Effects of the System Restructuring and Support Agreement by and among Daughters of Charity Ministry Services Corporation, Daughters of Charity Health System, Certain Funds Managed by BlueMountain Capital Management, LLC, and Integrity Healthcare, LLC on the Availability and Accessibility of Healthcare Services to the Communities Served by Saint Louise Regional Hospital Prepared for the Office of the California Attorney General October 2, 2015 MDS Consulting, a VHA business 24596 Hawthorne Boulevard Torrance, CA 90505 P: 424 237 2525 ■ F: 424 247 8248 www.MDSconsulting.com © 2015 VHA Inc. All rights reserved. TABLE OF CONTENTS INTRODUCTION & PURPOSE ............................................................................................................................... 4 Reasons for the Transaction ..................................................................................................................... 7 Transaction Process and Objectives.......................................................................................................... 7 Timeline of the Transaction .................................................................................................................... 12 Summary of Agreements ........................................................................................................................ 16 System Restructuring and Support Agreement ...................................................................................... 17 Transitional Consulting Services Agreement .......................................................................................... 21 Debt Facility Commitment Letter............................................................................................................ 23 Deposit Escrow Agreement ..................................................................................................................... 23 Purchase Option Agreements ................................................................................................................. 24 IT Agreement........................................................................................................................................... 25 Mitigation Plans ...................................................................................................................................... 26 Performance Improvement Plan ............................................................................................................. 27 Health System Management Agreement ............................................................................................... 27 Use of Net Sale Proceeds ........................................................................................................................ 29 PROFILE OF DAUGHTERS OF CHARITY HEALTH SYSTEM ......................................................................................... 30 Daughters of Charity Health System ....................................................................................................... 30 Daughters’ Inpatient Volume .................................................................................................................. 33 Financial Profile ....................................................................................................................................... 33 Daughters’ Payer Mix .............................................................................................................................. 38 Unionized Employees .............................................................................................................................. 39 PROFILE OF SAINT LOUISE REGIONAL HOSPITAL ................................................................................................... 40 Saint Louise ............................................................................................................................................. 40 Overview of the Hospital ........................................................................................................................ 41 Key Statistics ........................................................................................................................................... 41 Programs and Services ............................................................................................................................ 42 Accreditations, Certifications, and Awards ............................................................................................. 43 Quality Measures .................................................................................................................................... 44 Seismic Issues .......................................................................................................................................... 45 Patient Utilization Trends ....................................................................................................................... 46 Payer Mix ................................................................................................................................................ 47 Medi-Cal Managed Care ......................................................................................................................... 48 Medical Staff ........................................................................................................................................... 49 Unionized Employees/Associates ........................................................................................................... 50 Financial Profile ....................................................................................................................................... 51 Capital Expenditures ............................................................................................................................... 52 Cost of Hospital Services ......................................................................................................................... 52 Charity Care ............................................................................................................................................. 53 Community Benefit Services ................................................................................................................... 55 PROFILE OF BLUEMOUNTAIN & INTEGRITY ......................................................................................................... 57 BlueMountain Capital Management, LLC ............................................................................................... 57 Integrity Healthcare, LLC ......................................................................................................................... 58 ANALYSIS OF THE HOSPITAL’S SERVICE AREA ....................................................................................................... 60 Service Area Definition............................................................................................................................ 60 Service Area Map .................................................................................................................................... 61 2 Health Professional Shortage Areas, Medically Underserved Areas, & Medically Underserved Populations ............................................................................................................................................. 62 Certified Stroke Centers in Santa Clara County ...................................................................................... 64 Demographic Profile ............................................................................................................................... 65 Medi-Cal Eligibility................................................................................................................................... 67 Selected Health Indicators ...................................................................................................................... 67 2013 Community Health Needs Assessment .......................................................................................... 69 Hospital Supply, Demand, and Market Share ......................................................................................... 70 Hospital Market Share ............................................................................................................................ 71 Market Share by Payer Type ................................................................................................................... 72 Market Share by Service Line .................................................................................................................. 73 Market Share by ZIP Code ....................................................................................................................... 74 Service Availability by Bed Type .............................................................................................................. 75 Medical/Surgical Capacity Analysis ......................................................................................................... 75 Intensive Care Unit/Coronary Care Unit Capacity Analysis .................................................................... 76 Obstetrics Capacity Analysis ................................................................................................................... 77 Emergency Department Volume