and Capital Budget Board of Directors Budget Presentation June 16, - PowerPoint PPT Presentation

FY2021 Annual Operating and Capital Budget Board of Directors Budget Presentation June 16, 2020

Agenda Executive Summary FY2021 Budget Overview: • Key Budget Drivers | Inflationary Assumptions Key Statistical / Growth Indicators Revenue: • Key Revenue Assumptions / Payor Mix • Revenue Trend Analysis Salaries, Wages, Benefits & FTEs: • Salaries, Wages, Benefits and FTE Trend Analysis Non Labor Analysis: • Supplies | Professional Fees | Purchased Services | Other Direct Expense FY2021 Annual Budget Summary / EBIDA Recap Three-Year Capital Plan Five-Year Financial Projections 2

FY2021 Annual Operating and Capital Budget Executive Summary The FY2021 budget lays out a plan for the coming fiscal -year that has been designed to keep Palomar Health on a pathway toward achieving the five-year strategic financial and capital plan and incorporated the impact of the COVID-19 pandemic / recovery plan. The plan includes the following: • EBIDA of $81.6 million, with growth of $6.9 million from current projected FY2020 performance • Continued deployment of capital resources from the 2017 issuance of Certificates of Participation (revenue bonds) • FY2021 includes the addition of 101 clinical FTEs in key areas to align with current practice, industry standards, and community needs • Expense management initiatives designed to offset revenue losses associated with lower patient volume and revenue • Continued focus on key organizational goals regarding clinical excellence /outcomes and patient satisfaction • Reimbursement enhancement strategies that yield rate increases consistent with annual expense inflation • Alignment of the operating and capital budgets with our current year and long-term strategic plan objectives 3

FY2021 Budget – Key Drivers & Overview 4

FY2021 Annual Operating and Capital Budget Key Budget Drivers • Strategic Plan alignment including year-over-year EBIDA improvement, which is consistent with the long-range financial and capital plan targets • Volume projections reflective of the current situation with a slow building back to pre- COVID-19 levels • Closure of the Downtown Campus in Q1 drives a reduction of overhead expenses and realignment of services to other locations and sale of the real estate assets in FY2021 • Opening of the expanded Crisis Stabilization Unit and restructured staffing models in the Emergency Department are both designed to better serve the Behavioral Health population • Opportunity to minimize supply inflation, via strategic purchasing initiatives and vendor renegotiation, is offset by increasing costs driven by PPE shortages • Salary and wage increases in alignment with the provisions of the current labor union agreements and market dynamics • Reimbursement pressures driven by industry / payor relationships offset by revenue capture improvement initiatives in revenue cycle and contracting strategies 5

FY2021 Annual Operating and Capital Budget Inflationary Assumptions Healthcare Industry Inflation Comparison • FY2021 budget is based on FY2021 Industry Category / Expense Budget Expectation industry-wide expectations, Implants 0.5% 0-1.3% though the COVID-19 General Surgery Supplies 0.5% 0.5% pandemic increases the risk of Surgical Needles 0.5% 0.5% greater supply inflation for Oxygen – Gas 4.8% 4.8% PPE IV Solutions 2.5% 2.5% • Palomar Health will continue Pharmaceuticals 3.6% 3.0-3.9% Radioactive and X-Ray Material 2.0% 0-4.0% to focus on standardizing high Other Medical 0.5% 0.5% cost physician preference Food 3.0% 3.0% products to offset COVID-19 Linen 0.7% 0.7% related increases All Other: Cleaning, Forms, Office, Uniforms 0-2.6% 1.0% 6

Key Statistical Indicators 7

FY2021 Annual Operating and Capital Budget Key Statistical Indicators | Inpatient Total Patient Days Adjusted Discharges (Incl. SNF) FY2021 budgeted patient days are decreasing FY2021 adjusted discharges are decreasing by by 3.1% over the pre-COVID-19 projection for 2,622 discharges, or 5.4%, year-over-year the current year 160,000 50,000 11,313 11,191 140,000 11,269 11,345 11,117 60,351 59,332 60,794 40,000 9,966 54,845 59,340 120,000 70,049 100,000 30,000 80,000 38,657 20,000 37,432 37,022 36,497 60,000 34,656 33,793 96,802 95,577 93,740 92,715 86,675 79,726 40,000 10,000 20,000 0 0 FY17 FY18 FY19 Proj 20* Proj Bud 21 FY17 FY18 FY19 Proj 20* Proj 20** Bud 21 *Pre-Covid 20** **Post-Covid North South North South 8

FY2021 Annual Operating and Capital Budget Key Statistical Indicators | Inpatient Deliveries Surgeries FY2021 deliveries are decreasing 4.5% based FY2021 inpatient surgeries are decreasing by on current year trends 6.8%, based on the anticipated COVID-19 impact on Q1 volumes 5,000 10,000 1,748 4,000 1,061 931 876 8,000 871 924 871 1,541 1,291 1,469 1,164 3,000 1,116 6,000 2,000 7,647 4,000 3,116 3,197 3,147 3,178 6,799 3,082 3,070 6,679 6,445 6,263 5,730 1,000 2,000 0 0 FY17 FY18 FY19 Proj 20* Proj Bud 21 FY17 FY18 FY19 Proj 20* Proj Bud 21 *Pre-Covid 20** 20** **Post-Covid North South North South 9

FY2021 Annual Operating and Capital Budget Key Statistical Indicators | Outpatient Outpatient Services • Emergency Department visits are decreasing by 2,785, or 2%, to align with industry expectations related to COVID-19 • Outpatient registrations are relatively flat year over year as planned growth in Infusion Services and the Crisis Stabilization Unit offsets lower volume in the first quarter • Outpatient surgeries are relatively flat as regulatory requirements shift cases from the inpatient setting Emergency Visits Outpatient Registration Outpatient Surgery 10,000 200,000 150,000 34,275 34,352 32,321 33,098 31,935 150,000 28,966 100,000 70,448 67,106 2,740 64,706 2,572 5,000 2,675 60,933 2,578 2,682 100,000 61,974 52,893 2,104 107,767 107,511 105,419 103,771 92,421 101,372 50,000 50,000 85,550 3,763 3,750 3,475 3,427 3,306 80,182 72,180 68,010 68,677 2,813 60,119 0 0 0 FY17 FY18 FY19 Proj Proj Bud FY17 FY18 FY19 Proj Proj Bud FY17 FY18 FY19 Proj Proj Bud 20* 20** 21 20* 20** 21 20* 20** 21 North South Escondido South North South *Pre-Covid **Post-Covid 10

FY2021 Annual Operating and Capital Budget Key Statistical Indicators | ADC by Month • Patient days are expected to begin the fiscal year low and slowly increase due to the COVID-19 pandemic • The Average Daily Census at Poway is driven by the movement of services from the Downtown Campus North ADC 300 250 261 252 253 247 247 245 241 200 232 218 216 202 204 150 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 PMC - Escondido South ADC 100 26 80 26 26 26 26 26 26 26 26 26 26 26 14 14 14 60 14 14 14 14 14 14 40 54 51 48 48 48 47 46 47 45 47 45 44 20 0 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 PMC - Poway ARU Behavioral Health 11

Revenue 12

FY2021 Annual Operating and Capital Budget Key Revenue Considerations Total Charges Budgeted Payer Mix Payor Category ($000s) Self Pay Medicare $ 1,050,383 Covered CA Insurance Work Comp 3% 1% 1% 1% Managed Care Medi-Cal $ 986,055 Cap CMS 4% Managed Care $ 932,651 0% Medicare HMO $ 668,081 Medicare Medicare Cap 24% Medicare Cap $ 367,503 8% Managed Care Cap $ 195,796 Medicare HMO 15% Self Pay $ 115,576 Medi-Cal Insurance $ 62,551 22% Managed Care Covered CA $ 62,418 21% Work Comp $ 38,528 CMS $ 250 Total $ 4,479,792 • 6.2% overall effective rate increase (targeted 6.75%) Assumptions • FY2021 bad debt and uncompensated care 1.9%; FY2020 Budget = 1.7% • Climbing unemployment rates are expected to increase bad debt 13

FY2021 Annual Operating and Capital Budget Revenue Trend Analysis Net revenue is relatively flat year-over-year Gross Charges and Net Revenue ($000s) $4,500,000 $749,669 $755,119 $4,000,000 $738,007 $696,974 $735,778 $3,500,000 $727,927 $3,000,000 Net Revenue $2,500,000 Total Deductions $2,000,000 $3,578,426 $3,393,721 $3,730,123 $3,302,881 $2,984,323 $3,167,513 $1,500,000 $1,000,000 $500,000 ** Pre-Covid ** Post-Covid $0 FY17 FY18 FY19 Proj 20* Proj 20** Bud 21 $ 3,578,426 $ 3,302,881 $ 3,730,123 $ 2,984,323 $ 3,167,513 $ 3,393,721 Total Deductions* $ 755,119 $ 696,974 $ 727,927 $ 735,778 $ 738,007 $ 749,669 Net Revenue $ 4,333,546 $ 3,999,855 $ 4,479,792 $ 3,712,250 $ 3,903,290 $ 4,131,728 Total Gross Revenue *Deductions include net capitation impact 14

Salaries, Wages, Benefits & FTEs 15