Radiation Oncology Strategies & Structures for Programmatic Success

2. Radiation Oncology Strategies & Structures for Programmatic Success

3. Panelists Moderator: Gitesh Patel, Director Global Business Development, Comprehensive Blood & Cancer Centers Panelists: Ron DiGiaimo, MBA, BSHA, FACHE, Chief Executive Officer, Revenue Cycle, Inc. Les Mann, Vice President, Oncology Services InternationalGregory Spurlock, President, Alliance Oncology / US Radiosurgery

4. Radiation Oncology Strategies & Structures for Programmatic Success Ron DiGiaimo, MBABSHA, FACHE, Chief Executive Officer, Revenue Cycle, Inc.

5. Radiation Oncology Strategies & Structures for Programmatic Success October 25, 2013 Richard J. Hall President & CEO Les Mann SVP Sales and Service Oncology Services International

6. Paradigm Shift: OEM’s vs Independents • Provider pressures: • Cost pressures increasing • Performance demands increasing • Traditional dominance of linear accelerator OEM • Service • Medical arms race • Independent services historically lack size and scale • Difficulty competing with powerful brands • 2013: Paradigm shift underway

7. Provider Pressures • Healthcare reform: • Pre-Obama: reimbursement unstable • Post Obama: ACO’s and more efficient care models • Net effect: • Physician incomes down • Breakeven performance more difficult • ROI for investments risky • Traditional answers insufficient Source: www.medscape.com

8. Provider Reaction • Traditional approaches will be challenged. • Varian 10k 2012: …..customers’ decision-making process complicated by the uncertainties surrounding reimbursement rates ……recent economic downturn saw customers’ decision process further complicated and lengthened, especially in the United States… ….. some of our customers use their own internal service organizations and/or independent service organizations to service equipment after the warranty period expires and therefore do not enter into agreements with us for extended service*. • Two presumptions related to radiation therapy equipment and service will be challenged: • Premium price demands from OEM’s • Equipment upgrades must be newest models * http://investors.varian.com/SECfilings

9. OEM Market Dominance • Service market share historically follows brand Market share for OEM service: Accuray: 100% Tomo: 93% Elekta: 91% Varian: 81% Siemens: 78% Source: IMV Market Study Report 2011

10. Independent Service: Invisible? • Market Research 2012: • 61% of OEM customers unaware of alternatives • Only 10% aware of OSI—largest of the independents • 93% felt OEM pricing was fair • Conclusion: • Historically market unaware of options • Historically market lacked price competition • Premise: • Cost pressures provide an opening for independents to change the game • More assertive marketing by independents required to educate market • LKHS Market research 2012 • Respondents • 20% Radiation oncologists • 29% Directors of radiation oncology • 19% Radiation oncology administrators • 32% Medical physicists

11. Independents: Need to change the game • Example: OSI 2013 • Better price and better service • 99% Uptime guarantee • Flexible contracts: Full Service to T&M • Educate market: • Regional sales team • Challenge the myth: OEM vs OSI • Factory training • Rochester NY • Lakewood NJ • Technical support • 50+ engineers • Factory authorized parts • New and used • Corporate stability • 20+ years

12. Independents: Need to change the game Example: www.thinkosi.com

13. Equipment Arms Race • Open ended purchase decisions being questioned • Marketing vs reality for the patient • Refurbished market will get a closer look • Capital investments will be constrained • Long term pro-forma a challenge • Too expensive a machine may be risky • Bundled equipment and long term service will lack flexibility • Pre- owned need not jeopardize quality of care • Efficacy of treatment vs “sizzle” of new equipment • Market leaders reporting record sales YTD • 34+ machines YTD

14. Conclusion • Conclusion • Linear Accelerator equipment: • Market increasingly willing to look at cost effective equipment upgrades vs. new. • Refurbished suppliers need to be more than just brokers to compete with new • “Precision Certified” • More that just “used”, “pre-owned” or “refurbished” • Linear Accelerator service: • Highly skilled independent service companies are well positioned to take share from OEM’s

15. Paradigm Shift..Underway Les Mann SVP Sales and Service Oncology Services International http://www.youtube.com/watch?v=vNy-7jv0XSc

16. Radiation Oncology Strategies and Structures for Programmatic Success Gregory Spurlock, President, Alliance Oncology / US Radiosurgery

17. Disclosure Information Gregory Spurlock Employment or Leadership Position: Alliance Healthcare Services, President – Alliance Oncology Stock Ownership: Alliance Healthcare Services Please note, all disclosures are reported as submitted to the Cancer Center Business Summit and are available at cancerbusinesssummit.com.

18. What brings you to this conference? Probably a challenge in your program… • Financial • Operational • Marketing • Outdated Equipment

19. We work in a tough environment… • Financial Pressures • Limited Capital Dollars within Your Health System • Flat to Declining Volumes • Changing and Reduced Reimbursement • Staffing cuts in the Health System • Oncology has to support other hospital programs

20. Solution to Your Challenges…Partnership • Partnerships & Outside Resources • Growth in the Oncology Department • Cap Ex Solutions • Non Recourse Financing • Off Books Capital • Operational Focus • Full-time Marketing Program • Outside clinical resources • Support to make you a “rock star” in your hospital

21. Solution to Your Challenges…Partnership • Physician Alignment • Radiation Oncologist as owners in a JV • Medical Oncologists involved in a 340B • Better prepared for changes in payment methodologies • Keep your department competitive with the latest in technology

22. What does a Joint Venture Model Look Like? Development and Management Services Agreement Long-term space lease Service Agreement (Per Patient Fee)

23. Why Hospitals Choose a Joint Venture Model • Market Leading Performance – • Joint venture radiosurgery centers averaged 223 patients in 2012 compared to the national average of 125. • Shift Risk – • Joint ventures bring capital and expertise, allowing Hospitals to broaden clinical offerings and expand physician alignment, while preserving capital for their core competencies. • Shifting Market Share - Typical joint venture patient draw in a service area • Outside of Service Area 44% • Primary Service Area 31% • Secondary Service Area 25% • Increase ancillary services through joint venture growth strategy: • Linear accelerator finishes, post installation, increased an average of 23% • Hospital cancer registry, post installation, increased an average of 41% Above data representative of typical Alliance Oncology Joint Venture

24. Increase Market Share by Drawing Patients Outside Your Service Area Patients Drawn by Strategic Marketing Plan Specific to Each Center

25. New Technology and Full-Time Marketing Grows Overall Program Will NOT Cannibalize Your Linac Program Linear Accelerator FinishesAverage 23% Increase Hospital Cancer Registry Average 41% Increase

26. Think Partnership…