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ELA Healthcare Finance Summit September 13-14, 2005. Outpatient Ambulatory Care. Presenters: Robert Goodman Managing Partner The Mansfield Group Peter Myhre President MarCap Corporation. Overview: Outpatient Ambulatory Care Market Robert Goodman

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ELA Healthcare Finance SummitSeptember 13-14, 2005

Outpatient

Ambulatory Care

Presenters:

Robert Goodman

Managing Partner

The Mansfield Group

Peter MyhrePresident

MarCap Corporation

slide2

Overview: Outpatient Ambulatory Care MarketRobert Goodman

Financial Health of Market ParticipantsPeter Myhre

How Providers Are Obtaining EquipmentRobert Goodman

Structures That Work BestPeter Myhre

Question and Answer Session

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Outpatient Ambulatory care services – 35 years in the making

Trends in ambulatory care services

Growth remains strong

Ownership continues to be varied – physicians, management companies and/or hospitals

Competition — saturated markets

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Outpatient ambulatory care market

Diagnostic imaging – MRI, CT, PET/CTas well as other imaging modalities

Surgery – single specialty and multi-specialty centers

Treatment – radiation therapy, dialysis and physical therapy

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Provider (borrower) profile

Typically single purpose entities established by physicians, management- development companies and hospitals

 Usually limited liability companies; often joint ventures between two or three of the parties noted above

Generally stand-alone facilities and most often start-ups

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Provider cash flows

 Revenues = patient procedure/scans x related reimbursement

 Expenses – largely fixed; debt service and staffing are the most significant outflows

Profitability – once breakeven revenue is exceeded, majority of incremental revenue

drops to the bottom line

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Risk considerations

 Commitment - equity and guarantees

 Patient referrals – the right physician specialties

 Self-referral restrictions – state and federal

 Payor risk – contracting and reimbursement

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Manufacturers/vendors profile

 Manufacturers and vendors vary significantly in financial strength

 Dominant full line manufacturers are Siemens, GE, Philips and Toshiba

 Variety of single line/specialty manufacturers

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Evaluating vendor risk

 Strength of business - financial statements, and installed base

 Equipment – reliability and operating costs

 Sales force – direct and distribution

 Service/repair – quality and capability

 Potential fraud – management and motivations

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Equipment financing options and project financing options

Business Plan – business case or rationale behind equipment purchase or project

Equipment:

– Cash (equity)

– Capital leases and loans

–FMV leasing

–Per-use

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Project:

– Cash (equity)

– Capital leases and loans

  • –FMV leasing for major equipment (MRI, PET, linear accelerators, etc.)
  • – Working capital lines of credit, primary and back-up (surgery centers vs. diagnostic imaging centers)
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Debt sources

Leasing companies

Captive finance organizations (e.g., Siemens and GE)

Local and regional banks

slide13

Lease Structures

 60 to 84 month terms

Payment deferral until reimbursement ramps-up

 Interim funding

 Equipment and tenant improvements

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Differentiating products

Working capital

Acquisition funding

Physician equity financing

Differentiating terms

Limited to no personal guarantees

Guarantee burn off

 No covenants

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Risk management terms

 Blanket lien including A/R

 Subordination of payments to owners

 Covenants before making distributions

 Assignment of tenant’s rights

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Robert Goodman

The Mansfield Group6 Oak Tree Court

Westampton, NJ 08060609.267.0990www.mansfield-group.com

Peter MyhreMarCap Corporation

200 West Jackson, Suite 2000

Chicago, Illinois 60606

800.621.1677

www.marcapcorp.com