Hospice Industry Overview

October 2013

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Attractive Industry Dynamics The $18.9 billion hospice industry is projected to grow 7.4% annually through 2017P. •

•

Hospice is the provision of holistic and individualized care to patients facing a life limiting illness and their families. ‒

Congress created the Medicare hospice benefit in 1982

‒

Goal of hospice is to maximize quality of life and comfort, not to cure

Hospice is gaining wider acceptance as an alternative to curative care at the end of life. ‒

•

Approximately 44% of Medicare decedents in 2010 received hospice care compared to 23% in 2000

Growth in the hospice industry will be driven by shifts in patient preferences towards non-acute care, hospice’s cost saving value proposition, and the aging of the U.S. population. Hospice Market Size For the years ended and ending December 31, 2007 – 2017P ($ in billions) $30 $27.0 $25.1 $25

$23.4 $21.8 $20.3 $18.9

$20 $17.2 $15.7 $15 $11.8

$13.0

$14.3

$10

$5

$0 2007

2008

2009

2010

2011

2012

2013E

2014P

2015P

2016P

2017P

Source: IBIS. 1

Industry Growth Driver Shift to Non-Acute Care Utilization of hospice care is increasing as patient preference shifts to receiving end-of-life care in non-acute settings. •

•

Overall shift towards treating patients outside of costly acute care settings benefits hospice utilization. ‒

98% of hospice patient care days are delivered in a non-acute setting

‒

The percentage of elderly who died in acute care hospitals fell from 33% in 2000 to 25% in 2009

Patients and families continue to become more educated on the many benefits of hospice, driving utilization. Medicare Hospice Utilization1

Hospice Site of Service Mix For the year ended 2012

For the years ended and ending December 31, 2010 - 2010 Hospice Inpatient Facility 1%

50%

Acute Care Hospital 1%

44.0% 42.0% 38.9%

40%

40.1%

36.1%

Residential Facility 16%

33.4% 31.0% 28.7%

30%

26.6% 22.9%

Nursing Home 25%

24.7%

20%

Private Residence 57%

10%

0% 2000

Source: MedPac and National Hospice and Palliative Care Organization (“NHPCO”).

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: MedPac and NHPCO. (1) Defined as deaths under hospice care divided by total annual deaths.

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Industry Growth Driver Cost Saving Value Proposition Hospice offers a compelling value proposition as the lowest cost alternative for treating terminally-ill patients. •

Seniors age 65 and older account for approximately 40% of healthcare expenditures.

•

Approximately 30% of a senior’s total Medicare expenditures occur in the year preceding death.

•

Managing end-of-life care is a key area of focus of healthcare cost containment.

•

Patients who are admitted to hospice care spend up to nine fewer days in a hospital.

•

Hospice is by far the lowest cost patient setting with a average per diem cost of $153 per day. Hospice Daily Medicare Charges vs. Other Settings For the year ended December 31, 2010 (Dollars per treatment day)

$7,000 $6,200 $6,000

Difference of $6,047 per beneficiary per day

$5,000 $4,000 $3,000 $2,000 $622

$1,000

$153 $0 Hospital Inpatient

Skilled Nursing

Hospice Routine Home Care

Source: Hospice Associate of American and Health Affairs. 3

Industry Growth Driver Aging Population The aging U.S. population will continue to drive growth in hospice utilization. •

Seniors over the age of 65 represent 83% of hospice patients. ‒

Over 65 age group will grow from 40.2 million in 2010 to 54.8 million in 2020P

Hospice Patients by Age

Population Age 65 and Over

For the year ended 2011

25 - 34 years 35 - 64 years 65 - 74 years

0.4% 0.4% 16.0% 16.3%

75 - 84 years

27.6%

85 years and over

39.3%

100% 90%

70 Population Age 65 and Older

Less than 24 years

80

% of Total Hospice Patients

83%

80% 60 50 40.2

40 30 20 10

41.5

6.1

6.2

14.1

14.4

5.8

5.9 13.5

13.8

13.0

13.3

23.3

24.3

25.3

6.3

6.4

6.5

15.9

14.7

15.3

15.6

15.0

31.0

27.4

29.8

32.3

28.6

15.4%

15.7%

16.1%

2018

2019

2020

6.2

44.1

5.8

53.1

48.4

42.8

6.0

51.5

47.0

45.5

26.3

54.8

49.9

21.5

22.4

13.0%

13.2%

13.5%

13.8%

14.1%

14.4%

14.7%

15.1%

2010

2011

2012

2013

2014

2015

2016

2017

60% 50% 40% 30% 20%

0

10% 0%

Age 65-74

Source: NHPCO.

70%

6.6

Percentage of Population Age 65 and Older

Patient Age

For the years ended 2010 – 2020 (population in millions)

Age 75-84

Age 85+

Source: Department of Health and Human Services, Administration on Aging.

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Reimbursement Overview Hospice care is covered under Medicare, Medicaid, and many private insurance plans. •

The Medicare hospice benefit is the predominant source of payment for hospice care in the U.S. and accounts for approximately 90% of reimbursement. ‒ ‒

•

The Medicare Cap (“Cap”) is an annual limitation on reimbursement for providing hospice treatment. ‒ ‒

•

Hospice is provided free of charge to patients under the Medicare benefit Medicare reimbursement rates vary based on the patient’s acuity and the level of care needed Cap was $25,377 per patient for 2013 Excessively long lengths of stay present risks of violating the Cap and incurring mandatory repayments to CMS

In recent years, the hospice industry has received reimbursement increases from CMS. Current Hospice Reimbursement Overview

Historical Hospice Reimbursement Rate Changes

For the year ending October 31, 2013

For the years ending October 31, 2009 – 2013 4%

Level of Care Routine Home Care

Description Home care provided on a typical day

Component

Non-

Per Diem

Subject to

Weighted

Rate

Wage Index

Amount

$153.45

$105.44

3.6% 3.6% 3.0%

3%

2.6%

$48.01

2.1% 1.8%

2% Continuous Home Care

Inpatient Respite Care

General Inpatient Care

Home care provided during periods of patient crisis Inpatient care for a short period to provide respite for primary caregiver Inpatient care to treat symptoms that cannot be managed in another setting

$895.56

$615.34

1.6%

1.4%

$280.22

0.9%

1% $158.72

$85.92

$72.80

$682.59

$436.93

$245.66

0% 2009

2010

2011 Gross

Source: CMS.

2.5%

2012

2013

Net¹

Source: CMS. (1) Net of BNAF phase-out and Wage Index change. Excludes impact from budget sequestration. 5

Competitive Landscape Hospice is a highly fragmented market with no individual provider comprising more than 7.4% of the market. •

44% of the market is served by non-profit and government hospices.

•

The top 4 players only account for approximately 17% market share.

Hospice Market Competitive Overview For the year ended 2012

Largest Hospice Players For the year ended 2012

Hospital-Based 10%

Hospice Platform

For Profit 46%

Daily Census Estimate

States of Operation

Market Share

Vitas

14,443

18

7.4%

Gentiva

12,700

29

6.5%

Amedisys

5,091

25

2.6%

LHC

1,100

19

0.6%

161,842

N/A

82.9%

Other (Over 3,500 Hospices) Non-Profit 44%

Source: CMS and public filings.

Source: CMS and public filings.

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