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UNIVERSITY MEDICAL CENTER

Tucson, Arizona

January 2007

Presentation to Arizona Board of Regents

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Accomplishments

• First Magnet Hospital in Arizona• Southern Arizona’s Sole Level One Trauma Center

• 1 to 4 Nurse to Patient Ratio• The most recent U.S. News and World Report Publication,

America’s Best Hospitals, lists UMC among the top 50 hospitals in the nation for the following programs (July 2006):– Heart and Heart Surgery (ranked 16th in the nation)– Cancer (22nd)– Neurology and Neurosurgery (22nd)– Respiratory Disorders (20th)– Urology (26th)– Kidney Disease (39th)– Orthopaedics (41st)– Digestive Disorders (45th)

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Accomplishments

UMC is one of two Arizona Hospitals to be recognized by Solucient as one of the nation’s Top 100 Hospitals.

The Solucient 2005 100 Top Major Teaching Hospitals

– University Medical Center Tucson, AZ– Denver Health Medical Center Denver, CO– Evanston Northwestern Healthcare Evanston, IL– University of Chicago Hospitals Chicago, IL– Advocate Lutheran General Hospital Park Ridge, IL– Beth Israel Deaconess Medical Center Boston, MA– University of Michigan Hospitals & Health Centers Ann Arbor, MI– St. John Hospital & Medical Center Detroit, MI– Mayo Clinic—Rochester Methodist Hospital Rochester, MN– Summa Health System Akron, OH– University Hospitals of Cleveland Cleveland, OH– Geisinger Medical Center Danville, PA– Vanderbilt University Medical Center Nashville, TN– Scott and White Memorial Hospital Temple, TX– University of Virginia Medical Center Charlottesville, VA

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Strategic Plan

• Emphasis on Five Pillars (Oncology, Cardiology, Trauma/ED/OR, Pediatrics, Transplant)

     - Continuous Quality Improvement and Community Service - Sustained Earnings

     - Improved liquidity     - Stabilized investment portfolio returns•  Increased Market Presence through     - Joint ventures     - Targeted Acquisitions

- Philanthropy 

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Growth inAverage Daily Census

200

225

250

275

300

2001 2002 2003 2004 2005 2006 2007

Fiscal Year

UMC has experienced a 34% increase in volumes since fiscal year 2001.

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Key Statistics

Key Driver:• Average Daily Census Projected (Achieved):

– FY05: 272 (272)– FY06: 281 (279)– FY07: 288 (290 through December)– FY08: 300 including 9 from CDU

• We are turning away patients– Seasonal fluctuations in volumes– Semi-private room utilization impacted by gender and

isolation requirements

Inpatient volume growth is limited by capacity constraints

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A Brief Recent History

• FY 2002 – 2003 UMC undertook the following– Became Southern Arizona’s Sole Level 1 Trauma Center– Adopted a 1:4 nurse to patient ratio– Reprocessed our revenue cycle/renegotiated major payor contracts

• FY 2004– Invested in a new ICU– New Cancer Center undertaken– Capacity challenges are on the horizon

• FY 2005 – Revenue cycle efforts provide earnings growth– Undertake patient flow process enhancement to improve effective capacity– Begin facility expansion planning– Receive favorable settlement of Medicare DSH

• FY 2006– Cancer Center construction underway (opened January 2007)– Increasing costs for labor, employee medical and supplies outpace payor rate

increases– UMC projects reaching effective full capacity in FY 2008– Financing obtained for facility expansion

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Growth inRevenues and Expenses

UMC has experienced a 70% increase in revenues since fiscal year 2000.

$250

$300

$350

$400

$450

2000 2001 2002 2003 2004 2005 2006 2007

Fiscal Year

Revenues Expenses

Annualized

($ in millions)

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Financial Results

($ in 000s) 2004 2005 2006 Dec

YTD 2006

Dec

YTD 2007TOTAL REVENUES $337,386 $372,813 $406,697 $197,881 $217,999

TOTAL EXPENSES 322,631 350,737 389,064 192,466 211,332

Operating Results $ 14,755 $ 22,076 $ 17,633 $5,415 $6,667

Net Income $ 12,311 $ 22,911 $ 23,141 $9,363 $13,754

Budgeted Operating Results

$500 $10,600 $17,000 $8,289 $6,470

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Financial Ratios

Fiscal YTD June 30, June 30, 2006 (*)

Profitability 2007 2006 2005 Moody's Baa

Operating Margin 3.1% 4.0% 5.2% 1.6%

Operating Cash Flow Margin 8.1% 9.5% 11.3% 8.4%

Total Margin 6.3% 5.7% 6.1% 3.4%

Return on Total Assets 5.9% 6.0% 8.3% 3.5%

*UMC carries a rating of Baa1 from Moody’s Investor Services and a rating of BBB+ from Standard and Poor’s

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Financial Ratios

Fiscal YTD June 30, June 30, 2006 (*)

Liquidity 2007 2006 2005 Moody's Baa

Days Cash on Hand 105 108 94 112.7

Current Ratio 3.1 2.9 2.9 1.9

Debt Service Coverage* 2.4 2.5 4.9 2.9

Debt-to-Equity 1.4 1.5 0.7

*UMC is required to maintain a Debt Service Coverage ratio of no less than 1.1

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QUESTIONS