BHCS Expansion

1
BHCS Expansion

• September 30, 2014

2
Executive Summary

• BHCS proposes to improve competitiveness and
  increase capacity
• Plan expands med/surg beds, creates private bed
  Post Partum unit, relocates NICU to a
  consolidated mother/baby unit total bed count
  expands from 196 to 250 upgrades energy plant.
• Estimated project cost 55,972,000 (based on
  2016/2017 construction cost)
• Payback period (using discounted cash flows) is
  11.7 years
• Project NPV is 56.5M
• Growth in the service area, aging of the
  population requires that additional inpatient
  beds be added within the northwestern area of the
  county.

3
BHCS Strategic Initiatives

• The BHCS expansion is focused on
• Decompressing the adult med/surg occupancy
  issues/capacity issues
• Protecting and growing the delivery and
  neonatology volumes
• Growing surgical shares
• Current capacity issues limit growth, physician
  recruitment, patient marketing and patient
  satisfaction
• BHCS has set a goal to grow Delivery share from
  within the service area from the current 25.7
  share level to 28 in 2018 and 33 by 2022
• Neonatology share is a function of Delivery and
  is expected to grow from 21.3 currently to 27
  by 2022
• Private post partum rooms are required to be
  competitive with area competitors in the
  maternity market.
• The maternity is highly elective and physicians
  and mothers to be are highly selective in
  choosing hospitals.
• Northwest has all private rooms in its post
  partum unit.
• West Boca has recently announced plans to further
  renovate its maternity unit and increase the
  numbers of private rooms.

4
Executive summary

• Demand for inpatient services within the BHCS
  service area will grow significantly from 2012
  to 2040
• BHCS service area population will grow by 37
  from 2012 to 2040.
• Admissions will grow by 42 (net of increased
  population, aging of population and decreased
  admissions rates).
• Patient days will grow by 46 (net of increased
  admissions and decreased LOS).
• Sum of population growth and demographics (age)
  drive demand for an incremental 50 beds within
  the service area every five years from now to
  2030 thereafter, increased demand is over 100
  beds per 5 years.

5
Executive Summary

• Total project cost
• Project cost include inflation adjustment factors
  based on the following timelines
• Approval January 2015
• Design, bids and contracts completed by December
  2015
• Construction Jan 2016 to December 2017
• Occupancy Jan 2018
• Project cost estimate has increased by 11.9
  million due to inflating prices to 2016/2017 time
  frame, relocation of NICU and renovating current
  Post Partum area and current peds areas to adult
  med/surg areas.

6
Process
7
Analysis Goals

• Project analysis goals
• To determine demand for inpatient services within
  BHCS area
• To assess competitive position today
• Help BHCS management team pick strategic service
  lines to maximize future volume and contributions
  
• To develop tool to quantify BHCS share targets
  and resulting contribution
• To assess incremental contribution over current
  levels for use in ROI pro forma model
• To determine payback period on projects and
  project present value

8
Analysis Steps

• Critical factors driving future demand for BHCS
  service area residents
• Population growth forecast
• Population aging trends
• Inpatient admission trends
• LOS trends
• Factors driving BHCS bed demand
• Service area demand at service line levels
• BHCS market share within service area at service
  line level
• BHCS short stay patient volumes
• BHCS patients demand from outside of BHCS service
  area
• Factors driving BHCS contributions/project ROI
• BHCS bed demand by service line
• Payor mix
• Contribution margins by service line
• Project cost

9
Facility expansion
10
Expansion Plan

• Expansion details
• New Labor and Delivery rooms, including 2 Ors.
• Labor test outpatient areas.
• New delivery waiting room areas.
• 28 new private Post Partum rooms with ample area
  for mother, father, baby and family visitation.
• Includes limited number of Empress Suites.
• Relocated NICU adjacent to Post Partum rooms for
  easy access by mothers.
• New smaller pediatric med/surg area, 12 beds
  versus current 26.
• Net addition of 65 private adult med/surg beds.
• 28 new private adult med/surg beds.
• Current peds/PICU area refurbished for additional
  28 adult med/surg rooms.
• Current Mother/Baby area converted to additional
  9 adult med/surg rooms.
• After construction, a total of 250 beds will be
  available. This includes 184 adult med/surg
  bedsan increase of 65 (54) more than today.
• A future 4th floor could be added in the future
  to provide for an additional 28 med/surg beds.

11
Expansion Details
12
BHCS Bed Capacity Before After
Bed Type Bed Type Current Current After After Chg
Adult Med/Surg Private 69 119 134 184 65
Semi-private 50 119 50 184 65
Post Partum Private 11 25 28 28 3
Semi-private 14 25 0 28 3
Pediatric Med/Surg Private 15 21 12 12 -9
Semi-private 6 21 0 12 -9
ICU 16 16 0
NICU 10 10 0
PICU 5 0 -5
Total 196 250 54
13
Cost details

• Plan would cost approximately 49.3 million if
  constructed today.
• Total estimate includes inflation factor of 6.2
  million based on 6 per year inflation (2.33
  years) according to MGE Architects.
• Costs will be spread over a three year period

14
Cost details

• Proposed cost has increased from original
  presentation for 3 main reasons inflation, NICU
  relocation and renovations of 3N/3W.

15
Financial
16
Financial Assumptions

• Expenditures
• Initial project cost 55.3 million spread over
  2015-2017
• Ongoing equipment replacements 6.3 million every
  7 years
• Incremental expenses
• Project management 200,000 2015-2017
• Incremental fixed costs 1,000,000 in 2018 with
  3 inflation annually
• Payor Mix
• Current funded mix 84
• 2018 83.6
• 2020 84.6
• 2025 86.1
• Contribution Margin
• All years use 2014 contribution margin per case,
  specific to service line
• Incremental Contribution Margin
• Defined as contribution margin in each year from
  2018 forward less the 2017 base year contribution
  amount

17
Financial Results

• Pay back period, using discounted cash flows is
  11.7 years
• Project present value is 56.3 million

18
Cash Flows 2015-2040
19
Present Value of cash flows
20
Recap

• BHCS at/above capacity currently for past several
  years.
• BHCS at competitive disadvantage in post partum
  and med/surg private rooms compared to service
  area competition.
• Even loyal physicians do not refer all potential
  volumes due to capacity and private room
  limitations.
• BHCS service area is and will continue to be the
  fastest growing area within Broward County.
• Population is aging which drives more inpatient
  admissions.
• Bed demand will continue to increaseif BHCS
  fails to expand, a competitor will fill the need.
• BHCS can recover the investment in less than 12
  years.