Alameda Health System

Debt Restructure Plan

September 22, 2014
1
Agenda

1. Primary Issue: AHS Accounts Receivable
2. Reasonable Level of Debt: Moodys Medians
3. AHS Request for Debt Restructure
4. Proposed Debt Service Schedule
5. Supplemental Reimbursement Seasonality
6. Fiscal 2015 Debt Forecast
7. Required Operating Performance
8. Current Financial Performance and Position
9. Performance Improvement Plan





2
AHS current cash situation is largely the result of accounts
receivable increase due to system conversion in July 2013.
These funds can be recovered.
3
-
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
140,000,000
160,000,000
AHS Accounts Receivable
AHS NPR - Invision AHS NPR - Signature AHS NPR - Soarian
SLH NPR - Meditech AHD NPR - Meditech
AHS Credit Ratios vs. Moodys Medians
Comments

1. AHS has the overall size to qualify as an
investment grade credit.

2. Total Debt is reasonable in relation to
our Total Revenue at 24.2%. The
median is 39% to 45%.

3. However, Days in Cash and Debt to
Capitalization are far below
requirements.

4. AHS requires sustained profitability to
build equity and cash reserves.

5. An EBIDA Margin target of 8% to 10% is
recommended.

4
Moody's Medians ($,000) AHS Baa1 Baa2
Performance
Total Revenues 807,300 $ 454,440 $ 272,384 $
Net Income (37,938) $ 21,104 $ 8,725 $
EBIDA (9,282) $ 47,319 $ 24,255 $
Net Margin -4.7% 3.8% 3.5%
EBIDA Margin -1.1% 7.8% 8.8%
Liquidity
Days in Cash 2 149 140
Cash to Debt 3% 91% 86%
Leverage
Debt to Total Revenue 24.2% 38.9% 45.5%
Debt to Capitalization 117.0% 47.4% 49.3%
Debt Restructure Request
AHS is requesting support for a restructure of the Agreement to achieve a level
of total debt service that can be carried by operations:

The $195 million negative balance to be restructured as Term Debt,
and to be repaid by 2034.

The Pension Obligation Bond payment schedule to be restructured.

The plan allows AHS to make the $7 million annual hospital
replacement building debt service payments starting in 2019.

The Flexible Maximum Policy to be maintained, allowing AHS to go
above the annual targets during the year.



5
Proposed Debt Service Schedule requires AHS to generate $20+ million
of free cash flow per year, plus requirements for CapEx and Reserves.
6
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
AHS Annual Debt Service Payments
AHS LT Debt POB HRB Debt Service
The exact structure of the Debt Service is under discussion.
7
TOTAL DEBT PAYMENTS AHS OUTSTANDING DEBT - at June 30
AHS LT Debt POB
HRB Debt
Service
Total AHS
Debt Service AHS LT Debt PBO
HRB Debt
Service
Total AHS
Debt Service
2014 - - - - 2014 195,000,000 59,071,286 119,000,000 373,071,286
2015 5,000,000 3,000,000 - 8,000,000 2015 190,000,000 56,071,286 119,000,000 365,071,286
2016 6,000,000 3,500,000 - 9,500,000 2016 184,000,000 52,571,286 119,000,000 355,571,286
2017 6,000,000 4,000,000 - 10,000,000 2017 178,000,000 48,571,286 119,000,000 345,571,286
2018 6,000,000 4,500,000 - 10,500,000 2018 172,000,000 44,071,286 119,000,000 335,071,286
2019 6,000,000 5,000,000 7,000,000 18,000,000 2019 166,000,000 39,071,286 112,000,000 317,071,286
2020 7,500,000 5,500,000 7,000,000 20,000,000 2020 158,500,000 33,571,286 105,000,000 297,071,286
2021 7,500,000 6,000,000 7,000,000 20,500,000 2021 151,000,000 27,571,286 98,000,000 276,571,286
2022 7,500,000 6,500,000 7,000,000 21,000,000 2022 143,500,000 21,071,286 91,000,000 255,571,286
2023 7,500,000 7,000,000 7,000,000 21,500,000 2023 136,000,000 14,071,286 84,000,000 234,071,286
2024 7,500,000 7,000,000 7,000,000 21,500,000 2024 128,500,000 7,071,286 77,000,000 212,571,286
2025 7,500,000 7,071,286 7,000,000 21,571,286 2025 121,000,000 - 70,000,000 191,000,000
2026 10,000,000 - 7,000,000 17,000,000 2026 111,000,000 - 63,000,000 174,000,000
2027 10,000,000 - 7,000,000 17,000,000 2027 101,000,000 - 56,000,000 157,000,000
2028 10,000,000 - 7,000,000 17,000,000 2028 91,000,000 - 49,000,000 140,000,000
2029 15,000,000 - 7,000,000 22,000,000 2029 76,000,000 - 42,000,000 118,000,000
2030 15,000,000 - 7,000,000 22,000,000 2030 61,000,000 - 35,000,000 96,000,000
2031 15,000,000 - 7,000,000 22,000,000 2031 46,000,000 - 28,000,000 74,000,000
2032 15,000,000 - 7,000,000 22,000,000 2032 31,000,000 - 21,000,000 52,000,000
2033 15,000,000 - 7,000,000 22,000,000 2033 16,000,000 - 14,000,000 30,000,000
2034 16,000,000 - 7,000,000 23,000,000 2034 - - 7,000,000 7,000,000
2035 - - 7,000,000 7,000,000 2035 - - - -
195,000,000 59,071,286 119,000,000 373,071,286
The Flexible Maximum Policy is important to maintain due to the variability of
the receipt of Supplemental Reimbursement during the year.
8
-
5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
45,000,000
7/4/14 8/4/14 9/4/14 10/4/14 11/4/14 12/4/14 1/4/15 2/4/15 3/4/15 4/4/15 5/4/15 6/4/15
AHS Cash Receipts Projection
Net Patient Service Revenue Supplemental Revenue
AHS Supplemental Reimbursement Cash Forecast vs. Budget
Comments

1. The Forecast is Cash, the Budget is
Accrual, and there are timing
differences.

2. Jul Dec 2014 = $122 million.

3. Jan Jun 2015 = $180 million.





9
2015 FCST 2015 Budget
27
28 Medi-Cal Waiver fy14 (not net of IGT) 10,000,000
29 IGT: Medi-Cal Waiver fy14 (2,500,000)
30 Medi-Cal Waiver fy15 (not net of IGT) 120,450,000 84,000,000
31 IGT: Medi-Cal Waiver fy15 (35,222,500) -
32 IGT: MCD Mgd Care (trauma funds used) - -
33 HealthPac 38,870,546 34,040,728
34 Measure A Tax Revenue 94,700,275 95,270,496
35 Hospital Fee 2,500,000 -
36 Trauma Subsidy 5,300,000 6,210,717
37 FQHC PPR Recon (fy10,fy11,fy12) 700,000 -
38 FQHC PPS Recon fy13 3,200,000 -
39 Medi-Cal Mgd Care supplemental (rate range) 44,927,824 7,000,000
40 IGT: MCD Mgd Care rate range (26,548,438) -
41 Medi-Cal Mgd Care AB85 newly eligible (rate range) 15,754,631 14,000,000
42 SPD-Mgd Care SB208 (not net of IGT) fy14 25,700,000 9,375,000
43 IGT: SPD fy14 (17,800,802) -
44 SPD-Mgd Care SB208 (not net of IGT) fy15 - -
45 SPA Physician Supplemental 3,800,000 7,000,000
46 SNF Supplemental 4,500,000 5,000,000
47 Medi-Cal Admin Adjustment (MAA) 1,877,039 -
48 Medi-Care/Medical Settlements - 5,950,152
49 AB915 Supplemental 2,500,000 3,000,000
50 Other Miscellaneous receipts / Grants 7,308,394 12,923,070
51 Other Revenue 61,500 58,000
52 AARA Incentive - Meaningful Use 2,500,000 2,424,000
53 DSRIP 23,036,400
54 DSRIP - HIV Category 5 - 2,559,600
55 SUBTOTAL - Reimbursement 302,578,469 311,848,163
Based on our current Cash Forecast, the Term Debt can be reduced to at
or below $190 million by June 2015, but will go as high as $220 million
during the year.
10
-$15,000,000
-$10,000,000
-$5,000,000
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
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AHS System Totals
Operating Accounts Accounts Payable
$150,000,000
$160,000,000
$170,000,000
$180,000,000
$190,000,000
$200,000,000
$210,000,000
$220,000,000
$230,000,000
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AHS Debt Forecast
2015 FORECAST
County LOC Balance CURRENT LOC LIMIT
LOC with FLEX MAX
To meet the County obligations, as well as provide funds for operations,
routine capital and growth, AHS needs to increase annual cash flow to
approximately $50 million per year.
11
-
10,000,000
20,000,000
30,000,000
40,000,000
50,000,000
60,000,000
70,000,000
80,000,000
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Projected Cash Flow
Accounts Receivable Acceleration
MedAssets Performance Improvement
Plan
Revenue Cycle Improvement Plan
Baseline Financial Plan
AHS Current Run Rate is ($36) million per year
Comments

1. Adjusted Discharges are 3.1% below
budget.
2. Gross Charges are 4.2% below budget,
Net Revenue 8.2%, or $12 million below.
3. Collection Ratio below budget; payer
mix and targeted improvements not yet
achieved.
4. Expenses $5 million favorable, or 3.4%
5. AHS Net Loss of $5.3 million, or 4.8%.
6. SLH Net Loss of $1.3 million, or 12.4%.
7. AH Net Income of $254k, or 1.7%.

8. Consolidated Net Loss of $6.3 million
for July and August, or 4.7%.

12
Actual Budget Variance % Variance
Inpatient service revenue 222,511 237,482 (14,971) -6.3%
Outpatient service revenue 114,219 114,616 (397) -0.3%
Professional service revenue 42,793 44,014 (1,221) -2.8%
Gross patient service revenue 379,523 396,112 (16,589) -4.2%
Deductions from revenues (299,129) (305,300) 6,171 -2.0%
Net patient service revenue 80,394 90,812 (10,418) -11.5%
Net operating revenue 134,550 146,591 (12,041) -8.2%
Total operating expense 140,849 145,841 4,992 3.4%
Income (6,323) $ 683 $ (7,006) $ -1025.8%
Operating Margin -4.7% 0.5%
Collection % 21.2% 22.9%
Total discharges 2,931 3,088 (157) -5.1%
Total patient days 25,925 25,656 269 1.0%
ALOS 8.85 8.31 1 6.5%
ADC 418 414 4 1.0%
Adjusted patient days 39,233 38,038 1,194 3.1%
Adjusted discharges 4,436 4,578 (143) -3.1%
Net revenue per adj discharge 30.33 32.02 (2) -5.3%
Expense per adj discharge 31.75 31.85 0 0.3%
Income per adj discharge (1.43) 0.15 (2) -1055.6%
Paid Full time equivalents 3,682 3,902 220 5.6%
Paid FTE's per adjusted occupied bed 5.82 6.36 1 8.5%
Salaries, benefits & registry % of net revenue71% 67% (0) -6.2%
Year-To-Date
Consolidated Balance Sheet Excerpts
Comments

1. Operating cash has declined to $5.0
million.

2. Accounts receivable continue to climb,
reaching $149 million.

3. Available restricted funds have been
brought into operations.

4. And Accounts Payable have increase to
$65.8 million over the last two months.
Cash available to pay vendors has been
very low.

5. The negative balance with the County
was $198.7 million at the end of August.

13
LIABILITIES & NET ASSETS
Working Capital Loan - Current Portion $0 $0 $0
Accounts Payable 65,806 56,599 51,078
Compensation Related Liabilities 37,909 34,508 42,909
Estimated third-party settlements payable 79,299 75,911 74,148
Due to County of Alameda & State 15,462 14,310 12,886
Other Payables 27,234 27,086 26,424
TOTAL CURRENT LIABILITIES 225,710 208,414 207,446
Self Insurance Liability 20,352 20,352 20,352
Working Capital Loan - Long-term Portion 198,734 193,574 192,566
Pension and Postemployment 60,876 59,876 58,876
Other Long-term Liabilities 11,808 11,808 11,808
TOTAL LONG TERM LIABILITIES 291,770 285,610 283,601
Current
Month Prior Month FY 2014
ASSETS
Current assets:
Cash & Cash Equivalents $5,040 $8,420 $22,885
Cash Held in Trust 30 30 43
Net Patient Receivables 149,122 141,695 141,601
Due from County of Alameda & Others 73,786 66,484 64,108
Inventories 5,632 5,742 5,649
Prepaid expenses 2,236 2,774 2,429
Other receivables 143,098 130,200 114,767
TOTAL CURRENT ASSETS 378,944 355,344 351,482
Restricted Cash Hospital Fee 0 2,389 7,389
Cash Held Board Designated 23,287 23,287 23,287
TOTAL RESTRICTED CASH 23,287 25,677 30,677
AHS to implement a comprehensive and focused plan to improve
operating performance; including revenue cycle improvement, cash
reduction, supplemental reimbursement, growth, and philanthropy.

1. Current run rate (subject to refinement),
is a negative $36 million annually.
2. Revenue Cycle Improvement are
estimated at $20 to $25 million.
3. Efficiency gains will need to be $20 to
$25 million.
4. DPH Status for SLH and AH may take a
year.
5. AB85 Supplemental Medi-Cal may take
a year.
6. Assumed Revenue Growth - $12 million.
7. Philanthropy - $10 million.
8. Other Sources?
9. The result would be annual free cash
flow of $50+ million, sufficient to meet
our obligations to the County.

14
Improvement Plan - DRAFT Annual
Operating Loss - Current (36,000,000) $
Revenue Cycle Improvement 24,000,000
Efficiency Gains 24,000,000
DPH Status - SLH and AH 8,000,000
AB85 Supplemental MediCal 8,000,000
Growth 12,000,000
Philanthropy 10,000,000
Other Support -
Operating Gain - Target 50,000,000 $
Accounts Receivable Recapture 60,000,000 $
Discussion
15
Revenue Cycle Improvement Program
16
The major activities that need to be completed are:

Reorganize Patient Financial Services to have dedicated units for Hospital,
Clinic and Professional. Organize workgroups by payer, establish and
monitor collection targets, establish a Denials/Follow Up unit, and work down
aged A/R.
Complete MediCal billing certification for SLH and AH, and Medicare
certification for the FQHCs.
Improve Professional Billing through Clinical Documentation, Charge
Capture, Coding, and alignment of incentives.
Improve FQHC Revenue by improving productivity through opening up the
schedules, specialty referral authorizations, improve front end registration
information, and improved charge capture and billing.
Implement our managed care contracting strategy to cover all affiliates with
all payers with appropriate rates and terms.
MedAssets BETTER II Performance Improvement
17
Managed Care Contracting and Capitation
18
The major activities in process:

Brought the contracting function in-house, promoted a new Director of
Contracting, retained an external expert, and relocated Provider Enrollment
to Contracting.
Completed inventory of existing contracts, rates, and terms.
Assessed AHS current contract terms, rates and conditions and developed
preferred structure.
In active negotiation with:
Blue Cross
Kaiser
Alameda Alliance for Health
In negotiation to convert contract to capitation or shared risk.
Gathering data to analyze the DOFR, rates, and terms.
Analyzing system support requirements.