Tri-Party Arrangements: Considering All Perspectives Presented by, Max Reiboldt, CPA, President / CEO Coker Group 2015 New York Metro ASC Symposium October 15

Healthcare Trends 2 Compliance Pay for Performance Reform Demand for services Consolidation Four trends in healthcare today are leading to market consolidation. As a result a growth in tri-party arrangements between health systems / hospitals, ambulatory surgery centers (ASCs) and management companies are proving to be a viable solution.

Tri-Party Arrangements 3 Hospital / Healthcare System Ambulatory Surgery Center (ASC) Management Company Advisory Firm

Tri-party Arrangements Advantages  Increase name recognition  Growth of procedures performed  Increase services  IT infrastructure  Robust reporting capabilities  Organizational structure  Shared interests  Position organization in way that benefits payer contracting  Increase access to care  Capital injection  “Cashing-out” physicians (partially) Disadvantages  Risk financial incomes  Less control  Regulatory compliance measures  Increased expenses (i.e., clinical, operations, IT, personnel, etc.) 4

DIFFERENT SIDES OF A TRI-PARTY ARRANGEMENT 5

Management Company  Primary functions  Investment  Financing Options – capital infusion  Partnerships (i.e., operating and managing agreements, subscription agreements, fund escrow, corporate documents, etc.)  Site Planning (i.e., site identification and selection, lease negotiations, architectural design, space planning, construction estimates, etc.)  Management and Operations (i.e., policies and procedures, managed care contracts, payroll, benefits, accounting and office systems)  Turnarounds (i.e., managed care contracting, contract compliance, patient satisfaction, staffing, compliance and billing / collections, etc.)  Acquisitions (i.e., partnership structuring, growth capacity analyses and staffing realignment)  Health system coordinated investment 6

ASC - Physicians  Increase referral presence  Growth of procedures performed (while maintaining patient safety and adhering to care delivery regulations)  Cost effective care  Promote name recognition Management companies assist physicians with the following:  Provide infrastructure and support to adapt to growing regulatory changes related to accreditations and certifications  Offer re-finance and avenues for growth and cost containment  Develop strategic planning and budgets  Analyze revenue cycle with benchmarking related to internal goals and industry trends  Cultivate healthy joint relationships between hospitals and physicians  Provide “cash-out” scenarios 7

Health System / Hospital  Investor partner  Majority interest (often)  Negotiate payer contracts (if majority owner)  Financial wherewithal to cash-out equity of investors  Hospitals align strategically with physicians  Integration with physicians to better address accountable care requirements  Collaborate with physicians via co-management and service line oversight  Collaborate with both management company and physicians in development of new centers and efforts and other growth effort 8

Advisory Firm  Perform due diligence  Evaluation of the most critical aspects of the arrangement (i.e., financial documents including managed care contracts, operations, clinical, legal / regulatory, arrangement valuation, etc.)  No direct incentives  Subject matter expertise  Identify and address risk factors related to arrangement that may stop or delay the process  Identify factors that will significantly impact / change the arrangement’s valuation  Integration planning 9

Tri-Party Arrangement 10 CASE STUDY ENT specialty practiced in four locations hired a management company to handle full management. The management company was incentivized to help the practice because of their stake in the organization. The management company provided personnel, supply chain, contracted services, valuation and equity, compensation and joint ventures. The nearby healthcare system, with a number of locations, approached the ENT practice about a potential purchase. Situation The management company, on behalf of the ENT practice, worked with the hospital’s advisory firm to negotiate a fair market valuation (FMV) for the transaction. The management company advocated for the physicians because there is a financial interest in the organization. The advisory firm completed a due diligence process for the hospital to assist with determining risk factors in the arrangement. Approach Outcome The management company and the advisory firm determined an FMV fee of the transaction, based upon an independent appraisal having been completed. Both hired a third party advisor to assist with the due diligence process specifically focusing on financials, managed care contracts, physician contracts and agreements and documentation. The practice benefitted because they increased their referral presence, increased services and improved their name recognition. The advent of a hospital partner brought a percentage stake of the ASC, providing capital and the “cashing-out” of some of the physician equity and risk. Southeast region

Key Takeaways 11 Healthcare System / Hospital Act as an investor, may have majority interest, negotiate payer contracts, deeper pockets to cash-out equity of investors and align strategically with physicians. Management Company Provide excellence in management expertise plus investment dollars. Management companies are incentivized to help practices grow and increase revenue. Ambulatory Surgery Center Increase referral presence, increase services, provide cost effective care, and promote name recognition. 1.Reform 2.Regulatory compliance 3.Shift to pay-for-performance As consolidation continues, we are likely to see an increasing number of tri-party arrangements. Key drivers for consolidation are: Tri-party arrangements include the following perspectives: 4.Demand for services 5.Mutual respect and value of all parties

12 Contact Max Reiboldt, CPA President/CEO Coker Group Holdings LLC 2400 Lakeview Parkway| Suite 400 Alpharetta, GA T: Q & A