Breakout Session # WC06 - 202 S. Brian Mukherjee VP, Contract Management Solutions

2. Strategic Contract Management Initiatives in the Hospital Environment Breakout Session #WC06 - 202 S. Brian Mukherjee VP, Contract Management Solutions Selectica, Inc. April 10, 2006 1:30 PM NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

3. Impact $ 16,000,000,000 $ 250,000,000 $ 5,000,000 Source: Modern Healthcare, Office of Inspector General, Healthcare Financial Management Association, Selectica Analysis NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

4. Agenda • Regulatory Environment • Case Study: Leading Hospital • Solution Overview • Results, Lessons Learned • Q&A NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

5. STARK FAKS HIPAA SOX Regulatory Environment • Enacted in 1972, to protect patients and the federal health care programs from fraud and abuse • Felony to receive or pay anything of value to influence the referral of any Federal Healthcare Program • Consequences include 5 years in prison, criminal fines up to $25,000, administrative civil money penalties up to $50,000, and exclusion from participation in Federal Healthcare Programs • Created “Safe Harbors” (1987) for potentially prohibited business practices that would not be prosecuted. Safe Harbors were updated/revised in 1991, 1992, 1993, 1994 and 1999. • Prevent physician self-referral of Medicare and Medicaid patients to an “involved” medical facility • Arrangements encourage over-utilization of services, driving up health care costs and create a captive referral system, which limits competition by other providers. • Stark I: Omnibus Budget Reconciliation Act of 1989 (OBRA 1989) barred self-referrals for clinical laboratory services under Medicare effective January 1, 1992 • Stark II: Omnibus Budget Reconciliation Act of 1993 (OBRA 1993) expanded the restrictions additional health services and included Medicaid • Health Insurance Portability and Accountability Act (HIPAA) was enacted by Congress in 1996 • Title I of HIPAA protects health insurance coverage for workers and families during job changes • Title II of HIPAA, Administrative Simplification provisions, requires the establishment of national standards for and protection of electronic health care transactions and national identifiers for providers, health insurance plans, and employers • Enacted July 30, 2002 as Public Company Accounting Reform and Investor Protection Act of 2002 • Accounting oversight board, auditor independence, corporate responsibility, enhanced disclosure • Section 302 mandates a set of internal procedures designed to ensure accurate financial disclosure • Section 404 requires companies to establish, maintain and report annually on “internal controls” Source: Office of Inspector General, FindLaw.com, Wikipedia, Selectica Analysis NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

6. Federal Anti-Kickback Statute • Constraints arrangements for items or services reimbursable by Federal Health Programs • Prohibits hospitals from submitting and Medicare/Medicaid from paying for referrals • Arms length, fair market value based relationships between Physicians and Hospital: • Joint Ventures: Remuneration disguised as payment for past or future referrals • Compensation: Arrangements to subsidize space, equipment, billing, nursing, etc. • Referrals: For home health, nursing, equipment, labs, services to associates • Recruitment: Incentives with surrounding communities to join Medical staff • Discounts: And Income Guarantees that shift costs from one party to another • Credentialing: Privileges based on number of referrals or procedures conducted • Insurance: Subsidies in exchange for past or potential referrals Known violations subject to both to exclusion from the Federal health care programs Statutes apply even if the prohibited financial relationship is inadvertent or in error Note: Financial relationship includes direct or investment relationship or compensation arrangement between Physician and Hospital Source: Department of Health and Human Services, Office of Inspector General, Cheryl Brooks, Mary Rutan Hospital, Selectica Analysis NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

7. Stark Laws • Pattern of excessive referrals to physician owned ancillary services • Curb fraud and abuse and excessive spending in government health programs • Prohibits certain types of physician referral patterns • Exceptions to allow business arrangements that comply with the law • Minimum standards for arrangements between physicians and hospitals • Physician Contracts scrutinized for referrals, financial interest and exceptions • Civil monetary penalties of up to $100,000 for each violation • Civil money penalties of up to $10,000/Day past the reporting timeframes • No intent is required and financial exposure exists even if it is a mistake • Knowing violation could also lead to liability under the False Claims Act Hospitals face significant financial exposure unless their financial relationships with referring physicians fit squarely in statutory or regulatory exceptions to the Stark law Note: Financial relationship includes direct or investment relationship or compensation arrangement between Physician and Hospital Source: Department of Health and Human Services, Office of Inspector General, Cheryl Brooks, Mary Rutan Hospital, Selectica Analysis NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

8. Sarbanes-Oxley • Most significant change in reporting for US publicly traded companies since the Securities Acts of 1933 and 1934, applicable to US and Foreign SEC Registrants • Strengthen internal controls over the financial reporting, provide more reliable information to investors, renew investor confidence, protect the public interest • Section 302: Certification • Management responsibility for establishing and maintaining internal controls • Disclose any changes or likely changes in the company’s internal controls • Auditors to perform limited procedures to unearth any material modifications • Section 404: Assessment • Management to assess and report on the effectiveness of internal controls • Limits scope and nature of the responsibilities of the Auditor • Rigorous tests, documentation and reporting for similarity of business operations and internal controls at all locations, degree of centralization of records, effectiveness of the control environment and exercise of authority delegated to others • Cost of Compliance: ~$2MM ($5B in Revenue) to ~$1.2B ($50B in Revenue) Only 25% of investors feel that the law made financial disclosure more transparent, 52% are unsure or feel that the law has made financial disclosure less transparent. Source: Ernst & Young LLP, Findlaw.com, Wall Street Journal, Selectica Analysis NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

9. Agenda • Regulatory Environment • Case Study: Leading Hospital • Solution Overview • Results, Lessons Learned • Q&A NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

10. Key Issues • Continually changing regulatory, reporting requirements • Manage conflicts of interests with Physicians and Vendors • Need to centralize and standardize processes and procedures • Increased agility to manage acquisitions and divestitures • Impact of off balance sheet transactions on credit ratings • Manage complexity, timing, scheduling of payment streams • Streamline pricing, billing and payment structures with Payors Client Profile • Among the largest publicly traded Hospital Companies in the US • Revenues: ~$5 Billion/Year • Facilities: 50+ Hospitals • Employees:40,000+ • Physicians: 1,700+ NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

11. Revenue Profile Uninsured Other Managed Care Medicaid Medicare Revenue and Expense Profile Expense Profile 75+% Contract Driven Source: Client Data, 10-K Reports, Selectica Analysis NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

12. Potential Points of Leakage 2-5% Cost & Performance Leakage • Redundant (non-leveraged) Contracts • Unmonitored Compliance (milestones, deliverables, SLAs, etc.) • Poor Financial Reconciliation(overpayments, missed discounts, etc.) • Missed Terminations, Poor Re-negotiations • Inadequate Spend & Performance Analysis • Expensive, Cumbersome Manual Processes Physician Agreements Leasing Agreements Real Estate Agreements Procurement Agreements NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

13. Agenda • Regulatory Environment • Case Study: Leading Hospital • Solution Overview • Results, Lessons Learned • Q&A NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

14. Case Study: Physician Agreements • Increased, changing regulatory requirements • Multiple types, numbers of related sub-agreements • Highly distributed process across divisions, hospitals • Unmonitored income guarantees, bonuses, compensation • Risk of non-licensed/contracted doctor penalties and refunds • Certification and compliance requirements for billing and payments • Requirements for proforma, community needs, fair market value, sanction check Source: Client Data, Selectica Analysis NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

15. 3 1 2 4 5 Centralized Information Repository • Centralize Enterprise-wide Contracts • Extract Business Meta-data • Maintain Extended Information – history, attach., etc • Legal Boilerplate & Clause library Administration & Reconciliation • Expiration & Renewal Management • On-going MGMA Compliance Data • Bonus Calculations & Reconciliation • Income Guarantee Payment Reconciliation • Income Guarantee Dispute & Payback Tracking • Annual Certification Reviews • Custom Regulatory & Compliance Reporting Self-service Request Initiation • Online Request Wizard – summary deal forms • Compliance Task Management • proforma, sanctions check, community need assessment, MGMA lookup, other • Integrated payment tables – guarantees & bonuses • Automated Approval & Workflow Collaborative Contract Authoring • Pre-defined Boilerplates & Addendums • Automatic Microsoft Word Generation • Master Contract Enforcement • Collaborative Negotiations Certification & Enrollment • Support Internal Certification & Approvals Tasks • Integrate to Medicare Approval Systems • Automate Other Post Contract Enrollment Tasks • Post to Billing, HR and other systems Self-ServiceInitiation ContractAuthoring Certification,Enrollment Administration, Reconciliation Solution Overview Central Repository 2 3 1 4 5 NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

16. Agenda • Regulatory Environment • Case Study: Leading Hospital • Solution Overview • Results, Lessons Learned • Q&A NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

17. Benefits • Access, manage and report on terms and obligations enterprise wide • Accelerate self-service requisition, enforcing all compliance tasks • Enforce standard legal clauses and templates • Simplify, reduce legal and administrative costs time • Eliminate overpayments and un-recovered losses • Reconcile payments and billings with collections • Automate compliance alerts and reminders to avoid costly penalties Source: Client Data, Selectica Analysis NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

18. Illustrative Value Proposition Critical Contractual Obligations for a $1+ Billion Hospital: Total Potential Savings: $15 MM/Yr Source: Client Data, Company Website, 10-K Reports, Aberdeen Research, Selectica Analysis NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

19. Lessons Learned Don’t Wait to Get Blacklisted Crawl – Walk – Run – Fly Change Happens, Plan for It Knowledge = Data + Process Try Before You Buy Source: Selectica Analysis NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

20. Configure Price Quote Propose Sell Side • Issue: Processes to introduce, price and quote complex products and services is slow and error prone: • Geographies • Procedures • Payors • Rates • Buyer Access • Revenue Growth: • Shortened sales cycles • Faster reimbursements • Missed sales opportunities • Shortened order-to-cash cycles • Effective pricing, profit analysis • Fully compliant financial reporting • SLA Transparency Next Steps Administer Aggregate Automate Analyze Contract Buy Side Visibility Tracking Reporting Compliance • Issue: Management of corporate commitments and compliance are ad hoc, labor intensive and error prone: • Real Estate • IT/Services • Equipment Leases • Employment Contracts • Seller Access • Cost Savings: • Improved rebate management • Better spend management • Optimized process management. • Reduced maverick buying • Reduced sourcing, contracting cycles • Consistent, approved terms and reporting • SLA Transparency Source: Client Data, Aberdeen Research, Gartner Research, Forrester Research, Selectica Analysis NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

21. Agenda • Regulatory Environment • Case Study: Leading Hospital • Solution Overview • Results, Lessons Learned • Q&A NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management

22. Q&A Breakout Session # WC06-202 S. Brian Mukherjee VP, Contract Management Solutions (415) 848 2499 bmukherjee@selectica.com NCMA World Congress 2006 : Achieving High Performance in Global Business: Leadership, Outsourcing, & Risk Management