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

ABOUT PINNACLE III PINNACLE III specializes in turnkey operational development, operational management and revitalizations for: 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

DILEMMA…

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

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

STUDY RESULTS 40% Response Rate 40% Response Rate 204 participants, representing a diverse set of geographical regions, ASC types & sizes 204 participants, representing a diverse set of geographical regions, ASC types & sizes Ownership Ownership 58% locally owned/independent 58% locally owned/independent 27% owned by hospital or health system 27% owned by hospital or health system 15% represented ownership as part of a corporate chain 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) 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 Smaller ASCs more likely than large ASCs to pursue OON strategy

NET REVENUE GENERATED FROM OUT-OF-NETWORK BUSINESS % ASCs % Net Revenue Source: Deutsche Bank

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

REASONS AGAINST…  Undermines Cost-Effectiveness Undermines Cost-Effectiveness Cost-Prohibitive to Patient 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

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

REASONS AGAINST…  Insurance companies may thwart an ASC’s OON strategy by: 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

RISK MANAGEMENT CONSIDERATIONS RISKMANAGEMENT RISKFINANCINGLOSS PREVENTION PREVENTIONLOSSCONTROL

RISK MANAGEMENT CONSIDERATIONS Exposure Avoidance 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 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 Disclose all plans to waive co-pays or co- insurance to insurance company When applicable, charge OON based on anticipated contractual payment When applicable, charge OON based on anticipated contractual payment

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

BE A LITTLE PIG…. NOT A BIG PIG…

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

CONCLUSION Insurance companies are likely to keep a close eye on the impact of these strategies on insurance costs. 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. 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.

Dan Connolly, MHS, ARM Vice President, Payer Relations PINNACLE III Office: Cell: CONTACT INFORMATION