INTRAOPERATIVE NEUROPHYSIOLOGICAL MONITORING OVERVIEW. October 2014

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1 INTRAOPERATIVE NEUROPHYSIOLOGICAL MONITORING OVERVIEW October 2014

2 IONM OVERVIEW Intraoperative Neurophysiological Monitoring ( IONM ) protects patients during surgery by providing critical neurophysiological information to surgeons in real-time. Continuously assessing the functional integrity of a patient s nervous system during surgery helps avoid permanent damage to neural structures. IONM reduces the risk of injury during surgery and post-operative impairment IONM is accepted as the standard of care by the medical community, with new neurosurgeons and orthopedic surgeons being trained to utilize IONM during surgeries. Improves quality of care, minimizes lifetime costs of neurologic injury, and reduces hospital / surgeon liability In-Person Monitoring Remote Oversight Service Provided by: Trained IONM technician Neurologist Location: Delivered in the operating room Delivered remotely Concurrent Monitoring: Service Overview: One surgery monitored by each technician Technician utilizes specialized equipment to monitor electrical signals from a patient s critical neurological structures Performed in the operating room in the presence of the surgeon Technician alerts the surgeon to any indication of potential injury to the patient Most injuries can be reversed or avoided if recognized promptly Multiple surgeries can be monitored, subject to billing restrictions Remote supervision of surgery by neurologist Service paired with monitoring by technician Provides additional level of oversight and further enhances patient safety Offers surgeons the ability to consult with neurologist in real time 1

3 IONM MARKET The total $1.0 billion U.S. IONM market is growing 5% annually, while outsourced IONM is growing at over 11% annually. Growth in the broader IONM market is driven by: Increased surgery volume / aging U.S. population Application of IONM to broader types of surgeries Increased awareness of the benefits of IONM Risk management New surgeons trained with IONM as the standard of care IONM Market Growth For the Years Ended and Ending December 31, 2012 to 2017P ($ in millions) $1,500 $1,200 $900 $1,096 $1,046 $1,000 $350 $390 $435 $1,151 $484 $1,212 $540 $1,280 $602 '12 - '17P CAGR Total 5.1% Outsourced Growth 11.4% $600 $300 $650 $656 $661 $667 $673 $678 Insourced Growth 0.9% $ E 2015P 2016P 2017P Insourced Outsourced Source: TechNavio and public company filings. 2

4 INDUSTRY GROWTH DRIVER: INCREASE IN SURGERY VOLUME The number of critical surgeries across medical disciplines utilizing IONM is expected to increase. Significant procedure volume growth is forecast in several surgery types that regularly employ IONM such as orthopedic, spine, neuro, cardiac, vascular, and ENT. Unhealthy dietary habits, lack of exercise, smoking, obesity, and high triglyceride levels are driving increased prevalence of underlying diseases Surgical volume growth will be further supported by an expansion in the number of Americans with commercial health insurance to 206 million by 2018P. The Patient Protection and Affordable Care Act (PPACA) is expected to ultimately provide healthcare access to 32 million new individuals Procedure Volume Growth in Surgery Types Utilizing IONM Total Forecasted Growth from 2012 to 2017P 30% 26% 25% 20% 17% 15% 15% 13% 9% 10% Health Insurance Coverage 1 For the Years Ended and Ending December 31, 2013 to 2018P (individuals in millions) % 0% Orthopedic Vascular ENT Neuro Spine Cardiac 2% E 2015P 2016P 2017P 2018P Commercial Medicaid and CHIP Uninsured Source: Life Science Intelligence. Source: Congressional Budget Office. Note: Nongroup and Other includes non-senior Medicare beneficiaries. (1) Excludes seniors over the age of 65. 3

5 INDUSTRY GROWTH DRIVER: INCREASE IN AWARENESS OF IONM IONM continues to gain awareness as a result of advertising efforts by leading professional organizations and adoption by renowned medical institutions as the standard of care. Professional organizations comprised of leading physicians and other medical professionals are actively promoting greater awareness of IONM. Maintain support for IONM as the standard of care Lobby government decisions on IONM Provide educational resources for the medical community and patients Publish IONM medical journals and research materials Renowned medical institutions such as the Mayo Clinic are advocating greater adoption of IONM. Requiring medical professionals to complete comprehensive neurophysiology training courses Hosting international IONM conferences Physician and Surgeon Based Organizations Technologist Based Organizations American American Clinical Association of Neurophysiological Neuromuscular Society and (ACNS) Electrodiagnostic Medicine (AANEM) American Academy of Neurology (AAN) Mayo Clinic (MC) Shriners Hospitals for Children (SHC) American Board of Registration of Electroencephalographic and Evoked Potential Technologists (ABRET) American Society of Electroneurodiagnostic Technologists (ASET) American Society of Neurophysiologic Monitoring (ASNM) Western Society of Electrodiagnostic Technologists (WSET) American Association of Electrodiagnostic Technologists (AAET) 4

6 OUTSOURCED IONM Though only 35% outsourced today, hospitals are accelerating the use of third-party IONM providers to improve care, reduce costs and risk, and offset reimbursement and admissions pressures. Underpenetrated outsourcing provides significant runway and is expected to increase to 47% by 2017P. 1 Benefits of Outsourced IONM Hospitals do not need to employ IONM staff and are able to reduce administrative burdens. Eliminates salaries, benefits packages, and overtime Significant reduction in credentialing, training, and IONM capital costs Existing IONM staff can easily be transitioned to outsourced provider Outsourced IONM providers are properly qualified and trained to the highest standards, and can add significant value. Trained in the latest technical and professional monitoring techniques and technology Outsourced providers are able to provide continuity comparable to in-house resources Hospital Year-Over-Year Admissions Trends 2 Hospital Margins 3 For the Years Ended December 31, 2005 to 2010 For the Years Ended December 31, 2007 to % 0.9% 1.0% % 0.5% 0.0% (0.5%) (1.0%) (1.5%) (0.1%) (0.4%) 0.1% Sources: MedPAC and Avalere Health. (1) TechNavio Market Research. (2) For profit hospitals. (3) Medicare margins. (0.3%) (1.3%) (2%) (4%) (6%) (8%) (10%) (0.2%) (0.1%) (1.0%) (3.5%) (2.8%) (5.9%) (6.7%) (7.0%) (7.2%) (8.5%) For-Profit Not-For-Profit Hospitals continue to be under margin pressure 5

7 OUTSOURCED IONM REIMBURSEMENT LANDSCAPE Outsourced IONM providers must navigate a complex reimbursement landscape that varies by service offering, billing model, and payor type. Service providers employ one of two billing models for technical (in-person) monitoring: Bill the hospital at a contracted rate Bill the payor directly Reimbursement for remote oversight varies by payor type due to recent billing code changes. Most commercial payors allow providers to bill for concurrent remote monitoring of multiple surgeries while Medicare / Medicaid do not After experiencing some disruption in 2013, professional pricing has stabilized as payors have determined how to implement coding changes In-Person Monitoring Billing Models Remote Oversight Reimbursement Landscape Hospital Invoicing Model Service provider bills hospital for technical monitoring services based on individual contract terms. Direct Bill Model Service provider bills payor directly. Introduces payment uncertainty as some payors currently view technical monitoring services as part of the hospital payment. Commercial Payors Medicare/ Medicaid Blues Plans Have adopted billing codes which support billing for remote monitoring of multiple concurrent cases. CMS created a new billing code for remote monitoring of Medicare patients. Effectively prohibits billing for concurrent monitoring of Medicare and Medicaid patients. Generally allow for concurrent billing. Some Blues plans, however, have followed Medicare in restricting concurrent billing for multiple remote oversight of surgeries. Workers Comp. & Other Workers compensation payors vary greatly in their implementation of billing codes. 6

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