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Executives

Gary D. Newsome - Chief Executive Officer, President and Director

Health Management Associates Inc. (HMA) Barclays Global Healthcare Conference March 13, 2013 2:30 PM ET

Unknown Analyst

While we're getting settled, maybe we'll start with some of the audience response questions. I think we got a quorum in the room before I introduce the folks from HMA. So those who -- let's see.

The first question I can tell you is about reforms. So as you're getting ready -- here we go. Some of these like I said within health care services land are easier than others for certain companies. So I think this one's relatively easy. Do you think health reform will be positive for HMA in 2014 specifically? 1 being very negative and 5 being very positive. Enjoy the music.

[Voting]

Unknown Analyst

I want to know your responses. Okay, so certainly, a pretty obvious trend there.

The second question please. Contracted rates on exchanges. The topic, du jour over the last few days. Do you think HMA will be receiving Medicaid rates? At a 1 commercial rates at a 5 or something in between.

[Voting]

Unknown Analyst

Certainly, a bias towards commercial rates, which means most people have been paying attention the last couple of days.

Next question. Utilization trends. Think of that more as volumes or admits. What do you think that will look like in '13 for HMA? 1 being significant increase all the way down to 5 being a significant decrease.

[Voting]

Unknown Analyst

All right. Slight increase to flat.

Next question. How do you like to see HMA deploy their capital in '13? Would you like more M&A, repurchasing of shares, increase of dividend and/or establish, repay debt or invest in the core business?

[Voting]

Unknown Analyst

We'll do everything. Kelly, It's seems to be -- it's pretty easy to understand.

Next question. So do you think the company will grow earnings? We've been defining this as earnings per share in 2014.

[Voting]

Unknown Analyst

All right. That seems like a pretty obvious answer. And then last but not -- I'm sorry, 2 more. Do you currently own shares in HMA?

[Voting]

Unknown Analyst

This is the opportunity slide, as we described, if that's right. And then, where is your current bias? Positive, neutral or negative.

[Voting]

Unknown Analyst

Better. How's that? So you got a little bit of work to do, not a lot. That sounds good.

So it's my great pleasure to step in for my former compatriot here to get to introduce more of the facility companies this year, HMA. We're very fortunate today, have both CEO and CFO. I think the presentation is going to be by CEO, Gary Newsome, the entire time. I know Kelly to my left. Kelly here maybe for the Q&A. I'm going to ask that we hold questions in this room until we get to the breakout in Poinciana 3 after this.

I've already eaten up so much of your time. Gary, let me just turn it over to you to make the actual presentation.

Gary D. Newsome

Good afternoon. It's good to be here. I think those are pretty interesting responses -- actually, pretty exciting considering the industry and where we are. But this is our disclosure statement. You can find that on our website at hma.com. Any questions or have any really interest in reading that.

Enabling America's best local health care is really our mission statement as the organization redefined just a few years ago. We really looked at what we did as an organization in terms of Health Management Associates and how that relationship is with our community hospitals that we own in more than 70 markets in 15 states across the nation.

I think it's important to note that our company gets a lot of accolades locally in our communities. In fact, our community's -- the Boards of Trustees, the Advisory Boards, the community leaders and our associates are our biggest sales force in terms of when we look at the opportunity to acquire new hospitals as the potential hospitals, leadership and management team, board, will, in some cases, actually visit some of those communities but most every case will make phone calls and connections with people in there.

But as an organization, in 2013, ranked #1, recognized #1 in use of corporate assets and social responsibility.

And likewise in 2012, our hospitals, by the Joint Commission -- 41 of our hospitals, almost 60% were recognized by Joint Commission in key quality measures as the leaders in the industry.

I think it's important to note that Joint Commission of the universal hospitals, only 18% were recognized, yet 60% of Health Management hospitals were recognized in terms of key quality measures. That's important metric as we go forward in reform. It's the right thing to do. And the type of business we're in is to provide outstanding quality. But from a reform and value base purchasing, it's very important to be sane and have the metrics and the data to prove that we provide outstanding care.

This is our company. This is what we look like today. As you notice the star that's in Tennessee represents the acquisition we made. The large one in Tennessee with Tennova, 6 hospitals, right, 3 in Knoxville and the other 3 concentric around that community. We're very consistent with our strategy of growing presence in states where we have hospitals, creating scale in that state. And within each market, creating density, and we'll talk a little bit about that.

I think, as you know, we've also signed a definitive agreement to acquire Bayfront Health System, the 480-bed system in St. Petersburg, Florida, and I'll talk a little bit more about that in a few minutes and give you some great color around that.

Just to recap, our fourth quarter, the results. I'm sure if you follow the company and all, you're very well aware of these numbers but it's important to review that.

Our growth in our net revenue, our growth in our EBITDA and adjusted EBITDA margin growth all significant. Albeit soft volumes and soft utilization, we continued to perform well through the fourth quarter. Our case mix or acuity goes up. This is very consistent with the type of patients we're seeing coming into our communities are -- have higher acuity. They're sicker patients, very consistent with what we're seeing throughout the industry. And important, our cash flows, great growth in our cash flows as an organization.

Health care reform, we've heard a lot about that. We saw some of your responses regarding how you feel about health care reform, how it affects providers specifically, hospitals.

It's truly going to be positive for the industry. It's going to be positive for us in a variety of different ways, but there's still some unknowns around that.

What happens with the exchanges? The payment rates, the adoption rate, the timing, what happens there? Medicaid expansion in the states. We feel comfortable where we are today in the discussions politically what's happening in our states. But we can't predict with 100% certainty what's happening but we feel good about where we are and what we hear where we high presence in certain states. Utilization trends, what happens there and then what happens with the business community, whether or not they actually provide insurance or not depending on size of the business.

There's a lot of questions out there around this, but we believe this is very positive and there's a lot of reasons for that, including the coverage of the uncompensated. And we also believe there's an upside in terms of volume because of those who avoided the health care system for one reason or another because they did not have the ability to pay.

Health care market is changing. Inpatient volume has been soft in the industry. We've seen it particularly soft over the last couple of quarters, continues to be soft in this quarter. We believe and have data that suggest that most of the changes happen in managed care and the government markets happened a few years ago. It's really affecting us most recently in the last several months or year as we look at what we define as stage 3 managed care as movement into managed Medicaid and managed Medicare versus the traditional Medicare. We've seen a lot of that, and that affects utilization trends.

In many cases, physicians are incentivized to avoid hospital space. And as a result of that, we're seeing some of that.

We also believe that even though the volumes are soft today, as the year goes throughout the year, we're going to see some leveling of that. And we have a lot of initiatives around all those areas to make sure that, that can happen.

But we continue to grow our outpatient side, our ASCs. In 2009, we had 5. Today, we have 26 that are either open and operating, completed, or purchased or in the process of opening. Great growth in our outpatient side. We developed and acquired imaging centers in our marketplace, primary care physician networks. This is critical, having a physician network in primary care. It's extremely critical to have that relationship as we go forward.

And then technology and robotics. From a spending or footprint standpoint, this hasn't changed from what we talked about 4.5 years ago, is developing that market services and developing a footprint, expanding it. We -- it's not like we're just getting started with this. It's something we've been doing now for a few years. It's expanding our footprint in our marketplaces so that we can capture the business, be portals onto the health care system, building relationships with our medical staff, especially primary care. And this is something we'll continue to do. It's very consistent with our plan.

And with Health Management, we have a transformative strategy. Health care is changing, reform has definitely been a catalyst for some of that. But I would say market forces are the biggest issue, or the biggest change makers in terms of health care, just the market forces alone and the way we see the business going. And as an organization, we're moved away from a hospital-centric footprint. We're moving away. We've done a lot around that, as I mentioned earlier, the more integrated network base, including non-acute care and physician investment.

More -- continue to acquire hospitals, but more looking at a partnership and build, including risk-based arrangements, if necessary. Building our scale in certain states and also building our density around certain markets is our strategy in terms of acquisitions.

We're looking at -- from strictly acquisition growth to more portfolio growth around organic and inorganic growth, looking at our business where we are today and building out our footprint. More of a retail approach versus more of a wholesale approach we've had historically. More retail because our patients are becoming very savvy shoppers of health care. And a lot of studies suggest that in the future, they'll look for 2 key drivers. One being cost and two, quality in terms of their health care decision. And we believe we can be leaders in both and have that leaders in both of those areas for some time.

And more performance is based on value, which is the cost, quality and the patient experience. We have a lot of initiatives around those areas.

And I think it's important to note that we've been heavily into analytics, looking to drive cost performance. And also those analytics are very helpful as we look at quality outcomes and processes.

Just a little deeper dive into some of the things we're looking at as an organization and have been involved in for some time on some of these is the center-led capabilities as we grow out our Health Management home office in support of our facilities. Some of this we've built out at the home office and other regionally, just to take advantage of the scale and improve on the efficiencies and performance -- overall performance.

Develop products and services that may align us with different payers or improve our competitive advantage in the marketplace. Example of this could be offering our services in conjunction with a payer on the new exchange markets in 2014 and continue to develop our clinical care models. This is improving quality and efficiencies through the care redesign, clinical standards and system efficiencies. This is one of the areas that's headed by Pam Rudisill, who is our Chief Nurse Executive for the organization company-wide, and Pam Rudisill is very experienced former President of the American Organization of Nurse Executives. Very important for us as we go forward.

Improving our market base competitive strategies through vertical integration, greater density and service offerings in our market. This is consistent with what we've been doing but we've increased the pace.

And investing in non-acute care, our noncore but related growth opportunities, such as outpatient services and analytics to drive positioning in some markets.

This is really just a snapshot, but -- and we've been involved in a lot of these, or all of these in fact, defining initiatives within the organization. Over the next several months, we'll be giving you more clarity and more definition and results of these initiatives for the company.

Obviously, the strategic initiatives and the plan to continue to evolve. We're exploring many opportunities, as we should, and it's a constant process.

We've got to remain flexible and there's a lot of -- as I mentioned earlier in the presentation, there are a few unknowns as it relates to reform. We're excited about it. Kelly can attest to this, this is as excited as I get. So we are truly excited about the options for the company going forward. We believe demographically, we're in the best possible position of all the organizations out there from -- we're in areas where there's going to continue to be growth in the retirement age or near retirement age population, which are typically higher utilizers of health care, and it's an exciting footprint that we have as an organization.

I think it's important as we look at all this, as we strategically look at partnerships to dovetail all of this into our grander plan in terms of the scale in states, as I mentioned, and density in the marketplaces.

If you look at our recent acquisitions since 2009, not so recent but in the last few years, you can see almost $1.4 billion of revenue. And we're still getting improvements in all of these markets in terms of performance, which is very exciting for us. That's a significant part of our revenue that we acquired over the last few years. And of course, that doesn't include some of the -- for example, the Bayfront acquisition and others that are in the pipeline, which is very rich for us.

I think -- looked at Sparks in 2009, excellent acquisition position, of course, in Arkansas and the market leader by all measures, and it continues to perform very well. Excellent results, lower double-digit results already in terms of the margin. That's very good for us, as you look at that. An organization that started out virtually flat.

The Shands opportunity where we jointly owned that with the University of Florida, a great partnership opportunity, performs very well. Wuesthoff Health System on the East Coast, here in Florida, excellent acquisition.

Tri-Lakes Medical Center. If there's one that started out slow in the whole group, it's Tri-Lakes but it was just in the first year. But I can tell you all these acquisitions are performing very, very well.

Mercy Health Partners in Knoxville, Tennessee, as I mentioned, a $600 million revenue acquisition. And INTEGRIS joint venture in Oklahoma, where we jointly own 5 hospitals. We currently have 7 in the state and building some scale in Oklahoma.

I think if you look at our track record over the last 35 years, we have the infrastructure. We have the systems to be successful with these acquisitions. And again, as we mentioned before, flexible ownership models. And we were the first to go to market with these flexible models and we've been very successful. And we've seen others now copy that model. It's quite flattering, in fact. But the asset purchase, the long-term lease and the joint venture and partnerships, in many cases, with large not-for-profit providers.

Of course, we have great access to capital. And our focus on quality is imperative because that's what we do as an organization.

Just a little about Bayfront. Why does that make sense for Health Management here in Florida? 480 licensed beds. We will control 80% interest in that joint venture with the existing owner of the hospital, clinical affiliation with Shands HealthCare, all the right components to be a success.

And here's the next slide, I think gives you a little flavor for that. You can see the hospitals that we currently own, concentric around Bayfront. This really defines the fact. Look at Florida and all the presence we have. We certainly have scale in Florida. But here's a marketplace where we built density, and we can build density around all these marketplaces in similar fashion. It positions us well in all forms of change in health care, whether that's health care reform initiatives or the Accountable Care Act or just the market changes that are happening in health care positions us very, very well.

You can see here for -- just in the last year in those hospitals concentric around Bayfront, where with 2,000 transfers out. This doesn't count for those people who just leave automatically because these hospitals may have not had the service they were looking for. These are over 2,000 transfers out.

Most of those not to Bayfront. Now can you see the opportunity we get by developing this relationship and having ownership in the Bayfront hospital. Great opportunity for us. And I would allow that the opportunity to get quantinery [ph] high-end services to Bayfront from those marketplaces far exceed 2,000.

And again, you've seen this slide before, if you have been in our presentations. We're going to focus on quality over time. We'll drive volumes. In our markets, we saw the decline in volumes, and the unemployment actually trailed what happened in the urban markets. We're going to see that trail coming back out as well.

And there's lots of evidence that will happen, for example, Florida. We just now started seeing growth back in the state of Florida in terms of population. But our markets where unemployment has lagged the improvement nationwide, we'll continue to see that improve too as well, and it gives us a great upside as an organization. Anyway, that's all I have.

Unknown Analyst

Great. Thanks, Gary. And we do have -- we're going to have [indiscernible] breakout.

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