DURABLEMEDICAL EQUIPMENTMARKET UPDATEMARCH 2016

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181.0%

33.0%

10.0%

111.0%

16.0%

17.0%

+0% +50% +100% +150% +200%

65 and older

15 to 64

Younger than 15

United States World

182.5 187.4 193.0 199.4 203.5 205.8

36.043.0

46.0 45.0 45.0 45.4

54.5 43.4 37.0 31.4 30.5 30.0

273.0 273.8 276.0 275.8 279.0 281.2

50

100

150

200

250

300

350

2013 2014P 2015P 2016P 2017P 2018P

Commercial Medicaid and CHIP Uninsured

(U.S

. p

op

ula

tio

n, in

mill

ion

s)

Increased demand further supported by increasing number of insured…

…and increased utilization of home health care

(un

its

in m

illio

ns)

Global population age 65 and older continues to grow rapidly…Estimated percent change in population, 2010 to 2050, by age, in the world and the United States

COUNTRY

POP.

(MM) COUNTRY

POP.

(MM)

United States 321.4 South Africa 53.7

Russia 142.4 Columbia 46.7

Mexico 121.7 Argentina 43.4

Egypt 88.5 Algeria 39.5

United Kingdom 64.1 Poland 38.6

Global population is increasingly overweight and obese…Top 10 populated countries where obesity affects 25%+ of the adult population

The top 10 affected countries account for 13.2% of global populationNote: excludes Iran; obesity defined as male or female with BMI ≥30kg/m2

ATTRACTIVE INDUSTRY FUNDAMENTALS…

Strong demand drivers continue to support increased demand for DME products worldwide.

Aging population.

Patient preference for home-based care.

Increase in insured population as a result of the Affordable Care Act.

STRONG FUNDAMENTAL DEMAND DRIVES… …AN INCREASE IN HOME HEALTH CARE PATIENTS

Source: Pew Research, World Health Organization, Congressional Budget Office, and MedPAC.

2.53.0

3.4 3.4 3.54.1

5.5

6.8 6.7 6.7

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2002 2006 2010 2012 2013

Home Health Users Episodes

2

$0.7 $1.1 $1.7 $2.8 $4.1$7.1

$13.8$15.9

$25.2

$30.9

$37.0

$46.5$48.2

$50.6$53.2

$56.4

$60.2

$0

$10

$20

$30

$40

$50

$60

$70

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015P 2016P 2017P 2018P 2019P 2020P

HISTORICAL AND PROJECTED U.S. DME EXPENDITURES PAYOR BREAKDOWN

($ in

bill

ion

s)

5.3% DME

CAGR

2015P DME

Expenditures

$46.5 billion

Insurance accounts for

41.1% of spend with Medicare being the

largest payor

3.9% DME

CAGR

9.2% DME

CAGR

Medicare

Competitive Bidding

Begins

4.7% DME

CAGR

…SUPPORT ACCELERATEDMARKET GROWTH

U.S. DME expenditures are expected to grow at a 5.3% CAGR from $46.5 billion in 2015P to $60.2 billion in 2020P.

The DME industry is expected to accelerate due to demographic trends, patient preference for home-based

care, and the increase in the insured population.

Competitive bidding, an ongoing Medicare initiative to bring its reimbursement in line with other payors, has

negatively impacted some DME distributors and manufacturers.

Source: CMS NHE estimates, company filings, and ThomsonOne.

Cash

Payments,

57.2%

Private Health

Insurance,

11.8%

Medicare,

16.8%

Medicaid,

12.3%

Other Health

Insurance

Programs, 0.2%

Other Third

Party Payors,

1.7%

3

$1,424.6$1,501.6

$1,415.8$1,334.5

$1,270.2

$1,142.3

2010 2011 2012 2013 2014 2015

COMPETITIVE LANDSCAPE RELATIVE EFFECTS OF COMPETITIVE BIDDING

COMPETITIVE LANDSCAPE

The DME industry is highly competitive and has a dynamic reimbursement environment.

Medicare’s competitive bidding program began in January 2011 with the first round of bidding, and the second

round began in July 2013.

− The first round of bidding was done in nine metropolitan areas and resulted in 32% lower pricing, while the second round was done in

91 metropolitan areas and resulted in 45% lower pricing

− CMS started to phase in new rates in January 2016, and all regions will be lowered to a regional single payment amount on

July 1, 2016

Industry players with a comprehensive portfolio and low cost manufacturing are most likely to successfully capture

market share in this environment.

DME MANUFACTURER

EST. REVENUE

(IN MILLIONS) HOMECARE RESPIRATORY SLEEP

LONG-TERM CARE

RETAIL / e-COMMERCE

/ DTC

$1,142

~$700

~$400

~€350

~$350

~$200

~$175

Jan 2011:

Competitive Bidding

Round 1

Jul. 2013:

Competitive Bidding

Round 2

5.4%(5.7)%

(5.7)%(4.8)%

(10.1)%

Base Business Revenue Growth

Source: Company filings, company websites, and CapitalIQ.

4

UPDATE ON REIMBURSEMENT ENVIRONMENT:NATIONAL COMPETITIVE BIDDING

Since its implementation, the Competitive Bidding Program has re-aligned payments amounts with new market prices, saving Medicare (and taxpayers) billions.

At present, the program is restricted to certain categories of equipment, supplies and services.

− Most notably respiratory systems, mobility products (both power and manual), general home medical equipment and beds are all

encompassed under the current product categories

In early February, the Obama administration made available its FY 2017 budget, which includes authority to expand competitive

bidding to certain DME.

− Proposal includes inhalation drugs; all prosthetics and orthotics; and ostomy, tracheostomy, and urological supplies which represent

total estimated savings of $3.8 billion over the next 10 years

9 Metropolitan Statistical Areas.

Bid rates that took effect on January 1, 2011 were 32% lower on

average than prior pricing in nine select categories.

Contracts awarded for January 1, 2011 – December 31, 2013.

91 Metropolitan Statistical Areas.

Bid rates that took effect on July 1, 2013 were 45% lower on

average than prior pricing.

Contracts awarded for July 1, 2013 – June 30, 2016.

Round 2 re-compete process closed in March 2015 and will be

awarded by Spring 2016.

Source: CMS, HHS, and company filings.

32% Decline 37% Decline

Prior Bid 1 Re-compete

45% Decline Single

Payment

Amounts to

be

Announced

Prior Bid 1 Re-compete

ROUND 1 ROUND 2

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UPDATE ON REGULATORY ENVIRONMENT:MEDICAL DEVICE SALES TAX

A two year moratorium on the Medical Device Tax was implemented with the December 18, 2015 signing of the Consolidated Appropriations Act of 2016.

The tax, which imposes a 2.3% tax on the domestic sales of medical devices in the United States, to be paid by

manufacturers or importers, was implemented in 2013 as part of the Affordable Care Act.

− Tax applies to all domestic sales of medical devices including MRI machines, hospital beds, and surgical equipment

− Does not apply to medical goods sold at retail for individual consumer use

The Tax was originally implemented to generate roughly $30 billion in funds to support the Affordable Care Act.

− Assumed that greater access to healthcare coverage would create a larger market for medical devices

− Determined to be ineffective, only raising some 60% of funds during initial period

Private companies stand to experience $3.4 billion in tax savings from 2016 – 2017.

− Savings will be experienced across the industry with small-to-medium size medical device companies experiencing the largest benefit

− Cost savings will allow manufactures to deploy additional spend to R&D and new innovative product launches

The tax is presently set to be automatically reinstated on January 1, 2018.

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MEDICARE POTENTIAL COSTS AND SAVINGS FROM PRIOR AUTHORIZATION

UPDATE ON REGULATORY ENVIRONMENT:PRIOR AUTHORIZATION PROCESS FOR CERTAIN DMEPOS

In December 2015, CMS issued a new rule establishing a prior authorization process for certain durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS).

Final ruling issued February 2016 addresses concerns related to improper payments for DMEPOS and protects

access to necessary care for Medicare and Medicaid beneficiaries.

DMEPOS items that were flagged for unnecessary utilization comprise a Master List of 135 items that will

potentially be subject to prior authorization.

− CMS will initially test the new prior authorization rule on a subset of items from the Master List

− Items automatically stay on the Master List for 10 years but can be removed earlier if prices fall below the payment threshold

For items on the Required Prior Authorization List, relevant documentation must be submitted for prior

authorization before beneficiaries can receive an item and submit a claim.

CMS anticipates ~$150 million in incremental Medicare costs associated with processing prior authorization

requests through 2025P, compared to ~$600 million in Medicare Part B savings from a reduction in unnecessary

utilization.

$1 $6 $6

$14 $14 $14 $14

$29 $29 $29

$10

$30

$50 $50 $60 $60 $60

$80 $90 $90

2016P 2017P 2018P 2019P 2020P 2021P 2022P 2023P 2024P 2025P

Medicare Costs Total Medicare Part B Savings

For the Period Ending December 31, 2016P – 2025P

($ in millions)

Source: CMS.

7

0.0x

2.5x

5.0x

7.5x

10.0x

12.5x

15.0x

17.5x

20.0x

DME public comparables are trading near 5-year highs.

VALUATION OF PUBLIC COMPARABLES AND PRECEDENT TRANSACTIONS

Enterprise Value / LTM EBITDA for the period February 28, 2011 – February 29, 2016

(1) DME Index includes: Getinge, Stryker, ResMed, and Hill-Rom.

Note: IVC excluded due to Company issues related to FDA consent decree.

5-Year Maximum

5-Year Minimum

5-Year Median

Current

7.3x

9.3x

11.0x

7.8x

11.3x

15.3x

VALUATION OBSERVATIONS:PUBLIC COMPARABLES AND TRANSACTIONS

Relevant M&A Transactions

8Sunrise Medical / Nordic

Capital (11.0x)

7Altimate Medical / Granite -

RockWood (9.6x)

6Vantage Mobility / Evergreen

Pacific (Confidential)

5Permobil AB / Investor AB

(13.0x)

4ATG Rehab / Numotion

(9.0x)

3Kinetic Concepts /

ArjoHuntleigh AB (5.7x)

2Harmar Mobility / Cortec Group

(Confidential)

1M.C. Healthcare / Span-

America Medical (21.4x)

13.9x

10.3x

DME Index (1) S&P 500 IndexStrategic Buyer PEG Buyer

Source: Capital IQ, public filings, and Wall Street Research.

Deals acquired by

strategics traded at a

median multiple of 9.0x

Deals acquired by PEGs

traded at a median

multiple of 9.6x

8

7

6

5

4

3

2

1

9National HME/ Tailwind

Capital (Confidential)

9

10Ohio Medical / Tenex

(Confidential)

10

8

NOTABLE INDUSTRY PARTICIPANTSPRIVATE COMPANIES

Company Ownership Description

Provider of home respiratory therapy products and other mobility-focused

durable medical equipment.

Manufacturer of standing solutions to support therapy for adults and

children with disabilities.

Provider of portable oxygen concentrators and other respiratory related

medical devices.

Manufactures and markets sports medicine and rehabilitative orthopedic

products and services.

Provider of home respiratory service and medical equipment such as seat cushions, lift chairs, and portable nebulizers.

Branded manufacturer and distributer of home medical equipment and

related products.

Manufactures and distributes durable medical equipment in the home

healthcare, surgical, and rehabilitation markets.

Manufactures assistive products and solutions for disabled and elderly

individuals including manual and power wheelchairs, lift systems, and

scooters.

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NOTABLE INDUSTRY PARTICIPANTSPRIVATE COMPANIES (CONT.)

Company Ownership Description

Designs, manufactures, and markets mobility and accessibility solutions

focused primarily on lift and ramp products.

Private CompanyDesigns, manufactures, distributes, and services personal mobility

vehicles.

Manufacturer and service provider of patient handling and wound care

products for post-acute healthcare settings.

Provider of FDA approved Phase I post-operative orthopedic

rehabilitation products and services.

Private CompanyManufactures and distributes wound care, respiratory products, lab supplies, and medical equipment.

Provides hospice specific durable medical equipment, customer care

services, and cost containment solutions to the hospice industry.

Provides customized mobility, rehabilitation, and adaptive seating

systems for individuals who have been diagnosed as having a permanent

or long-term loss of mobility.

Provides mobility solutions for individuals with complex medical mobility

limitations.

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NOTABLE INDUSTRY PARTICIPANTSPRIVATE COMPANIES (CONT.)

Company Ownership Description

Develops, manufactures, and sells home respiratory therapy products.

Designs, develops, manufactures, and sells high-end wheel chairs and

other mobility products.

Develops, manufactures, and sells wheelchairs and transport systems for

individuals with functional disabilities.

Provider of home healthcare products and services including respiratory

therapy, durable medical equipment, rehabilitation equipment, infusion

therapy and sleep diagnostic testing services.

Private CompanyDesigns and manufactures personal mobility products for people with disabilities including power chairs, scooters, and lift chairs.

Designs, manufactures, and markets medical products and assistive

technology devices for the recovery, rehabilitation, and respiratory needs

of patients in hospitals and homecare settings.

Provider of respiratory medical devices, catheters, and other home

medical equipment.

Manufactures wheelchair accessible transportation and related mobility

products

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