1 1 Hospital for Special Surgery ISOC CEO Meeting April 29 – May 1, 2010

2 Louis A. Shapiro, FACHE HSS President and Chief Executive Officer Current 27 years of healthcare experience ­ Previously served as Executive Vice President and Chief Operating Officer at Geisinger Health System in Danville, Pennsylvania ­ McKinsey & Company health care practice leader – 2002 ­ Allegheny General Hospital/System based in Pittsburgh served in a number of capacities ­ Greater Canonsburg Health System ­ Presbyterian University Hospital (UPMC) Associations and Credentials ­ Fellow of the American College of Healthcare Executives ­ Member of the Regional Policy Board for the American Hospital Association ­ Executive Committee member at the Greater New York Hospital Association ­ Board member for the non profit Crutches for Kids ­ Member of the Young Presidents Organization ­ Bachelor of Science and Master of Health Administration from the University of Pittsburgh

3 U.S. Hospitals US Healthcare System 58% 20% Non-profit For-profit Regulatory Bodies Centers for Medicare and Medicaid Services (CMS) ­ Federal agency that administers government insurance programs (Medicare and Medicaid) Joint Commission ­ Private sector not-for-profit organization operating accreditation programs that are a condition for licensure and reimbursement OSHA, NRC, FDA, etc. Mixed Payment Types Uninsured represent 45.7 million or 15.3% of population Health Costs as % GDP ~$2.5 Trillion ($8,047 per person) in 2009 Health Care Reform Recent legislation will expand coverage to 32 M people through changes to the health insurance market Impact of reform will vary greatly at the hospital-level, owing to differences in certain hospital characteristics State & Local Gov’t 22% Total in 2008 = 5,010 Hospitals

4 Founded in 1863 as The Hospital for the Relief of the Ruptured and Crippled; HSS is the oldest existing orthopedic hospital in the United States Mission: Provide the highest quality patient care, improve mobility, and enhance the quality of life for all and to advance the science of orthopedic surgery, rheumatology, and their related disciplines through research and education Vision: Lead the world as the most innovative source of medical care, the premier research institution, and the most trusted educator in the field of orthopedics, rheumatology, and their related disciplines From a small rehabilitation-oriented facility to an internationally renowned center for the treatment of musculoskeletal diseases History of Hospital for Special Surgery

5 Overview Organization Not-for-profit academic teaching hospital Governed by 40-person Board of Trustees ­ 9 subcommittees Board of Advisors Not-for-profit academic teaching hospital Governed by 40-person Board of Trustees ­ 9 subcommittees Board of Advisors Facilities and Volumes 162 beds growing to 212 beds by ORs growing to 32 by MRIs Number of Surgeries: 24,145 (2009) Number of outpatient visits: ~300,000 (2009) Average Length of Stay: 4.01 days (2009) 162 beds growing to 212 beds by ORs growing to 32 by MRIs Number of Surgeries: 24,145 (2009) Number of outpatient visits: ~300,000 (2009) Average Length of Stay: 4.01 days (2009) Staff 230 active medical staff, including: ­ 89 Orthopedic Surgeons ­ 43 Rheumatologists ­ 37 Anesthesiologists 86 Scientists ­ 22 full-time bench research faculty ­ 9 full-time clinical investigators ­ 55 part-time clinician MD scientists ~3000 full time equivalent employees (includes physicians and their staff) 230 active medical staff, including: ­ 89 Orthopedic Surgeons ­ 43 Rheumatologists ­ 37 Anesthesiologists 86 Scientists ­ 22 full-time bench research faculty ­ 9 full-time clinical investigators ­ 55 part-time clinician MD scientists ~3000 full time equivalent employees (includes physicians and their staff)

6 Location: Upper East Side, Manhattan, New York Our region is a unique environment: Densely populated Ranging from the very wealthy to the underserved Costly real estate Financially distressed state

7 Medical/Surgical Services Surgical Musculoskeletal Care Non-surgical Musculoskeletal Care Adult Reconstruction & Joint Replacement Foot and Ankle Hand and Upper Extremity Limb Lengthening and Deformity Metabolic Bone Orthopedic Trauma Pediatric Orthopedic Surgery Scoliosis Spine Sports Medicine and Shoulder Infectious Disease Neurology Pain Management Pediatrics Peri-operative Medicine Physiatry Physical Therapy Primary Care Sports Medicine Radiology & Imaging Rheumatology

8 Patient Origin and Volume Growth 2009 Surgical Volume by Geography 50.2% 37.3% 1.0% 11.6% Regional National Local Int’l x Northern NJ Lower Hudson Valley (NY) So. Conn. Long Island x x x x HSS Main Campus x HSS Affiliated Offsite x x Select Volume Trends % Change Surgeries18,49424, % MRI19,05726, % X-ray132,574172, %

9 Financial Performance (All $ in millions) Hospital Operating Revenue$433.8$496.1$557.7 Hospital Operating Expenses$424.5$475.4$522.6 Hospital Gain from Operations$9.3$20.7$35.1 Net Research Operations($2.0)($1.3)($3.0) HSS Operating Margin1.6%3.7%5.5% Realized gains (losses)*$7.2($10.6)($7.8) HSS Net Gain$14.5$8.8$24.3 * Includes realized gains and losses on investments and change in unrestricted interest in the HSS Fund

10 Research and Innovation Example in Innovation: Biomechanics Research Program Overview Pioneer in biomechanics  E.g. total condylar knee, Insall / Burstein knee I & II, Ranawat/Burstein hip, elbow replacement, 913 knee, unicondylar knee, anatomic hip, artificial disc spine system, Optetrack logic knee system etc. Collaborate with important industry partners Research spans the full continuum, from bench to bedside to population Approximately a $30M budget. Multi-year NIH represents a major funding partner with over $55M in grants Core Research Programs  Arthritis and Tissue Degeneration  Autoimmunity and Inflammation  Musculoskeletal Integrity  Registries & Related Outcomes Research  Tissue Engineering  Biomechanics Over 30,000 patients enrolled in 30 HSS Registries

11 Established in 1887, the Hospital’s orthopedic residency training program was the first in the United States Over 100 residents and fellows annually; 18 international clinical fellows academic visitors in 2009; 165 from international community National CME grand rounds program reaching approximately 3,750 community-based physicians in Included 85 live grand round sessions, as well as five web-based e-Journal sessions Several annual education programs hosting international physicians at HSS Education and Academic Affairs

12 Core business. High focus on initiatives that drive quality care, service excellence and employee engagement. Grow in Place. Focus on growth and current site expansion Extend the Brand. Geographic expansion, knowledge and expertise dissemination, and commercialization of intellectual property Efficiency. Higher levels of efficiency as a means to not only drive down costs, but improve patient satisfaction, employee engagement and physician alignment Alignment. Physician alignment to maintain legacy Teaching. Continue to build on and innovate around our education programs Research. Fill gaps in research programs. Advancement of patient registries, outcomes and comparative effectiveness Challenges and Strategic Priorities Economics. Reimbursement environment under pressure Quality and Service. Maintaining high quality, high service during periods of high growth Capacity. Physical expansion difficult due to space and capital Efficiency. Finding ways to achieve and sustain higher levels of efficiency Alignment. Increasing Alignment between physician and hospital Teaching. Adapting operations as a result of changing Graduate Medical Education Research. Driving research excellence despite declining NIH funding Challenges Strategic Priorities