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2200 River Plaza Drive Sacramento, CA 95833
June 9, 2015 The following information for Sutter Health and Affiliates (the “Presentation”) will be shared by Sutter Health’s President and Chief Operating Officer, Sarah Krevans, along with Jeff Sprague, Senior Vice President and Chief Financial Officer of Sutter Health, and Don Wreden, M.D., Senior Vice President, Patient Experience of Sutter Health at the Citi Non-Profit Health Care Investor Conference on June 11 and 12, 2015, in New York City. The filing of this information does not constitute or imply any representation (i) that all of the information provided herein is material to investors, (ii) regarding any other financial, operating or other information about Sutter Health, the Obligated Group Members or any related bonds (the “Bonds”), (iii) that no changes, circumstances or events have occurred since the end of the fiscal year to which this information relates, or any other date specified with respect to any of the information contained in the following, or that no other information exists, which may have a bearing on the security for the Bonds, or an investor’s decision to buy, sell, or hold the Bonds or (iv) that Sutter Health is obligated to, or plans to, update or revise the information that is presented. The information has been obtained from sources which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness. No statement in the following information should be construed as a prediction or representation about future financial performance of Sutter Health or any Obligated Group Member. Should you have questions, please contact the Sutter Health Finance support staff at (916) 286-6557.
{00678639 v.1}
Sixteenth Annual Not-for-Profit Health Care Investor Conference
Sutter Health June, 2015
Unless otherwise noted, the financial information related to fiscal year 2014 contained in this presentation has been obtained from Sutter Health Audited Financial Statements
Certain statements in this presentation constitute “forward-looking statements.” Such statements generally are identifiable by the terminology used, such as “plan,” “expect,” “estimate,” “budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond Sutter Health’s control, that may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements that reflect management's view only as of the date of this presentation or as of such earlier date as indicated. All forward-looking statements included in this presentation and all subsequent forward-looking statements attributable to Sutter Health or persons acting on Sutter Health’s behalf are expressly qualified in their entirety by these cautionary statements. The information contained in this presentation speaks only as of the date stated, or if no date is stated, as of the date of this presentation. Sutter Health is not under any obligations and does not intend to issue any updates or revisions to those forward-looking statements if, or when, its expectations or events, conditions or circumstances on which such statements are based occur or fail to occur, except as required by law.
2
Caution regarding forward-looking statements
Sutter is nationally significant
Broad Reach Largest contiguous not-for-profit health system in the US
Diverse Patients 100+ languages Serving some of the richest and poorest areas in the nation
National Health Impact 1 in 100 Americans receives care at Sutter
Economic Contributor Among the largest US employers
Community impact $3M of charity care provided every week
Sutter Health system snapshot (2014)
5
Bay Area Operating
Unit
Valley Area Operating
Unit
Physicians (members of Sutter Medical Network)
5,000
Network and affiliate employees 49,381
Licensed acute care beds 4,321
2014 by Numbers
Births 35,463
Discharges 190,054
Outpatient visits 11,121,733
Operations of most Sutter Health affiliates recently consolidated from five regions into two distinct Northern California geographic operating units. It is anticipated that the legal consolidation of these Sutter Health affiliates will be complete by Fiscal Year ending 2017
Sutter Health Facts at a Glance
*Not shown on map: - Sutter Coast Hospital (Crescent City, CA) - Kahi Mohala Behavioral Health Hospital (Ewa Beach, HI)
Confidential 6
$(100)
$-
$100
$200
$300
$400
$500
$600
2012 2013 2014
Strong 2014 Financial Performance
Business Segments • Acute Hospital
– Focusing on high quality, affordable care
• Medical Foundations – Focusing on growth, affordable care
• Other Providers Growing Rapidly
– Sutter Care at Home – Ambulatory Surgery Center Joint Ventures – System Lab
• Additional Diversification Investments
7 Confidential
One Sutter
Focus on continued operational excellence
Focus on the market, and enhance our presence
Focus on the holistic patient experience
Focus on the future – innovation and growth
Confidential
Support Function Transformation
Twelve Months Ending December 2014
11
2014 Planned
2014 Actual
2014 Variance
R
S
Hospital
Ambulatory Surgery Center
R Sutter Rehabilitation Institute
Care Center
Valley Area Snapshot (2014) 12 Counties
Population: 4.4M
Square Miles: 13,800
Med Group Physicians: 1,040
Independent Physicians: 864
Foundation Patient Visits: 5.4M
Employees: 17k
Acute Facilities: 11
ASCs: 13
Licensed Beds: 1,855+
Inpatient Discharges: 87k
Care Centers: 107
Gross Patient Rev: $11,737M
Net Operating Rev: $3,819M
Operating Expense: $3,559M
Operating Income: $260M
EBITDA: $457M
Operations of most Sutter Health affiliates recently consolidated from five regions into two distinct Northern California geographic operating units. It is anticipated that the legal consolidation of these Sutter Health affiliates will be complete by Fiscal Year ending 2017
Bay Area Snaphot (2014) Counties: 8
Population: 7.2M
Square Miles: 5,781
Med Group Physicians: 1,921
Independent Physicians: 1,704
Foundation Patient Visits: 5.5M
Employees: 19,927
Acute Facilities: 16
ASCs: 16
Licensed Beds: 2,250+
Inpatient Discharges: 101K
Care Centers: 147
Gross Patient Rev: $14,920M
Net Operating Rev: $5,856M
Operating Expense: $5,497M
Operating Income: $359M
EBITDA: $751M
S
Bay Area Hospital
Ambulatory Surgery Center
Care Center Outreach Center
Operations of most Sutter Health affiliates recently consolidated from five regions into two distinct Northern California geographic operating units. It is anticipated that the legal consolidation of these Sutter Health affiliates will be complete by Fiscal Year ending 2017
End
of Life
Complex Case Management
Acute Case Management
Chronic Disease Management
Wellness Management
16
…Celebrating AIM (Advanced Illness Management)
Within 90 days of entering the program, AIM patients experience: 56% reduction in hospital stays 19% reduction in ER visits 59% reduction in time spent in ICU
Revenue Diversification
19
2013 2014
Confidential
Hospital Inpatient
39%
Hospital Outpatient
20%
Medical Foundations
28%
Joint Ventures2%
SPS1%
Home Health2%
Investment Income
3%Retirement Plans
5%Hospital Inpatient
40%
Hospital Outpatient
21%
Medical Foundations
32%
Joint Ventures3%
SPS2%
Home Health2%
Investment Income
0% Retirement Plans0%
Medical Foundations, Joint Ventures and Sutter Physician Services represent 37% of revenues in 2014, up from 31% in the previous year
Cash Flow Diversification
20
2013 2014
Confidential
($100)
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
Hospitals Medical Foundations
Surgicenters Health Plan Other Ops Investment Income
Retirement Plans
Diversified portfolio of non correlated assets supports expectation of a steady source of cash flow to continue to invest in transformation, EHR and retirement plans
21
Liquidity Remains Strong
Confidential
0
20
40
60
80
100
120
140
160
180
200
220
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
$5,000
$5,500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Tot
al D
ays
Cas
h o
n H
and
Tot
al C
ash
& I
nve
stm
ents
in M
illi
ons
Total Liquidity
Cash & Investments Days Cash on Hand
Source: Audited Financial Statements2005 - 2010 adjusted to reflect FASB ASU No. 2011-07, Healthcare Entities Topic 954
22
Growth in Net Assets Reflects Our Low Risk Profile
Confidential
0
35
70
105
140
175
210
245
280
315
350
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Day
s N
et A
sset
s
Net
Ass
ets
in M
illi
ons
Net Asset
Net Assets Days Net Assets
Source: Audited Financial Statements2005 - 2010 adjusted to reflect FASB ASU No. 2011-07, Healthcare Entities Topic 954
23
Hospital Replacements Under Way Using Integrated Lean Project Delivery Method
Sacramento San Francisco Van Ness Geary
San Francisco
St. Luke’s
$0
$150
$300
$450
$600
$750
$900
$1,050
$1,200
$1,350
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
$ in
Mill
ionsCapital Investment Forecast
Additions to PP&E
Routine
Discretionary
IT
Regulatory
24
Sufficient Sources of Capital On Hand to Complete SB1953 Mandate
Long term thinking. Flexibility forward
Future Flexibility
Confidential
--------------- Projection ----------------
0.0%
1.5%
3.0%
4.5%
6.0%
7.5%
9.0%
10.5%
12.0%
13.5%
15.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Operating Cash Flow Margin
Source: Audited Financial Statements2005 - 2010 adjusted to reflect FASB ASU No. 2011-07, Healthcare Entities Topic 954
25
Impact on operating cash flow margin -2.1% in 2013 from cost of investments that must be expensed due to GAAP
Confidential
Transformation Investments and Strong Operations are Favorably Impacting Operating Cash Flows
*
*
0.0%
1.2%
2.4%
3.6%
4.8%
6.0%
7.2%
8.4%
9.6%
10.8%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Net Income Margin
Source: Audited Financial Statements2005 - 2010 adjusted to reflect FASB ASU No. 2011-07, Healthcare Entities Topic 954
26
Even during periods of financial market distress (2008) and heavy transformation investment (2013) net margins still exceeded 2%
Confidential
Impact on operating cash flow margin -2.1% in 2013 from cost of investments that must be expensed due to GAAP *
27
Affordability*
Confidential
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
-
50,000
100,000
150,000
200,000
250,000
300,000
2011 2012 2013 2014
Discharges Net Revenue per CMI Adjusted Discharge
3 year = -2.7%
3 year = 0.1%
*Small revenue increase per discharge translates to lower cost increase to payers
28
Affordability*
Confidential
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
2011 2012 2013 2014
Cost per CMI and WI Adjusted Discharge
3 year = 0.5%
*Small revenue increase per discharge is a result of low increase in underlying costs
Medical Foundation Transparency and Affordability
29 Confidential
• Website posting-Consumer Facing Basket of Service ~200 services – anticipate posting January 2016
• Patient Interactive Tool Self service web application allowing patients with
My Health Online to determine the total allowed amount and patient responsibility (anticipate implementation in early 2016)
30
Balance Sheet Strike Zone Continued focus on a rational capital plan that matches the performance from operations is having the desired outcome on our balance sheet
Confidential
22%
24%
26%
28%
30%
32%
34%
36%
38%
40%
42%
130
145
160
175
190
205
220
235
250
265
280
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Unre
stric
ted
Syst
em D
ebt
Leve
rage
Tota
l Day
s Ca
sh
Total Days Cash and System Debt Leverage
Total Days Cash Unrestricted System Debt Leverage
31
Permanent Capital Base No Puttable Debt, No Swaps
Confidential
$0
$1,250
$2,500
$3,750
$5,000
$6,250
$7,500
$8,750
$10,000
$11,250
$12,500
$13,750
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
in M
illio
ns
Capital (Long Term Debt + Net Assets)
Net Assets Fixed Debt Variable Debt Line of Credit
Source: Audited Financial Statements
A strong pension plan is highly valued by employees
32
Keeping the Pension Plan Fully Funded Keeps the Cost Manageable
$0
$100
$200
$300
$400
$500
$600
600800
1,0001,2001,4001,6001,8002,0002,200
S&P
500
Major Funding in Down MarketsBias to Buy Low Produces Stronger Returns
Funding S&P500
2014 Highlights $ in Millions
• Profit & Loss
– Operating income $419 – Income attributable to Sutter $402
• Infrastructure Investments
– Capital expenditures $983 – Healthcare diversification investments $55 – Operations investments
• Balance Sheet – Net assets $8.0 billion – Cash and investments $4.9 billion – 198 total days on hand (170 days unrestricted)
33
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Elective Delivery < 39 Weeks: Sutter Health System
Sys P90 P50
OB Care: Elective Delivery < 39 Weeks B
etter
Benchmark is based on Leapfrog Group 2011 U.S. Goal and 2010 P50.
Target = 5.0% Threshold = 9.0%
ICU IV Liberation Improvement Process
Interprofessional Team Development eICU Telemedicine data collection
Interprofessional Rounding
A- Awake B-Breathing C-Coordination D-Delirium E-Exercise F-Family
Results
ICU Liberation Improving Patient Outcomes
• ICU acquired delirium • ICU and hospital length of stay • 1.11 ventilator day reduction • ICU and 6-month mortality post discharge
Variation Reduction: Doctors agree to avoid ordering labs as “Repeat Daily”
39
47% 35%
September 2014: 40 doctors meet and review differences
Impact in one hospital: 2,964 blood draws avoided
$95,000 saved
How did Sutter Hospitals perform compared to other hospitals nationally?
Source: http://www.hospitalsafetyscore.org/media/file/ExplanationofSafetyScoreGrades_April2015.pdf and www.hospitalsafetyscore.org
0%
10%
20%
30%
40%
50%
60%
70%
A B C D F
Percent of All Hospitals
Percent of Sutter Hospitals
Better Worse
End
of Life
Complex Case Management
Acute Case Management
Chronic Disease Management
Wellness Management
41