+annual performance review Munroe Regional Medical Center

Scope of Engagement Cleverley and Associates was asked by the board of MRMC to assess current performance in two primary areas: ~ Financial Performance ~ Cost Efficiency

Benchmark hospitals used in study Peer One: Leesburg Regional Medical Center Group One: Agency for Health Care Administration ~ Average of hospitals in Agency for Healthcare Administration Group Six Group Two: Low Cost Florida Hospitals ~ Florida non-teaching acute-care hospitals ~ Between $185 million and $325 million annual net patient revenue ~ Case Mix Index between 1.45 and 1.85 ~ Hospital Cost Index® less than 100.0

Data Sources in Report Audited Financial Statements Medicare Cost Report Medicare Inpatient Claims Medicare Outpatient Claims Munroe 2008 2007 2007 (and 2008 preliminary data) Leesburg n/a AHCA Low Cost

® Financial Strength Index examine your financial performance compare your financial performance +survey: The FSI compares an organization’s performance to “targets” in four areas: 1. Profit (metric: Total Margin) 2. Liquidity (metric: Days Cash on Hand) 3. Debt (metric: Debt Financing %) 4. Plant Age (metric: Average Age of Plant) A higher FSI score is desirable. Financial ® Strength Index Measuring the ability to withstand short-term financial shock and capitalize on opportunities.

Total Margin (TM) +survey: Negative Trend examine your financial performance compare your financial performance Negative Trend +survey: Total Margin (TM) * Munroe data is from audited financial statements. Peer data is from the Medicare Cost Report (Leesburg FYE is June 30). † Receives tax support in excess of $5 million.

Days Cash on Hand (DCOH) examine your financial performance compare your financial performance Negative Trend +survey: Days Cash on Hand (DCOH) *Munroe data is from audited financial statements. Peer data is from the Medicare Cost Report (Leesburg FYE is June 30). †Peer values based upon filed Medicare Cost Reports (Worksheet G) and may be understated.

Debt Financing % +survey: Negative Trend examine your financial performance compare your financial performance Negative Trend +survey: Debt Financing % *Munroe data is from audited financial statements. Peer data is from the Medicare Cost Report (Leesburg FYE is June 30).

Average Age of Plant (AAP) examine your financial performance compare your financial performance Negative Trend +survey: Average Age of Plant (AAP) *Munroe data is from audited financial statements. Peer data is from the Medicare Cost Report (Leesburg FYE is June 30).

Required cash & investment position determine cash balances examine debt capacity issues create net income targets +design: Required cash & investment position Values stated thousands (000). Investment Need Desired Balance Presently available funds $ 109,230 Working capital 25,534 Capital asset 155,410 less Total required $180,944 Surplus (Deficiency) $(71,714) Required Days Cash on Hand at “Desired Balance” level = 213 Present Days Cash on Hand = 128

Payer Mix - 2007 +expand: revenue enhancement *Receives $5 million in tax support

Hospital Cost Index® Facility-level cost measure: Inpatient Cost Index cost containment +expand: Hospital Cost Index® Facility-level cost measure: Hospital Cost Index® Inpatient Cost Index Formula: Your Medicare Cost per Discharge (CMI/WI adj) US Median Medicare Cost per Discharge (CMI/WI adj) Outpatient Cost Index Formula: Your Medicare Cost per Visit (RW/WI adj) US Median Medicare Cost per Visit (RW/WI adj) A high index score indicates a higher relative cost position.

cost containment +expand: Hospital Cost Index® - 2007

cost containment +expand: Inpatient Cost Index – 2007

Outpatient Cost Index – 2007 cost containment +expand: Outpatient Cost Index – 2007

Executive Summary The financial position at MRMC has been eroding in the last few years due primarily to declining margins. Declines in margins are being driven by revenue factors especially major governmental payers. MRMC has a very competitive cost structure placing it in the best quartile of both US and Florida hospitals. Significant improvements in future margins will be required to maintain the financial viability of MRMC.