HFM has undergone a 10 year journey of transformation from a siloed organization focused on volume to an integrated care system focused on value, quality, and population health. This included restructuring strategy, processes, and culture around principles of providing the right care in the right setting to achieve the best long term outcomes. As a result, HFM has seen reductions in inpatient volume and costs while improving quality metrics, gaining market share, and achieving strong financial performance compared to competitors who maintained a volume-based approach. HFM's focus on prevention, wellness, and care coordination has also led to improved population health in the community.

1. INSPIRED CARING:
A Culture of Innovating For Health and Value
A COMMUNITY HEALTH SYSTEM’S 10 YEAR JOURNEY
Mark Herzog, FACHE
President & CEO
Laura Fielding,
Administrative Director
Organizational Development

2. HFM…Today
HFM’s Silos…2001

3. EVOLUTION OF OUR ORGANIZATION
• Systems &
Processes • Culture & • Reform Readiness
• Strategy & Achievement
Structure • Quality/ • Organizational
Outcomes/ Safety • Open Repositioning
• Business Innovation, Fl
Plans & • Innovation exibility • Proactive
Facilities Incubation Transformation
• Adaptation
• Performance
Improvement/VIP
2001 2004 2008 TODAY

4. First-Curve to Second-Curve Markets
HOW WILL HOSPITALS SUCCESSFULLY NAVIGATE THE SHIFT FROM
FIRST-CURVE TO SECOND-CURVE ECONOMICS?
VALUE Based
• Payment Rewards Population
THE GAP Value: Quality & Efficiency
VOLUME Based
• Quality Impacts Reimbursement
• Fee-for-Service Reimbursement
• Partnerships with Shared Risk
• High Quality Not Rewarded
• Increased Patient Severity
• No Shared Financial Risk
• IT Utilization Essential for
• Acute Inpatient hospital focus Population Health Management
• IT Investment Incentives Not • Scale Increases in Importance
Seen by Hospital
• Realigned Incentives,
• Stand-Alone Care Systems Can Encouraged Coordination
Thrive
• Regulatory Actions Impede AHA “Hospitals & Care Systems
Hospital-Physician Collaboration of the Future” Fall 2011
4

5. Core Beliefs
DRIVING HFM’S CARE SYSTEM DESIGN
RIGHT CARE - The most effective evidence based approach possible.
RIGHT SETTING - The most cost effective, safest, highest quality
and greatest value.
RIGHT OUTCOME - Achieve the greatest long term benefit to the
patient and society while minimizing physical and financial risk .
“Moving care to the right” is what makes HFM’s
process, outcomes and value unique.
5

6. THE PRICE IS RIGHT QUIZ!
How much might you pay, on average, for each of
the following (match the service with the
estimated price):
A hospital stay? $200
A doctors office visit? $2,000
An outpatient procedure? $20,000
Which of these is a cornerstone Doctor’s
of Population Health? Office Visit
6

7. HFM Inpatient & Outpatient Volume Trends
RELATED TO CHARGES
25% Reduction in Inpatient &
Outpatient Market Volume
5K
INPATIENT
VOLUME $65M
Total Charges 18% Decrease $55M
4K
(less price increases)
Since 2001 8% Increase
Since 2001
$45M
3K
OUTPATIENT
VOLUME 43% Decrease $35M
Since 2001
2001 2003 2005 2007 2009 2011
7
10/11/12

8. Inpatient Market Share
FOR THE TOTAL SERVICE AREA (HFM Transformation had minimal market impact)
22% REDUCTION IN INPATIENT
MARKET VOLUME SINCE 2002
60%
HFM 4.8% Market Share
Decrease Since 2002
40%
Aurora TR
0.1% Market Share
20% Decrease Since 2002
2.9% Market Share
Increase Since 2002
Aurora
0%
BayCare
2001 2003 2005 2007 2009 2011
8

9. HFM Care System Design
HOSPITAL PHYSICIANS SENIOR MISSION RECOGNITION
& NP/PA LEADERS FOCUS
90 bed 90 10 Senior Focus on Nationally
hospital Employed Leaders Wellness recognized
Providers & for Safety,
Prevention Innovation
& Thought
Leadership
5 Senior Focus on
35 bed 35 Leaders the Sick
hospital Employed Population Locally
Physicians Recognized
9

10. Leading in new ways
▪ Conscious effort to flatten the organization
57
49
44
10
6 5
2001 2006 2012
LEADERSHIP SENIOR LEADERS
•Overall Reduced:
-Network leadership by 27%
-Senior leadership by 50%
•Annual savings of $3.1 million from reduction
•Role of outside eyes

11. HFM’s Margin While Transforming to a
Second Curve Delivery Model
6.0%
5K
INPATIENT
VOLUME 4.0%
Gain From Operations (%)
2.0%
4K
8% Increase
Since 2001
0.0%
3K
OUTPATIENT
VOLUME 43% Decrease -2.0%
Since 2001
2001 2003 2005 2007 2009 2011
11
Source: WHA

12. Days Cash on Hand
$220
HFM
$200
$180
$160
$140
$120
$100
Aurora
$80
$60
2001 2003 2005 2007 2009 2011
12

13. While Competitors Talk This Game,
only HFM Walks the Talk Locally!
“Cost-Per-Episode vs. Unit Price
Too many health care purchasers focus on unit price, seeking to
save money with the lowest cost provider for X-rays, office visits
or surgical procedures. These initial “savings” are deceiving
because they don’t take into account the most significant piece
of the health care cost equation – how health care services are
utilized. Low unit-price providers can actually increase employer
costs if they order unnecessary tests or provide inefficient care
that delays healing or causes a relapse.”
As stated on a competitor’s website.
13

14. Inpatient vs. Outpatient Volume Trends
AURORA –TR & BAYCARE FOR TOTAL SERVICE AREA
70% Increase
Since 2001 $70M
6K
$60M
87% Increase
5K Since 2001
$50M
$40M
4K
Total Charges
(less price increases)
1% Decrease $30M
3K
OUTPATIENT
Since 2001
Volume
INPATIENT
2K
Volume
2001 2003 2005 2007 2009 2011
14
10/11/12

15. Regional Hospital Market Comparison
HFM’s leadership has kept the lid on the cost of high utilization
39% Market Volume 80K
Increase Since 2001
60K
Brown
County
30% Market Volume 40K
Increase Since 2001
Outagamie
County 8% Market Volume
Increase Since 2001
20K
Local Service
Area
2001 2003 2005 2007 2009 2011
15

16. Total Hospital Gross Charges 2001-2011
For the Total Service Area, Brown, and Outagamie Counties
$900M
217% Increase
Since 2001
$700M
148% Increase
Since 2001 $500M
$300M
Brown
Outagamie 110% Increase
Since 2001
Total Service Area $100M
2001 2003 2005 2007 2009 2011
12/19/12 Source - WHA

17. Total Hospital Gross Charges 2001-2011
For HFM and Aurora TR + BayCare in the Total Service Area
$110M
89% Increase
Since 2001
$90M
Excludes Open Heart
$70M
173% Increase
Holy Family
Memorial Since 2001
$50M
Aurora TR &
BayCare
$30M
2001 2003 2005 2007 2009 2011
12/19/12 Source - WHA

18. If HFM Were the Only Choice
UNCOVERING COST SAVINGS FOR MANITOWOC COMMUNITY
Amount our Community
Spent on Hospital Care $283 Million
If Manitowoc used
HFM ONLY - $255 Million
Reduced Cost for our
Community $28 MILLION!
That’s the power of “moving care to the right”!!
Assuming all hospital services were provided to
Total Service Area residents by HFM from 2001 - 2011

19. HFM’s CMS Value Based Purchasing
▪ Total Performance Score: 57
▪ Estimated Net Revenue Change: 0.1%
▪ Percentile Rank: 61
50%
25% 75%
0% 100%
Source: The Advisory Board Company

20. HFM’s CMS Readmission
Performance
▪ Estimated Penalty Percentage: 0%
▪ Estimated Net Revenue Change: $0
50%
Hospitals subject to 1%
Penalty Cap
25% 75%
Hospitals subject to
Penalty between 0%
and 1%
Hospitals Not Subject
0% 100% to Any Penalty
Source: The Advisory Board Company

21. UW Population Health Model
RANKINGS BASED ON THE FOLLOWING:
Policies & Health Health
Programs Factors Outcomes
FOUR TYPES OF HEALTH FACTORS MEASURED:
Health Behaviors
(30%)
1. Access to Care
Clinical Care (20%)
2. Quality of Care
Social & Economic
Factors (40%)
Physical
Environment (10%)
Source: Robert Wood Johnson Foundation and the University of Wisconsin Population Health Institute County Health Rankings model 2012 21

22. Manitowoc County Clinical Care Rank
POPULATION HEALTH
Health Behaviors
(30%)
Manitowoc’s Clinical Care
Rank out of 72 WI Counties:
Clinical Care (20%)
▪ 2010: 31
Social & Economic Factors
▪ 2011: 23 Improvement
(40%)
▪ 2012: 18 Since 2009!
Physical Environment
(10%)
Source: Robert Wood Johnson Foundation and the University of Wisconsin Population Health Institute 22

23. At 21st & Franklin Street, Sept. 2012
23

24. Where bars trump grocery stores
More Bars
Source: flowingdata.com
More Grocery Stores 24

25. Measuring “Quality” in Healthcare
One thing is clear:
Today there is no universal defining methodology or vendor
that purchasers, providers and patients agree on!
Data quality & reporting vary greatly. Oversimplifying is risky.
1. Purchasers, providers or patients who make a major decision on
solely one data source are not making a fully informed decision.
2. Two types of quality measurement firms:
I. Independent & objective, or
II. Aligned with purchasers as a negotiating tool
25

26. HIGH DEDUCTIBLE = CONSUMER DRIVEN
• Employers offer High Deductible Health Plans:
• Nationally 17% of employers offer HDHP; Deductibles range $3000 -
$4000 (Futurescan 2012)
• Locally 60+% of large local employers & nearly all small employers
offer HDHP, Deductibles range $5,000 - $10,000
• Insured population beset by the triple whammy of high
deductibles, stagnant wages, and fear of job loss
• Result is, they prefer “not to know”
• How will insurance exchanges fill the role of care coach for policy-
shopping consumers? Will they value provider continuity?
• Wellness/Prevention benefits dependent on employer HR leaders

27. High Deductible= Consumer Driven
 Employers offer High Deductible Health Plans:
• Nationally 17% of employers offer HDHP; Deductible range $3000 - $4000
(Futurescan 2012)
• Locally 60+% of large local employers & nearly all small employers offer
HDHP; Many deductibles now range $5,000 - $10,000
 Insured population beset by the triple whammy of high
deductibles, stagnant wages and fear of job loss.
• Result; they prefer “not to know”.
 How will insurance exchanges fill the role of care coach for policy-
shopping consumers? Will they value provider continuity?
 Wellness/Prevention benefits dependent on employer HR leaders.

28. An HDHP Word of Caution
▪ HDHP are generally effective if properly designed and
reflect an employee’s ability to fund the deductible, and
they are educated about and compliant with wellness &
preventive benefits.
▪ Considerable evidence exists that HDHP, combined with a
soft economy, frequently mean important care &
prevention forgone (mammo)
▪ Sign of the future: HFM’s Community Care program wrote
off nearly $450,000 to insured patients, almost all with
HDHP. (applied to bills to be written off because of
economic hardship)
28

29. HFM Employee Right Care Results
74.6
74.5
73.6
72.6
72.2
Avg Age 46 Avg Age 47 Avg Age 47 Avg Age 48 Avg Age 48
85% Female 84% Female 84% Female 85% Female 85% Female
2008 2009 2010 2011 2012 29

30. HFM Employee Right Care Results
7% Average of 1,500
participants
6%
5%
4%
3%
2%
No No No No
1% premium premium premium premium
increase increase increase increase
0%
2008 2009 2010 2011 2012
30

31. HFM Employee Right Care Results
Inpatient stays by individuals
covered under HFM’s health plan
Inpatient stays in 2002 124
Inpatients stays in 2012 - 91
33 Fewer Inpatient Stays
Average Hospital
Stay=$20k

32. Recent Recognition
▪ REGIONAL RECOGNITION
▪ 2010 New North Excellence in the Workplace
▪ 2009 Manitowoc Chamber Business of the Year
▪ TOP 2% NATIONALLY
▪ Solucient 100 Top Performance Improvement Leaders
▪ Top 25 Most Wired – Small & Rural Hospitals
▪ Healthcare Information & Management Systems –
Society Stage 6
▪ 4x Recipient of HealthGrades Excellence in Patient
Safety
32

33. THANK YOU!
QUESTIONS