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FindingFinding answers,answers, providingproviding solutionssolutionsLaboratory Joint VenturesThomas O Tiffany PhD – President/CEOPAML 4-28-2009Today’s AgendaLaboratory Joint Ventures Clinical Lab Market Opportunity Outreach As A Capital Asset Outreach Benefits & Mission The PAML JV Business Models Laboratory Joint VenturesCritical Success Factors JV benefits to the Hospitals Questions & Answers

US Clinical Laboratory Market 55 Bin 2008–Clinical Lab Testing MarketQuest13%LabCorp8%Independentclinical LabOther CLrevenues were11% 16.5 B in 2007,LabCorp 4.5 B &Quest at 7.2 B inPols2008HospitalClinicalTesting reach 28.4 B in20078%Hospitals55%Other5%Washington G-2 Reports Lab Industry Strategic Outlook - 2008US Competitive Landscape Significant industry consolidation has occurred in recent years,RankCompanyEstimated Net Revenue1Quest Diagnostics – US (Ameripath 2007) 7200 M2LabCorp – US (acquired 7 labs in 2008) 4500 M3CPL –Sonic Labs – International (acquired 7labs in the US) 2000M4ARUP 325 M5Mayo Medical Labs 300 M6Bio Reference Labs 375 M7PAML (and partners) (IDN LAB) 220 M8Spectrum Labs 165M9Carillion Labs (estimate) 125MLab. Industry Report (LIR) with annual updates andcontacts

Hospitals Using Labs for Capital Value Carillion Looking for Capital partner forlab to further Hospital Clinical Strategy Stanford Hospital and Clinics soldoutreach lab to LabCorp 2007 Moses Cone Health System, High PointRegional Health System and NovantHealth Triad sold major portion ofoutreach business to Apax Partners toform Triad Lab Alliance dba SpectrumLabs. MCHS retains 20% ownership andseat on the Board of Directors ofSpectrum. NCH Health Care (Naples Fl) sold DSIlabs (outreach lab) to LabCorp for 75MHospitals Using Labs for Capital ValueReasons for Considering Sale 2005 Survey Cash Infusion – 42% Does not fit mission – 20% Management Difficulties – 13% Regulatory Impact – 7% Other – 20%

The Value of Integrated Clinical Labs &Lab Medicine as a Critical Hospital Mission Clinical Laboratories provide 60% ofthe actionable information forphysicians. Clinical labs are less that 3-5% ofhospital cost and can providesignificant revenue. Diagnostics; Clinical pathology,anatomic pathology and Imaging arekey hospital system strategies forphysicians and should be part ofgrowth strategy for the hospital system. Integrated Diagnostic information iscritical for patient safety, better patientdecisions and ultimately best practices.We need to change the way we view theLab Market The current lab testing market Model iscomprised of hospital testing, Independentlaboratories and POLs ( 55B) with hospitalshaving 55% and Independents 23%. The Market focus should be on the bringingtogether of hospital testing (55%) withoutreach testing (23 %) to provide integratedClinical Laboratory testing. This will provide the best outcomes for thepatient, patient safety and the facilitation ofevidenced based medicine. It is a criticalelement for physician practice. The Integrated Clinical Lab is a missioncritical strategy for hospital systems and notto be readily sold for short term capital gains.

LabLab IndustryIndustry TrendsTrends –– IntegratedIntegrated DeliveryDeliveryNetworkLaboratoriesNetwork Laboratories BringBring ValueValue toto ownersowners Hospital Integrated Delivery Network Systems (IDN) consistsof a system of multiple hospital facilities, long term carefacilities, and other services providing a continuum of care topatients in a region. Examples are PH&S, Sutter Health, NorthShore Jewish, IHC, Trinity, CHI, HCA, and many others. Hospital Integrated Delivery Networks Systems (IDNS) areconsolidating laboratory services through “Lean” processesto reduce cost, increase services and achieve economy ofscale. IDNS are expanding Lab outreach services to reduce cost,standardize on best practices, enhance diagnostic services tophysicians and patients and increase Net Operating Income(NOI).Summary View of PAML’s Org Chart Placement & GovernancePH&SNW WASW WAProvidence HealthCare Ventures,Inc.; For ProfitProvidencePhysicianServices Co.SHMC/HFHIntegratedHospitalsBourget HealthServices, Inc. dbaPAMLWA/MTOregonCaliforniaPHCEWSAMontanaSE WANorthern HospitalsAlaskaContinuum of CarePAML is an important part of ProvidenceHealth Care’s mission and ministry

PAMLPAML –– DriverDriver ofof IntegratedIntegrated ClinicalClinical ndPre-Analytical, Analytical and PostPost AnalyticalAnalyticalPAML Cliff AvenueTechnical Center& Part of PHCintegrated labsPAML Iron BridgeBusiness andAdministrationPAML PHC Integrated Labs PAML Cliff Ave TechnicalCenter – High-volumerapid-TAT esotericlaboratory SHMC provides highlyesoteric testing for PAMLOutreach – 60% - 70% ofthe work by volumecomes from the OutreachDivisionPAML Cliff Ave TechnicalCenterSHMCLabHRC PAML & SHMC LabsPerform 9.0M tests peryear (15% of Enterprisetesting)The integrated laboratories perform about 1100 different types of tests.

About PAML A history of successfullaboratory Joint Ventureswith Hospitals. Internationally recognizedstaff of Ph.D and M.D.scientists. Provides billing for 22partnership entities with average DSO at 40 days. Provides reference testing services to over 100 hospitalsthroughout the West. Community-focused by working with local hospitals tomaintain local testing, reducing lab cost per test andincreasing testing acumen.REVENUEPAML and Its Ventures’ Growth 1991 - 2005919293949596979899000102030405

. PAML Partnerships & Locations All PAML Partnerships arewith Hospitals or regionalhospital systems. Most Partnerships areprofitable and successful All Partnerships pushtesting into the partnerhospitals. All partnerships involveintegration of informationsystems; referencelaboratory, hospital andphysician EMRs. All partnerships bringvalue to the partners andproviders.Partnership ComponentsMANAGEMENTMANAGEMENT ARKETINGLOGISTICSFINANCEFINANCEPHYS.PHYS. LITIESFACILITIESMARKETPLACEESOTERIC TESTINGMARKETPLACEMARKETPLACE“Joint“Joint VentureVentureESOTERICESOTERIC TESTINGTESTINGADVANTAGE”ADVANTAGE”

PAML’s Joint Venture Operational Model10 -15% oftests sentto PAML85 -90% ofTestsRemain inthecommunityPhysicians,Clinics, HospitalLaboratoryPAML(esoterics)Outreach Partnership Business Model –Service and Revenue FlowSpecimendrawnPreparedfor testingAllAll billingbilling toto payerspayersoccursoccurs fromfrom billingbillingsite,site, usingusing LLC’sLLC’s ororprovider’sprovider’s ID.ID.PaymentsPayments arearereceivedreceived forfor cisely accordingaccordingtoto contract.contract.Lab resultsent to Dr.Info sentto Billing1-To1-To thethe serviceserviceproviderprovider forfor prepre2-To the labanalyticalanalytical costscosts 2-To the labproviderprovider forfortestingtesting costscostsAccountingAccounting agentagentpreparesprepares monthlymonthlystatements,statements, contractscontractsauditors/taxauditors/tax experts.experts.3-To3-To allall ownersownersforfor profitprofitdistributiondistribution4-To4-To thethe mkt,mkt,billing,billing, adminadminagentagent forfor costscosts

Joint Venture Experience Before our joint venture hospital partners experienced:– High fixed costs, limited investment capital for lab outreach– Lack technology tools – interfacing is problematic– Billing of small ambulatory claims is problematic– Sales, marketing and client service of ambulatory doctors is immature ornon-existent– Failure to leverage inpatient data– Strong community brand, physician and payer relationshipsAs Managing Partner, PAML has developed a setof products and services to ensure the successof our PartnershipsPAML Joint Venture Advantage - The Reason theJVs Work & a JV Driver for other IDN’s201.JVA MOBILE: Automated logistics and tracking systems for specimen integrityand logistics services. (These are industry-leading products)2.JVA LAB CONNECT: Connectivity solutions including EMR integration andEMPI.3.JVA CRM: Client Services support through client relationship managementsoftware (CRM).4.Financial, operational systems, and management services; including businessplans, venture structure, billing system, finance/ accounting, & inter-entitybilling. (3rd generation billing system with over 20 years of operation)5.Billing and collections that optimize receivable performance and cash flow:provides billing services for 22 clients. (DSO at 40 days)6.Sales, marketing, and client retention systems and Patient Service Centers.(Marketing/Sales have national lab expertise)7.Consultative services compliance, business models, testing, education andhospital labs.

Joint Venture Models1. PACLAB Agency Model2. Alpha Medical Labs – JV with KMC –Agency Model3. Tri-Cities Labs Integrated Lab-Outreachmodel with hospital lab management4. Southern Idaho Reference Lab dba TVL– Cotenant model5. Mountain Star Clinical Labs – JV withregional HCA hospital labs - AgencyModelLegal Structure –Agency Model Limited Liability Corporation (LLC) “Agency Model” Owners of the LLC act as “agents” to perform specific functionson behalf of the LLC. eg. – testing, billing, management, couriers, etc. Key LLC agreements: Operating Agreement: Outlines functions of the LLC. Member Provider Agreement: Outlines duties & responsibilitiesof each member. Management Services Agreement: Outlines Duties &responsibilities of the Manager.

PACLAB LLC – Agency Model Ref LabPH&S Everett Pacific& Colby CampusStevens HospitalEvergreen HospitalCHI St Joseph Med CenterVMCCHI St. Clare HospitalOverlake HospitalPH&S St. PetersHospitalProcessing &AccessioningCHI St. Francis HospitalPH&S CentraliaPACLAB Management MatrixPA M LManagement ServicesMEMBERO P E R AT I O N SFINANCEB ILLINGA CCOUNTINGB UDGETSF INANCIAL R EPORTINGPA M LMANAGERS ALESC ONTACTSM ARKETING I MAGED ATABASE M ANAGEMENTS T R AT E G I CPLANNINGSeattle BellevueS OUTH -C ENTRAL TacomaS OUTH /W ESTOlympia CentraliaF INANCEGENERALMANAGERI N F O R M AT I O NSYSTEMSEDI I NTERFACE E NGINEEverettC ENTRALMEMBERCOMMITTEESMARKETINGC LIENT R ETENTIONN ORTHMEMBERWORK GROUPSCommunicationCoordinationCooperationLines of Responsibilityand AuthorityL OGISTICSC LIENT S ERVICEST ECHNICAL O PERATIONSI NFORMATION S YSTEMS

PAML’s Joint Ventures BringValue To their Owners Integrated Outreach and Hospital testing Provides physicians with integrated diagnosticinformation in their EMR Provides Net Operating Income & CashContributions to joint venture partners Provides better patient care and physician serviceby providing patient focused, physician centered labservicesPAML Consolidated Operations (including venture gains)Operating Income ( K) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 '11'07Actual'03'99 PAML is Wholly owned byProvidence Health Care aregion of Providence Health &Services Washington/ Montana. PAML has grown from a 7Mnet revenue operation in 1986and is billing 200M. PAML has five joint venturesone just starting in SLC. PAML has also helped start avery profitable technicalventure using DNA arrays forcytogenetics testing. PAML has sold its OutreachAdvantage IP to Sunquest andretains a license for JVs. Most PAML ventures areprofitable giving good return totheir owners

Venture A Venture A is an LLCagency model with sevenmembers and 11 hospitals The Venture has over 75M in revenue and returnsmore than 14M in cashcontributions to themembers in 2008. More than 85% of thetesting stays in the regionand is performed by themember hospitals. Each member hospital isreimbursed for the testingperformed as well asindirect expenses. 14,000 12,000 10,000 8,000OI Actual 6,000 4,000 2,000070509202020j03Ad20012019199799 -JV Member Revenue and Profit GrowthNet Revenue 0014,000,000.0012,000,000.0010,000,000.00Net Revenue8,000,000.00 3.3M to 19.3M6,000,000.004,000,000.002,000,000.001997 1998 19992000 2001 20022003 2004 20052006 Profit growthDistribution 87K to 003,000,000.002,500,000.00Dis 00.001997199819992000200120022003200420052006