Healthcare Business Impacts & Drivers for Providers Sarah Churchill Llamas, Shareholder Healthcare Attorney

Legislative Actions Impacting The Provider Community ▪ Affordable Care Act – Individual mandate removed – Individual insurance market should stabilize in 2018 ▪ Medicare/Medicaid – Managed Medicaid and Medicare Advantage – Spending cuts and block grants expected ▪ Political Uncertainty Continues

Tax Cut and Jobs Act ▪ Repeals the ACA's individual insurance mandate – Causes uninsured population to rise and raise uncompensated care costs ▪ Interest expense deductions limited, reduced further in 2022 – Tenet Healthcare (carried $15B of debt) has said it expects the change to lower its 2018 earnings forecast ▪ Cuts the corporate tax rate to 21 percent from 35 percent and limits tax-exempt refundings – Tax-exempt bonds are now a less attractive investment for banks, which will weaken demand for direct bank loans and private placements – Bonds have been used to reduce long-term borrowing costs and take advantage of lower interest rates

Growing Competitive Market Forces ▪ Consolidation to continue in insurance, acute, post-acute, biopharma and device markets – Type and scope ▪ Increase in low-cost alternatives – Urgent care, telemedicine, micro-hospitals ▪ Horizontal Consolidation – Ascension – Provident St. Joseph’s; CHI-Dignity; Aetna – Humana (failed) ▪ Vertical Consolidation – CVS – Aetna; Optum – DaVita Medical Group

Current Trends in Healthcare Delivery – Shift to Value versus Volume ▪ Reimbursement Changing – Tiered payments – Declining Medicare payments, ACOs – MACRA/MIPS/APMs ▪ Infrastructure and Capital Needed – Health IT – Care delivery models ▪ Consumerism on the Rise