Project Treasure Information Memorandum - 10.24.17 - Welsh ...€¦ · 1. INTRODUCTION This...

PROJECT TREASURE - - INFORMATION MEMORANDUM

October 6, 2017

CONFIDENTIAL

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This document was prepared exclusively for the benefit and internal use of the Juniper Advisory client to whom it is directly addressed and delivered (including suchclient’s subsidiaries, the “Company”) in order to assist the Company in evaluating, on a preliminary basis, the feasibility of a possible transaction or transactions anddoes not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only and is incomplete withoutreference to, and should be viewed solely in conjunction with, the oral briefing provided by Juniper Advisory. Neither this presentation nor any of its contents may bedisclosed or used for any other purpose without the prior written consent of Juniper Advisory. The information in this presentation is based upon any managementforecasts supplied to us and reflects prevailing conditions and our views as of this date, all of which are accordingly subject to change. Juniper Advisory’s opinions andestimates constitute Juniper Advisory’s judgment and should be regarded as indicative, preliminary and for illustrative purposes only. In preparing this presentation,we have relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which wasprovided to us by or on behalf of the Company or which was otherwise reviewed by us. In addition, our analyses are not and do not purport to be appraisals of theassets, stock, or business of the Company or any other entity. Juniper Advisory makes no representations as to the actual value which may be received in connectionwith a transaction nor the legal, tax or accounting effects of consummating a transaction. Unless expressly contemplated hereby, the information in this presentationdoes not take into account the effects of a possible transaction or transactions involving an actual or potential change-of-control, which may have significant valuationand other effects. This presentation does not constitute a commitment by any Juniper Advisory entity to underwrite, subscribe for or place any securities or to extend orarrange credit or to provide any other services. Juniper Advisory is a marketing name for investment banking businesses of Juniper Advisory LLC.

Page Number

1. INTRODUCTION 3

2. TRANSACTION SUMMARY 3

3. PARTNERSHIP OBJECTIVES 4

4. KEY CONSIDERATIONS 5

5. INDIAN RIVER MEDICAL CENTER 8

6. MARKET OVERVIEW 12

7. MEDICAL STAFF and SERVICES 13

8. FINANCIAL OVERVIEW 17

9. PROJECT TIMELINE 21

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2. TRANSACTION SUMMARY

Juniper Advisory has been engaged by IRMC to assistin exploring its strategic alternatives. IRMC's goalthrough this process is to proactively position theorganization to continue to grow as a high quality, lowcost healthcare provider committed to serving IndianRiver County and the north Treasure Coast andsouthern Space Coast communities.

The largest healthcare provider in Indian RiverCounty, IRMC is the market share leader in its primaryservice area. IRMC has successfully maintained thisposition for decades through its commitment tocontinually meeting the evolving health needs of apatient population of more than 170,000, supported bya strong balance sheet. With a leading-edge acute carehospital, including several well-regarded centers ofexcellence, and a network of ancillary and outpatientservices, IRMC upholds a longstanding tradition ofbringing advanced medicine and personal care topatients in the fulfillment of its mission.

The passage of the Affordable Care Act and othermacroeconomic trends have challenged the ability ofindependent hospitals to achieve continued growthand exceptional quality. As a result, and in an effort tocontinue to fulfill its mission and meet patient needs,IRMC is evaluating potential partnershipopportunities. Through a potential future relationship,IRMC would gain sufficient access to operatingresources and capital to continue to optimize theefficient delivery of healthcare services, benefit fromeconomies of scale, tap the intellectual capital of alarger, integrated system, and strengthen its ability torecruit and retain physicians in key specialties. Inreturn, a prospective partner would benefit fromIRMC’s market position, cost structure, clinical qualityoutcomes, geographic location, and attractivedemographics.

A full review of IRMC’s financial and operating position, aswell as supporting material accompanying all of the topicsreviewed in this document, can be found in the Data Room.All inquiries should be directed to:

James Burgdorfer 312.506.3009 | [email protected]

Barry Sagraves 312.506.3008 | [email protected]

Jordan Shields 312.506.3005 | [email protected]

Indian River Medical Center

1. INTRODUCTION

This Information Memorandum (the “Summary”)provides a review of information concerning IndianRiver Medical Center and its related entities(collectively, “IRMC” or the “System”). It is supportedby detailed information stored in Juniper AdvisoryLLC’s (“Juniper”) secure electronic data room (“DataRoom”).

This Summary was prepared by IRMC with theassistance of Juniper. It is intended solely for use bypotential partners in determining whether to proceedwith further analysis of the opportunity. Use of theSummary and Data Room (collectively, the“Information”) is governed by the terms of thepreviously-executed Confidentiality Agreement, whichstrictly limits its use, circulation and reproduction. Anyperson in possession of this Information shouldfamiliarize herself or himself with this ConfidentialityAgreement before reading, circulating or using it.

Without IRMC’s consent, this Information may not bedistributed, reproduced or used for any purpose otherthan the evaluation of IRMC. It may be disclosed onlyto those directors, officers, employees, agents andadvisors who need such Information to review andevaluate this opportunity, consistent with the terms ofthe Confidentiality Agreement.

Neither IRMC nor Juniper make any warranty,expressed or implied, as to the accuracy orcompleteness of any of the Information. ThisInformation is not intended to provide the sole basis ofany evaluation. Should IRMC enter into furthernegotiations with a recipient of this Information, it isexpected that such recipient would be afforded anopportunity to conduct its own independentinvestigation into the operations and financial affairsof IRMC, pertinent to a proposed transaction or otherbusiness arrangement.

Each recipient further agrees, upon request by IRMC,to promptly return all copies of the Information in itspossession or in the possession of any of its directors,officers, employees or advisors, and to destroy allcopies of any analyses, compilations, studies or otherdocuments prepared by the recipient for its use andcontaining or reflecting this Information, consistentwith the terms of the Confidentiality Agreement.IRMC reserves the right of absolute discretion todecline to enter into a business arrangement orcontinue negotiations with any recipient of thisInformation.

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3. PARTNERSHIP OBJECTIVES

The Indian River Medical Center Board and the IndianRiver County Hospital District Trustees have identifiedthe following core objectives to be used as guidance inevaluating potential partners, as well as IRMC’s abilityto best meet the healthcare needs of Indian RiverCounty and the communities it serves. IRMC seeks apartner who would fulfill these objectives whilemaintaining IRMC’s strong culture of integrity andcorporate ethics:

Promote an IRMC organizational culture thatembraces accountability, excellence and a patientfirst focus

Maintain and enhance the long term financialviability of IRMC

Continue to strengthen the clinical quality ofIRMC’s services and programs

Enhance IRMC’s ability to recruit and retain highquality physicians

Implement an efficient and effective governancestructure that best insures achievement of thecorporate charter and mission

Position IRMC as an employer of choice for staffand clinical partner of choice for the entire medicalcommunity

Strengthen IRMC’s capacity to make neededinvestments in technology, facilities, programs andpeople

Broaden and deepen community support andengagementwith IRMC’s mission

Enhance IRMC’smarket position

Strengthen IRMC’s population health capabilities

Maintain and expand access to needed service linesof care for all residents of Indian River County



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4. KEY CONSIDERATIONS

Attractive MarketIRMC is the sole hospital in prosperous Vero Beach,and it maintains a 49.5% market share throughout itsprimary service area. The population of Indian RiverCounty in 2015 was 148,000, up more than 7% from thecounty’s population in 2010.

The closest competitors, Sebastian Regional MedicalCenter to the north and Lawnwood Regional MedicalCenter to the south, are both approximately 30 minutesfrom IRMC. Additionally, these facilities are evenfurther from the resort communities on the barrierislands which account for some of IRMC’s mostfavorable demographic mix.

Located at the north end of Florida’s Treasure Coast,Indian River County ranks seventh in Florida for percapita income, just behind Palm Beach and Sarasota.Vero Beach has a national reputation as one of thecountry’s leading resort and retirement communities.

Regional Tertiary CenterIRMC believes that there is a significant opportunity tobuild upon IRMC’s current centers of excellence andleverage the philanthropic resources of the area tobuild a truly unique healthcare enterprise in VeroBeach. Ideally located among major populationcenters, an enhanced IRMC and the community ofVero Beach have the potential to become a majorhealthcare destination.

Strong Employer MixIndian River County’s economy is well diversified,with strong representation from municipal, healthcare,retail, manufacturing, distribution, citrus harvesting,and resort and vacation employers. IRMC is the secondlargest employer in the county, behind only the SchoolDistrict of Indian River County.

Piper Aircraft, Inc.Piper is a general aviation aircraft manufacturerheadquartered in Vero Beach. It is considered one ofthe “Big Three” general aviation manufacturers alongwith Beechcraft and Cessna. Since its founding in 1937with the release of the Piper Cub, Piper has producedmore than 130,000 aircraft ranging from rugged traineraircraft to high-performance turboprop planes.

Medical Data SystemsMDS is a privately-held company that providesrevenue cycle and receivables collection managementservices to hospitals and health systems across thecountry. The company has served 460 providers over30 years and is a proven industry leader in the field.MDS is currently in growth mode, having recentlyopened a new Operations and Call Center in nearbyMelbourne that will support 300+ new jobs.

Disney’s Vero Beach Resort & Destination BeachesOpened in 1995, Disney’s Vero Beach Resort is aDisney Vacation Club resort located on Vero Beach’sBarrier Island. It was the first Disney Vacation Club tobe constructed outside of the Walt Disney WorldResort in Lake Buena Vista, FL. The beachfrontproperty includes an Inn, villas, cottages, andnumerous pools and restaurants in a serene hideawaysetting.

Along with the Disney resort, Vero Beach and thegreater Treasure Coast is a well-loved resort andvacation destination. With nearly 26 miles of unspoiledbeachfront, Indian River County is located within athree-hour drive of 17.9 million Floridians,representing 90% of the state’s total population.


Piper M350 in flight over Vero Beach

Top Employers in Indian River County

Employer Industry Employees

School District of IRC Government 2,073

Indian River Medical Center Healthcare 1,753

Publix Supermarkets Food/Beverage 1,250

Indian River County Government 860

Piper Aircraft, Inc. Manufacturing 720

Wal-Mart Retail 693

Sebastian River Med. Center Healthcare 595

Johns Island Res./Resort 584

Medical Data Systems Collections 500

City of Vero Beach Government 409

Visiting Nurse Association Healthcare 396

Indian River Estates Retirement 350

CVS Distribution Center Distribution 260

Captain Hiram’s Resort Resort 240

Disney’s Vero Beach Resort Resort 237

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History of Philanthropic SupportA cornerstone of IRMC is the deep and longstandingrelationship it maintains with a generous philanthropiccommunity. Since 1998, the Indian River MedicalCenter Foundation has provided more than $100million to IRMC for capital improvement and targetedprograms aimed at improving healthcare for thecommunities of Indian River County. A key criterionfor IRMC’s partner will be the ability to furtherenhance, promote, and invest in a culture ofphilanthropy, honoring past philanthropic givingwhile seeking to grow new giving to IRMC.

21st Century CampaignThe Foundation raised $52 million (surpassing anoriginal goal of $50 million) for the 21st CenturyCampaign, a multi-faceted effort that funded thefollowing capital projects: Emergency Services Pavilion, opened in 2005,

which today serves nearly 57,000 patients annuallyand includes special accommodations forbehavioral health and trauma patients

Welsh Heart Center, a Duke cardiac affiliate centeropened in 2006, which includes cardiac operatingsuites, catheterization labs, and cutting-edgediagnostic and treatment technology

Sheridan Intensive Care Unit and Waxlax RecoveryRoom, opened in 2013, which provide pre- andpost-care facilities specifically designed for cardiacpatients

Patient Pavilion, a facility on the south side of themedical center which includes the home ofAmbulatory Infusion for infectious disease andcancer care, an MRI treatment space, andregistration for inpatient and outpatient services


The Excellence in Cancer Care Campaign raised $50.1million, exceeding its goal of $48 million. Thecampaign was led by major gifts of $12 million eachfrom the Scully and Welsh families. The Scully-WelshCancer Center, opened in November 2015, is a 34,000square foot, state-of-the-art facility that centralizespatient access and outpatient cancer services andsupport. Additionally, funds raised in this campaignallowed for the reconfiguration and renovation ofoncology surgical suites and inpatient treatment suiteswithin the main hospital.

The Excellence in Cancer Care Campaign includedthree main fundraising initiatives: $16.5 million towards facility upgrades including

the aforementioned Scully-Welsh Cancer Centerand inpatient facility upgrades

$18.5 million towards cancer program funding,including medical staff development, advancementof the Duke Oncology Network, clinical research,and programs for patient care navigation, cancerscreening, genetic counseling, financial assistance,and future endowments for cancer care

$13 million for cancer treatment technologyfunding, including EHR performance visibilityupgrades and a host of cutting-edge medicaldevices and cancer treatment platforms

IRMC’s latest philanthropic initiatives will fund thecompletion of the Scully Endoscopy Center, a majorexpansion of the IRMC endoscopy suite which seeks toelevate IRMC’s services for preventable GI cancer. TheCenter is scheduled to open in early 2018. Otherinitiatives include investments in the CardiacElectrophysiology program, an Endowed Chair inCardiovascular Surgery, and numerous other patientcare initiatives. Current giving for 2017 totals over $10million.

Groundbreaking for the Sheridan Intensive Care Unit and the WaxlaxRecovery Room

IRMC’s Emergency Department

Excellence in Cancer Care Campaign

Current Giving

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Quality and Range of ServicesIRMC has a Leapfrog Group “A” rating and hasachieved Leapfrog’s top scores for each of the CareManagement Metrics. These are: Steps to Avoid Harm,Never Events Management, Appropriate Use ofAntibiotics in Hospitals and Specially Trained DoctorsCare for ICU Patients. IRMC’s nearest competitorshave lower Leapfrog ratings: Sebastian (C); Lawnwood(C), and; Holmes (B).

The hospital’s Commonwealth Fund OverallRecommended Care score of 97.99% is above theFlorida average (92.67%), the national average for not-for-profit hospitals (93.96%) and the average for non-federal governmental hospitals (88.15%). Despite thisstrong performance, the organization believes that apartnership can support further quality improvementsand that those improvements will further strengthenIRMC’s position as a regional destination.

IRMC provides a full range of high quality services tothe Treasure Coast. IRMC services that have beenidentified by the community as particularly stronginclude Cancer, Gastroenterology, Heart, Imaging, andOrthopedics programs. The organization believes thatthe right partner can realize improved financial andclinical performance by further advancing these keyservices while augmenting others.


Operational Improvement OpportunitiesA series of external reviews of IRMC’s financial andoperating position indicates that there may besignificant opportunities to improve IRMC’s operatingand financial position. Some of these can be found inthe Operational Data folder in the data room.

On the revenue side, IRMC completed a study of itsrelative managed care rates, using Medicare as theregional bench mark, in 2016. That study found thatIRMC was underpaid relative to other hospitals acrossthe region, as well as an overall Florida bench mark. Inresponse, IRMC canceled its four major commercialinsurance contracts to renegotiate. New contracts withall four carriers were signed between April and June of2017. On an annualized basis, IRMC’s net commercialrevenue is up by $12 million. That represents a 24%overall rate increase and an improvement to IRMC’soperating margin of about 4.5%. Management believesthat additional opportunity remains, as the Hospital’scommercial rates remain significantly below certainother regional systems despite the 24% increase.

A recent consultant’s review identified $3.5mm innear-term bottom line opportunities at IRMC. $2mmof this could be through chargemaster, pricing, andutilization improvements. $1.5mm of operationalefficiencies were also identified, in addition tounquantified opportunities in service growth, servicecentralization, GPO pricing, labor efficiency, benefitsredesign, supply utilization or pharmacy costs.

Truven Health Analytics completed an opportunityanalysis in April 2017, finding significant additionalpotential savings. This report, titled 4.A Action OIImprovement Opportunity Analysis Summary Report,can be found in the data room. It identifies up to$2.3mm in labor, and service utilization savings.Truven also found potential medical supply savingsapproaching $4mm, mostly in surgery.

Leapfrog Outcome Measures

Hospital

Ratings Above

AverageScore

Ratings Below

AverageScore

Hospital Safety Score

Rating

Indian River Med. Center 10 5 A

Sebastian Regional 10 5 C

Lawnwood Regional 9 6 C

Holmes Regional 7 8 B

Includes accidents, errors, and injuries. Time Periods: 7/1/13-6/30-15, 2016

Leapfrog Process Measures

Hospital

Ratings Above

AverageScore

Ratings Below

AverageScore

Hospital Safety Score

Rating

Indian River Med. Center 10 5 A

Sebastian Regional 6 9 C

Lawnwood Regional 8 7 C

Holmes Regional 5 2 B

Includes management structures and procedures to protect against medical errors and injuries. Time Periods: 7/1/13-6/30-15, 2016

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5. IRMC overview

“To provide exceptional, patient-centered, evidence-basedhealthcare to residents of Indian River County andsurrounding areas.”

- - IRMC Mission Statement

HistoryCelebrating nearly 85 years of caring for itscommunities, IRMC is an award-winning, all-private-room, 332-bed not-for-profit hospital centrally locatedon Florida’s Treasure Coast. It was founded byGarnett Lunsford Radin, a 29-year-old registered nursefrom Nebraska. She purchased a local hotel with$22,000 of her own money, and opened the hospitalwith 21 beds on May 12, 1932. The Vero BeachChamber of Commerce was an early supporter, andhelped to create a not-for-profit corporation to solicitcontributions to support the hospital.

In need of more space for patients, construction beganin 1951 on a new 35-bed facility, which opened inMarch 1952. Dedicated to the memory of those fromIndian River County who gave their lives for freedom,at its opening it was the nation’s smallest accreditedhospital.


Indian River Memorial Hospital, 1952; at the time the smallest accredited hospital in the country

Indian River Medical Center today

Operating and Financial Overview 2014 2015 2016 2017†

Net Op. Revenue $206.7 $241.7 $251.2 $211.5

Operating Income $2.1 $5.3 ($2.4) ($1.6)

Operating Margin 1.0% 2.3% -1.0% -0.8%

EBITDA $13.7 $19.3 $12.8 $9.3

EBITDA Margin 6.6% 8.0% 5.1% 4.4%

Licensed Beds 332 332 332 332

Discharges 14,410 15,064 14,484 11,207

Case-Mix Index 1.39 1.42 1.63 1.67

Average Daily Census 169.5 175.8 165.1 149.1

Average Length of Stay 4.29 4.26 4.16 3.79

ER Visits 57,179 58.851 61,029 61,240

$ in millions†Year-end projected figures

Confidential 9Indian River Medical Center

Indian River Medical Center (“IRMC”)In response to a changing healthcare market andincreasingly complex governance and financial issuesfacing all hospitals, Indian River Memorial Hospital,Inc., which now does business as Indian River MedicalCenter (“IRMC”), was formed in 1984. IRMC is aFlorida not-for-profit corporation that is tax-exemptunder Internal Revenue Code Section 501(c)(3). Eachof IRMC,’s 17 directors is a member of IRMC, andIRMC has no other member.

IRMC accepted a transfer of full responsibility andauthority for the management and operation of thehospital from the District, effective May 1, 1985, whenthe District leased the hospital to IRMC. IRMC’s rentalobligation was to pay certain bond debt incurred bythe District, and IRMC has paid its rent in full, inadvance, through the entire term of the lease.

The IRMC Board is responsible for operating thehospital. Under IRMC’s Bylaws, 12 independentdirectors serve three-year staggered terms. There arealso five ex-officio directors: the Indian River HospitalFoundation Chair, the Chief of Staff, the Vice Chief ofStaff, a representative elected by the Medical Staff, andthe CEO of IRMC, who does not vote.

The rights and duties of IRMC and the District towardsone another are set forth in IRMC’s governingdocuments and in contracts between the parties, all ofwhich are in the Data Room.

Since IRMC began operating the hospital, it has grownto include 332 licensed beds. More than 57,000 peopleare seen each year in the hospital’s state-of-the-artEmergency Department. The Welsh Heart Center,affiliated with Duke Medicine, opened in 2006.IRMC’s outstanding surgical outcomes have earned ittop recognition from the Society of Thoracic Surgeons.

5. IRMC corporate entities and structure

Indian River County Hospital District (“IRCHD”)In 1958, Governor Leroy Collins approved the creationof the District. Two years later, the District assumedresponsibility for hospital management. The District isan independent special taxing district under Floridalaw, with a seven-member elected board.

By 1967, IRMC had expanded to 164 licensed beds, anda larger facility was needed. The current 128-acre sitewas chosen because of its size and accessible location.IRMC’s current facility opened on March 29, 1978, with216 licensed beds.

As explained below, the District no longer operates thehospital. It does, however, levy taxes to fund indigentcare and healthcare programs in Indian River County.The District levied $12.7 million in taxes for fiscal year2015, and $13.5 million for fiscal year 2016. From thosetax levies, the District distributed $11.2 million forfiscal year 2015, and $11.4 million for fiscal year 2016,to support indigent care and healthcare programs.Most of the funding goes to the hospital. Thebreakdown of 2016 indigent care and program fundingdistributions by the District was:

For additional background on the District’s activities, see12.B 2016 District Audited Financial Statements in theData Room.

Vero Beach’s Humiston Park area

$5,900,000 IRMC Indigent Care

$1,300,000 IRMC Partners in Women’s Health

$1,965,044 Indian River County Public Health Dept.

$735,000 Treasure Coast Community Health

$686,472 Visiting Nurse Assoc. of Treasure Coast

$365,917 Indian River County Medicaid Assessment

$306,330 Indian River County Mental Health Assoc.

$184,362 U. of FL Psychiatric Outpatient Clinic

$130,000 Mental Health Collaborative

$21,852 New Horizons of the Treasure Coast


Indian River Hospital Foundation (“Foundation”)The Foundation is a Florida not-for-profit corporationprimarily engaged in soliciting and administeringcharitable contributions related to the operations ofIRMC. The Foundation has undertaken a variety offocused development activities, including theemergency room expansion, construction of the Scully-Welsh Cancer Center and major equipment purchases.

Indian River Health Services Corporation (“IRHSC”)Indian River Health Services Corporation wasestablished by Indian River Memorial Hospital, Inc. asa not-for-profit 501(c)(3) corporation on April 29, 1986.IRMC is the sole member of Indian River HealthServices Corporation. IRMC formed the corporation toenter into payer agreements and to provide billing andcollection services for physician services rendered topatients by physicians employed by IRMC.

5. IRMC corporate entities and structure

IRMC has the following subsidiaries which operate withseparate boards of directors from IRMC:

Health Systems of Indian River, Inc. (“HSIR”)HSIR is a Florida not-for-profit corporation used toconstruct, own and operate outpatient clinics forIRMC.

Vero Radiology Associates, LLC (“VRA”)VRA is a comprehensive state-of-the-art outpatientimaging facility accredited by the American College ofRadiology. All VRA radiologists are board certified bythe American Board of Radiology and fellowshiptrained in Nuclear Medicine, Neuroradiology, BodyImaging, Musculoskeletal and InterventionalRadiology. A former joint venture, IRMC took fullownership in June 2014.

Emergency Physicians of Vero Beach, LLCEmergency Physicians of Vero Beach, LLC is a Floridalimited liability company. It was formed for thepurpose of billing and collecting for professionalservices rendered by IRMC’s employed emergencydepartment physicians.

Vero Radiology Associates is located across the street from IRMC.

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5. IRMC facilities map


Campus Growth

1978 New campus established with construction of 216-bed hospital

1989 Behavioral Health Center acquired

2005 Emergency Services Pavilion opens

2006 Welsh Heart Center opens

2013Patient Pavilion, housing outpatient testing, imaging and select specialty procedures, opens

2015 Scully-Welsh Cancer Center opens

2016

Health & Wellness Center, housing space for cardiology, cardiovascular surgery and a variety of outpatient services, opens

2018Projected opening of the Scully Endoscopy Center


6. MARKET OVERVIEW

Service AreaIRMC defines its service area based on typical servicearea calculations, where zip codes contributing to thetop 75% of discharges are the primary service area andzip codes contributing to the next 15% of dischargesare considered the secondary service area. IRMC is themarket leader in its service area and is the preferreddestination for the community’s residents.

Market Share

Hospital FY2014 FY2015 FY2016

Indian River Med. Center 49.8% 50.0% 49.2%

Sebastian Regional 17.7% 15.2% 15.6%

Lawnwood Regional 11.9% 12.6% 13.0%

Holmes Regional 3.1% 3.4% 3.5%

Primary Service Area

Zip Area Population

32948 Fellsmere 7,862

32958 Sebastian 26,400

32960 Vero Beach 21,322

32962 Vero Beach 23,820

32963 Vero Beach 14,354

32966 Vero Beach 15,531

32967 Vero Beach 18,957

32968 Vero Beach 14,353

32976 Sebastian 8,337

34946 Fort Pierce 6,134



Primary Service Area Population: 179,104

Secondary Service Area

Zip Area Population

32908 Palm Bay 10,586

32909 Palm Bay 31,219

32949 Grant 2,671

32950 Malabar 3,795






34983 Port St. Lucie 39,922

Secondary Service Area Population: 151,497

Source: Population data is U.S. Census data from City-Data.com

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CompositionThe IRMC medical staff is composed of 357 totalphysicians as of October 2017. Of these, 190 are activephysicians.

IRMC employs 124 of these physicians. The topemployed physician specialty counts are as follows:


7. MEDICAL STAFF and SERVICES

StructureThe organized medical staff is governed by bylaws thatare subject to the direction of the IRMC governingbody and various licensing and regulatoryorganizations. The bylaws outline the responsibilitiesof the medical staff leadership in much the same wayas the hospital bylaws. The medical stafforganizational structure aligns with the AmericanBoard of Medical Specialties (“ABMS”) as follows:departments (Chairs), divisions (Division Chief), andsections (Section Head). The officers of the medicalstaff include the Chief, Vice Chief, and SecretaryTreasurer. IRMC’s medical staff, as required understate law and accreditation standards, plays a criticalrole in assuring quality care and improving patients'outcomes in the hospital setting.

Top 15 Admitting Physicians

Specialty % Admissions

Hospitalist Group

Psychiatry Group

OB Group

Orthopedic Surgery

Orthopedic Surgery

Internal Medicine

Cardiovascular Surgery

Vascular Surgery

Internal Medicine

OB/GYN Surgery

Neurosurgery


Orthopedic Surgery

Orthopedic Surgery

General Surgery

58.3%

10.2%

6.5%

2.5%

1.6%

1.1%

1.0%

0.9%

0.9%

0.9%

0.8%

0.8%

0.7%

0.6%

0.6%

Top 15 DRGs

DRG Description

470 Major joint replacement or reattachment of lower extremity w/o MCC

795 Normal newborn

881 Depressive neuroses

885 Psychoses

871 Septicemia/severe sepsisw/o MV 96+ hours w/ MCC

775 Vaginal deliveryw/o complicating diagnoses

291 Heart failure & shock w/ MCC

794 Neonate w/ other significant problems

872 Septicemia/severe sepsisw/o MV 96+ hours w/o MCC

193 Simple pneumonia & pleurisy w/ MCC

392 Esophagitis, gastroenteritis& misc. digestive disorders w/o MCC

378 G.I. hemorrhage w/ CC

603 Cellulitis w/o MCC

247 Perc. cardiovascular procedure w/drug-eluting stent w/o MCC

292 Heart failure & shock w/ CC

Top Employed Physician Counts

Specialty #

Emergency Medicine

Hospitalists

Medicine (Internal, Family, Urgent Care)

Cardiology

Gastroenterology

OB/GYN

Pathology

Psychiatry


Hematology/Oncology

31

25

14

9

5

5

5

5

3

3

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The EP lab provides atrial and ventricular arrhythmiadiagnostics and ablation therapy using cryo(freezing) and radiofrequency (heat) methods. Thelab utilizes the implantation of diagnostic looprecorders for long-term monitoring of heart rhythm,as well as the latest GPS-guided navigation system(Mediguide) during procedures to reduce overallradiation exposure.

Cardiac services offered at Welsh include:

Surgery Coronary artery bypass graft (CABG) Pump and off-pump coronary revascularization Heart valve replacement and repair Minimally invasive valve surgery Aortic aneurysms in the thoracic and

thoracoabdominal aorta with open graft replacement and the newer endovascular techniques

Implants Pacemaker Implantable cardioverter defibrillator Bi-ventricular implantable cardioverter

defibrillatorInterventional Cardiology Angioplasty Coronary artery stents Atherectomy

Diagnostic Procedures Electrocardiogram Echocardiogram Stress test CT angiography (64-slice CT)



IRMC provides for its community across 30 differentservice lines including:

Bariatric Services Behavioral Health Center Cancer Services Cardiovascular Services Coumadin Clinic Diabetes Care Ear, Nose & Throat Services Emergency Services Gastroenterology Gynecology Hospitalist Medicine Imaging and Radiology Services Infectious Disease Infusion Center Labor & Delivery Services Neuroscience Orthopedics Outpatient Rehabilitation Pediatrics Primary Care Robotic Surgery Sleep Disorder Center Spine Surgery Pulmonary Urology Vascular Medicine Walk-In Care Centers Women’s Services Wound Care & Hyperbaric Medicine

Cardiology & the Welsh Heart CenterOpened in 2006, the Welsh Heart Center at IRMC isleader in advanced cardiac care. As a affiliate of DukeHealth, patients have access to Duke’s renownedcardiovascular team, and IRMC staff receivespecialized training and consultation. Specialists atWelsh have performed more than 18,000 cardiacsurgeries, heart catheterizations, and stent procedures.The IRMC affiliation with Duke Health was the first ofits kind in the state of Florida.

The Welsh Heart Center counts on advanced cardiaccath lab and two surgical suites, making the HeartCenter one of the most comprehensive cardiovascularprograms in the country. The Center continues toadvance the center’s level of care with a state-of-the-artcardiac electrophysiology (EP) lab opened in 2016 andtranscatheter aortic valve replacement (TAVR) openingin 2017.

IRMC’s Health and Wellness Center

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SWCC works with and supports programs acrossIRMC’s campus, including renovations to specializedsurgical suites and the provision of cutting-edgetechnology for use by oncology team physicians.These technologies include the latest-generation TrueBeam® STx Linear Accelerator, da Vinci® surgicalrobot, Electromagnetic Navigation BronchoscopyTM,Ultrasound-Guided Biopsy Systems, Digital Pathology,Neurosurgery Sonopet Ultrasound, and ConfocalMicroscopy.

Clinical trials with the National Cancer Institute (NCI)and other organizations are currently underway atSWCC. These trials include those matching tumormutations to potentially active agents, agents thatactivate the patient’s own immune system against theircancer, new infused agents, weight loss, and trialswith an emphasis on quality of life. SWCC also has anincreasing emphasis on inherited genetics and tumor-specific mutations allowing for personalized care.

SWCC continues to grow rapidly and has beenembraced by the community. It is uniquely positionedregionally to provide top-notch cancer care to patientswithout extensive travel.

Behavioral HealthThe Behavioral Health Center (BHC) at IRMC providesinpatient services for children, adolescents, adults andseniors. The 46-bed facility, located on a beautifulcampus across the street from IRMC, includes a gym,pool, shaded courtyards, bright airy rooms, and bothan indoor and outdoor physical challenge course forexperiential learning.

Thousands of Treasure Coast residents have beenhelped through the center’s inpatient and outpatienttreatment, counseling services, classes, and screenings.

Emergency MedicineThe IRMC Emergency Department is known forproviding top quality care and award-winning heartand stroke services. The hospital has continued toimprove its ED processes in order to realize consistentdrops in wait times and increased patient satisfactioneven as visits to the Emergency Department haveincreased. IRMC currently employs emergencyphysicians and mid-level providers.



Oncology & the Scully-Welsh Cancer CenterOpened in December 2015, the Commission on Cancer-accredited Scully-Welsh Cancer Center (SWCC) bringsworld-class outpatient, inpatient, medical, and surgicaloncology care to Vero Beach and the greater TreasureCoast. Following the success of the Dukecardiovascular affiliation, IRMC implemented a secondaffiliation with Duke in the area of cancer care. As anaffiliate, IRMC patients receive access to the latestresearch, specialists, and advanced treatment options.

IRMC’s 34,000 square-foot Scully-Welsh outpatientcenter houses radiation therapy, chemotherapy,genetic counseling services, education, a resourcelibrary, support services, and the Dr. Richard MilstenPatient Care Navigator program, which assists patientsand their families as they manage complex andspecialized care plans. Inpatients are housed in anewly renovated 14-bed inpatient oncology unit whichprovides a soothing setting with large privatetreatment rooms, consultation rooms, and quiet areasfor families and caregivers. All care, both inpatient andoutpatient, is provided by a team of dedicated,specialty-trained pharmacists and chemotherapy andbiotherapy certified nurses.

Multidisciplinary physician teams meet weekly attumor boards and work together on an ongoing basisto ensure state-of-the-art and seamless care acrossspecialties. Teams include Cardio-Oncology, Leukemiaand Lymphoma, Lung/Thoracic, Breast/GYN,Melanoma and Skin Cancers, Prostate/Bladder,Colon/GI, General, and Brain.

Entrance hall of the Scully-Welsh Cancer Center

Confidential 16

IRMC collaborates with the Indian River CountyHospital District on the Partners in Women’s Healthprogram, a group practice of doctors that deliversapproximately 80% of all county newborns. Together,these groups ensure that all women in the area haveaccess to quality pre-natal care.

OrthopedicsIRMC’s nationally-acclaimed orthopedic programprovides total hip, knee, and shoulder surgeriesutilizing the latest techniques. Patients are treated inthe Orthopedic Surgery Center, located in the Healthand Wellness Center of IRMC. A recently-renovatedOrthopedic Unit includes 23 private units specificallydesigned for the recovery and rehabilitation oforthopedic surgical patients.

Wound Care & Hyperbaric MedicineIRMC’s Wound Healing Center provides outpatientwound care services, including hyperbaric oxygentherapy. Numerous chronic wound conditions aretreated, including wounds caused by complicationsfrom diabetes, circulatory issues, ulcers, infections, andburns, among other chronic conditions. The WoundHealing Center’s multidisciplinary staff collaborateswith nine staff physicians to provide seamless andeffective wound care. The Center is proud of its 91%healing rate in 16 weeks or less, which is above thenational average.

The Wound Healing Center received a Gold Seal ofApproval for quality from the Joint Commission.Additionally, the Joint Commission’s Disease-SpecificCare Certification for wound care was received byNational Healing Corporation, which manages IRMC’swound care program.



GastroenterologyThe highly-trained group of gastroenterologists,nurses, therapists, and care coordinators at IRMCspecialize in treating everything from acid reflux tocomplex forms of cancer. Performing a variety ofminimally invasive procedures, doctors at IRMC are atthe forefront of the latest advances in surgicaltechniques that reduce pain, decrease recovery timesand limit complications.

GI services provided by IRMC include ERCP(Endoscopic retrograde cholangiopancreatography),ERCP with Spyglass, Single Balloon Enteroscopy, EUS(Endoscopic Ultrasound), EMR (Endoscopic MucosalResection), Esophageal Ablation, and Stent Placement,including Colonic, Esophageal, Pancreatic and Biliary.

Imaging & Radiology ServicesIRMC’s American College of Radiology accreditedfacilities use cutting-edge imaging technology toperform diagnostic and therapeutic procedures. Thehospital’s award-winning imaging centers, inconjunction with Vero Radiology Associates,offer general radiology services. These includefluoroscopy, myelography, joint injections,arthrograms and full GI services, ultrasound,CT, 3T MRI, nuclear medicine, lung cancer screening,PET, bone density, minimally-invasive outpatientbiopsies, full service breast imaging (including2D/3D mammography with CAD, breast MRI, breastultrasound, and stereotactic, ultrasound, andMRI breast biopsy), lymphoscintigraphy, andpreoperative needle and wire localization services forIRMC’s patients.

Labor & Delivery ServicesSince 1932, more than 40,000 babies have beendelivered and cared for by the physicians, nurses, andstaff of IRMC. As the only hospital in Indian RiverCounty with a labor and delivery birthing center,IRMC plays an outsized role in the provision of qualitymedical care in the community.

In addition to a suite of women’s health andgynecological services, IRMC provides the followingservices in the field of obstetrics:

Prenatal care and education, including new mothersupport groups and breastfeeding education

Infertility assessment Minimally-invasive sterilization procedures Birth control services

Hyperbaric oxygen therapy chamber

Confidential 17

Capital NeedsIRMC has been reviewing a number of capitalprojects to better meet the future healthcare needs ofthe region. These include renovation or replacementof certain inpatient beds; an upgrade to the Hospital’spower plant; investment in Information Technology;and an ambulatory surgery center. In addition,IRMC seeks to ensure a continuation of adequateongoing routine capital investment.

• $125-$175 million patient room and power plantupgrades: this project includes reconfiguring orreplacing existing patient rooms, renovatingexisting hospital space and upgrading IRMC’spower plant. This would also allow for theconstruction of an additional, inviting entrance tothe hospital.

• Information Technology investment: IRMC iscurrently on McKesson Paragon andeClinicalWorks, and expects to migrate to itspartner’s platform(s) in a timely fashion aftercompletion of a Transaction.

• $25 million ambulatory surgery investment:operating rooms at the Hospital are currently atcapacity and are used for both inpatient andoutpatient surgeries. IRMC would like to moveoutpatient volume to a new ambulatory surgerycenter, creating capacity at the Hospital and amore inviting atmosphere for outpatients.

• $15 million per year for routine capitalinvestment: IRMC’s annual depreciation expensehas run between $10.7 million and $14.3 millionfor the last several years.


8. FINANCIAL OVERVIEW

IRMC has experienced a 25% revenue increase since2013 and has a strong balance sheet. Significantadditions have been made to facilities, including a50% increase in PP&E since 2013, all done withvirtually no debt. This is due in part to the pastgenerosity of the community through significantphilanthropic giving. The system has a 35% debt tocapital ratio.

Fiscal Year 2017FY2017 presented additional challenges, most notablythe occurrence of Hurricane Matthew which causedsignificant operating challenges. This resulted in anoperating loss of approximately $4 million in the firstquarter, ended December 31, 2016. Operationsimproved significantly during the rest of the year,with a projected total operating loss narrowing toapproximately $2.5 million.

Operating ImprovementsBesides the annual $12 million in additionalcommercial insurance revenue described in theOperational Improvement Opportunities section onp.7, recent consulting studies have identified avariety of operational improvements. These include:• $4mm in medical supply savings• $2.3mm in labor and service utilization savings• $2mm of chargemaster and pricing changes• $1.5mm of operational efficiencies• Additional unquantified opportunities in service

growth, service centralization, GPO pricing, laborefficiency, benefits redesign, supply utilizationand pharmacy costs

Rendering of new patient tower under consideration



8. FINANCIAL OVERVIEW balance sheet

Source: Audited financial statements

($ in millions) Fiscal Year End September 302013 2014 2015 2016

Assets Current Assets

Cash and cash equivalents $ 30.0 $ 36.3 $ 40.7 $ 31.5 Assets limited as to use, current - - 5.8 4.8 Patient accounts receivable 26.9 23.9 23.8 28.3 Other recievables 0.7 2.1 1.9 3.2 Inventories 3.6 3.6 4.6 4.1 Due from District and others 1.2 - 1.0 0.5 Prepaid expenses 2.7 2.2 3.0 2.8 Contributions recievable 5.9 0.6 - -

Total Current Assets 71.0 68.8 80.7 75.3

Assets Limited as To Use - Net 35.2 35.3 43.8 42.4

Property and Equipment - Net 94.5 113.9 126.6 151.6

Other AssetsContributions recievable, noncurrent 13.9 16.8 - -Goodwill and intangible assets - 7.1 6.8 6.7 Other 4.3 2.3 1.2 1.8

Total Other Assets 18.2 26.2 8.0 8.4 Total Assets 219.0 244.1 259.0 277.8

Liabilities and Net PositionCurrent Liabilities

Accounts payable 12.6 12.0 15.2 17.4 Accrued payroll 6.6 7.2 8.6 10.3 Other accrued liabilities 3.9 4.8 4.9 4.1

Estimated third-party payor settlements 5.2 1.3 1.7 0.9 Current portion of long-term debt - 1.9 2.9 3.4

Current portion of self-insurance liability 4.3 4.5 3.4 2.5 Total Current Liabilities 32.7 31.7 36.7 38.6

Long-term Debt - Net - 20.6 20.8 34.0

Other LiabilitiesPension benefit obligations 9.8 10.8 19.7 20.3 Self-insurance liability 7.5 7.1 8.6 8.1 Interest rate swaps - - 1.8 2.4 Other long-term liabilities 0.5 0.5 0.6 0.6

Total Other Liabilities 17.8 18.4 30.7 31.4 Total Liabilities 50.5 70.7 88.2 104.0

Net PositionUnrestricted 132.8 141.1 147.9 152.6 Temporarily restricted 35.0 31.6 21.1 19.2 Permanently restricted 0.7 0.8 1.9 2.0

Total Net Position 168.5 173.4 170.9 173.8 Total Liabilities and Net Position $ 219.0 $ 244.1 $ 259.0 $ 277.8


8. FINANCIAL OVERVIEW income statement

($ in millions) Fiscal Year End September 30 9 Mth End June 30

2013 2014 2015 2016 2016 2017

Operating Revenue

Net patient service revenue less PFBD $178.1 $185.6 $215.0 $231.3 $174.9 $198.6

Other 19.0 21.1 26.7 20.0 12.4 12.9

Total operating revenue 197.1 206.7 241.7 251.2 187.3 211.5

Operating Expenses

Salaries and benefits, incl contr labor 110.1 110.0 126.5 140.5 111.3 132.4

Professional fees 11.8 15.5 16.6 16.5 3.2 2.4

Supplies 34.3 35.2 42.7 47.4 35.9 40.5

Insurance 8.0 7.3 7.4 4.0 3.1 3.7

Other 23.8 25.0 29.2 30.0 22.1 23.3

Depreciation and amortization 10.7 11.6 13.0 14.3 10.3 10.7

Interest - - 0.9 0.8 0.2 0.2

Total Operating Expenses 198.6 204.6 236.4 253.6 186.1 213.2

Operating Income (loss) -1.5 2.1 5.3 -2.4 1.2 -1.7

Nonoperating Income (Expenses)

Investment income 0.6 0.4 0.2 1.5 0.2 0.1

Other, net - - - -0.3 -0.3 -

Net Nonoperating Income 0.7 0.4 0.2 1.2 -0.1 0.1

Excess of Revenue Over Expenses -0.8 2.5 5.6 -1.2 1.1 -1.6

Net assets released from restr, used for PPE 9.4 7.3 13.6 8.8 - -

Pension liability adjustment 11.2 -2.1 -10.6 -2.3 - -

Change in fair value of interest swaps - - -1.8 -0.7 - -

Change in unrealized gains (losses) on inv. -0.4 0.5 - - - 0.1

Contributions 0.1 - - - 8.3 2.8

Other - - - - - -

Increase in Net Position 19.5 8.2 6.8 4.8 9.4 1.3

Net Position - Beginning of Year 116.5 136.0 105.4 112.2

Net Position - End of Year $136.0 $144.2 $112.2 $117.0

Source: 2013-2016 audited financial statements, unaudited financials for 9 months end June 30, 2017 and June 30, 2016


8. FINANCIAL OVERVIEW cash flow statement

($ in millions) Fiscal Year End September 302013 2014 2015 2016

Cash Flows from Operating ActivitiesIncrease in net assets $ 40.3 $ 5.0 $ (2.6) $ 2.9 Depreciation and amortization 10.7 11.6 13.0 14.3 Provision for bad debts 14.6 16.0 13.0 10.5 Realized and unrealized gains on investments (0.5) (0.6) 0.1 (1.4)Unrealized gains on beneficial interest in trusts (0.2) (0.2) 0.4 (0.2)Pension liability adjustment (11.2) 2.1 10.6 2.3 Loss on sale of property and equipment - - - 0.3 Change in fair value of swaps - - 1.8 0.7 Restricted contributions - - (5.8) (8.8)

(Increase) decrease inAccounts recievable from patients (17.6) (12.9) (12.8) (15.1)Other recievables 0.0 (1.4) 0.2 (0.7)Inventories 0.0 (0.0) (1.0) 0.5 Due from affiliated organizations (0.0) 1.2 (1.0) 0.5 Contributions recievable (11.8) 2.4 - -Prepaid expenses (0.3) 0.5 (0.7) 0.1 Other assets 0.2 2.0 0.6 (0.6)

(Decrease) increase inAccounts payable 7.6 (0.6) 2.6 0.0 Accrued payroll 0.9 0.5 1.5 1.7 Other accrued and long-term liabilities (3.7) 1.2 (1.6) (2.4)Estimated third-party payor settlements 0.1 (3.9) 0.4 (0.8)Due to affiliated organizations - 0.0 - -Self-insurance liability for professional liability 0.3 0.1 0.4 (1.9)

Net Cash Provided by Operating Activities 29.4 22.9 19.1 1.9

Cash Flows from Noncapital Financing Activities Noncapital grants and contributions 0.2 0.0 0.0 0.0

Cash Flows from Investing ActivitiesDeposits to short term investments (17.5) 5.0 15.1 7.1 Deposits to investments limited as to use, net (0.2) (0.1) (0.1) (0.2)Interest income 0.4 0.3 0.3 0.2

Net Cash Provided by (Used In) Investing Activities (17.3) 5.2 15.3 7.1

Cash Flows from Capital and Related Financing ActivitiesPurchases of capital assets, net (6.5) (20.4) (36.2) (12.4)Intangible asset - (2.5) - -Proceeds from long-term debt - 10.0 10.0 -Principle payments on long-term debt (1.7) (0.2) (1.2) (1.4)Capital grants and contributions 0.3 0.1 1.7 0.0 Change in other assets 1.7 (0.9) (0.3) 0.0 Interest paid on long-term debt - - - (0.4)

Net Cash Used in Capital and Related Financing Activities (6.2) (13.9) (26.0) (14.2)

Net Increase (Decrease) in Cash and Cash Equivalents 6.0 14.3 8.4 (0.1)Cash and Cash Equivalents - Beginning of Year 19.5 25.5 3.6 12.0 Cash and Cash Equivalents - End of Year 25.5 3.6 12.0 3.9

Source: Audited financial statements


9. PROJECT TIMELINE

Approximate Dates

Oct 6 Information materials distributed including the Instruction Letter, Information Memorandum, and data room documents.

Nov 10 Initial proposals due. IRMC selects finalists for phase two based on initial proposals.

December Finalists hold management meetings at IRMC to discuss details of their initial proposals.

December IRMC conducts reverse duediligence trips to finalist facilities.

Jan 12 Final proposals due.

Late Jan IRMC’s board chooses a finalist which to award exclusivity and begin negotiating principal agreements.

All dates are tentative and subject to change based on thedecisions of IRMC and the Indian River County HospitalDistrict.

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