charts and
Records
Patient Recall
Lists
Goodwill
Professional
/Personal
Goodwill
Practice/
Commercial
Goodwill
Easements
Permits
Leasehold
Interests
In-Place
Leases
Zoning
Waivers/
Variances
Use Rights
Tangible
Real
Property
Tangible
Personal
Property
Cash and
Investments
Accounts
Receivable
Supplies &
Drugs –
Consumables
and Inventory
Held for Sale
Furniture,
Fixtures, and
Equipment
Leasehold
Improvements
Litigation
Awards and
Liquidated
Damages
Buildings
Land and
Land
Improvements
Subject Property Interest
Tangible Assets Intangible Assets
Intangible
Real
Property
Intangible Personal Property
45

46

Webcast: "Key Growth Sectors in the Health-Care
Services M&A Market."
Managed Care Industry M&A Perspectives
May 1, 2014

48
Managed Care Industry M&A Perspectives
Introduction
 The Affordable Care Act has caused companies and their executives to turn their attention from
execution to evaluating and implementing strategic initiatives
 With the implementation of Health Care Reform, companies are evaluating transactions which
provide both greater scale and diversification
 Connolly, an insurance payments auditing company, agreed to acquire iHealth Technologies, a medical claims company
 Guardian entered an agreement to acquire Premier Access Insurance, a diversified dental benefits company
 Walgreens and Water Street announced an agreement to merge Take Care Employer Solutions with CHS to form a new
worksite health company
 Rite Aid signed agreements to acquire Health Dialog and RediClinic to expand its overall health and wellness strategy
 Highmark agreed to merge with Blue Cross of Northeastern Pennsylvania
 DaVita, the leader in kidney dialysis, acquired HealthCare Partners to enter the physician practice management sector
 Private equity firms have remained interested in acquiring payer related companies
 Starr Investment Holdings LLC, led by former AIG CEO Hank Greenberg, acquired health insurance claims processor
MultiPlan Inc for $4.4 billion from private equity firms BC Partners Ltd and Silver Lake
 KKR acquired two leading Workers’ Comp businesses -- Sedgwick Claims Management Services for $2.4 billion and
Mitchell International for $1.1 billion
 Apax Partners acquired One Call Care Management and Align Networks for approximately $3 billion
 Goldman Sachs acquired MagnaCare

49
Managed Care M&A Industry Perspectives
Changing Industry Landscape
The Affordable Care Act is dynamically changing the health care landscape by creating both
opportunities and challenges that will require managed care organizations to adapt their traditional
core businesses
Sector Outlooks
 Medicaid outlook very favorable due to PPACA expansion
 Dual eligibles present significant opportunity for those that can effectively manage the population
 Medicare outlook in the long-term is compelling, but near term reimbursement pressures will challenge plans
 Individual and small group markets expected to face significant headwinds due to implementation of
Changing
Model
 Renewed focus on controlling costs and improving outcomes through enhanced care management
 Managing care will require new levels of coordination amongst providers and payers
 Will require significant information technology investments
 Increased interest in integrated delivery models between providers and payers
Scale and
Diversification
 Scale will matter, which will lead to further increases in M&A activity
 Consolidators will be looking to diversify product offerings
 Increased focus on expansion of care management solutions
Other Concerns
 Access to capital will be a critical factor for not-for-profit and provider owned health plans
 Overhang with respect to the economic recovery, unemployment rate trends and the impact of sequestration
 Ability to pass along annual insurance fee to mitigate any meaningful impact on health plans

50
Managed Care M&A Activity
____________________
Source: Irving Levin Associates, PWC October 2013 White Paper, Barclays research.
Note: Excludes workers’ compensation transactions.
(1) Total combined deal value includes Irving Levin and Barclays research. Deal volume per Irving Levin research.
(2) Only includes data for first quarter 2014.
Deal Value (in millions)
Deal Volume
40
35
30
25
20
15
10
5
$25,000
$20,000
$15,000
$10,000
$5,000
With increased visibility in the post reform era, health plans are expected to continue to use M&A as an
avenue to increase scale, capabilities and diversification
(1)
While 2012 was the most robust year for managed care M&A activity since 2005, 2013 and the first
three months of 2014 were relatively quiet
(2)
0
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Deal Value Deal Volume

51
Recent Acquisition Trends for Managed Care Plans
Medicaid expansion and the need for cost-containing care management solutions have been driving
the vast majority of recent M&A activity
M&A Activity
____________________
Source: Wall Street research.
Government Programs
 Commercial plans looking to diversify
away from individual and small group
to minimize expected headwinds from
the exchanges
 Medicaid plans looking to capitalize on
Medicaid expansion from PPACA by
entering new states or expanding
footprint in existing geographies via
acquisitions
 Medicare Advantage plans looking to
expand their scale in an effort to help
offset expected MA reimbursement
cuts and capitalize on long-term
growth potential
Providers
Health Care Information
Technology
 Increased coordination with providers
viewed as an effective tool to more
effectively manage populations
 Interest areas include participation in
integrated provider systems and low-cost
alternate site clinics
 Particular interest in acquiring services
that enable better management of high
cost populations (chronically ill, elderly,
etc.)
 Renewed acquisition appetite of
physician groups by payers
 Post reform health care model
requires an expansion of HCIT
capabilities for many plans
 Focus on increasing analytic
capabilities for enhanced population
health management
 Heath Information Exchange platforms
and solutions will become a necessity
post reform
 Payer organizations are vacillating
between vendor relationships and
ownership of core technology
Since 2012, the large managed care companies have invested over $17 billion via acquisitions to improve
positioning and capabilities to serve seniors, low-income individuals, and the dual eligible population

52
Recent M&A Activity
Select Medicare
Operations
Pension Plans in
Turkey
PCCM Network Medicaid Contract
(1)
____________________
(1) Acquired non-controlling interest.

53
Recent M&A Activity (cont’d)
Select Medicaid
Operations
Arcadian Medicare
Operations in Arizona
CareNex LLC
____________________
(1) Announced sale of 1-800 Contacts to Thomas H. Lee Partners on January 8, 2014.
(2) Acquired minority interest.
(1)
Plus One Health
Management
Other Selected M&A Activity
Target Acquirer Target Acquirer Target Acquirer
Citrus
Universal
Healthcare
Amerigroup
Virginia
Michigan
Ohio
(2)

54
Provider and payer consolidation trends have accelerated over the past several years, and these
trends are expected to continue
 Neither provider / payer integration nor provider risk-bearing entities are new
concepts. Provider-owned health plans and other risk bearing provider organizations
(i.e. capitation) have been around since the 1980s
 However, few provider-owned plans are truly integrated with the provider owner, and
risk-bearing entities have long histories only in limited geographies
 There are approximately 100 provider-owned health plans that manage on average
around 100,000 lives per plan
 Strengthen primary care network directly or indirectly
 Foster coordination among all participating providers
 Remove fee-for-service payment incentives so as to appropriately manage volume
and quality
 Foster accountability for total per-capita costs
 Provide tools to providers to bear risk and benefit from lower cost / higher quality
 Develop limited networks in order to coordinate care and lower cost
Provider and payer
organization
concept
Objectives for
providers and / or
payer
organizations
Provider and Payer Integration – An Accelerating Trend

55
Recent consolidation activity has included payer acquisitions of providers
Acquirer /
Target
 Highmark formed a
holding company that is
the parent of Highmark
and of new Provider
subsidiary (WPAHS)
 WPAHS includes five
acute care hospitals,
1,600 beds, and over
1,700 MDs on staff
 Purchase Price = Not
disclosed
 Acquisition of more than
75 physicians, 90,000
active patients, including
approximately 27,000
Medicare beneficiaries
 Purchase Price = $800
million
 NAMM is part of the Aveta’s
family of companies – one of
the largest providers of
managed health care
services
 Acquisition of NAMM’s 600
primary care providers and
1,200 specialists
 Purchase Price = Not
disclosed
 Minority equity
investment by BCBSNC
in FastMed. FastMed is
the largest urgent care
company in North
Carolina and the second
largest urgent care
company in Arizona
 Over 320,000 patient
visits in 2012
 WPAHS was a
distressed system.
Financial commitments
by Highmark will
maintain provider choice
in the region
 WPAHS part of a
broader integrated
delivery network strategy
by Highmark
 Driven by local market
dynamics – competitor is
an integrated
provider/payer (UPMC)
 Will bolster Florida Blue's
value-based care
presence in Tampa/St.
Petersburg area
 Acquisition will continue
to promote
implementation of
additional aligned
incentive models to meet
Diagnostic Clinic Medical
Group’s overall value-based
goals of improving
quality and enhancing
member experiences
while lowering overall
cost
 Allows continued expansion
of a successful medical
management model
 Extends opportunities for
UnitedHealth Group to build
out further physician
partnerships throughout the
country
 NAMM deal adds to strong
Optum footprint in southern
California, which includes
Monarch, AppleCare Medical
Group and Memorial
HealthCare
 Strategic collaboration
will allow FastMed Urgent
Care to expand its
network of physician-owned
urgent care clinics
across North Carolina,
while helping to launch
innovative programs and
services for BCBSNC
customers
 BCBSNC’s member
population will receive
increased access to
convenient, high quality
urgent care and lower
medical costs
____________________
Source: Company press releases and CapitalIQ.
Transactio
n Summary
Transactio
n Benefits
and
Nuances
Recent Provider-Payer Integration Activity

Confidential
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