BHCS EXPANSION September 30, 2014

EXECUTIVE SUMMARY BHCS proposes to improve competitiveness and increase capacity: –Plan expands med/surg beds, creates private bed Post Partum unit, relocates NICU to a consolidated “mother/baby unit”; total bed count expands from 196 to 250; upgrades energy plant. Estimated project cost: $55,972,000 (based on 2016/2017 construction cost) Payback period (using discounted cash flows) is 11.7 years Project NPV is $56.5M Growth in the service area, aging of the population requires that additional inpatient beds be added within the northwestern area of the county. 2

BHCS STRATEGIC INITIATIVES The BHCS expansion is focused on: 1.Decompressing the adult med/surg occupancy issues/capacity issues 2.Protecting and growing the delivery and neonatology volumes 3.Growing surgical shares Current capacity issues limit growth, physician recruitment, patient marketing and patient satisfaction BHCS has set a goal to grow Delivery share from within the service area from the current 25.7% share level to 28% in 2018 and 33% by 2022 –Neonatology share is a function of Delivery and is expected to grow from 21.3% currently to 27% by 2022 Private post partum rooms are required to be competitive with area competitors in the maternity market. –The maternity is highly elective and physicians and mothers to be are highly selective in choosing hospitals. –Northwest has all private rooms in its post partum unit. –West Boca has recently announced plans to further renovate its maternity unit and increase the numbers of private rooms. 3

EXECUTIVE SUMMARY Demand for inpatient services within the BHCS service area will grow significantly from 2012 to 2040: –BHCS service area population will grow by 37% from 2012 to –Admissions will grow by 42% (net of increased population, aging of population and decreased admissions rates). –Patient days will grow by 46% (net of increased admissions and decreased LOS). Sum of population growth and demographics (age) drive demand for an incremental 50 beds within the service area every five years from now to 2030; thereafter, increased demand is over 100 beds per 5 years. 4

EXECUTIVE SUMMARY Total project cost Project cost include inflation adjustment factors based on the following timelines: –Approval January 2015 –Design, bids and contracts completed by December 2015 –Construction Jan 2016 to December 2017 –Occupancy Jan 2018 Project cost estimate has increased by $11.9 million due to inflating prices to 2016/2017 time frame, relocation of NICU and renovating current Post Partum area and current peds areas to adult med/surg areas. 5

PROCESS

ANALYSIS GOALS Project analysis goals: –To determine demand for inpatient services within BHCS area –To assess competitive position today –Help BHCS management team pick strategic service lines to maximize future volume and contributions –To develop tool to quantify BHCS share targets and resulting contribution –To assess incremental contribution over current levels for use in ROI pro forma model –To determine payback period on projects and project present value 7

ANALYSIS STEPS Critical factors driving future demand for BHCS service area residents: –Population growth forecast –Population aging trends –Inpatient admission trends –LOS trends Factors driving BHCS bed demand: –Service area demand at service line levels –BHCS market share within service area at service line level –BHCS short stay patient volumes –BHCS patients demand from outside of BHCS service area Factors driving BHCS contributions/project ROI: –BHCS bed demand by service line –Payor mix –Contribution margins by service line –Project cost 8

FACILITY EXPANSION 9

EXPANSION PLAN Expansion details: –New Labor and Delivery rooms, including 2 Ors. –Labor test outpatient areas. –New delivery waiting room areas. –28 new private Post Partum rooms with ample area for mother, father, baby and family visitation. Includes limited number of “Empress Suites.” –Relocated NICU adjacent to Post Partum rooms for easy access by mothers. –New smaller pediatric med/surg area, 12 beds versus current 26. –Net addition of 65 private adult med/surg beds. 28 new private adult med/surg beds. Current peds/PICU area refurbished for additional 28 adult med/surg rooms. Current Mother/Baby area converted to additional 9 adult med/surg rooms. After construction, a total of 250 beds will be available. This includes 184 adult med/surg beds—an increase of 65 (+54%) more than today. –A future 4 th floor could be added in the future to provide for an additional 28 med/surg beds. 10

EXPANSION DETAILS 11

BHCS BED CAPACITY BEFORE & AFTER 12 Bed TypeCurrentAfterChg Adult Med/SurgPrivate Semi-private50 Post PartumPrivate Semi-private140 Pediatric Med/Surg Private Semi-private60 ICU16 0 NICU10 0 PICU50-5 Total

COST DETAILS Plan would cost approximately $49.3 million if constructed today. Total estimate includes inflation factor of $6.2 million based on 6% per year inflation (2.33 years) according to MGE Architects. Costs will be spread over a three year period: 13

COST DETAILS Proposed cost has increased from original presentation for 3 main reasons: inflation, NICU relocation and renovations of 3N/3W. 14

FINANCIAL 15

FINANCIAL ASSUMPTIONS Expenditures: –Initial project cost: $55.3 million spread over –Ongoing equipment replacements $6.3 million every 7 years Incremental expenses –Project management $200, –Incremental fixed costs: $1,000,000 in 2018 with 3% inflation annually Payor Mix: –Current funded mix: 84% –2018: 83.6% –2020: 84.6% –2025: 86.1% Contribution Margin –All years use 2014 contribution margin per case, specific to service line Incremental Contribution Margin –Defined as contribution margin in each year from 2018 forward less the 2017 base year contribution amount Discount rate: 5% Depreciation –Ignored in cash flow analysis since it is non-cash expense item 16

FINANCIAL RESULTS Pay back period, using discounted cash flows is 11.7 years Project present value is $56.3 million 17

18 CASH FLOWS:

19 PRESENT VALUE OF CASH FLOWS

RECAP BHCS at/above capacity currently for past several years. BHCS at competitive disadvantage in post partum and med/surg private rooms compared to service area competition. –Even loyal physicians do not refer all potential volumes due to capacity and private room limitations. BHCS service area is and will continue to be the fastest growing area within Broward County. Population is aging which drives more inpatient admissions. Bed demand will continue to increase…if BHCS fails to expand, a competitor will fill the need. BHCS can recover the investment in less than 12 years. 20