INDUSTRY ANALYSIS: Healthcare Services and Facilities. December Sponsored by:

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1 : December 2012 Sponsored by:

2 Industry Overview Ancient philosopher Virgil once said that Health is the greatest wealth. This is why humans would do anything to find cure for their illnesses. In the U.S., healthcare represents the single largest sector within the economy. The U.S. public expenditure for healthcare has been increasing at a steady pace in the last few decades. From about $250 million in 1980, the health bill rose to over $1 trillion in the mid-1990s. By 2005, health spending was $1.9 trillion. In 2010, total health expenditures reached $2.5 trillion. This translates to $8,402 per person or 17.9 percent of the nation s Gross Domestic Product (GDP), up from 17.6 percent in U.S. health spending is the highest among Organisation for Economic Co-operation and Development (OECD) countries and almost eight points higher than the OECD average of 9.5 percent. In the report The New Gold Rush, accounting firm PricewaterhouseCoopers said healthcare spending will represent nearly 20 percent of the U.S. GDP by services include the prevention, treatment, and management of mental and physical diseases provided by doctors of medicine, health practitioners, nursing and personal care facilities. They also encompass operators of facilities that these services are performed in such as dental laboratories, hospitals, doctors offices, kidney dialysis centers, laboratory testing services, nursing homes, as well as companies providing clerical services, pharmacy management services, collection agency services, staffing services and outsourced sales and marketing services. The country s healthcare system involves a multi-payer system. Government payers include Medicare and Medicaid. A social insurance program administered by the government, Medicare provides health insurance coverage to people who are aged 65 and above, as well as those who are under 65 with permanent disabilities. Medicare bills are paid from trust funds. Medicaid is the health insurance program administered for people and families with low incomes and resources. Medical bills under this program are paid from federal, state and local tax funds. The State Children s Health Insurance Program (SCHIP) is a health coverage program administered at the state level for children from low-income families and those whose parents do not qualify for Medicaid. Under military healthcare, the available federal health programs are the Civilian Health and Medical Program of the Uniformed Services (TRICARE/CHAMPUS), Civilian Health and Medical Program of the Department of Veterans Affairs (CHAMPVA), and the care provided by the Department of Veterans Affairs (VA). Corporate payers include employers or workers unions that provide employment-based insurance. This type of payment dominates health insurance coverage in the U.S. There are also self-payers which refer to individuals who directly purchase health insurance from private insurance providers. The Major Players. The U.S. healthcare sector encompasses about 800,000 doctors offices, emergency care units, hospitals, nursing homes and social services providers with combined annual revenue of more than $2 trillion. Information on the top firms follows, with 2011 revenue. (CVS) was formed in 2007 through the merger of CVS/pharmacy and Caremark. It is an integrated pharmacy services provider, combining a pharmaceutical services company with a pharmacy chain. As one of the largest pharmacy benefit managers in the U.S., it provides plan sponsors and participants access to a network of approximately 64,000 pharmacies. Revenue: $107.7 billion. Medco Health Solutions Medco is a leading pharmacy benefit manager with the largest mail order pharmacy operations in the U.S. It provides pharmacy services for private and public employers, health plans, labor unions and individuals served by Medicare Part D Prescription Drug Plans. Revenue: $70 billion. December

3 Express Scripts Express Scripts processes pharmaceutical claims for members at network pharmacies and at their own mail order pharmacies. It manages drug plans for corporations, unions and government agencies including the TRICARE program of the U.S. Department of Defense. In April 2012, Express Scripts received regulatory approval for its purchase of Medco for $29 billion. The deal is the largest in pharmacy services in a decade, surpassing the $21.7-billion merger that formed. The transaction makes Express Scripts the largest pharmacy benefits company, toppling. Revenue: $46.1 billion. HCA Holdings HCA is the largest operator of private healthcare facilities in the world. The company is comprised of locally managed facilities that include about 164 hospitals and 106 freestanding surgery centers across 20 stated in the U.S. and the U.K. In March 2011, HCA listed on the NYSE after raising $3.8 billion in the largest-ever private equitybacked initial public offering. Revenue: $32.5 billion. Community Health Systems (CHS) CHS is one of the country s leading operators of general acute care hospitals. Its affiliates own, operate or lease over 133 hospitals in 29 states. In more than 60 percent of the markets served, CHSaffiliated hospitals are the sole provider of healthcare services. Revenue: $13.8 billion. Tenet (THC) THC owns and operates 49 acute care hospitals in 11 states and 84 outpatient centers. Apart from acute care, the company s hospitals offer radiology and respiratory therapy, clinical laboratories, pharmacies, and operating and recovery rooms. Revenue: $9.6 billion. Quest Diagnostics The 44-year-old company is a leading provider of diagnostic, testing, information and services in the U.S. It is headquartered in New Jersey, operates in Brazil, Mexico, Puerto and the United Kingdom, and owns a laboratory in India. Revenue: $7.5 billion. DaVita DaVita is a leading provider of kidney care in the U.S., delivering dialysis services and education to patients with chronic kidney failure and end stage renal disease. It operates and provides administrative services at 1,642 dialysis facilities and serves approximately 128,000 patients. Revenue: $6.9 billion. Omnicare The Kentucky-based firm provides pharmaceutical services for senior citizens who live in nursing homes and assisted-living centers in Canada and the U.S. Catering to the needs of approximately 68,000 patients across 47 states, Omnicare is the largest service provider to long-term care facilities. Revenue: $6.2 billion. Regulation. services in the U.S. are subject to extensive regulation at the federal and state levels. The United States Department of Health and Human Services oversees the various federal agencies involved in healthcare such as the Food and Drug Administration, the Centers for Disease Prevention, the Agency of Health Care Research and Quality, the Agency for Toxic Substances and Disease Registry, and the National Institutes of Health. At the state level, states have their own health departments. Revenue. The constant need to prevent illnesses and treat diseases fuels the healthcare services industry. The country s aging population and the increasing medicalization of U.S. society are also driving a greater demand for such services. service providers and facilities earn from treating patients and providing other services such as diagnostic testing, pharmacy benefits management and personal care. December

4 Depending on who is paying, service providers or facilities are paid using various sources. In 2009, data from the Centers for Medicare & Medicaid Services (CMS) show that 71 percent of the nation s health dollar came from private and government health insurance, 12 percent from out of pocket sources, 7 percent from other third party payers and programs, 6 percent from investment, and 3 percent from government and public health activities. Of the 71 percent which came from health insurance, 32 percent was from private health insurers, 20 percent was from Medicare, 15 percent was from Medicaid (federal, state and local), and 4 percent was from SCHIP and VA. Private insurers usually pay healthcare bills on the basis of per-diems or fee-for-service schedules. These fees are negotiated yearly between each hospital and each insurance carrier. Under the Medicaid program for the poor and disabled, hospitals receive either case-based payment, a set amount of dollars per day of in-patient stay (per-diem payments), or fees for individual services and supplies (fee-for-service payments). For the Medicare program for the elderly, hospitals are paid a flat fee per hospital case, with a different per-case price for each of around 750 distinct diagnostically related cases. Generally, Medicare and Medicaid pay the lowest margins, and sometimes below costs, while private insurance pays higher margins, and out-of-pocket payers by far pay the highest rates. Latest Activities. While the healthcare services industry did not escape the recession altogether, it saw a better fate than most industries. Most of the major players continued to display solid performance when the downturn hit in 2007: DaVita (7.9 percent), Quest Diagnostics (6.9 percent), HCA Holdings (5.4 percent), and Medco (4.6 percent). At 74.2 percent, recorded the highest increase in revenue. This is attributed to CVS acquisition of benefits provider Caremark in CHS saw a whopping $72.7-percent increase in revenue owing to its acquisition of Triad Hospitals in mid Its revenue rose from $4.36 billion in 2006 to $7.54 in 2007 after including Triad s operating results from July 25, 2007 to December 31, Among the heavyweights, only Omnicare reported that its revenue declined (-4.2 percent). Even after the recession worsened in 2008, all leading companies posted increases as companies and individuals continued to avail of various healthcare services. Express Scripts reported a revenue increase of 19.8 percent, while Medco s revenue saw a 15.7-percent increase. In 2009, most of the industry players reported gains. CHS registered the largest increase (47.9 percent). This growth is attributed to a 44.5-percent increase in total hospital admissions compared with The increase in admissions resulted from the expansion of the company s hospital portfolio in 2007 after it acquired Triad. Its acquisition of two hospitals in the fourth quarter of 2008 also boosted admissions. Only Tenet (-2.9 percent) and Omnicare (-1.1 percent) saw modest declines. In 2010, most of the major players saw significant increases in revenue: Medco (10.3 percent), Community Health Systems (6.9 percent), DaVita (5.5 percent), and HCA Holdings (2.1 percent). Express Scripts almost doubled its revenue from $24.7 billion in 2009 to $45 billion in 2010, following its $4.7-billion acquisition of NextRx from WellPoint. Only three heavyweights bucked the trend, reporting modest declines in revenue: (-2.3 percent), Quest Diagnostics (-1.2 percent), and Omnicare (-0.7 percent). Further increases were witnessed in 2011: (11.8 percent), DaVita (8.6 percent), Community Health Systems (6.4 percent), HCA Holdings (5.9 percent), Tenet (4 percent), Express Scripts (2.5 percent), Quest Diagnostics (1.9 percent), and Omnicare (0.7 percent). The industry is enjoying growth in revenue that is not connected to economic cycles, which reflects the long-term growth in healthcare spending. This revenue growth, however, also coincides with increased costs to them, as healthcare costs have spiraled down the line. This unsustainable cost spiral will inevitably result in cost-cutting from both public and private healthcare payers, and demands for more transparency in pricing will emerge. Furthermore, much of the growth from industry leaders in recent years is a result of acquisitions, indicating that the industry is consolidating, bracing for future cuts. The specific areas of the industry that will be hurt the most from this scenario, however, are yet to be determined. December

5 Industry Trends It is an exciting time for the healthcare services industry as the U.S. is facing health reforms that will affect the number of people covered by some form of health insurance, the number of people being treated by healthcare providers, as well as the number and type of healthcare procedures that will be performed. The rapidly changing healthcare industry is also in the middle of many technological advances that are changing the way medical information is handled. Trends, opportunities, and threats in this industry follow: Medicare Fraud News of Medicare and Medicaid fraud continue to make headlines. In May 2011, Quest Diagnostics agreed to pay $241 million to resolve a lawsuit brought by a California competitor that alleged the clinical laboratory services provider overbilled the state s Medicaid program. In May 2012, the U.S. Justice Department and the Health and Human Services Department charged 107 individuals including clinical social workers, doctors, nurses and office managers for trying to defraud the Medicare healthcare program for the disabled and elderly for approximately $452 million. According to U.S. authorities, this is the largest Medicare fraud sweep to date. Prior to this, the U.S. government charged 91 people in connection with a host of schemes that sought to defraud Medicare out of $295 million. Since 2007, the Justice Department has charged more than 1,300 people for falsely billing Medicare more than $4 billion. Revisiting Medical Malpractice Caps In the past, medical malpractice caps were seen as a way of limiting the skyrocketing costs of malpractice premiums. Recently, a number of states have been revisiting a law that capped malpractice awards against doctors and hospitals for non-economic damages. In 2010, the states of Georgia and Illinois struck down a law that limited rewards for malpractice victims. In February 2010, the Illinois Supreme Court overturned the state s Medical Malpractice Act of 2005, a law that limited the amount medical malpractice victims could receive for non-economic damages to $1 million from hospitals and $500,000 from doctors. The court stated that in enacting the law in 2005, the legislature violated the state Constitution s separation of powers clause by imposing decisions that should be reserved for judges and juries. In March 2010, the Georgia Supreme Court made a similar ruling overturning a state law that limited jury non-economic damages rewards for malpractice victims to $350,000. In a unanimous decision, the Court held that damage caps violate the right to trial by jury as guaranteed under the Georgia Constitution. In March 2011, New York Governor Andrew M. Cuomo s Medicaid reform task force proposed to cap medical malpractice awards for non-economic losses at $250,000. The task force estimated that its proposed medical malpractice damages cap would save the state government $208.4 million in each of the next four budget years. After opposition from the New York State Bar Association and other groups, the proposal was dropped. Similarly, in June 2011, North Carolina passed a bill that limits the amount of non-economic damages that a plaintiff can be awarded in a medical malpractice lawsuit. Governor Beverly Perdue, however, vetoed the bill shortly after. In March 2012, U.S. District Judge Rodney Gilstrap of Marshall ruled that a Texas law limiting non-economic damages in medical malpractice cases to $250,000 is constitutional. The decision ends a four-year legal battle that started in 2008 when a group of medical malpractice victims filed a lawsuit, claiming that the damage award limits violated the U.S. Constitution s Fifth Amendment prohibition against the state taking private property not for public use, and the Fourteenth Amendment s due process clause. In April 2012, the Missouri Supreme Court ruled that the state s cap on non-economic damages is constitutional. The decision stemmed from a lawsuit filed by Ronald Sanders over the care and eventual death of his wife in A jury awarded Sanders $920, in past economic damages and $9.2 million in past and future non-economic damages a total of $10.1 million. The Jackson County Circuit Court then cut the $9.2 million in total non-economic damages to $1.26 million, in accordance with Missouri s cap on such damages. The Missouri Supreme Court then ruled to uphold the decision to limit non-economic damages, but it remanded the case to a lower court, ordering it to recalculate the non-economic damages that had been awarded to Sanders. December

6 Mergers and Acquisitions In April 2012, the Federal Trade Commission (FTC) approved the merger of healthcare services heavyweights Express Scripts and Medco. Express Scripts $29-billion acquisition of Medco created the largest pharmacy benefits firm in the U.S. with about $116 billion in revenue. To add new offerings to their roster of tests, diagnostics companies and laboratories also are acquiring other firms specialize in gene-based medical testing, infectious disease and cancer testing, and neurological disease testing. Mergers and acquisitions are used to expand market access and explore potential revenue generating sources. Below are some of the notable transactions in 2011 and Quest Diagnostics acquired Celera Corp. for $344 million. Quest Diagnostics acquired Athena Diagnostics for $740 million. Labcorp acquired Clearstone Central Laboratories. (terms undisclosed) Express Scripts acquired NextRx for $4.67 billion. HCA Holdings agreed to acquire full ownership of HealthONE, a joint venture created it created with the Colorado Health Foundation in ($1.45 billion) HCA acquired the Miami-based Mercy Hospital. (terms undisclosed) Tenet acquired the Southeastern Spine Institute Ambulatory Surgery Center. (terms undisclosed) Tenet acquired Imaging Specialists of West Broward LLC. (terms undisclosed) 2012 Express Scripts acquired Medco for $29.1 billion. Community Health Systems acquired Moses Taylor Health Care System. (terms undisclosed) Labcorp acquired Orchid Cellmark for $85 million. bought the Medicare Prescription Drug Plan (PDP) business of healthcare insurance firm Healthnet. (terms undisclosed) HCA Holdings acquired a minority stake in AirStrip Technologies. (terms undisclosed) Quest Diagnostics acquired S.E.D. Medical Laboratories. (terms undisclosed) Bracing for the Impact of Obamacare After a long drawn-out debate, the U.S. witnessed the Democratic-led partisan passage of the historic Patient Protection and Affordable Care Act (PPACA) into law on March 23, The healthcare reform package will expand coverage to 32 million Americans who are currently uninsured. It mandates that by 2014, Americans must have adequate insurance coverage or else pay a fine, called the individual mandate. It is estimated that this move will bring down the number of uninsured Americans from 19 percent in 2010 to 8 percent by It will also close the Medicare prescription drug donut hole (the Medicare Part D coverage gap) by This means that seniors who hit the donut hole in 2010 will receive a $250 rebate. In 2011, seniors in the gap started receiving a 50-percent discount on brand name drugs. Major player is working towards acquiring a leading position in Medicare Part D by growing its Medicare PDP business. In 2011, it purchased the Medicare PDP business of Universal American. It also bought the Medicare PDP business of HealthNet. As expected, Obamacare is riddled with controversy. In January 2011, Congress voted 245 to 189 in a Republican-led partisan vote in favor of repealing the law. A month later, President Obama said he was willing to amend the law to give states the opportunity to opt out of the legislation s most controversial provisions, including the individual mandate requiring nearly all Americans to buy health insurance by 2014 or face penalties. December

7 Questioning the constitutionality of the individual mandate and the entire Act, a majority of the states, as well as a number of individuals and organizations have filed actions in federal courts. Two of four federal appellate courts have upheld the act. Another appellate court ruled the federal Anti-Injunction Act prevents the issue from being decided until taxpayers begin paying penalties in 2015, while a fourth declared the individual mandate unconstitutional. The battle over Obamacare has moved to the Supreme Court as 26 states in the U.S. seek to get the legislation declared unconstitutional. They argue that the healthcare law violates the constitution and tramples on individual liberties. After hearing oral arguments in March 2012, the Supreme Court is expected to issue its decision in the summer of Increasing Use of IT in Services The past decade saw the healthcare sector moving toward an increasing use of information technology. Health information technology (HIT) involves the comprehensive management of health information across computerized systems and its secure exchange between consumers, providers, government and quality entities, and insurers. Proponents say that HIT improves healthcare quality, reduces healthcare costs, prevents medical errors, and increase administrative efficiencies. In 2004, President Bush signed an Executive Order entitled President s Health Information Technology Plan, which asked the U.S. healthcare industry to adopt electronic health records (EHRs) by A study by RAND Health found that the U.S. could save over $81 billion annually by adopting HIT. In 2009, President Obama signed the Health Information Technology for Economic and Clinical Health Act (HITECH Act), part of the American Recovery and Reinvestment Act of 2009 (ARRA), to stimulate the adoption of EHRs. The EHR Incentive Program pays eligible professionals and hospitals to adopt, implement, upgrade, or meaningfully use certified EHR technology. Incentives will be offered until 2015, after which time penalties may be levied for failing to demonstrate such use. According to CMS, the U.S. government has paid more than $5.7 billion in 2011 to health professionals to encourage the use of EHRs. Over 110,000 health care providers and 2,400 hospitals had been paid to use the new technology as of May Figures from CMS show that about 48 percent of all eligible hospitals and critical access hospitals in the U.S. have received an incentive payment for using an EHR and that 44 states are participating in the Medicaid EHR Incentive Program. Rising Incidents of Data Breaches As companies in the healthcare services industry set up Health Information Technology systems, healthcare experts warn against an increasing risk of patient data breach. In March 2012, the Utah Department of Technology Services (DTS) revealed that sensitive Medicaid information of 780,000 individuals was stolen in a hacking incident. Information was hacked from 224,000 files that contained Medicaid Eligibility Inquiries and from the records of Medicaid and Children s Health Insurance Plan recipients. The breach happened after a configuration error occurred at the password authentication level, allowing the hacker to circumvent the security system of DTS. New data security procedures have been set in place after the incident. A month later, Atlanta-based Emory announced that 10 computer discs containing personal data of 315,000 surgery patients went missing from storage in February An estimated 228,000 of the missing records included Social Security Numbers. Emory is now providing all affected patients with credit monitoring services and access to identity protection services. In May 2012, the Massachusetts-based South Shore Hospital agreed to pay $750,000 to settle a case of data breach that occurred in The case involves loss of back-up files containing the health information of 800,000 patients. The hospital was also ordered to adopt data security protocols. December

8 Declining Number of Doctors Threatens Services Industry The healthcare services industry is threatened by the declining number of physicians. There are about 700,000 active physicians in the U.S. today. According to the American Association of Medical Colleges (AAMC), there was a shortage of 13,700 physicians nationwide in The nonprofit organization expects the gap to get even wider in Its Center for Workforce Studies predicts that the shortage will grow to 62,900 doctors by 2015 and 91,500 by The AAMC says reforms such as the universal healthcare coverage will worsen the shortage as it will contribute to the overall demand for doctors. Furthermore, to reduce spiraling costs, government-run insurance, such as Medicare, will continue to cut its payments to providers the very programs that the new healthcare reform act expands which will provide fewer funds to pay doctor salaries and further exacerbate the doctor shortage. The greatest demand is seen in primary care. Under the new law, family physicians, general practitioners, internists and pediatricians are expected to have a greater role. However, the number of new graduates who are entering primary care practice is not enough to replace those who are retiring. Between 2002 and 2007, the number of medical school students entering family medicine slid by more than 25 percent. Basically, a disconnect exists between the ever-increasing cost of medical school and the stiffening salaries the U.S, healthcare system is willing to pay doctors, particularly for primary care doctors, creating an ongoing and growing shortage of doctors. Whistleblower Lawsuits A number of major players were slapped with multi-million whistleblower lawsuits. In May 2011, Quest Diagnostics agreed to repay the state of California $241 million for overcharges to Medi-Cal. The settlement stemmed from a 2005 lawsuit brought by a whistleblower who accused the company of systematically overcharging Medi-Cal for over 15 years. The whistleblower also claimed that Quest Diagnostics gave kickbacks to doctors and hospitals that referred Medi-Cal patients and charged Medi-Cal up to six times more than what were charged other patients for tests. In 2010, Nancy Reuille, a former auditor and care management supervisor at Lutheran Hospital from 1985 to 2008, sued the hospital for admitting patients who did not meet the Medicare s in-patient status criteria. In 2007, CHS acquired Lutheran when it purchased its parent company, Triad Hospitals. According to the whistleblower, Lutheran Hospital and CHS operated a purposely deficient billing system that overbilled the federal government and private insurance companies. In April 2012, the U.S. District in Fort Wayne granted the U.S. Department of Justice six more months to decide whether it will intervene as co-plaintiff in the case. Obesity An individual is considered obese when his body mass index (BMI), the measure of body fat based on a person s height and weight, goes beyond 30. The increasing number of obese and overweight individuals in the U.S. over the past 30 years has become a key driver in the prevalence of chronic diseases such as arthritis, diabetes and hypertension. A startling number of American children are now obese, with record levels having diabetes. According to the American Society for Metabolic & Bariatric Surgery, obesity is a serious medical condition that causes 110,000 deaths each year. Obesity has become an epidemic in the U.S., which has significant social and financial impacts to the overall economy. According to health economist Justin Trogdon, obesity increases per capita Medicare expenditures by $1,723 per year and the annual medical burden of obesity forms nearly 8.5 percent of annual Medicare expenditures. He added that total obesity-attributable health care spending in the U.S. was projected to increase from $79 billion in 2008 to $344 billion in December

9 Business Initiatives and Risks The information in this section covers a broader industry than this the rest of this report. providers are being squeezed between spiraling costs from various societal pressure points, and a broad array of payers attempting to keep a lid on prices. Industry players must consider a number of business initiatives to survive in such an environment. Pursuing, and not pursuing, these initiatives come with risks for companies in this industry. Business initiatives for the healthcare providers and services industry fall across four different high-level categories: strategy, marketing and sales, service and support, and compliance. Strategy business initiatives primarily address efforts to pursue growth opportunities. Marketing and sales business initiatives stress the need to grow revenue with new products to both existing and new markets. The service and support initiative outlines the need for healthcare providers to move to electronic health records as soon as possible. Compliance initiatives underscore the importance of reviewing compliance procedures and lobbying politicians as reform of healthcare is discussed. Strategy Full-service hospital chains should lay the groundwork for competing in a healthcare marketplace that has specialist hospitals. They need to develop a business model that enables them to profit on an unbundled basis possibly by considering their set of services more as a federation of practices with cash-flow arrangements between administrative overhead, core shared services (i.e., operating theatres, emergency departments, intensive care, and laboratories to list a few areas), and the various focused healthcare practice areas. Managed care plans need to continue building scale and scope through acquisitions in order to extend their geographical footprint, develop more robust networks of physicians and hospitals, and develop leverage they need to use with both payers and providers. providers must fight fire with fire and build up their own scale in order to come to more competitive terms with payers and managed care organizations. Additionally, hospitals and physician practices should develop strategies to partner with new retail clinics that are appearing in shopping malls and general merchandise stores, if only to get referrals from these clinics. providers are on track to become a more fragmented system, with providers located close to consumer s homes, shopping, and businesses, as well as in urban centers. Local physician practices need to participate in this trend or lose business. Although margins are lower, increased volume might make up the difference, particularly the increased volume that will come from an aging and increasingly heavier society. providers must go beyond scale and develop a quality presence in the marketplace to better compete in the emerging consumer-driven health plan (CDHP) market that will demand more information about quality of treatment and outcomes of that treatment. Focusing on quality, and relaying the perception of quality, will help to alleviate the negative impact of the recent stream of hospital scandals. However, the cost of medical equipment is astronomical when on the cutting edge of quality. Insurance companies, corporate payers, government payers, and increasingly patients sharing more costs are pushing down on skyrocketing medical costs. providers will need to balance the high cost of the latest equipment with providing high quality services. New healthcare delivery models such as Accountable Care Organizations (ACOs) promise to hold costs in check while providing a broad spectrum of coordinated care, but they create new risks for healthcare providers. In particular, providers assume additional financial risk under these arrangements, but many are not well-prepared to manage those risks. A Commonwealth Fund survey, for example, found that only about half of hospitals participating or planning to participate in an ACO reported that they have the financial strength to accept risk. Additionally, about one third of hospitals surveyed did not have processes in place for monitoring the use and costs of services compared with revenue received or allowed. December

10 Components of the Strategy business initiatives include: Redefine the business model; Pursue growth through acquisitions; Pursue growth through partnerships and alliances; Establish quality leader focus; and Attract and retain high-caliber talent. The following tables outline risks associated with these Strategy business initiatives. Strategic Ineffective business model / positioning strategy Failure of acquisitions, joint ventures, or alliances New geographic initiative leads to regulatory and political exposures Business initiative damages company s reputation Business initiative dilutes company s brand Operational Business initiative fails from lack of qualified human capital Inefficient operations render initiative unprofitable Customer satisfaction suffers from poor quality Customer satisfaction suffers from poor service and support Financial Large capital investments cause cash strain Inadequate capital investments restrain future growth Inadequate cash flow to support daily operations Highly leveraged capital structure causes burdensome interest payments or default. Large amounts of assets at risk due to high collateral commitments. Hazard Lawsuits arising from infringement of copyrights or patents Lawsuits arising from performance or non-performance of professional services Lawsuits arising from contract disputes. Lawsuits arising from employment-related activities. Marketing and Sales The healthcare providers and services industry is evolving from the managed care take-it-or-get-sicker era to a time of increasing choice for payers and consumers, albeit at significantly greater financial and healthcare risks to consumers. The industry has traditionally involved a two-step sales process: first MCOs sell to corporate payers and then those payers offer various choices to their employees. providers have to provide services regardless of what is sold in the process. This will soon be augmented with customers getting more into the decision process, particularly their interactions with healthcare providers. As increasingly more customers use health spending accounts for small medical expenses and purchase high-deductible PPO products (i.e., basically CDHPs) they will shop for best value or lowest price services. Corporate payers and MCOs are hoping that not only this behavior takes place, but that it forces healthcare provider prices down or at least slows down the acceleration of healthcare costs. MCOs must generate revenue and profit with CDHPs to both their existing markets and new markets. MCOs have to target and market to corporations that will purchase CDHPs of various designs. They should also form partnerships with financial services firms to offer a bundled package of high-deductible policies and investment options to payers and their employees. Financial services firms will become either explicit partners with MCOs or market their services directly to corporate payers to provide investment and financial management products to those employees choosing CDHPs. December

11 Hospitals and physician practices must also provide services in ways that differentiate them from their competition. Some hospitals are now building luxury wings for mothers-to-be even in these times of tight and decreasing profit margins. Physician practices are building specialty hospitals, and many of these specialty hospitals can provide higher quality attention at a more affordable price than traditional hospitals. The fact that consumers are willing to accept the substantial inconveniences and expenses of traveling abroad to find more affordable quality healthcare is an indication that opportunities are being missed by traditional hospital structures. Information is vital in this era of consumer choices, and to all participants: corporate payers, healthcare providers, and patients. MCOs need to develop and market pay-for-performance products that both healthcare providers and payers find acceptable. They can better accomplish this by working with healthcare standards providers in order to set, track, and adjust thresholds of medical standards of care for the diagnosis and treatment of various diseases and conditions. providers will increasingly be required to provide information on prices and performance to all stakeholders. Components of the Marketing and Sales business initiatives are: Grow revenue through increased penetration of existing markets with new products and services; Grow revenue through penetration of new markets with new products and services; and Provide stakeholders access to information. The following tables outline risks associated with the Marketing and Sales business initiatives. Strategic New product/service fails in the market Business initiative damages company s reputation Business initiative dilutes company s brand Inadequate or ineffectual allocation of resources Financial Inadequate capital investments restrain future growth Large capital investments cause cash strain Inadequate cash flow to support daily operations Inflation causes cost increases Operational Business initiative fails from lack of qualified human capital Inefficient operations render initiative unprofitable Inadequate support cause products/services to fail Customer satisfaction suffers from poor quality Customer satisfaction suffers from poor service and support Hazard Lawsuits arising from contract disputes Lawsuits from shareholders arising from errors or omissions of directors or officers Lawsuits arising from infringement of copyrights or patents Lawsuits arising from performance or non-performance of professional services December

12 Service and Support providers whether running large multi-chain hospitals, physician group practices or individual private practices must transform their paper records to electronic health records and shift their paper-based operations to digital operations. Medicare will probably be the force majeure that drives the formation of the country s electronic health information infrastructure but it is imperative that healthcare providers work requisite government agencies to hasten the end result. Electronic records will reduce errors, promote medical collaboration, improve patient treatment, and save significant amounts of money. The road to this result won t be easy. There are serious and significant security and privacy issues. Standards will be needed not only in their own right but also to drive integration between any national health information infrastructure and various systems of hospitals, clinics, physician practices, and other healthcare provider delivery locations around the country. It is inevitable that paper-based records will eventually become digitized, stored, secured, and shared. The costs will be substantial, as will the savings. The Service and Support business initiative is: Implement technology to improve the efficiency and effectiveness of customer service areas. The following tables outline risks associated with the Service and Support business initiative. Strategic Inadequate or ineffectual allocation of resources Business initiative damages company s reputation Disruptions from divestiture of assets Business initiative dilutes company s brand Financial Decline in credit rating Low bank borrowing capacity/inadequate lines of credit Lack of access to capital markets Operational Product development stalls from ineffective sourcing of resources Business initiative fails from lack of qualified human capital Inadequate information processing systems create inefficiencies Breakdown of internal controls Inadequate support cause products/services to fail Hazard Lawsuits arising from performance or non-performance of professional services Lawsuits arising from employment-related activities Lawsuits by shareholders arising from errors or omissions of directors or officers Lawsuits arising from infringement of copyrights or patents Compliance Hospitals are under the gun. Their profit margins are getting slimmer. Non-profit hospitals are also being squeezed by the same forces of supply and demand except the demand for their services is by people who either can not pay any of their bill or very little of their bill. It has been alleged that some non-profit hospitals are using aggressive tactics to collect payment for their services. It has also been alleged that some of these non-profit hospitals are overcharging people without insurance. Furthermore, many healthcare experts believe that healthcare providers tend to push patients into unnecessary procedures to help fatten their margins. Complying with regulations is critical to not only avoid liability, but also to maintain a high quality image. Periodic comprehensive reviews of compliance procedures are necessary to ensure compliance to an evergrowing list of complex healthcare regulations. December

13 The entire U.S. healthcare system is under the gun. Profit margins are getting slimmer despite skyrocketing insurance premiums because costs are mushrooming. Citizens across-the-board want reform, from the working poor without insurance, to soccer moms with unaffordable health insurance costs, to the growing list of middle class employees losing health benefits. Employers are eager to reform as well, as a healthy workforce is important to the efficiency of their businesses. is certain to be a major issue in the 2008 presidential election, and politicians are certain to do something significant in years to come. Regardless if the solution implemented is a single-payer government-run system, or a consumer-driven system, or something in between, the result will have a substantial impact on this industry. More government involvement is likely, even in a consumer-driven system as proponents are calling for government-supported vouchers to help make health insurance more affordable to all. This clearly means more government pressures on prices to help keep costs of these programs down. Industry players need to be active in lobbying politicians at the federal and state levels to ensure that any future system is reasonably implemented and economically sound. Components of Compliance business initiatives are: Review compliance procedures to ensure compliance to regulations; and Lobby government to achieve desired regulatory outcomes. The following tables outline the risks associated with Compliance business initiatives. Strategic Disruptions from divestiture of assets. Business initiative damages company s reputation. Business initiative dilutes company s brand. Liability assumed by contract. Financial Inadequate cash flow to support daily operations Decline in credit rating Low bank borrowing capacity/inadequate lines of credit Lack of access to capital markets Improper financial statement disclosures and accounting standards Operational Compliance procedures breakdown creates liability exposure. Breakdown of internal controls. Customer satisfaction suffers from poor service and support. Hazard Lawsuits arising from performance or non-performance of professional services Lawsuits by shareholders arising from errors or omissions of directors or officers Lawsuits arising from employment-related activities Theft, robbery, or fraud by third parties December

14 SIC Codes: SIC Codes: 740 Veterinary Services 741 Veterinary Services For Livestock 742 Veterinary Services For Animal Specialties 8000 Health Services 8071 Medical Laboratories 8072 Dental Laboratories 8080 Home Health Care Services 8082 Home Health Care Services 8090 Miscellaneous Health And Allied Services, Nec 8091 Health And Allied Services, Nec 8092 Kidney Dialysis Centers 8093 Specialty Outpatient Facilities, Nec 8099 Health And Allied Services, Nec 8010 Offices And Clinics Of Doctors Of Medicine 8011 Offices And Clinics Of Doctors Of Medicine 8020 Offices And Clinics Of Dentists 8021 Offices And Clinics Of Dentists 8031 Offices And Clinics Of Doctors Of Osteopathy 8040 Offices And Clinics Of Other Health Care Practitioners 8041 Offices And Clinics Of Chiropractors 8042 Offices And Clinics Of Optometrists 8043 Offices And Clinics Of Podiatrists 8049 Offices And Clinics Of Health Practioners, Nec 8050 Nursing And Personal Care Facilities 8051 Skilled Nursing Care Facilities 8052 Intermediate Care Facilities 8059 Nursing And Personal Care Facilities, Nec 8060 Hospitals 8062 General Medical And Surgical Hospitals 8063 Psychiatric Hospitals 8069 Specialty Hospitals, Except Psychiatric 8070 Medical And Dental Laboratories 8081 Outpatient Care Facilities 8360 Residential Care December

15 Competitors Top 20 U.S. Companies Sorted by Sales Ticker CVS ESRX CYH THC Name Express Scripts Holding Community Health Systems Inc. Tenet Market Cap (in Millions) Sales (in Millions) Employees Sales Per Employee Net Income Price Earnings Ratio 58, , , , , , , ,120 3,526, , , , , , , , , , DGX Quest Diagnostics Inc 9, , , , UHS Universal Health Services Inc. 4, , , , DVA DaVita Inc. 10, , , , OCR Omnicare Inc. 3, , , , HMA Health Management Associates Inc. 1, , , , LH Laboratory of 8, , , , America Holdings KND Kindred Inc , ,800 70, SXCI SXC Health Solutions Corp. 6, , ,433 3,472, LPNT LifePoint Hospitals Inc. 1, , , , SLC Select Medical Holdings 1, , ,800 97, HLS HealthSouth 2, , ,000 92, SUNH Sun Group Inc , ,697 67, BIOS Bioscrip Inc , , , GTIV Gentiva Health Services Inc , , , MD MEDNAX Inc. 3, , , , WOOF VCA Antech Inc. 1, , , , December

16 Stock and Financial Performance Trends Income Statement Most Recent Quarter Date Express Scripts Holding Community Health Systems Inc. Tenet Quest Diagnostics Inc Average Industry 6/30/2012 6/30/2012 6/30/2012 6/30/2012 6/30/2012 6/30/2012 Sales $30,714.00M $27,721.00M $3,746.43M $2,265.00M $1,906.81M $178.57M Cost of Goods Sold $24,834.00M $25,542.20M $3,274.22M $1,977.00M $1,054.23M $144.26M Selling, General and Administrative $3,742.00M $685.7M $429.79M $12.49M Expense Operating Income Before $2,138.00M $1,493.10M $472.21M $288M $422.79M $16.08M Depreciation Depreciation and Amortization $431M $605.2M $179.8M $104M $71.86M $4.56M Operating Income After Depreciation $1,707.00M $887.9M $292.41M $184M $350.94M $11.52M Interest Expense $131M $175.2M $151.61M $102M $42.64M $1.75M Non-operating Income (Expense) $6.6M $13.18M $6.22M $0.14M Special items $(355.8)M $(2.3)M $(4)M $(15.6)M $(2.57)M Pretax Income $1,576.00M $363.5M $151.69M $78M $298.92M $7.13M December

17 Income Statement (cont d) Income Taxes - Total Express Scripts Holding Community Health Systems Inc. Tenet Quest Diagnostics Inc Average Industry $610M $192.6M $49.52M $30M $112.39M $2.99M Minority Interest $(1)M $18.81M $2M $8.77M $0.16M Income Before Extraordinary $967M $170.9M $83.36M $46M $177.76M $3.97M Items Dividends - Preferred $4M Income Before Extraordinary Items - Available $967M $170.9M $83.36M $42M $177.76M $3.97M for Common Common Stock Equivalents - $(0.72)M Dollar Savings Income Before Extraordinary Items - Adjusted $967M $170.9M $83.36M $42M $177.04M $3.96M for Common Stock Equivalents Net Income (Loss) $966M $170.9M $83.36M $(2)M $177.7M $3.97M Balance Sheet Most Recent Quarter Date Assets Cash and Short Term Investments Accounts Receivable/ Debtors-Total Inventories Total Current Assets Other Total Current Assets Total Property, Plant and Equipment Total (Net) Intangible Assets Total Assets Other Total Express Scripts Holding Community Health Systems Inc. Tenet Quest Diagnostics Inc Average Industry 6/30/2012 6/30/2012 6/30/2012 6/30/2012 6/30/2012 6/30/2012 $1,828.00M $1,448.90M $115.11M $82M $173.74M $15.5M $6,124.00M $5,997.80M $2,055.29M $1,334.00M $941.47M $57.85M $10,428.00M $1,423.80M $358.6M $154M $90.1M $10.13M $919M $790.8M $468.16M $994M $271.87M $10.29M $19,299.00M $9,661.30M $2,997.16M $2,564.00M $1,477.18M $93.77M $8,614.00M $1,768.50M $7,048.22M $4,181.00M $788.63M $31.4M $37,676.00M $46,628.70M $5,827.62M $1,740.00M $7,127.05M $342.85M Assets Total $65,589.00M $58,058.50M $15,873.01M $8,485.00M $9,392.85M $486.24M December

18 Balance Sheet (cont d) Liabilities and Net Worth Debt in Current Liabilities Total Current Liabilities Other Current Liabilities Total Long-Term Debt Total Long-Term Debt Due in One Year Account Payable/ Creditors Trade Deferred Taxes Balance Sheet Express Scripts Holding Community Health Systems Inc. Tenet Quest Diagnostics Inc Average Industry $205M $1,929.30M $83.88M $237M $444.5M $14.22M $8,028.00M $1,989.90M $1,044.80M $991M $0M $20.59M $13,136.00M $12,843.80M $1,899.12M $1,872.00M $1,324.72M $86.67M $9,208.00M $16,312.30M $9,241.49M $4,511.00M $3,378.19M $140.18M $4,903.00M $8,924.60M $770.45M $644M $880.22M $51.72M $3,894.00M $704.72M $0M $7.54M Liabilities Other $1,438.00M $6,774.10M $998.98M $857M $668.8M $41.77M Income Taxes Payable $0.14M Liabilities Total $27,676.00M $35,930.20M $12,844.32M $7,240.00M $5,371.71M $291.13M Minority Interest $367.91M $16M $2.49M Preferred/ Preference Stock (Capital) Total Common/Ordinary Equity Total Common/Ordinary Stock (Capital) Treasury Stock Total (All Capital) Capital Surplus/ Share Premium Reserve Retained Earnings Shareholders Equity-Total $45M $0.11M $37,913.00M $22,128.30M $2,596.08M $1,131.00M $3,995.20M $195M $17M $8.1M $0.92M $27M $2.15M $0.92M $14,001.00M $6.68M $1,879.00M $2,902.53M $30.88M $28,744.00M $20,918.10M $1,101.22M $4,410.00M $2,357.65M $145.25M $23,153.00M $1,202.10M $1,500.62M $(1,427.00)M $4,537.94M $81.3M $37,913.00M $22,128.30M $2,596.08M $1,176.00M $3,995.20M $195.11M Cash Flow Express Scripts Holding Community Health Systems Inc. Tenet Quest Diagnostics Inc Average Industry Most Recent Annual Date 12/31/ /31/ /31/ /31/ /31/ /31/2011 Operating Activities (Indirect) Depreciation and Amortization $1,568.00M $334.4M $657.66M $443M $281.1M $8.92M Operating Activities - Net Cash Flow $5,856.00M $2,192.00M $1,261.91M $497M $895.47M $33.05M December

19 Cash Flow (cont d) Investing Activities Investing Activities - Net Cash Flow Capital Expenditures Financing Activities Cash Dividends (Cash Flow) Financing Activities - Net Cash Flow Express Scripts Holding Community Health Systems Inc. Tenet Quest Diagnostics Inc Average Industry $(2,410.00)M $(123.9)M $(1,195.78)M $(503)M $(1,243.44)M $(21.89)M $1,872.00M $144.4M $776.71M $475M $161.56M $6.87M $674M $24M $64.66M $0.75M $(3,460.00)M $3,030.50M $(235.44)M $(286)M $63.55M $2.84M Financial Ratio Comparisons Valuation Ratios Price to Earnings (TTM) Price to Sales (TTM) Profitability Ratios(%) Operating Margin (TTM) Operating Margin (TTM) 3 Year Avg. EBITDA Margin (TTM) EBITDA Margin (TTM) 3 Year Avg. Pretax Margin (TTM) Pretax Margin (TTM) 3 Year Avg. Effective Tax Rate (Annual) Effective Tax Rate (Annual) 3 Year Avg. Express Scripts Holding Community Health Systems Inc. Tenet Quest Diagnostics Inc Average Industry Express Scripts Holding Community Health Systems Inc. Tenet Quest Diagnostics Inc Average Industry December

20 Financial Ratio Comparisons (cont d) Management Effectiveness Ratios Express Scripts Holding Community Health Systems Inc. Tenet Quest Diagnostics Inc Average Industry Return on Assets Return on Assets (3 Year Avg.) Return on Equity Return on Equity (3 Year Avg.) Coverage & Leverage Ratio Times Interest earned (TTM) EBITDA/ Interest(TTM) EBITDA - Capex/ Interest (TTM) Debt to Capital (MRQ) Debt to Equity (MRQ) Debt (avg. 12 mos.) to EBITDA (TTM) Free CF (TTM) to Total Debt (avg. 12 mos.) Liquidity & Activity Ratios Current Ratio (MRQ) Quick Ratio (MRQ) AR Turnover (MRQ) Inventory Turnover Express Scripts Holding Community Health Systems Inc. Tenet Quest Diagnostics Inc Average Industry Express Scripts Holding Community Health Systems Inc. Tenet Quest Diagnostics Inc Average Industry AP Turnover December

21 MSCAd Industry Large Losses Advisen s Master Significant Case & Action database (MSCAd) compiles details and statistics on significant large losses, including management liability cases such as securities class actions, auditing and other management malpractice, state and federal government regulatory fines, employment liability cases and errors and omissions litigation. This also includes EEOC settled litigation, ERISA/Fiduciary Duty, Malpractice, Anti-Trust, Fraud, Trade Practices, and Contract Cases. MSCAd is the most comprehensive, accurate source of this data available to the industry. Our information is compiled by a dedicated research team using numerous sources such as Stanford Securities, Federal agencies such as the Department of Justice, the EEOC, and the Securities & Exchange Commission, research tools such as LEXIS/NEXIS, major law firms and claims administrators, State insurance commissioners and attorneys general, and other sources. The consolidated data is subject to ongoing review and rigorous audit procedures to ensure both accuracy and timeliness. Cases Filtered For: Industry Filters Dates: 2012,2011,2010,2009,2008 Case Count: 286 MSCAd Large Losses 5 Year Trend December

22 MSCAd Large Losses Case Category Breakdown MSCAd Large Losses Case Category Breakdown December

23 MSCAd Large Losses Recent 10 cases Case ID Name ID Sutter Health The Children's Hospital Assisted Living Concepts Inc Healthways Inc Sunrise Senior Living, Inc. National Corp. Assisted Living Concepts Inc DaVita Inc Assisted Living Concepts Inc Amedisys, Inc Category/Type Management & Strategy/Anti-trust General Litigation/ Child/Sexual Abuse Securities/Derivative Shareholder Action Securities/Derivative Shareholder Action Securities/Breach of Fiduciary Duties: Class Action Business & Trade Practices/Breach of Fiduciary Duties: Business Securities/Securities Class Action Securities/Derivative Shareholder Action Securities/Wells Notice Employment/Wage and Hour Accident Date Filing Date Status 10/01/ /17/2012 Pending 09/13/2012 Pending 09/13/2012 Pending 09/11/2012 Pending 09/06/2012 Pending 09/04/2012 Pending 08/29/2012 Pending 08/07/2012 Pending 08/02/2012 Investigation 11/01/ /25/2012 Pending Total Amount($) MSCAd Large Losses Top 10 by Settlement Amount ($) Case ID Name Quest Diagnostics Inc Assisted Living Concepts Inc ID Dignity Health Tenet Duke University Health System, Inc. Healthways, Inc Sutter Health Category/Type Business & Trade Practices/Fraudule nt Trade Practices Business & Trade Practices/Breach of Contract Employment/ Discrimination & Harassment: Gender/Sexual General Litigation/ Undetermined/ Other Business & Trade Practices/Billing Fraud Employment/Wage and Hour Professional Practices/Medical/ Securities/Securitie s Class Action Criminal Risks/ Theft/Robbery Business & Trade Practices/Billing Fraud Accident Date Filing Date Status Total Amount($) 04/15/2009 Settled 302,000,000 04/26/2012 Settled 100,000,000 08/15/ /24/2009 Award 82,330,485 09/01/ /12/2010 Settled 77,600,000 04/10/2012 Settled 42,750,000 09/05/ /23/2009 Settled 34,000,000 11/21/2008 Settled 26,000,000 06/05/2008 Settled 23,600,000 01/01/ /26/2010 Settled 21,500,000 09/30/2008 Settled 17,500,000 December

24 Insurance Program Pricing ADVx tracks changes in average premiums paid upon the renewal of commercial lines insurance policies. The index is the composite of four lines of business: domestic property, general liability, workers compensation and directors & officers liability, weighted by their relative premium volume as reported in Best s Aggregates and Averages. Premiums are adjusted to 2000 dollar value. Policy renewal data are collected and compiled by Advisen from retail and wholesale insurance brokers and risk managers. Composite Percent Change Individual Lines of Business Percent Change December

25 Recent Industry News of Top 5 Competitors Corp Announces New Share Repurchase Authorization for up to $6 Billion of Common Stock; Approves Quarterly Dividend Corp announced that its Board of Directors has approved a new share repurchase program for up to $6.0 billion of the s outstanding common stock. The share repurchase authorization, which is effective immediately, permits the to effect the repurchases from time to time through a combination of open market repurchases, privately negotiated transactions, accelerated share repurchase transactions, and/or other derivative transactions. The also stated that this new share repurchase program is expected to be completed over a multi-year period. also announced that its Board of Directors has approved a quarterly dividend of $ per share on the Common Stock of the, payable November 2, 2012, to holders of record on October 22, Raises FY 2012 EPS Guidance announced that for fiscal 2012, it expects adjusted earnings per share (EPS) of $3.32 to $3.38, up from its previous guidance of $3.23 to $3.33. The currently expects to deliver GAAP diluted earnings per share from continuing operations of $3.09 to $3.15 for fiscal 2012, up from its previous guidance of $3.01 to $3.11. According to I/B/E/S Estimates, analysts are expecting the to report EPS of $3.33 for fiscal Announces Quarterly Dividend announced that its Board of Directors has approved a quarterly dividend of $ per share on the Common Stock of the, payable August 3, 2012, to holders of record on July 23, Express Scripts Holding Co Raises FY 2012 EPS Guidance Express Scripts Holding Co announced that for fiscal 2012, it expects adjusted earnings per share (EPS) in the range of $3.60 to $3.75. According to I/B/E/S Estimates, analysts are expecting the to report EPS of $3.53 for fiscal Express Scripts Holding Co And Walgreens Announce New Pharmacy Network Agreement Express Scripts Holding Co and Walgreens announced the companies have reached a multi-year pharmacy network agreement that includes rates and terms under which Walgreens will participate in the broadest Express Scripts retail pharmacy network available to new and existing clients. The companies are not disclosing the terms of the new contract. Walgreens will be part of the broadest network of pharmacies available to Express Scripts clients, as of September 15, Express Scripts will work to ensure a smooth transition for those plan sponsors who will want to include Walgreens pharmacies in their network. Express Scripts Holding Co Issues FY 2012 EPS Guidance In Line With Analysts Estimates Express Scripts Holding Co announced that for fiscal 2012, it expects adjusted earnings per share (EPS) in the range of $3.36 to $3.66. According to I/B/E/S Estimates, analysts are expecting the to report EPS of $3.63 for fiscal Community Health Systems Inc Reaffirms FY 2012 Revenue And EBITDA Guidance; Raises Low End Of Prior FY 2012 EPS Guidance Community Health Systems, Inc. announced that for fiscal 2012, it expects revenues to be in the range of $12.8-$13.2 billion and adjusted EBITDA to be in the range of $1.970-$2 billion and Income from operations to be in the range of $3.90-$4.10 per share. According to I/B/E/S Estimates, analysts on an average were expecting the to report revenues of $12.9 billion for fiscal December

26 Community Health Systems Inc Announces Completion Of Offering Of $1.2 Billion Of 7.125% Senior Notes Due Community Health Systems Inc announced that its wholly-owned subsidiary, CHS/Community Health Systems, Inc. (the Issuer), had completed its offering of $1.2 billion aggregate principal amount of 7.125% Senior Notes due As previously announced, the intends to use the proceeds of the offering to purchase any and all of the IssueraCOs approximately $934 million aggregate principal amount of 8a % Senior Notes due 2015 that are validly tendered and not validly withdrawn in the cash tender offer announced on July 3, 2012, to pay for consents delivered in connection therewith, to pay related fees and expenses and, to the extent any proceeds remain, for general corporate purposes. Community Health Systems Inc Announces Offering Of $1,000 Million Of Senior Notes Due Community Health Systems Inc announced that its wholly-owned subsidiary, CHS/Community Health Systems, Inc., intends to offer $1,000 million aggregate principal amount of Senior Notes due 2020, subject to market and other conditions. The offering will be made by means of an underwritten public offering pursuant to an automatic shelf registration statement filed with the Securities and Exchange Commission. The intends to use the proceeds of the offering to purchase any and all of the IssueraCOs approximately $934 million aggregate principal amount of 8a % Senior Notes due 2015 that are validly tendered and not validly withdrawn in the cash tender offer announced on July 3, 2012, to pay for consents delivered in connection therewith, to pay related fees and expenses and, to the extent any proceeds remain, for general corporate purposes. The underwriters in connection with the offering are Credit Suisse, BofA Merrill Lynch, Citigroup, Credit Agricole CIB, Goldman, Sachs & Co., J.P. Morgan, Morgan Stanley, RBC Capital Markets, SunTrust Robinson Humphrey, Wells Fargo Securities, Deutsche Bank Securities, Fifth Third Securities, Inc., Mitsubishi UFJ Securities, Scotiabank and UBS Investment Bank. Tenet Corp Announces Completion Of Its Private Offering Of 4.75% Senior Secured Notes Due 2020 And 6.75% Senior Notes Due Tenet Corp announced the completion of its previously announced private offering of $500 million aggregate principal amount of its 4.75% Senior Secured Notes due 2020 and $300 million aggregate principal amount of its 6.75% Senior Notes due The proceeds from the offering will be used to purchase Tenet`s 7.375% Senior Notes due 2013 (the Notes) in a tender offer. Tenet will use any remaining net proceeds for purchases of its other outstanding senior notes through public or privately negotiated transactions, and for general corporate purposes, including the repayment of indebtedness and drawings under its senior secured revolving credit facility and strategic acquisitions. The terms of the tender offer are contained in an offer to purchase dated October 1, 2012 and a related letter of transmittal. The tender offer will expire on October 29, Tenet Corp Announces Private Offering Of Senior Secured Notes And Senior Unsecured Notes Tenet Corp announced that it is offering to sell $500 million aggregate principal amount of senior secured notes maturing in 2020 and $300 million aggregate principal amount of senior unsecured notes maturing in 2020 through a private placement. The senior secured notes will be guaranteed by and secured by a pledge of the capital stock and other ownership interests of certain of TenetaCOs subsidiaries. The proceeds from the offering will be used to purchase TenetaCOs 7.375% senior notes due 2013 in a tender offer. Tenet will use remaining net proceeds for repurchases of its outstanding senior notes through publicly or privately negotiated transactions, and for general corporate purposes, including the repayment of indebtedness and drawings under its senior secured revolving credit facility and strategic acquisitions. Tenet Corp s Subsidiary to Acquire InforMed Health Care Solutions Tenet Corp announced that its subsidiary Conifer Health Solutions, LLC has entered into a definitive agreement to acquire InforMed Health Care Solutions located in Annapolis. Financial terms of the transaction were not disclosed. Quest Diagnostics Inc Lowers FY 2012 Revenue Guidance; Lowers High End Of Prior FY 2012 EPS Guidance To A Range Below Analysts Estimates; Reaffirms FY 2012 EBIT Guidance Quest Diagnostics Inc announced that for fiscal 2012, it expects revenues to grow approximately 0.5%, compared to the prior outlook of between 1% and 2%, earnings per diluted share (EPS) to be between $4.45 and $4.55, compared to the prior outlook of $4.45 to $4.60 and operating income as a percentage of revenues to approximate 18%, unchanged from the prior outlook. The reported net revenues of $7.511 billion in fiscal According to I/B/E/S Estimates, analysts were expecting the to report revenue of $7.63 billion, EPS of $4.56 and EBIT of $1.36 billion for fiscal December

27 Quest Diagnostics Inc To Acquire Clinical Outreach Laboratory From UMass Memorial Medical Center Quest Diagnostics Inc announced that it has signed a definitive agreement to purchase the clinical outreach laboratory business of UMass Memorial Medical Center, a member of UMass Memorial Health Care and the health care system in Central New England. Term of the transaction were not disclosed. Quest Diagnostics Inc And 3M Co Launch FDA-Cleared Simplexa Test on 3M Cycler For Molecular Influenza And Respiratory Virus Testing By Moderate Complexity Facilities Focus Diagnostics, a business of Quest Diagnostics Inc And 3M Co announced that the U.S. Food and Drug Administration (FDA) has provided 510 clearance and CLIA moderate-complexity categorization to the Simplexa Flu A/B & RSV Direct test on the 3M Integrated Cycler. The new test aids in the qualitative detection and differentiation of RNA of influenza A and B viruses and respiratory syncytial virus (RSV), common causes of respiratory illness. Focus Diagnostics, maker of the Simplexa brand of molecular test kits, and 3M, maker of the 3M Integrated Cycler technology, developed the test through an exclusive global collaboration. The collaboration, formed in 2009, has produced several Simplexa molecular tests, including the first FDA-cleared commercial test for the influenza A H1N1 (2009) virus. Moderate complexity laboratories, defined by the Clinical Laboratory Improvement Amendments (CLIA), include certain types of physician s offices, community hospitals, health clinics and integrated delivery networks. December