CONTROL SYSTEM

For our company, we have developed a target system that we believe enables us to continuously outperform the market and our competitors. The target system defines parameters that are relevant for management, such as revenues and EBITDA, as well as indicators for the growth of the services and the consolidated profit.

To increase our shareholder value, we believe that profita-ble growth of our services, our case numbers and our val-uation ratios, as well as our revenues, are important fac-tors.

The valuation ratios are indicators for the billing of medi-cal services in hospitals. The valuation ratio is obtained for each group of patient cases (diagnosis related groups – DRG) in combination with the case mix index (parameter for the average case severity). The valuation ratio is thus a measure of the severity of a medical case. Multiplying

the valuation ratio with the base case value, we obtain the amount that a cost bearer (health insurance provid-er) needs to pay to a hospital for a case of treatment. For us, this performance indicator is meaningful for both the number of cases and for the assessment of quality.

We calculate our revenue growth as the growth rate of the revenues reported in the consolidated financial state-ments. For the purpose of measurement and control, the revenues are adjusted for the effects of consolidation in order to determine organic growth.

EBITDA describes our operating performance before de-preciation and is an important control-related financial performance indicator. Our goal is to achieve EBITDA mar-gins over the financial year which, in line with the orienta-tion of the individual hospitals, are among the most at-tractive in the hospital market. These are defined as the ratio of EBITDA and revenues.

Furthermore, the consolidated profit after taxes is used for the purpose of measuring and managing earning capacity at Group level. This number has the most signif-icant impact on the undiluted earnings per share that is used for communication with the capital markets.

The aim of management when dealing with equity and debt is the strict pursuit of matching maturities (horizon-tal balance sheet structure) of assets and liabilities. Long-term assets should be financed long-Long-term. Long-Long-term sources of funds include as shown in the balnce sheet, equity and long-term debt. This ratio should be at least 100 %. Although the Group with its personnel cost ratio of over 50 % is often assigned to the service sector, the busi-ness model has a long-term focus and is initially invest-ment-driven. We want to keep investment costs at less than 35 % of equity in the long term.

When using borrowed capital, we are guided by the fol-lowing control variables in order to minimise risk. The aim is to limit the ratios of net financial debt (this corresponds to financial debt less cash and cash equivalents) and EBIT-DA to a maximum of 3.5 times, and the ratio of EBITEBIT-DA to net finance result to a minimum of 5.0 times.

As part of the liquidity management of our business op-erations, we analyse the turnover factors of the operating net working capital. In addition, we have established min-imum requirements that must be considered in general before an acquisition is made. In particular, acquisitions must have the potential to make a positive contribution to corporate value within a period of at least three years following integration, and to generate a positive cash re-turn of 15 % within three to five years following our invest-ment and modernisation.

1.5 QUALIT Y

At all organisational levels of RHÖN-KLINIKUM AG, finan-cial year 2014 was marked by the strategic reorientation of the company. This also applies to the Group Medicine Divi-sion, where we specified quality management measures in the individual areas of activity such as internal and external quality assurance, medical controlling, control mechanisms in hygiene management, and medical-strategic develop-ment. As in recent years, the quality of clinical care was thereby always in the foreground.

In order to not only ensure but also steadily increase the high quality of medical care, RHÖN-KLINIKUM AG has de-veloped and expanded individual quality management procedures, alongside tools and analysis systems which have already been tried and tested.

One example of this is the comparison portal www.qualitaetskliniken.de. With the portal, RHÖN- KLINIKUM AG has been focusing on quality transparen-cy and openness for several years now. Jointly developed, pioneering methods for the measurement and assess-ment of quality in several dimensions ensure that relevant developments can be detected and evaluated in a target-ed manner. In May 2014, another dimension was addtarget-ed to the four dimensions of medical quality, patient safety, patient satisfaction and referral satisfaction, namely ethics and values.

In parallel to the broad representation of quality indicators in the 4QD portal, we have agreed with the partner clinics in the "Wir für Gesundheit" ("We stand for Health") hospital network to implement strict and measurable medical qual-ity criteria in our clinics.

The objective of high medical quality standards in the partner clinics are based on results-oriented, reliable and meaningful quality measures. For this purpose, we use the "German Inpatient Quality Indicators" (G-IQI) method.

This makes it possible to see the medical quality of perfor-mance in a simple manner. It uses metrics that are routine-ly documented for the invoicing of services. This data ena-bles a meaningful and comparable measurement of quality that can be verified at any time.

More specifically, the indicators comprise, for example:

„ Performance indicators such as the age and gender- standardised hospital mortality related to certain inter-ventions or treatment.

„ Process indicators such as the proportion of minimally invasive surgical techniques and quantity information.

„ Indicators on the care situation such as the proportion of therapeutic interventions in all left cardiac catheter procedures or the proportion of stroke patients who were treated in a stroke unit.

With www.qualitaetskliniken.de, the patients have a tried and tested internet portal which gives them an objective comparison of individual facilities. The clinics also benefit from this system. They can derive the necessary quality im-provements from the available data and implement them.

By using these methods for quality assurance and quality presentation, we go well beyond the current legal requirements. Together with our partners at www.qualitaetskliniken.de and "Wir für Gesundheit" ("We stand for Health"), we are setting the right focus in the in-terests of best medical care and maximum patient safety.

Thus, we have focused on the wide collection of measures which will be implemented through the regional work-ing group on hospital care reform. Here, the key features are quality premiums and discounts, minimum quantities, surgical checklists and second opinions. For us, there is no question that quality will play a greater role in the future of the remuneration of hospital services. Hospitals, politics and health insurance companies must work together to develop a framework and conditions for quality-oriented remuneration.

The continuous improvement of medical care is a constant challenge, which the Group also addresses in its expert panels. With the expert panels, wherein experts gather from all sites, we, supported by the Medical Board and the Group Medicine Division, encourage innovative ideas and improvement in the quality of care.

In this way, the expert panel identifies, for example, best practice approaches from routine data or considers critical treatment and diagnostic procedures of the specialist field.

Other areas of focus are subject-specific advanced and fur-ther education and training, methodology in the use of medical devices, and all other activities related to the pres-entation, improvement and assurance of quality in medi-cal care. The expert panels of RHÖN-KLINIKUM AG work in a problem-oriented manner and aim to understand qual-ity as the theme of a lifelong learning and improvement process. Their primary purpose is, therefore, to improve the current provision of care through a cooperative, prob-lem-based feedback system.

The field of medical controlling is the economic counter-part to quality management. Medical controllers are inter-nal consultants to the medical and administrative areas.

In operational medical controlling, coding specialists re-cord and document the service for each individual patient, while others control the documentation. In this way, they provide the basis of correct service billing and a solid infor-mation base for the budget negotiations with cost units.

The changed structure of RHÖN-KLINIKUM AG which now has five sites offering full-service and specialised care also requires a new, appropriate form of group-wide hygiene management. Following detailed consultation, we have developed a mix of a centralised and decentralised organi-sation. Under coordination of the Group Medicine Division, two specialists were found within the Group division who are responsible for the specialist topics in the field of hos-pital hygiene which are relevant throughout the Group.

The organisation and employee training were further ex-panded in the area of antibiotic stewardships. Here, we want to tackle the growing development of resistance of hospital pathogens by optimising antibiotic therapy. In addition to better quality of care for patients, this can also achieve considerable cost savings.

In December, a study was launched which will stand-ardise screening for multi-resistant organisms within the RHÖN-KLINIKUM AG sites in a scientifically-proven man-ner. The first results are expected mid-2015.

1.6 MEDICAL RESEARCH AND TRANSFER INTO