Sample Business Plan HealthWare Solutions

HealthWare Solutions International, Inc. Business Plan Executive Summary August, 1999 HealthWare Solutions International Business Plan, August 1999 COMPANY CONFIDENTIAL 00115-004 TABLE TABLE OF CONTENTS I. EXECUTIVE SUMMARY OF CONTENTS i 1 2 5 5 6 7 10 KEY FACTORS FOR COMPANY SUCCESS COMPANY HISTORY FINANCIAL PROJECTIONS CAPITAL FUNDING PLAN II. III. MANAGEMENT TEAM KEY OFFICERS AND OUTSIDE DIRECTORS: LIST OF FIGURES FIGURE I: Demographics of Aging in the US Population FIGURE Ih HSI Sales Projections 3 6 LIST OF TABLES TABLE I: Schedule of Signed Contracts, Revenues, and EBITDA 5 HealthWare Solutions International Business Plan, August 1999 COMPANY CONFIDENTIAL 00115-004 i I. EXECUTIVE SUMMARY HealthWare Solutions International, Inc. (HSI) will become the leading force in providing web-enabled information solutions to the post acute healthcare provider marketplace. HSrs HealthWare product suite will deliver: • • • Real time clinical management and decision support Financial and operational management and analysis A state-of-the-art, web-enabled information technology framework These products will enable providers to transform, in real time, a flood of operating data into useful management information. This information will immediately help the provider to: • • Improve the quality of care provided and to document that improvement. Decrease risk exposure from the exponential growth in long-term care (LTC) malpractice claims and adverse actions from the government's nursing home quality survey program. Increase effectiveness in responding to the challenges of the new Prospective Payment System (PPS) for Medicare Skilled Care. Create an ability to monitor and manage the cost of care for individual patients in real time. • • HSI plans to use the data generated from its product applications to create a national normative database on long-term care (LTC). This database will become the definitive national repository of clinical management information and associated financial data for LTC and sub-acute care (SAC) in the United States. Users of the national normative database and its information will include health care providers, integrated health care delivery networks, managed care organizations, risk management and insurance companies, state and national provider associations, pharmaceutical companies, law firms, physician groups, suppliers of medical and ancillary services, state agencies and federal agencies. Using the power of Internet technology, coupled with the unique industry leadership and experience represented within HSrs senior management team, HSI will rapidly become recognized as the source of "best of breed" software applications and information for institutional providers in senior health care and assisted living. HSI recently released its initial prototype modules for the unique, web-enabled HealthWare suite of product applications for long term care and assisted living centers. HSI plans to release its first-in-the industry JAVA-XML web-enabled products during the fourth quarter of 1999. These products will enable HSI's customers to take full advantage of the flexibility and cost-effectiveness of the Company's webenabled/JAVA framework. HSrs products can be used on a network computer or thin client devices, as part of an enterprise-wide Intranet. They are also capable ofrurming on any "server" that will support JAVA HealthWare Solutions International Business Plan, August 1999 COMPANY CONFIDENTIAL 00115-004 1 virtual machines (Windows NT, UNIX, etc.). This new technology will enable HSI to deploy its products remotely at each facility, centrally to the enterprise or out sourced, at the option of the user. These options provide HSI's clients low capital costs and ease of product distribution, support and evolution. It will support HSI's move into the full spectrum of opportunities created by the web-enabled architecture of the HealthWare products and the distribution systems that this framework will help create. KEY FACTORS FOR COMPANY SUCCESS Product Recognition HSI is currently developing a unique suite of applications/solutions for the long-term care and assisted living markets. The HSI legacy UNIX-based system for long term care clinical management has been reviewed by the META Group, a well-respected national IS consulting firm, as having "best of breed" clinical capabilities and as "breaking the commoditization mold" created by the other products in this market. Substantial Enhancements and Competition Barriers The unique HSI approach to real time information management and HSI's leading position in the development of web-based applications for these markets provide the Company with significant barriers to effective competitive entry. HSI is adding to that core competency the development of a substantially enhanced clinical management system, integrated with a very innovative and powerful financial analysis and outcomes management system. Innovative lnternet Technology All of HSI's products will be fully web-enabled, written in JAVA and XML, with a HTML/Java Script user interface. We believe HSI is the only vendor in this sector currently using this technology. Industry Support HSI has gained market acceptance during the early product development effort, with two pre-purchase agreements (one for LTC and one for Assisted Living), as well as three signed Letters of Intent to purchase upon completion of the development process. This will permit rapid build up of revenues as the Beta products are released in the fourth quarter of 1999. Market Size and Growth HSI's products address a large and rapidly growing market with substantial projected growth into the next millennium given the demographics of the elderly in the United States and worldwide. In the US, the nursing home and assisted living industry represent a marketplace with annual revenues in excess of $100 billion. The growth in the post-acute care segment (LTC, AL and SAC) of the health care industry continues to be driven by the powerful demographics of aging in the US population (Figure I). HealthWare Solutions International Business Plan, August 1999 COMPANY CONFIDENTIAL 00115-004 2 Over-85Population theUS in (in millions) Year Population 1970 1.4 1980 1990 2000 2010 2020 2030 2040 2050 2.2 3.0 4.3 * 6.0* 7.0* 8.8 * 13.8 * 18.9 * _" _ E _. 2o.018.o16.o14.o12.0IO.O8.0 6.O4.02.0. 0.0. 1970 1980 1990 2000 2010 2020 2030 2040 2050 Year Source: US BureauofCensus • estimated figures FIGURE I: Demographics of Aging in the US Population The LTC services market represents 1.8 million beds, with industry revenues of $80B to $90B annually. Assisted Living services account for an additional $13B in annual revenues (BT-Alex Brown report on Assisted Living; April 1998). HSI estimates that expenditures for health care information systems by the LTC market will exceed $1.7B by the end of 1999. HSI's management believes that the most rapidly growing segments of expenditures in this market will be for integrated products focused on clinical and services management (such as the HealthWare suite of products that includes FOCUS for long term care, CrystAL for Assisted Living, and MBAPlus to assist in the analysis of clinical outcomes and the cost of care. Market Leadership Opportunities The marketplace is both chaotic and fragmented. The long-term care market is currently confronted with increasing information management needs to meet multiple challenges, including: • Industry reaction to the new Medicare Prospective Payment System (PPS) for skilled nursing facilities. The implications of a new payment system for LTC facilities is analogous to the challenges faced by hospitals when Medicare implemented a DRG-based prospective payment system in the mid 1980's. An explosive rise in financial risk for long-term care facilities arising from the recent increase in substantial malpractice claims, as well as deep industry concerns about liabilities generated by "false claims" legal actions. The increased intensity of mandated federal and state scrutiny through the Nursing Home Quality Survey Program, which is empowered to levy substantial civil and monetary penalties for poor performance. Consolidation and on-going merger activity within the LTC provider community, placing a premium on effective information management. 3 • • • HealthWare Solutions International Business Plan, August 1999 COMPANY CONFIDENTIAL 00115-004 Product Differentiation HSI products are clearly differentiated from the competition because of their web-enabled technology and product functionality. HSI is developing fully web-enabled JAVA-based applications while our competitors in this market niche are only beginning to introduce Windows versions of their software applications. • HSI customers will realize the benefit of lower operating costs derived from web enabled solutions that are not available to traditional Windows or UNIX based solutions. Low cost network computers can be used to minimize hardware and support costs. Internal "intranets" or external, secure "extranets" can be easily configured to reduce operating costs. HSI products deliver real time clinical management capabilities well beyond the limited reporting of clinical indicators. The Company has developed and continues to develop products that are clearly differentiated from the typical "data reporting systems" being marketed by competitors (META Group's Report, Analysis of LTC Software, December 1996). The use of real time documentation of services has a profound impact on malpractice risk exposure and on the efficiency of management time. By reducing the likelihood of documentation errors of omission and commission, HSI systems provide line managers with rapid, automated access to the information necessary to monitor performance in critical areas of clinical care and risk exposure. Example Plaintiff attorneys frequently attack missing documentation in the medical record as evidence that the care was not actually delivered (creating a case, from their perspective, that the standards of care were clearly breached). By using the automated documentation feature of the HSI system, both the performance of physician's orders and of care plan interventions are documented in the patient record. This functionality permits the charge nurse to access an automated End of Shift Report that summarizes all clinical events over the past shift, including a list of all "missing" documentation. This transforms the traditional end of shift "hassle" from primarily duplicative and time consuming data gathering into what it should be - information management and exchange. • HSI's products, unlike those of its competitors, are uniquely designed to capture data at the patient's bedside, to facilitate the minute-to-minute management of medical information and staff, and to alert management immediately when any deviations from expected treatment plans or clinical results occur while reducing unnecessary staff overtime associated with manual record keeping. The ability to link powerful clinical documentation with financial information will enable client users to more fully understand patient profitability and cost risk, identify outlier costs, and identify the drivers behind patient cost variation. Ultimately, HSI applications enable providers to deliver more cost effective services under the axiom "Care Management is Cost Management TM. • • • Industry Experience As a company, HSI brings together a unique team with the vision, the skills, and the "been there-done that" experience to transform ideas into products, and products into a value-added business (see Management Team Section for resumes). HealthWare Solutions International Business Plan, August 1999 COMPANY CONFIDENTIAL 00115-004 4 COMPANY HISTORY Founded in late 1989 by David L. Jackson, M.D., Ph.D., HSI's predecessor company, AssurQual, Inc., introduced the AssurQual Quality Management System (AQMS) product in 1993. From 1994-1997, AssurQual's products were installed in more than 20 facilities including some of the most prestigious facilities in the LTC market, such as the Advocate Health Care System and the Johns Hopkins Geriatric Center. In late 1997, HSI was formed to combine the assets and management teams from AssurQual, Inc. and HyperMed Ltd., an Israeli healthcare-related software technology company. HSI currently employs 25 staff members and 11 contractors in the US and 11 staff members in Israel. Of these, 39 work in product design and software development. The Company currently occupies a 3,100 square foot leased office space in Baltimore, MD and also leases a 2,691 square foot development site in Jerusalem, Israel. FINANCIAL PROJECTIONS The Company has secured signed agreements for the pre-purchase of licenses for HSI's products from two major healthcare organizations, representing both LTC (Guardian Group; $225,000) and AL facilities (Boston Financial; $375,000). FOCUS, for long-term care facilities, CrystAL for Assisted Living centers, and a Management and Business Analysis System (MBAPlus) are being developed with strong input from these and other national organizations. Delivery of commercial "beta" versions of these systems is expected to begin in the fourth quarter of 1999. HSI has received investments from three institutional/corporate entities: CNA Insurance Companies; Medica Investments, L.P.; and Yozrna Venture Capital, Ltd. With the April, 1998 closing of first round financing, the successful completion of this round of capital funding and the execution of the Business Plan, the Company is projecting the following revenues and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). YEAR 1998 1999 2000 2001 2002 VALUE of SIGNED CONTRACTS ($M) 0.2 5.6 16.4 34.6 50.3 RECOGNIZED REVENUES ($M) 0.2 1.1 18.6 32.1 48.6 NON-CAPITALIZED EXPENSES ($M) 2.1 3.4 9.1 12.8 15.8 EBITDA ($M) (1.9) (2.3) 9.5 19.3 32.8 TABLE I: Schedule of Signed Contracts, Revenues, and EBITDA These projections are based on sales to 180 LTC facilities in 1999 and ramping to a cumulative 13% market penetration (2,380 sites) by 2002. In 1999, sales in Assisted Living facilities are expected to represent 100 user sites, with a 14% cumulative market penetration expected by 2002 (Figure II). HealthWare Solutions International Business Plan, August 1999 COMPANY CONFIDENTIAL 00115-004 5 (Numberof Facilities) Year 1999 2000 2001 2002 FOCUS 180 440 760 1000 MBAPlus 170 396 684 900 CrystAL 3000100 264 380 550 25002000- 15001000 ::7 '_:;_ 5000Source: HSI Sales Projections 1999 2000 Year 2001 2002 o,_',_1_• FOCUS n CrystAL 1 HSlSALESPROJECTIONS FIGURE II: HSI Sales Projections With the decision by two multi-facility providers to pre-purchase HSI products and recent Letters of Intent from three additional provider organizations, HSI is increasingly positioned as the most exciting new firm developing software applications for this large and rapidly growing marketplace. CAPITAL FUNDING PLAN Management is currently engaged in an effort to raise approximately $10 million in additional equity Capital in two stages over the next several months. In the first stage, HSI plans to raise approximately $5 million, of which approximately $1.0 to $1.5 million will come from the Company's current institutional investors. Management plans to raise the remaining second stage funds in late 1999 and first quarter 2000, after delivery of the Beta products into the marketplace. HealthWare Solutions International Business Plan, August 1999 COMPANY CONFIDENTIAL 00115-004 6 II. MANAGEMENT TEAM EXECUTIVE OFFICERS: David L. Jackson, M.D., Ph.D. - Chairman and CEO, 59: Dr. Jackson is the founder of the Company and provides HSI with clinical, governmental, regulatory, and teaching leadership. He brings to HSI extensive experience in long term, sub-acute, and critical care medicine. Involved nationally in health care planning issues, he has written extensively on a wide range of health care issues, specifically on the quality and value of long-term care, and on medical ethics. Dr. Jackson is a graduate of Johns Hopkins University and the Johns Hopkins University School of Medicine, where he also received a Ph.D., with distinction, in Neurophysiology. He served as Director of the Ohio Department of Health from 1983-1986, and as Director of the Ohio Department of Mental Retardation and Developmental Disabilities. He was a White House Fellow (1973 to 1974), Professor of Medicine at Case Western Reserve University, and Clinical Professor of Medicine and Preventive Medicine at Ohio State University. Dr. Jackson now serves as an Adjunct Professor of Medicine (Division of Geriatrics) at Johns Hopkins University School of Medicine. Prior to starting HSI Solutions International, he served as the President of APACHE Medical Systems, Inc., a developer of an innovative computer system offering mortality predictors to critical care providers. APACHE recently enjoyed a successful initial public offering. In 1993, Dr. Jackson served as a member of the White House Health Care Task Force (Quality and Information Systems Working Groups). He is a Board member of the Maryland Health Care Foundation. He is also a member of various professional societies, including The American College of Physicians (Fellow), The American Medical Association, The American Academy of Neurology (serving on its National Ethics Committee), and The American Health Planning Association (AHPA). He has also served on the Board of the Association of State and Territorial Health Officers. David M. Lawson - Chief Operating Officer, 50: Mr. Lawson joined the company in April, 1999. He has over twenty years experience in the healthcare information systems field. Most recently, he was the Executive Vice President - Healthcare Technologies for CNA Insurance. In this position he was responsible for the creation and execution of CNA's Healthcare Technology Plan. This included defining the business proposition, design of the network, and selection of the equity, strategic and marketing partners. Mr. Lawson selected and secured equity positions in clinical information systems (for the physician's office/clinic, sub-acute, post-acute, long term care and consumers) and in data warehouses and interface engines (for payers, employers, administrators and life sciences organizations). His prior position at CNA was Chief Information Officer, supervising system resources for a $2.6B division of the company, which included 8 business units and over 400 systems professionals. Mr. Lawson was involved in development and/or purchase of client server applications, the international communications network and internet development. In the last two years, Mr. Lawson has been invited to participate in a White House Briefing to the Special Assistant to the President for Health Policy, and has given presentations to the Agency for Healthcare Policy and Research, the Veteran's Administration, HealthCare IT Mergers and Acquisitions, CSC HealthCare Initiative and EHealthWorld. HealthWare Solutions International Business Plan, August 1999 COMPANY CONFIDENTIAL 00115-004 7 Mr. Lawson has also previously served as Vice President and Chief Information Officer at West Jersey Health System (WJHS), where he was responsible for the selection, acceptance and implementation of a new Hospital Information System valued at $30M. This system improved patient care by providing immediate access to clinical data and accurate financial data to both hospital and physician offices. Mr. Lawson was also a Group Manager at Shared Medical Systems, where he created clinical and financial Healthcare software products for 600 hospital clients that produced a $160M annual revenue stream. Mr. Lawson holds an MBA from Temple University and a BS (Mathematics and Computer Science) from Michigan State University. Thomas J. Jazwieeki, CPA, MBA - Executive Vice President and CFO, 51: Mr. Jazwiecki joined the Company in March 1995. He was recently identified by McKnight's Long Term Care News as one of the top 100 individuals in the United States, in terms of his influence upon the long-term care industry. Prior to joining HSI, Mr. Jazwiecki served as the National Advisor for Long Term Health Care for Ernst & Young, an intemational accounting and consulting firm. At Emst & Young, he helped direct the growth of the post-acute healthcare consulting practice into a multi-million dollar business line. He also developed long term care databases in more than a dozen states and was routinely called upon by the healthcare industry to challenge inadequate Medicaid/Medicare reimbursement systems. Mr. Jazwiecki is also the former Director of the Office of Reimbursement and Financing for the American Health Care Association (AHCA) in Washington, D.C. While serving in this capacity, he gained national recognition in the areas of health care financing and reimbursement for long-term care services. At AHCA, Mr. Jazwiecki provided technical support to state-affiliated nursing home associations and LTC companies. He also designed several state Medicaid reimbursement programs for long-term care services. Mr. Jazwiecki is a past member of the Congressional Advisory Panel on Alzheimer's Disease and the Congressional Office of Technology Assessment Advisory Panel on Disorders Causing Dementia. He served on the editorial board of the Healthcare Financial Management Association and wrote several articles dealing with financing long-term care services. Mr. Jazwiecki co-authored a book on long term care reimbursement entitled Case-Mix Payment Systems for Nursing Home Care. He also authored a chapter titled "Long Term Care for the Elderly in the United States," in Caring for an Aging World: International Models for Long Term Care, Financing and Delivery. He served as technical project director to the Pennsylvania Department of Welfare, assisting in the redesign of that state's Medicaid nursing home reimbursement system. In 1986, he was retained as an independent consultant to the California Department of Aging and the California Alzheimer's Disease Task Force, helping to create alternative financing mechanisms for the care required by dementia patients. Mr. Jazwiecki also worked with the Federal Health Care Financing Administration, serving in a supervisory position for long term reimbursement policy. Mr. Jazwiecki is a Certified Public Accountant (CPA) and holds an MBA from Loyola College in Baltimore, Maryland. John R. Yao, MBA - CTO, 41: Mr. Yao joined HSI as Chief Technology Officer in June, 1999, after acting in that role since April, 1998. He has had a wide range of senior executive level experience in the Application Software arena. After completing his BS in Finance and Quantitative Methods and his Masters in Business Administration with a concentration in Information Systems from Babson College, he initially HealthWare Solutions International Business Plan, August 1999 COMPANY CONFIDENTIAL 00115-004 8 worked as a Systems Engineer at Electronic Data Systems. There he worked on the development and support of a Health Care Claims Processing system for multiple Blue Shield organizations. From 1983 to 1996, he served in a number of positions at Agency Management Services, Inc., the leading software applications firm serving the Insurance Agency market. There he rose to the position of Vice President of Development. He had primary responsibilities for managing the software development efforts of this company, with a staff of 38 people. He has worked extensively in all aspects of commercial software product development, including design and architecture, budget and time line creation and management, and overall product line technical strategy. For 2 ½ years, he served as Vice President of Information Technology at the CNA Insurance Companies. There he focused on the development of distributed Object Technology solutions, strategic technology research and model validation, as well as product and company development and budget creation. At HSI, he has primary responsibility for coordinating the development of the Company's technology strategy, for coordinating the development of the product line project plans, for coordination of the multiple simultaneous projects, and for monitoring project compliance with established time line and budget plans. Vincent Tumminello - Vice President, Sales and Marketing, 48: Mr. Tumminello joined HSI as Vice President for Sales and Marketing in January 1996. He has an extensive background in direct sales, sales management, and marketing within the health care industry. Prior to joining HSI, he held senior level sales and marketing positions with several large health care firms, including Becton Dickinson and Boehringer Mannheim Corp., where he was responsible for significantly increasing divisional revenues. Mr. Tumminello has introduced new technical, diagnostic, medical device and capital equipment products to the health care market. He has marketed to hospitals, physicians, long term care, home health care, and managed care, as well as managing expansion into the national public screening market. He established national contract sales management systems, expanded and managed sales organizations in the US and Canada, directed marketing organizations, developed market segment management strategies and department, established and managed distribution organizations, was responsible for customer support and technical support departments, and managed corporate account sales strategies and personnel. He has also served on numerous human resources, strategic and operational committees within previous companies. Mr. Tumminello holds a BA degree in Economics from LaSalle University (Philadelphia). Edna Cahanovitc - General Manager, IDC, 41: Mrs. Cahanovitc joined HSI as General Manager of the Israeli Development Center in October 1998. She has an extensive background in telecommunications, data communications, and information systems, working in positions of increasing responsibility in the US, Australia and Israel. She completed her B.Sc. in computer sciences and her Masters studies at the Weizman Institute. From 1975 to 1982, she was an officer in the Israel Defense Force participating in the analysis, design, implementation, and integration of large intelligence data processing systems. She has extensive experience in systems analysis and has managed several teams of software developers both as product manager and project manager. She has worked with a wide variety of operating systems, hardware, computer languages and applications. She has experience in many disciplines, both in civil industry and in the military. Her most recent position was at RADLAN Ltd. where she was the department manager working on network management of LAN and switch products. In that capacity, she was responsible for research and analysis for new products, budget and manpower management, coordination with marketing and external companies, and definition of development and configuration control methodologies. HealthWare Solutions International Business Plan, August 1999 COMPANY CONFIDENTIAL 00115-004 9 III. Name KEY OFFICERS AND OUTSIDE DIRECTORS: Position OFFICERS: David L. Jackson, M.D., Ph.D.* Thomas J. Jazwiecki* David M. Lawson* John R. Yao Vincent Tumminello Edna Cahanovitc DIRECTORS: Yuval Binur, Ph.D. Craig Coel Yigal Erlich David Wroe Partner, Medica Investments, L.P. General Manager, 3-D Multivision, Ltd. President and CEO, Yozma Venture Capital, Ltd. Chief Technology Officer, CNA Insurance Companies Chairman and CEO Executive Vice President & CFO Chief Operating Officer Chief Technology Officer Vice President for Sales and Marketing General Manager Israeli Development Center * Also members of HSI Board of Directors HealthWare Solutions International Business Plan, August 1999 COMPANY CONFIDENTIAL 00115-004 10