Finance Update - Georgia House of Representatives

Piedmonts Case Study: Pilot for Successful Rural Hospitals House Rural Development Council August 15, 2017 Denise Ray, President & CEO, Piedmont Mountainside Hospital Thomas Worthy, VP, Government and External Affairs Lindsay Gard, Finance Director, Piedmont Mountainside Hospital Piedmont Mountainside Hospital Presentation Objective: Short History of Piedmont Mountainside Hospital Impact of reimbursement/inflation on rural hospitals and how communities they serve are being affected as a result Piedmonts first step toward healthcare access in Gilmer County: Emergency Services Current law and regulations prohibit outside-the-box possibilities for further services Proposed solutions 2

Piedmont Mountainside Hospital Story of a small rural hospital Pickens General Hospital opened 1969 Sunlink purchased the hospital in 2001 and then opened the new hospital at the current location in 2003 as Mountainside Medical Center Piedmont Healthcare purchased the hospital in June 2004, at the time the hospital had 35 beds. Piedmont Mountainside Hospital has since grown to 42 beds in 2007, and then 52 beds in 2013. 3 Piedmont Mountainside Hospital Story of a small rural hospital Over the last 13 years, Piedmont Mountainside Hospital has actively grown its continuum of care and services to cover 3 counties. Mountainsides growth is a result of the

financial support of a healthcare system, Piedmont Healthcare Piedmont Healthcares Vision: We are transforming healthcare, creating a destination known for the best clinicians and a one-of-a-kind experience that always puts patients first. 2017 4 Piedmont Mountainside Hospital 2017 Opened GAs 1st freestanding ER in Ellijay $2.2M & invested hospitalwide $2M in imaging equipment, allowing us to replace 2 Nuclear Medicine cameras, & purchase a new stereotactic breast biopsy equipment Capital Investments 2007 Began offering Sleep Services, expanded CDU, ICU, Pharmacy & added 7 beds ($730K)

2004 Piedmont Purchased Mountainside 2004 2006 2006 Opened Outpatient Specialty Clinic, started ICU, CDU, & bed expansion ($5.9M) 2007 2011 Added MRI to OP Diagnostic Center & opened Sleep Center in Ellijay ($700K) 2009 Opened Outpatient Diagnostic Center in Ellijay ($2.2M) 2008 2008

Opened Cardiac CV Imaging Centers in Jasper, Ellijay, Canton ($1M) 2009 2010 2010 Opened Diagnostic Cath Lab, Cardiac Rehab & installed Digital Mammo ($2.8M) 2011 2013 Opened newly expanded ER, added 10 beds ($11M) & began offering Mobile PET services 2012 2012 Installed 64-Slice CT & added Hyperbaric Oxygen to expanded Wound Clinic

($1.9M) 2013 2015 Added 2nd 64Slice CT, built new Pharmacy space, moved Canton CV Imaging to larger space ($1.3M) 2014 2014 Upgraded Lab with Soft Bank & Soft Path, installed new Echo in Canton CV Imaging Center 2015 2016 2016 Opened Chronic Heart Failure Clinic, began offering Sixty-Plus program and spent $1+M on new surgery and imaging equipment

5 2017 Piedmont Mountainside Hospital Reimbursement Decline Mountainside has grown its revenue with added services, but reimbursement has declined year after year. Lower reimbursement presents long-term challenges of sustainability as expenses and inflation continue to increase. Source: Tableau - Piedmont Mountainside Hospital. Encounter Level data based on Fiscal Year. PMH employees: 33% Pickens Co 23% Gilmer Co 17% Cherokee Co 5% Fannin Co 5% Gordon Co 3% Forsyth Co 3% Cobb Co 11% Other Co 6 Piedmont Mountainside Hospital The challenges of decreasing operating margins is not isolated to rural hospitals, nor is it exclusive to Georgia, but the impact is much more detrimental. 7 Piedmont Mountainside Hospital Reimbursement Decline Mountainside may be considered unique when compared to other rural hospitals because 70% of its

revenue is generated through Outpatient related services (includes OP and ER) and only 30% of its revenue comes from Inpatient Acute Care services. The overall payor mix shift of this revenue to more Self Pay and less Commercial is the cause for lower reimbursement. Mountainside has seen a 2% increase in Self Pay over the last fiscal year. Source: Tableau - Piedmont Mountainside Hospital. Encounter Level data based on Fiscal Year. 8 Piedmont Mountainside Hospital Reimbursement Decline Review of average reimbursement based on MSDRG 481 (Hip & Femur Procedure except Major Joint w/ CC) In many cases, Medicare, Medicaid and Self Pay payors do not provide enough reimbursement to even cover the cost of a necessary surgery. Average Total Charge Average Total Payment Average PCR Average Total Cost Average Op. Margin Commercial $43,342

$15,733 36.3% $13,742 $1,991 Medicare $60,055 $11,272 18.77% $13,742 (-$2,470) Medicaid $50,420 $5,546 11.0% $13,742 (-$8,196) Self-Pay $58,627

$0 0% $13,742 (-$13,742) Source: Tableau - Piedmont Mountainside Hospital. Encounter Level data based on Fiscal Year. 9 Piedmont Mountainside Hospital Populations & Demographics Gordon County Fannin County 2016 Pop Est. = 56,904 Median Age = 37 Median Household Income = $41,612 Median Property Value = $113,000 Number of Employees = 23,587 Poverty Rate = 20.4% 2016 Pop Est. = 24,900 Median Age = 50.2 Median Household Income = $37,049 Median Property Value = $164,600 Number of Employees = 8,669 Poverty Rate = 23.1% Cherokee County Gilmer County

2016 Pop Est. = 241,689 Median Age = 37.4 Median Household Income = $68,926 Median Property Value = $190,500 Number of Employees = 110,111 Poverty Rate = 10.8% 2016 Pop Est. = 29,733 Median Age = 45.1 Median Household Income = $40,228 Median Property Value = $139,600 Number of Employees = 10,938 Poverty Rate = 23.5% Dawson County 2016 Pop Est. = 23,604 Median Age = 41.5 Median Household Income = $56,943 Median Property Value = $188,300 Number of Employees = 9,787 Poverty Rate = 14.2% Source: and Pickens County 2016 Pop Est. = 30,832 Median Age = 44.7 Median Household Income = $54,123 Median Property Value = $175,000 Number of Employees = 12,678 Poverty Rate = 11.6% 10 Piedmont Mountainside Hospital

Georgia Hospital Association Inpatient Database Countys Hospital of Choice Population of 40,000 is necessary for a hospital to be sustainable Source: GHA Inpatient Database. CY2016. Ages 15+ Only Fannin, Gilmer and Pickens Counties each have a population less than 31,000; and Have a higher Poverty Rate, bringing Self Pay & Indigent to the hospitals. 11 Piedmont Mountainside Hospital Why is all of this important? This background information demonstrates the struggles that all rural hospitals are experiencing: 1) Reimbursement challenges due to payor mix shifts, fluctuations in exchange plans 2) Expensive imaging upgrades required to meet federal guidelines (Centers of Medicare & Medicaid), the alternative is forfeiture of reimbursement

3) Increasing cost of operations due to inflation rates 4) Patients looking for less expensive options due to higher deductibles 5) High deductibles turning in to Bad Debt The closing of Gilmer Countys hospital North Georgia Medical Center (June 2016) is a prime example. 12 Piedmont Mountainside Hospital How do we assist these rural communities with no acute healthcare within 35 miles? 1) Freestanding Emergency Room 2) Micro-Hospital Piedmont initially took the direction of a Freestanding ER first and foremost because the previous hospitals inpatient census at the time of closing was only two (2); and, Mountainside was already providing inpatient care to 54% of Gilmer County, according to GHA data. In less than 2 months from opening, the ER was able to save a 25-year old man who arrived with a STEMI. The patient coded upon arrival and the ER team worked on him for 1 hours before he was stable enough to be transported by helicopter to Piedmont Atlanta. In 3 weeks, the patient walked out of Piedmont Atlanta alive and well. 13 Piedmont Mountainside Hospital Emergency Services in Ellijay State Fire Marshall - approved Since this

freestanding ER is the first of its kind in Georgia, each and every governing body had to conduct their own due diligence. State Architect approved Certificate of Occupancy - received State Board of Pharmacy and DEA - approved State Lab Inspection approved Cahaba/Centers for Medicare & Medicaid Serv approved State Licensure Division approved From the time the State approved Piedmont to build a freestanding ER and appeals were fully dismissed was 20 weeks. From the time, we could begin construction to the day we opened, after all necessary approvals, it was 21 weeks. 21 weeks (9 wks construction + 12 wks for approvals) May 23, 2016 Piedmont received States approval to move forward with the first

freestanding ER in the State on May 23, 2016. 7 weeks 8 weeks 20 weeks Oct 5, 2016 Nov 16, Nov 21, 2016 2016 Dec 5, 2016 Jan 9, Jan 18, 2017 2017 Feb 16, Mar 6, Mar 27, Apr 3, 2017 2017 2017 2017 DEA On Nov 1, Cahaba/CMS Cahaba/CMS inspects Piedmont finally approves finally pharmacy

learned that NGMCs voluntary approves on Dec 5 NGMC had termination. Piedmonts & Jan 4. not submitted Piedmont filed ability to bill State voluntary their paperwork for patients. Board of termination to the next day. Pharmacy Cahaba/CMS. State Board of begins NGMCs filing Pharmacy review. State Architect was received approves Nov 21. finally released pharmacy for State Lab Construction was decision Nov 16 for Director services. completed on

Piedmont to begin inspected & Freestanding ER in construction on ER. approved 9 weeks. State Fire Decision was lab for Marshall & Architect delayed due to services. approved Jan 5. CO Gilmer Co appeal. issued Jan 6. 14 After several State hearings, WellStar withdrew their appeal Oct 5. State dismissed Gilmer Co appeal Oct 18, since they were silent. ER opened for patients State requested onsite licensure review, but would not visit until CMS approved Piedmont to bill. State visited Mar 22, and approved

license Mar 27. Piedmont Mountainside Hospital What direction do we go from here? Piedmont, with the cooperation and assistance from Sunlink, successfully completed a state inspection, which saved the Gilmer Countys CON and prevented it from expiring on June 6th, 2017 Piedmont is at a crossroads: Current CON regulations do not allow for operation of a hospital with less than 50 beds and current State law does not allow bed licenses to be transferred. (State Law allows purchase of a CON but the bed license do not transfer along with it.) What if there was another path that could prevent or at a minimum help small rural hospitals from closing, while still providing necessary inpatient acute care services to rural communities. 15 Piedmont Mountainside Hospital Steps for Certificate of Need Approval Steps for Bed License 16 Piedmont Mountainside Hospital Hypothetically, if the hospitals noted with a RED star (14 hospitals) were in jeopardy to close in the next 5 years, would transitioning them to a micro-hospital be the answer?

Potentially Effected Hospital - Assumes acquiring hospital is in a non-rural area 17 Piedmont Mountainside Hospital Questions that need to be asked How will small hospitals continue to survive in rural markets with lower reimbursement and rising healthcare costs? Closed Georgia Hospitals (since 2010) 1) Jan 2010 - Hart County Hospital (Hartwell) Consolidated into Ty Cobb Regional Medical Center 2) Feb 2013 - Calhoun Memorial Hospital (Arlington) What if a rural community could benefit from a smaller size hospital with less beds and basic ancillary support departments? 3) Mar 2013 - Stewart-Webster Hospital (Richland) If a higher level of care was required and a larger hospital of the same healthcare system was within 35 miles, would that help and serve the largest percentage of the Countys healthcare needs? 6) June 2016 - North Georgia Medical Center (Ellijay) 4) Aug 2013 - Charlton Memorial Hospital (Folkston)

5) Feb 2014 - Lower Oconee Community Hospital (Glenwood) 7) June 2017 - Jenkins Medical Center - Optim Health (Millen) Rescued by GA Medical Holdings Group (Sunrise, FL June 2017) 18 Piedmont Mountainside Hospital Proposed Model for Rural Hospitals Moving Forward: Authorize micro-hospitals under state law, defined as: 1) 2) 3) limited inpatient beds with 24 to 48 hour stays, basic ancillaries, and an Emergency Dept that can stabilize, treat and transfer. Incentivize stable hospitals and health systems to invest in rural communities and partner with struggling hospitals by: Allowing the purchase of the rural hospitals bed license in addition to its CON; 2) Allowing the acquiring hospital/health system to transform rural hospital into a micro-hospital equipped to serve its community and transfer the remaining beds from the rural hospitals license to the acquiring hospital to ensure system-wide capacity. This can be done only if the facilities are in contiguous counties and not more than 35 miles apart; and 3) The micro-hospital can be moved or rebuilt anywhere in the original county. 1) 19

Piedmont Mountainside Hospital Summary of Proposed Solutions to help Rural Hospitals: Define a micro-hospital (bed size, services offered) Define a acquiring hospital (i.e., if part of a system, license can only move to the hospital that is located in the contiguous county) Develop legislative or regulatory solution to assist rural hospitals in providing basic acute care services and stabilizing emergency services Decrease the cycle time for developing services in a rural area (i.e., CON, Bed License) 20 Questions or Comments? 21

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