Customer benefit of Siemens Healthcare profitability analyses

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Siemens Healthcare Consulting

August 2012

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1. Presentation of Siemens Healthcare Consulting

2. Business planning, master planning & profitability analysis

3. Project process of the profitability analysis

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Our portfolio contains solutions that address all relevant

topics regarding the health care system

Infra-structure

Clinical

processes

Strategy and

sustainability

Competence leader for sustainable service

provision in the health care system

Business- und master planning

Performance indicators and benchmarking

Sustainability assessments and consulting

Setting trends for clinical process optimization

Process optimization

Clinical pathways

Development of innovative concepts of

technology and infrastructure

Process optimized equipment concepts

Technology and investment planning

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An interdisciplinary team with an exclusive focus on

health care topics

Our consultants focus only on health care topics:

50% of our consultants have previously worked in hospitals and surrounding fields

Extensive experience in: health care system, consultancy and investment banking

Consultants with multiple degrees and doctorates (MD, PhD, etc.)

We have a high international experience in combination with a strong local presence

Managing excellence

Experienced experts in:

Hospital management,

investment banking and

health economics

Clinical excellence

Physicians specialized in:

Radiology, cardiology,

oncology and neurosurgery

Postgraduate qualifications

in management and health

economics

Technological excellence

Physicists, engineers and

computer scientists

Long-time experience in

the IT- and technology

industry

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Strategy

Infrastructure

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Dr. D. Seidel Health Management

Our interdisciplinary experienced team

Dr. S. Dietrich Dentistry Dr. J. Kirschbaum Medicine C. Schmieder Care Management Dr. E. Klein Medicine J. Schneider Business Administration Clinical

Competence Centers Siemens Healthcare Consulting

Cardiology Neurology Oncology O. Ekinci Cardiology Dr. P. Fischer Cardiology Dr. B. Hofmann Neurosurgery Dr. U. Zikeli Neurology Dr. W. Voigt Oncology Dr. C. Förtsch Oncology A. Aisenbrey Business Administration S. Gager Health Economics M. Haseneyer Computer Science B. Helm Business Administration Dr. J. Höllthaler Medicine T. Hopmeier Business Administration H. Kirschbaum Computer Science Dr. M. Koschnike Business Administration I. Rebmann Psychology C. Wild Industrial Engineer C. Windpassinger Computer Science S. Koos Business Administration V. Ziebandt Business Administration Dr. J. Kirsten Business Adm. & Biology

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1. Presentation of Siemens Healthcare Consulting

2. Business planning, master planning & profitability analysis

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Profitability analyses offer benefits for external customers

and Siemens Healthcare sales organization

Initial situation:

Siemens sales organization identifies customer’s potential for a new or additional modality

Questions:

How can we convince the customer of the benefits?

What kind of economic arguments will the customer need?

How can we support our customer?

Sales perspective (directors

and representatives)

A hospital can use such an analysis to convince the supervisory board,

health insurance companies and the public funding organisations.

Conclusion

Initial situation:

The executive board is firmly convinced of the medical

benefits and technical capability of Siemens modalities

Questions:

Is the investments worthwhile for my company?

Can we financially afford such an investment?

Do we have an adequate number of potential patients in our catchment area?

Perspective of executive

board

Number of relevant patients

Trends in epidemiology, demography and medical technology

Competition in the catchment area

Reimbursement possibilities for the hospital

Required investment and running costs

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Profitability analysis

Business planning

Master planning

Business planning, master planning and profitability

analyses - focus

Three essential categories …

… with a different focus

One hospital or other health

care provider

One medical division/

department

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Business planning, master planning and profitability

analysis – scope of services

Market and competition analysis

Prediction of performance development

Analysis of the required resources

Calculation of predicted revenues and

costs

Idea creation/ strategic planning

Sales concept/ marketing

Personnel resource planning

Political and legal topics

Functional design and space planning

Implementation planning

Profitability analysis

Business planning

Master planning

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1. Presentation of Siemens Healthcare Consulting

2. Business planning, master planning & profitability

analysis

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Profitability analysis: project example

Customer situation

Approach

Outcome

Profitability analysis for the investment decision

Projected performance volume on the new angiography device

Statement on profitability of the investment

Project goal

German hospital of maximum medical care

Planning of a replacement purchase of a modern angiography device for different medical departments

Tense financial situation for investments at the hospital

A leasing provider offered to take over the investment under special conditions

Difficult market position of the hospital in an area with a high number of

competitors

Declining number of inhabitants in the

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Module 2

Market- and competition analysis

Description Examples

Market overview:

Demographical und epidemiological

analysis of the catchment area

Identification of existing facilities in the

relevant region

Competition analysis

Interviews

Data acquisition

Analyses and calculations

Estimation of additional market potential

Market analysis

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Projected development of case numbers

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Module 3

Required resources

Description Examples

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Interviews

Analyses and calculations

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Visualization of the required resources:

Spatial requirements

Description of the technical equipment

Personnel requirements

Level of competence of the required

personnel

Detailed description of required

resources

Spatial situation and patients’ pathways

Process of a emergency-intervention

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Modules 4 and 5

Revenue and cost calculation and final evaluation

Description Examples

Revenue and cost calculation:

Identify reimbursement options

Calculation of investment- and running

costs

Determine of break-even point

SWOT-analysis

Data acquisition

Forecast model

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Revenue and cost determination

Profitability analysis

Financial model

Break-even- and sensitivity analysis

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1. Presentation of Siemens Healthcare Consulting

2. Business planning, master planning & profitability

analysis

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Profitability analysis of a Hybrid-OR

Final presentation

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Management Summary

The investment in a Hybrid-OR is reasonable from a

medical, economic and strategically perspective

In addition to the existing patients there is a heterogeneous competitive situation

for relevant patients in the catchment area. An ultra-modern Hybrid-OR and a targeted marketing concept could increase the numbers of patientsin the regarding departments without any side-effects by 10% per year.

Market potential

An efficient working process of the Hybrid-OR leads, on the most conservative assumptions, in both scenarios to a cumulated and discounted operative result between T€ 2.000 (scenario 1) und T€ 2.500 (scenario 2) at a 8-year period.

Economic profitability

An investment in a Hybrid-OR is reasonable from a medical, economic and strategicallyperspective. However, a professional OR-management,

interdisciplinary collaboration, acquisition of heart surgeons and the extension of the trauma center are required for a successful operation.

Recommendation

The German hospital considers an installation of a Hybrid-OR, which should be previously analyzed in terms of efficiencyin respect of the current market situation.

Initial situation

Both the spatial and technical requirementsfor the installation of a Hybrid-OR are fulfilled by the hospital after some reconstruction work. The quantitative and qualitative requirements of the personnel are only partially fulfilled currently.

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Management Summary

Market potential

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New standards in terms of diagnosis and therapy by a next

generation Hybrid-OR

• Optimal imaging with reduced contrast media administration, radiation burden and avoiding of repositioning

• Gentle intervention by a minimally-invasive technique: Quicker cure and reduced length of stay (LOS) • High patient-safety due to a

intra-operative quality-check

faster intervention

• Innovation leadership in vascular-and cardiac surgery

• Direct quality-check reduces complication and re-operation rate (approx. 10% are faulty)1

• Incentive for innovative medical personnel

• Additional reimbursement potential due to an extension of the range of treatment

• LOS and operating time reduction (approx. 11%)2

• Location development especially for age-related diseases (e.g. reduced contrast media

administration by approx. 45%2)

Treatment of patients with

pre-existing kidney diseases

• Technological leadership and new standards of care

• Medical and regulatory future trends: Future complex

interventions will only be executed in a Hybrid-OR3

The combination of e.g. a Siemens Artis Zeego and an adjustable

OR-table creates an ultra-modern Hybrid-OR, setting new

standards in diagnosis and therapy in cardiology, neurosurgery as

well as vascular- and trauma surgery

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Prospectively the following diseases from different

disciplines will be treated in the Hybrid-OR

Specialist Hybrid-OR Procedure Neuro-surgeon - Carotis-angioplasty (CAS) - Aneurysm coiling - Intracranial stents Vascular surgeon -AAA1_Endograft -TAA2_Endograft -Complex peripheral cases -Quality-control of complex procedures (10% error ratio) Interventional cardiologist -Minimal-invasive coronary arteries bypass / (PCI) -Minimal-invasive valve surgery -TAVI5 -Heart defect intervention Interventional radiologist -Oncologic procedures -Carotis stenting -kyphoplasties (stabilization of vertebrae) -Interventional therapy of myomas (Gynecology) Orthopedist, Trauma surgeon - Hip surgery at multimorbid patients - Spinal surgery - Polytrauma

Neuro-radiologist

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Practical example: A Hybrid-OR supports the treatment of

aortic valve stenosis (AS)

Treatment of aortic valve stenosis – Calcification of the aortic valve

Current approach

•

Sternotomy (full or partial)

•

Use of life support machine

•

Removement of the

degenerated valve

•

Replacement by a mechanic or biologic valve

•

Good long-term outcome

•

Few severe following

complications

1)

Hybrid-OR approach

(TAVI)

•

No longer sternotomy and life support machine necessary

•

Covering of the old valve with a

catheter-guided valve

•

The intervention takes place at

the beating heart

•

Shorter operating-time, less complications, less painful

3)

Adoptions for the

future

•

The number of severe AS will increase, due to the

demographic trend

•

Increasing number of patients with a high risk or

contraindication

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Management Summary

The investment in a Hybrid-OR is reasonable from a

Market potential

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Hybrid-OP location2

Planned

The analysis of the catchment area shows a heterogeneous

competitive situation and possibilities to extend the catchment

area towards north and south

A basis of relevant patients exists in the hospital (detailed analysis: 500 patients1₎

Criteria for additional patients: The catchment area is weighted by travelling-time, competition and emotional barriers

We suppose a supra-regional attraction of the Hybrid-OR for polytrauma

However, there is less Hybrid-OR competition in the eastern and southern part of the catchment area, further installations are planned already2

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Relevant ICDs for the Hybrid-OR will increase in the

catchment area (I65, I70, I71, I72, I73)

Projected case numbers in 20301,2

Development of relevant ICDs for the Hybrid-OR in the catchment area1, 2

Assumptions

The demographic trend in the catchment area1 _{shows a significant increase of elderly}

persons (>40 years of age)

Inhabitants maintain on the same level (approx. 1.8 million inhabitants in the catchment area)

Vascular diseases (ICD I70) will have the biggest share of future diagnoses

Additional patients can be gained by good marketing strategies of the hospital (e.g. medical competence center)

Highly qualified personal and innovative medical technology will guarantee a high standard of care

Under conservative calculations, these

+49% 2030 4.942 Increase 1.622 2010 3.320 +49% +38% +22% 4,942 244 4,567 259 4,065 268 3,320

I73 Other peripheral vascular diseases I72 Other aneurysm and dissection

I71 Aortic aneurysm and dissection I70 Atherosclerosis

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TOP 10 DRG, that should be crucial for the alignment of the

hospital and the Hybrid OR, as well as strategic potentials

1

80 30 200 20 150 50 50 70 50 40 50 10

Cases year 1

Ø 19.174 € Ø 6,583 Polytrauma Diverse

Endovaskuläre Implantation eines

Herzklappenersatzes oder transapikaler … Komplexe Gefäßeingriffe ohne komplizierende Konstellation, …

Eingriffe an den extrakraniellen Gefäßen mit … Rekonstruktive Gefäßeingriffe ohne Herz-Lungen-Maschine, …

Implantation eines Herzschrittmachers, Zwei-Kammersystem, …

Komplexe oder mehrfache Gefäßeingriffe außer große rekonstruktive Eingriffe …

Rekonstruktive Gefäßeingriffe ohne Herz-Lungen-Maschine, …

Rekonstruktive Gefäßeingriffe ohne Herz-Lungen-Maschine, ohne komplizierende …

Amputation mit zusätz. Gefäßeingriff oder mit Hauttransplantation, mit äußerst …

Endovaskuläre Implantation von Stent-Prothesen an der Aorta, nicht thorakal

Rekonstruktive Gefäßeingriffe ohne Herz-Lungen-Maschine, …

Description

33.501 € 11,502 F98Z 6.259 € 2,149 F59A 6.679 € 2,293 B04B 6.731 € 2,311 F08E 8.217 € 2,821 F12E 8.924 € 3,064 F14A 10.587 € 3,635 F08C 12.408 € 4,260 F08B 14.604 € 5,014 F28A 14.916 € 5,121 F51B 18.769 € 6,444 F08A

Revenue

CMI

Development

DRG

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Management Summary

Market potential

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Required resources

The spatial and technical requirements for a Hybrid-OR will be

fulfilled after reconstruction work and investments

Spatial and technical requirements1

At least 70 sqm

Additional required space for a central control room, technics, patient locks and a common room

Required height of the examination room 2,9 m – 3,1 m

Radiation protection (approx. 1-2 mm Pb)

Air conditioning (Class 1a)

Power supply (approx. 60 KVA)

Spatial requirements

Technical equipment (extract)

Artis Zeego with large detector (30 cm x 40 cm)

2 monitor mountings (1x Large Display, 1x 3 monitor suspension system)

Software TAVI and 3D imaging

Hemodynamic measuring unit and FFR-Function to optimize the reimbursement

Defibrillator and angiography syringe

a

Product example

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Required skills of personnel

Commitment to respecting areas of specialty as well as qualification and knowledge of radiation protection of the physicians

Quality commitment for interventional radiology is defined by the service provision regulations of the National Health Insurance (NHI)

All examinations and treatments are defined in the regulations for further education of the medical association

Legal requirements1

Further education2

An introducing on-site-training and a following certification is prerequisite

A device-training for the assisting personnel and the treating physicians is recommended when new product features are implemented

Required resources

Both quantitative and qualitative requirements are only

partially fulfilled currently

a

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Management Summary

Market potential

An investment in a Hybrid-OR is reasonable from a medical, economic and strategicallyperspective. However, a professional OR-management,

interdisciplinary collaboration, acquisition of heart surgeons and the extension of the trauma center are required for a successful operation.

Recommendation

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Cost- and revenue calculation

The following method was used for the cost- and revenue

calculation

Data basis: DRG Browser for the main departments 20111

Identification of the relevant profit shares in the IneK DRG Browser 2011

Determination of the TOP 10 DRG by case severity and additional potential in the area of TAVI and polytrauma

DRG distribution of potential patients by the nationwide frequency according to the DRG Browser 2011

Revenue = Cost weight (DRG Browser 2011) x Landesbasisfallwert 2011

Costs = According to DRG Browser 2011

Saving potential per DRG after installation of a Hybrid-OR were taken into account,

conservative assumptions on basis of practical experiences2

Full cost accounting: Installation of a Hybrid-OR is a new implementation, hence, it is

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Cost- and revenue calculation – comparison of scenarios

Under conservative assumptions, the calculation is profitable in

both scenarios

Prognosis (cumulated) incl. financial investment [€]

Financial investment incl. reconstruction costs with an annual amortization over 8 years and an interest rate of 3%

Break Even in scenario 1 in period 4, Break Even in scenario 2 in period 5.

An investment in a Hybrid-OR is reasonable from a medical, economic and strategicallyperspective in both scenarios.

Complete investment in medical technology and reconstruction costs in period t0

Assumption Scenario 2 Assumption Scenario 1

Number of cases in t1 500: Existing relevant cases in the hospital

Additional potential of polytrauma and TAVI is generated by the Hybrid-OR

Investment coststotal: T€ 3.500, including reconstruction costs T€ 2.500, medical technology T€ 800 and OR-equipment T€ 200

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Cost- and revenue calculation – Scenario 1

Under conservative assumptions and including all investments,

the calculation is profitable in period 4

Prognosis (cumulated) incl. financial investment in T€

Financial investment incl. reconstruction costs with an annual amortization over 8 years and an interest rate of 3%

Calculated on the basis of existing potential patients and strategically potential for an Hybrid-OR and prognosis of future growth rate based on the market-, technical- and incidence analysis

Consideration of a discount for super-erogation of 30% in t1 and following t2 of 70% each in year 1 and 30% in year 2 of the supererogation

PHI 10,0%, NHI 90,0%

Revenue PHI = NHI x 1,5

Revenue growth of 1,14% p.a. covered

Cost growth of 2 % p.a. covered

Investment in 2012; Start in 2013 Assumptions Scenario 1 -1.000 2020 1.238 2.000 2019 1.213 1.800 2018 1.183 1.500 2017 1.148 1.632 912 484 0 5.000 4.000 3.000 2.000 1.000 2016 2015 407 -427 2014 479 -835 2013 -1.313 -1.313 2012 0 -1.500 -500 500 1.500 2.500 3.500 4.500 5.500

Outcome incl. Financial investment Cum. Outcome

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Cost- and revenue calculation – Scenario 2

Under conservative assumptions and including all investments,

the calculation is profitable in period 5

Prognosis (cumulated) incl. financial investment in T€

Complete investment in medical technology and reconstruction costs in period t0

Calculated on the basis of existing potential patients and strategically potential for an Hybrid-OR and prognosis of future growth rate based on the market-, technical- and incidence analysis

Consideration of a discount for super-erogation of 30% in t1 and following t2 of 70% each in year 1 and 30% in year 2 of the supererogation

PHI 10,0%, NHI 90,0%

Revenue PHI = NHI x 1,5

Revenue growth of 1,14% p.a. covered

Cost growth of 2 % p.a. covered

Investment in 2012; Start in 2013

Assumptions Scenario 2

Scenario 2 is profitable in period 5.

The cumulated and discounted operative result over 8 periods reaches a value of T€ 2.500

An investment in a Hybrid-OR is reasonable from a

medical, economic and strategicallyperspective for scenario 2 6.000 4.000 2.000 0 -2.000 -4.000 2020 1.688 2.500 2019 1.671 2.300 2018 1.648 2.100 2017 1.621 466 2016 1.393 -1.155 2015 897 -2.548 2014 977 -3.445 2013 -807 -4.422 2012 -3.615 -3.500 _-3.000 -1.000 1.000 3.000 -5.000 5.000

Outcome incl. Financial investment Cum. Outcome

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Management Summary

Market potential

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SWOT-Analysis

A SWOT-Analysis can illustrate important fields of action for a

successful establishment of an Hybrid-OR

Portfolio extension in a regional market with very strong competition

Number of patients are not growing as projected

Staffing of physicians and assistants for the planned departments in an rural area

Foundation of the trauma center with consideration of the spatial and personnel requirements due to DGU (German foundation for trauma surgery)

Bottlenecks in the Hybrid-OR have to be managed with a professional OR-management

Foundation of a cardio-vascular center in a catchment area with a high amount of relevant patients, considering the demographic trend

Diversification of the range of services in the areas: TAVI and polytrauma

Improved image and competitive position due to investments in new and ultra-modern medical equipment

Improvement of the own position in hiring new chief physician

Foundation of a cooperation network with established referring physicians and other hospitals without Hybrid-Ors in the region

Increase of the level of awareness with targeted marketing at referring physicians and the population

A constant number of inhabitants with a growing number in the relevant target group(>40 years of age)

Threats Opportunities

Geographic location near with a high number of competitors in the market segment

Limited catchment area due to actual offerings and competing hospitals with an Hybrid-OR

Level of awareness as a cardio-vascular center non-existent

Basic utilization for an Hybrid-OR exists

Personnel resources with relevant experience for the portfolio partially exist currently

Spatial requirements are fulfilled after reconstruction work

The hospital’s portfolio and relevant departments are already existing mainly

Weaknesses Strengths

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Do you have any questions?

Bastian Helm

Project manager

Allee am Röthelheimpark 3a

91052 Erlangen

Phone: 09131 – 84 4510

Fax:

09131 – 84 3758

Mobil:

0173 – 70 72 164

E-mail: