Mergers, Acquisitions and the Changing Dynamics of Long Term Care in New Jersey INDUSTRY OVERVIEW

53,000 licensed long term care beds (nursing home) Industry at a GLANCE 53,000 licensed long term care beds (nursing home) 45,000 occupied beds (86.5%-2014 85.3%-2015) 362 licensed facilities 72 % for profit 24 % not-for-profit 4 % government owned

Statewide Average occupancy by PAYER 2014 2015 Medicare 18.0% 18.8% Medicaid 62.0% 59.1% Other 20.0% 22.0%

CHANGES IN PAYER MODEL

MEDICARE By 2018, CMS intends to convert 50% of all MEDICARE payments to “value based purchasing initiatives that include ACOs, SGR (sustainable growth rate formulas), Comprehensive Care for Joint Replacement or other bundled payment plans. Current Major MEDICARE plans Horizon 22.3 % Aetna 18.7% United/Oxford 41 %

MEDICAID New Jersey’s Managed Long Term Support & Services (MLTSS) program was initiated in July, 2014 to direct new MEDICAID admissions toward community care options. The program claims, with some controversy, a significant reduction of MEDICAID nursing home patients in the first year. At some point, MLTSS will control and minimize all new MEDICAID admissions to New Jersey’s nursing homes. They are NOT required to contract with all existing nursing homes. Current Medicaid Managed Care Plans Horizon 50.4% United 32 % AmeriGroup 14%

BED SUPPLY 52,000 licensed long term care beds (nursing home) 45,000 occupied beds (86.7% statewide average) 362 licensed facilities NEW JERSEY is a strictly controlled Certificate of Need State for new long term care beds or licenses. No new certificates of need granted since 1992 The only bed expansion since 1992 has been acquisition or add-a-bed program LTC MARKET SHARE 45% of the industry is owned by chains (5 or more facilities) 10 providers own 6 or more facilities (37% of industry) 5 providers own 10 or more facilities (27% of industry) 2 providers own 20 or more facilities (17% of industry)

VALUATIONS Facility SALES Licenses & beds; NO PHYSICAL PLANT 2014 License and 34 LTC beds $ 2.8 million 2014 License and 155 LTC beds $ 2.3 million 2015 License and 64 LTC beds $ 2.55 million 2016 License and 45 LTC beds $ 3.0 million Facility SALES 2014 Burnt Tavern $ 47,567 per/bed 2014 Courthouse Convalescent $ 76,041 per/bed 2014 Runnells $ 86,666 per/bed 2015 Warren Haven $ 86,666 per/bed 2015 Monmouth County $100,000 per/bed (approx.) 2016 McCarrick $100,000 per/bed

Target POPULATION Projections Increase in 65+ Increase in 85+ County 2013-2023 Atlantic 39.60% 22.80% Bergen 18.20% 7.50% Burlington 29.20% 15.60% Camden 26.70% 7.10% Cape May 21.30% 3.10% Cumberland 24.60% 9.30% Essex 17.10% 4.00% Gloucester 43.80% 19.20% Hudson 13.40% 4.90% Hunterdon 40.30% 12.00% Mercer 26.20% 11.30% Middlesex 30.80% 16.10% Monmouth 33.40% 13.10% Morris 27.20% 23.40% Ocean 28.70% 8.40% Passaic 25.60% 15.50% Salem 27.10% 0.00% Somerset 42.20% 35.60% Sussex 49.50% 28.00% Union -0.25% Warren 36.90% New Jersey 27.00% 11.90% 2013 1,274,600 196,000 2023 1,619,700 219,500 +345,100 +23,500 Target POPULATION Projections

MEDICARE Percentages Payer Type Center Name County Licensed Beds Resident Census Medicare Medicaid Other Occupancy Medicare % Medicaid % Other % NEW JERSEY TOTALS 85.3% 18.84% 59.13% 22.03% BAYONNE HOSPITAL CENTER TCU Hudson 17 16 94.1% 100.00% 0.00% ATRIUM POST ACUTE CARE OF HAMILTON Mercer 53 4 7.5% CARE CONNECTION RAHWAY Union 24 19 79.2% NEW JERSEY VETERANS MEMORIAL HOME MENLO Middlesex 328 300 289 11 91.5% 96.33% 3.67% ALARIS HEALTH AT THE CHATEAU Bergen 73 63 52 9 2 86.3% 82.54% 14.29% 3.17% HACKENSACK-UMC MOUNTAINSIDE Essex 18 14 3 94.4% 82.35% 17.65% COMMUNITY MEDICAL CENTER TCU Ocean 25 15 76.0% 78.95% 21.05% CARE ONE AT HAMILTON 61 41 85.2% 78.85% 21.15% INSPIRA TRANSITIONAL CARE UNIT WOODBURY Gloucester 82.4% 78.57% 21.43% CARE ONE AT WAYNE - SNF Passaic 54 42 12 74.0% 77.78% 22.22% HOBOKEN UNIVERSITY MEDICAL CENTER TCU 80.0% 75.00% 25.00% SOUTHERN OCEAN MEDICAL CENTER 20 RENAISSANCE PAVILION Atlantic 29 27 7 93.1% 74.07% 25.93% BRANDYWINE SENIOR CARE AT MOORESTOWN Burlington 37 21 8 78.4% 72.41% 27.59% POWERBACK REHABILITATION, ROUTE 73 Camden 120 104 75 86.7% 72.12% 27.88% CARE ONE AT RIDGEWOOD AVENUE 110 95 68 86.4% 71.58% 28.42% PROSPECT HEIGHTS CC 196 23 38.3% 69.33% 30.67% PREFERRED CARE AT MERCER 100 88 88.0% 69.32% 27.27% 3.41% CLARA MAASS MEDICAL CENTER 5 68.75% 31.25% CARE ONE AT CRESSKILL 85 58 85.0% 68.24% 31.76% MERIDIAN SUBACUTE REHABILITATION Monmouth 130 106 72 32 81.5% 67.92% 1.89% 30.19% POWERBACK REHABILITATION MOORESTOWN 124 49 58.9% 67.12% 32.88% ATLANTIC REHABILITATION INSTITUTE Morris 40 92.5% 62.16% 37.84% ST LAWRENCE REHAB CENTER 80 56 34 1 70.0% 60.71% 1.79% 37.50% CARE ONE AT SOMERSET VALLEY Somerset 64 33 13 51.6% 60.61% 39.39% BARNERT SUBACUTE REHABILITATION CENTER, LLC 60 88.3% 60.38% 39.62% CARE ONE AT TEANECK 128 92 55 71.9% 59.78% 40.22% CARE ONE AT WALL 138 99 59 71.7% 59.60% 13.13%

Hospital CONSOLIDATION Hackensack/Meridian Merger RWJUH / Barnabas Merger Geisinger/AtlantiCare Merger Prime/ St. Clare’s /St. Mary’s/St. Michael’s/Salem Prospect / EOGH CarePoint JFK

Hospital CONSOLIDATION Hackensack/Meridian Merger RWJUH / Barnabas Merger Geisinger/AtlantiCare Merger Prime/ St. Clare’s /St. Mary’s/St. Michael’s/Salem Prospect / EOGH CarePoint JFK

RWJUH/ BARNABAS COVERAGE MAP

Hospital CONSOLIDATION Hackensack/Meridian Merger RWJUH / Barnabas Merger Geisinger/AtlantiCare Merger Prime/ St. Clare’s /St. Mary’s/St. Michael’s/Salem Prospect / EOGH CarePoint JFK

INDUSTRY TRENDS SUB-ACUTE / MEDICARE MODELS Exceptional physical plant Rehab Focus Close proximity to hospitals High acuity/hospital discharges Private rooms SHORT length of stay

Hospital PREFERRED Provider lists Focus on: Quality indicators High acuity capabilities Length of stay management Cost containment ability Re-admission guidelines Medical staff continuity LIMITED access to discharges

EVOLVING ISSUES Unions delaying new contracts until 2017 Hospital-based SUB-ACUTE units (1996 NJSA 26:2H 26:2H-7.6) Minimum of 12 beds Maximum length of stay 8 days Up to 7% of Med/Surg capacity Unions delaying new contracts until 2017 Property Tax for NON-PROFIT centers

FORECAST Dramatic impact on Medicaid occupancy after full implementation of MANAGED CARE Increase in bundled payment plans (at-risk models) with hospitals, nursing homes, home health agencies, and physician practices Increased emphasis on Quality indicators CONSOLIDATION of providers Rapid decrease in value of facilities by 2017 Increased government scrutiny on all payment plans Increase in ethnic specialties

Any questions? THANK YOU FOR YOUR TIME T: 609.890.7286 David G. Kostinas & Associates T: 609.890.7286 E: dkostinas@davidkostinas.com W: www.davidkostinas.com