EXECUTIVE COMMITTEE MEETING Friday, August 25, 2017 at 8:30 a.m.

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1 COVENANT HEALTH AND COMMUNITY SERVICES, INC. COVENANT HOSPICE, INC. COVENANT HOSPICE FOUNDATION, INC. EXECUTIVE COMMITTEE MEETING Friday, August 25, 2017 at 8:30 a.m. Conference Call: ; passcode # AGENDA CONVENING OF MEETING TOM OWENS MINUTES OF THE EXECUTIVE COMMITTEE MEETINGS OF APRIL 20, 2017 AND JUNE 15, 2017 (pp. 2-5) ***** TOM OWENS CONSOLIDATED JULY 2107 AND YTD FINANCIAL REPORT (pp.6-19) ***** ODIN BERG FOCUSED DISCUSSION UPDATES: WFCC, PRIVATE DUTY, AND MEMORY CARE (pp.20-21) TODD FISHER QRSC REPORT (p.22) KARA BENEDICT LAST WISH PROGRAM (pp.23-24) AARON WEST BHC IPU UPDATE (p.25) JEFF MISLEVY ANNOUNCEMENT OF NEW COO OTHER BUSINESS AS SUBMITTED ADJOURNMENT JEFF MISLEVY TOM OWENS TOM OWENS NOTES: ***** DENOTES VOTE OR OTHER ACTION 1

2 COVENANT HEALTH AND COMMUNITY SERVICES, INC. COVENANT HOSPICE, INC. COVENANT HOSPICE FOUNDATION, INC. EXECUTIVE COMMITTEE MEETING MINUTES April 20, 2017 MEMBERS PRESENT: MEMBERS ABSENT: EXECUTIVE LEADERSHIP PRESENT: Tom Owens Carey King Jeff Mislevy Rodney Guttmann Susan Davis Bill Greenhut Susan Davis Xan Smith Amy Bajjaly Odin Berg Todd Fisher Mr. Owens convened the meeting at 8:30 a.m. and thanked everyone for attending. MINUTES The minutes of the Executive Committee Meeting of February 23, 2017 were presented for approval. A copy of the minutes was provided in Tab B of the handouts. A motion was made and passed. CONSOLIDATED MARCH 2017 AND YTD FINANCIAL REPORT Mr. Berg presented the Consolidated March 2017 and YTD Financial Report. A copy of the report was provided in Tab C of the handouts. The following highlights were discussed. Covenant Care, consolidated results: o March Operating Margin of $137,588 o Net Income of $347,579 o YTD Operating Margin $237,605 o YTD Net Income $441,834 Covenant Hospice realized a positive operating margin of $55,795; net non-operating revenue of $174,936 produced a Net Income ( Excess of Revenues over Expenses ) of $230,731. Total admissions: 467 end-of-life admissions; 450 homebound admissions; 917 total admissions. (February total - 828) Covenant Hospice key statistics: o Average Daily Census: o Average Length of Stay: 51.7 o Admissions: 467 2

3 Executive Committee Meeting April 20, 2017 cont. Peoples Home Health achieved a positive operating margin of $244,527. YTD operating margin of $627,137. Peoples Home Health key statistics: o Medicare & Medicare-like episodes: 557 o Home health visits: 7,634 o Average Medicare episode payment: $2,490 o 30-day readmissions: 17% Covenant Health & Community Services had an operating loss of ($251,675). CHCS expenses include $96,994 in unallocated compensation costs related to the growth and diversification activities pursued by Covenant, and legal and consulting expenses of $153,660. Revenues and expenses continued to be reviewed to ensure costs were appropriate for current census levels, proactively addressing a possible period during which future volumes remained flat. After discussion, Mr. Owens called for a motion to approve the March 2017 and YTD Financial Report. A motion was made and passed. President s Report Mr. Mislevy gave an update on the recent validation survey conducted by the Centers for Medicare and Medicaid (CMS) of which spanned the Alabama service areas. It was expected that standard and condition-level deficiencies would be cited. Consequently, CMS will conduct a second survey to ensure Covenant had executed remedial actions accordingly. Ongoing updates will be provided to the Board of Directors as available. Renovation of the Residence, as well as the construction of the inpatient unit at Sacred Heart, remained on schedule. It was expected that the first patient will be admitted to the Sacred Heart inpatient unit in early September. Mr. Fisher presented a position document on Population Health and Covenant-Baptist Faith Health Network. A copy of the document was distributed to the members. Mr. Fisher gave an overview of the following: o Population health strategy and initiatives o CHN The Memphis Model o Faith Health Network Operating Principles and Guidelines o Partnership financial value proposition o 5-year proforma and assumptions Mr. Fisher explained that Covenant Care and Baptist Health Care continued to collaborate to formalize the population health program. ADJOURNMENT There being no further business, the meeting was adjourned 9:36 a.m. Submitted By: Carey King, Secretary 3

4 COVENANT HEALTH AND COMMUNITY SERVICES, INC. COVENANT HOSPICE, INC. COVENANT HOSPICE FOUNDATION, INC. EXECUTIVE COMMITTEE MEETING MINUTES June 15, 2017 MEMBERS PRESENT: MEMBERS ABSENT: EXECUTIVE LEADERSHIP PRESENT: Tom Owens Carey King Jeff Mislevy Rodney Guttmann Xan Smith Bill Greenhut Susan Davis Aaron West Odin Berg Rhonda Jordan Mr. Owens convened the meeting at 8:32 a.m. and thanked everyone for attending. CONSOLIDATED MAY 2017 AND YTD FINANCIAL REPORT Mr. Berg presented the Consolidated May 2017 and YTD Financial Report. A copy of the report was provided in the handouts. The following highlights were discussed. Covenant Care, consolidated results: o May Operating Margin of $77,764 o Net Income of $39,642 o YTD Operating Margin $324,467 o YTD Net Income $693,173 Covenant Hospice realized a positive operating margin of $40,720; net non-operating revenue of ($2,581) produced a Net Income ( Excess of Revenues over Expenses ) of $38,338. Peoples Home Health achieved a positive operating margin of $231,568. YTD operating margin of $1,022,884. Covenant Health & Community Services had an operating loss of ($35,233). CHCS expenses include $175,284 in unallocated compensation costs related to the growth and diversification activities pursued by Covenant, and legal and consulting expenses of $231,269. After discussion, Mr. Owens called for a motion to approve the May 2017 and YTD Financial Report. 4

5 Executive Committee Meeting June 15, 2017 cont. A motion was made and passed. SURVEY UPDATE: CMS AND THE JOINT COMMISSION Mr. Mislevy gave an update on recent activities: The CMS re-survey visit for Alabama service areas was conducted; all condition-level citations were removed. The CMS validation survey for Florida service areas was expected to occur post-the Joint Commission survey. The Plan of Correction developed and implemented in the Alabama service areas was implemented in the Florida service areas as well. Additional operational expenses were incurred due to the development and organizationwide implementation of the Plan of Correction. WEST FLORIDA CARE CENTER Mr. Mislevy explained that the current lease agreement for the West Florida Care Center expired in October At the request of West Florida Hospital administration, Covenant was asked to consider relocating its inpatient unit to an unoccupied space on the 1 st floor of the hospital. The new location would provide an updated care setting, easier patient and family access, better internal and external visibility, and external signage opportunities. Discussions with architectural firm Caldwell and Associates produced a preliminary design for a 13-bed unit with an estimated capital expenditure of $1.55mm. Mr. Owens recommended legal counsel s assistance with the development and execution of a Letter of Intent between Covenant Care and West Florida Hospital. After discussion, Mr. Owens asked for a consensus to move forward with executing a Letter of Intent for the relocation of the West Florida Care Center. The members approved. ADJOURNMENT There being no further business, the meeting was adjourned 9:25 a.m. Submitted By: Carey King, Secretary 5

6 Board of Directors Executive Committee August 25,

7 July 2017 Consolidated Financial Statements: CEO & CFO REPORTS 1. July 2017 marked the 8 th consecutive month of positive operating and overall financial performance 2. Covenant Hospice results: Covenant Hospice realized a July Operating Income of $116,605 (+2.6%); net non-operating revenue of $84,736 produced a Net Income of $201,341. YTD Operating Margin is $571,038 (+1.8%) and YTD Net Income is $951, Peoples Home Health results: Peoples Home Health, achieved a July Operating Income of $152,513 (+14.7%). YTD Operating Margin is $1,326,401 (+17.2%). (Peoples non-operating revenues or expenses are immaterial.) 4. Covenant Health & Community Services (d/b/a Covenant Care ): Covenant Health & Community Services had a July operating loss of ($72,197) and a YTD operating loss of ($544,454). CHCS YTD expenses include $201,428 in compensation costs, and $339,353 in legal and consulting expenses. 5. Covenant Hospice Foundation: Covenant Hospice Foundation achieved July Net Income of $42,499. YTD Net Income is $70, Construction-in-progress: As of 07/31/17, CIP for the two outstanding construction projects is $2,230,929: o Sacred Heart Hospital, hospice inpatient center: $1,300,977 (scheduled to open September 5, 2017) o Covenant Alzheimer s Services, The Residence memory care center: $929,952 7

8 July 2017 Consolidated Financial Statements STATISTICAL HIGHLIGHTS SUMMARY OF JULY STATISTICS: Covenant Hospice key statistics: --Average Daily Census: (July) vs (YTD) --Average Length of Stay: 56.9 (July) vs (YTD) --Total admissions: 422 (July) vs 3,055 (YTD) (Average per month 439) --Inpatient admissions: 197 (July) vs.1,490 (YTD) (Average per month 214) --Deaths: 344 (July) vs. 2,632 (YTD) (Average per month 376) Peoples Home Health key statistics: --Medicare & Medicare-like episodes: 384 (July) vs. 2,533 (YTD) --Home health visits: 6,624 (July) vs. 42,728 (YTD) --Average Medicare episode payment: $2,395 vs. $2,347 (2017 budget) --YTD 30-day readmissions: 16% Total Covenant Care activity: Admissions, July: 424 end-of-life admissions; 443 homebound admissions; 867 total admissions. Admissions, YTD: 3,055 end-of-life admissions; 2,976 homebound admissions; 6,029 total admissions Average daily census, July: 775, hospice ADC; 749, home health ADC; 1,524, total ADC Average daily census, YTD: 779, hospice ADC; 778, home health ADC; 1,557, total ADC 8

9 COVENANT CARE COMBINED STATEMENT OF OPERATIONS JULY 31, 2017 Covenant Care Month of July Financial Results BUDGET ANALYSIS COMBINED BUDGET VARIANCE % VARIANCE JULY 2016 NET PATIENT/FAMILY CARE/PROGRAM REVENUE 5,465,059 6,476,407 (1,011,348) -15.6% TOTAL PATIENT/FAMILY CARE EXPENSES 3,709,726 4,480,422 (770,697) -17.2% CONTRIBUTIONS FROM OPERATIONS 1,755,334 1,995,985 (240,651) -12.1% CONTRIBUTION % 32.1% 30.8% 1.3% GENERAL & ADMINISTRATIVE EXPENSES Other Direct 784, ,797 (161,382) -17.1% Payroll 730, ,202 (156,396) -17.6% Benefits 140, ,429 (24,949) -15.1% Allocation from CHCS % TOTAL G&A EXPENSES 1,655,700 1,998,427 (342,727) -17.1% OPERATING MARGIN 99,633 (2,443) 102, % OPERATING MARGIN % 1.8% 0.0% 1.9% NON-OPERATING REVENUES Contributions and fundraising 77,009 63,571 13, % Other Non-Operating Revenues 173,494 27, , % Development/Fundraising Expense (52,307) (74,960) 22, % Other Non-Operating Expense (45,145) (38,152) (6,993) 18.3% Contributions to Affiliates % NET NON-OPERATING REVENUE 153,051 (21,810) 174, % EXCESS OF REVENUE OVER EXPENSES 252,684 (24,253) 276, % 5,708,261 4,051,911 1,656, % 893, , ,939-1,636,940 19, % 46,596 31,209 (65,455) (24,532) - (12,181) 7,228 9

10 COVENANT CARE COMBINED STATEMENT OF OPERATIONS JULY 31, 2017 Covenant Care YTD July Financial Results BUDGET ANALYSIS COMBINED BUDGET VARIANCE % VARIANCE JULY 2016 NET PATIENT/FAMILY CARE/PROGRAM REVENUE 39,600,967 44,387,037 (4,786,070) -10.8% TOTAL PATIENT/FAMILY CARE EXPENSES 26,634,810 30,829,692 (4,194,882) -13.6% CONTRIBUTIONS FROM OPERATIONS 12,966,157 13,557,345 (591,188) -4.4% CONTRIBUTION % 32.7% 30.5% 2.2% GENERAL & ADMINISTRATIVE EXPENSES Other Direct 5,737,341 6,219,594 (482,252) -7.8% Payroll 5,572,502 6,174,955 (602,454) -9.8% Benefits 1,008,704 1,143,908 (135,205) -11.8% Allocation from CHCS (0) - (0) 0.0% TOTAL G&A EXPENSES 12,318,547 13,538,457 (1,219,911) -9.0% OPERATING MARGIN 647,610 18, , % OPERATING MARGIN % 1.6% 0.0% 1.6% NON-OPERATING REVENUES Contributions and fundraising 693, , , % Other Non-Operating Revenues 750, , , % Development/Fundraising Expense (569,892) (560,711) (9,180) 1.6% Other Non-Operating Expense (228,466) (200,394) (28,072) 14.0% Contributions to Affiliates % NET NON-OPERATING REVENUE 645,492 3, , % EXCESS OF REVENUE OVER EXPENSES 1,293,102 22,416 1,270, % 37,875,613 27,437,467 10,438, % 6,489,768 3,519, ,964-10,648,680 (210,535) -0.6% 587, ,688 (659,188) (329,328) - 212,594 2,059 10

11 $1,200,000 Covenant Care: July October 2017 Actual & Projected - Consolidated Operating Margin & Net Income $1,000, ,858 $800,000 $600,000 $400, ,579 $200,000 $- $(200,000) 107, ,094 19,409 7,228 76,441 57,601 93, ,588 4, ,588 11, , , ,684 77,764 73,853 99,633 39,642 Jun 2016 Jul 2016 Aug 2016 Sep 2016 Oct 2016 Nov 2016 Dec 2016 Jan 2017 Feb 2017 Mar 2017 Apr 2017 May 2017 Jun 2017 Jul 2017 Aug 2017 (52,305) PROJ 83,199 96,089 17,767 4,778 Sep 2017 PROJ 125,039 47,930 Oct 2017 PROJ $(400,000) $(600,000) (378,712) (418,790) (455,023) (460,704) (558,877) (643,204) (171,692) $(800,000) Operating Margin Net Income 11

12 Covenant Care Balance Sheet COVENANT CARE CONSOLIDATED STATEMENT OF CONDITION JULY 31, 2017 ASSETS JULY 31, 2017 DEC. 31,2016 COMBINED COMBINED CASH & EQUIVALENTS 3,948,077 3,016,078 TOTAL INVESTMENTS 21,079,619 20,225,810 TOTAL CASH & INVESTMENTS 25,027,697 23,241,888 GROSS ACCOUNTS RECEIVABLES 13,655,415 14,830,123 RECEIVABLE ALLOWANCES (1,307,618) (1,183,867) NET ACCOUNTS RECEIVABLES 12,347,796 13,646,256 OTHER CURRENT ASSETS 4,709,906 4,193,298 TOTAL CURRENT ASSETS 42,085, ,815,411 LAND 1,936,722 1,936,722 BUILDINGS & IMPROVENTS 12,627,696 12,572,987 LEASEHOLD IMPROVEMENTS 2,269,009 2,268,108 FURNITURE, FIXTURES & EQUIPMENT 9,281,178 9,241,649 CONSTRUCTION IN PROGRESS 2,234,526 61,975 28,349,130 26,081,441 LESS ACCUMULATED DEPRECIATION (12,669,114) (11,923,450) NET PROPERTY & EQUIPMENT 15,680,016 14,157,991 TOTAL INTANGIBLE ASSETS 9,535,264 9,957,989 TOTAL ASSETS 67,300,719 65,197,420 LIABILITIES & FUND BALANCE CURRENT LIABILITIES CURRENT PORTION OF LONG-TERM DEBT 448, ,784 ACCOUNTS PAYABLE 5,060,247 2,722,940 ADVANCES AGAINST ACCOUNTS RECEIVABLE 5,197,438 6,419,509 OTHER ACCRUALS 3,394,602 3,638,772 TOTAL CURRENT LIABILITIES 14,101,070 12,230,004 LONG-TERM LIABILITIES MORTGAGE PAYABLE 6,077,597 6,324,816 OTHER LONG TERM LOANS 9,339,423 10,095,786 LESS CURRENT PORTION (448,784) (448,784) LONG-TERM CHARITABLE ANNUITIES 14,305 15,547 TOTAL LONG-TERM LIABILITIES 14,982,540 15,987,365 TOTAL LIABILITIES 29,083,611 29,217,369 NET ASSETS: UNRESTRICTED 34,792,755 33,372,921 BOARD DESIGNATED 887,839 71,094 TEMPORARILY RESTRICTED 2,536,515 2,536,036 TOTAL NET ASSETS 38,217,109 35,980,051 TOTAL LIABILITIES & NET ASSETS 67,300,720 65,197,421 12

13 Covenant Care NOT YET UPDATED July 2017 Balance Sheet Ratios & Bond Covenants BALANCE BALANCE 07/30/ /31/2016 CASH ON HAND DAYS REVENUE OUTSTANDING DAYS REVENUE, EXCLUDING FLORIDA MEDICAID MANAGED CARE DAYS PAYABLE OUTSTANDING DEBT TO FUND BALANCE CURRENT ASSETS TO CURRENT LIABILITIES BOND FINANCIAL COVENANTS July 31, 2017 REQ. Ratio of Maximum Debt to Tangible Net Worth < 2.5:1 AMOUNTS MET? This bond covenant measures the relationship of all debt, if due and payable today, to Covenant Hospice's net worth 0.56 Y Minimum Tangible Net Worth > $6,500,000 This bond covenant calls for a minimum tangible net worth. Net worth related to intangible assets are excluded. $34,003,820 Y Minimum Fixed Charge Coverage of 1.10:1.0 This bond covenant compares fixed charges, including lease expense, to the earnings aviailable to pay these charges 2.62:1.0 Y Liquidity of $5,000,000 or more This ratios measures the amount of cash or "near cash" to meet immediate or short-term obligations $5,232,865 Y 13

14 Covenant Care Year-to-date Capital Expenditures Capital Expenditures, YTD 2017 Software.. $19,800 Bay Medical IPC, furniture....$9,528 Providence Hospital IPC, furniture...$18,329 LED TVs, various locations......$6,000 Other.... $20,417 Total $74,068 Capital Expenditures, Construction in Progress, YTD 2017 [2017 Budget - $1,245,850; unspent CapEx primarily relates to IS and leasehold improvement costs] Sacred Heart IPC $1,300,997 The Residence, Memory Care Center ALF $929,952 Total $2,230,929 [2017 Budget - $4,710,000; estimated total project costs are currently tracking to budget.] 14

15 Covenant Care Medicare Regulatory Changes for Fiscal Year Hospice Key changes related to finance for hospices: Structure of U-shaped curve reimbursement system is unchanged for FY18 Components of U-shaped curve Tier 1 per diem, Tier 2 per diem and Service Intensity Add-on ( SIA ) payment each will increase about 1%. General Inpatient Rates will also increase 1%: Tier 1 FY18 National Rate - $ (Escambia County - $166.29) [FY18 increase of about $200,000] Tier 2 FY18 National Rate - $ (Escambia County - $129.61) [FY18 increase of about $100,000] SIA FY18 National Rate - $40.68/hour (Escambia County - $35.09) [FY18 increase of about $5,000] General Inpatient Rate - $ (Escambia County - $648.36) [FY18 increase of about $100,000] The Aggregate Cap on hospice payments per patient also will increase 1%, to a national average rate of $28, [Most recent Covenant cap calculations, November, 2016: FL - $11,413; AL - $12,783] For FY18, quality and service adjustments will be made only to hospices who do not submit quality and satisfaction data Hospice Item Set ( HIS ) & Consumer Assessment of Healthcare Providers & Systems ( CAHPS ) During the regulatory comment period, many hospices requested that the SIA payments be automatic currently, hospices must bill to be paid. CMS acknowledged the request, but did not change the requirement Many hospice providers noted comments in the Federal Register regarding possible future changes for levels of referral source documentation required in the admitting hospice s medical record Separately, the Medicare Payment Advisory Commission ( MedPAC ) an advisory committee to CMS has expressed concern over the last 2 years about overpayments and misaligned incentives for post-acute care providers. A unified post-acute care payment system is under consideration, started in FY21. (Post-acute care providers include SNFs, HHAs, IRFs, LTCHs and hospice providers.) 15

16 Medicare Regulatory Changes for Calendar Year 2018 Home Health Key changes related to finance for Medicare-certified home health agencies: NOTE: CY18 rule is not final. Proposed preliminary rule was issued 07/25/17. The Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that updates the Medicare Home Health Prospective Payment System (HH PPS) rates and wage index for calendar year (CY) The proposed policies included in the rule include: 0.4 percent decrease (-$80 million) in payments to HHAs in CY For CY 2019 payments, CMS proposes to implement an alternative case-mix adjustment methodology, the Home Health Groupings Model (HHGM). The HHGM would use 30-day periods, rather than 60-day episodes, and rely more heavily on clinical characteristics and other patient information (e.g., principal diagnosis, functional level, comorbid conditions, referral source, and timing) to place patients into more meaningful payment categories. For the HH Quality Reporting Program (QRP), CMS is proposing to adopt for the CY 2020 payment determination three measures to meet the requirements of the IMPACT Act and new standardized data elements. To reduce provider burden, CMS is proposing to remove or modify current OASIS items. CMS is also proposing changes to the Home Health Value-Based Purchasing (HHVBP) Model. 16

17 Three-year Projection Model versus Traditional Budgeting Model Described below is a long-term projection process that will replace the traditional one-year budgeting process. In the past, Covenant Care has utilized a traditional budgeting model, involving a one-year time horizon, a submission of individual department budget requests--subject to an approval process and requiring aggregation to determine total organizational impact--and a fixed set of assumptions that make subsequent changes difficult to flow through the budgeting system. A long-term (three-year) projection process is proposed to replace this system for the time period. This system will flex to a limited number of key inputs that can be modified as necessary. Covenant is collaborating with Saltmarsh, Cleaveland & Gund on the development of the model, utilizing a proprietary system made available to Covenant. Using a flexible modeling tool will allow for a broader range of scenarios to be analyzed. The tool will also allow for periodic roll-forwards of the projections as internal and external assumptions change. Using a three-year time horizon will provide a better perspective on the development of major projects and new service lines, by revealing results for both the development and mature stages. Major capital expenditures items will be easier to evaluate in the context of a three-year return. Timeline for presentation to Board for review and approval is still targeted for the November 2017 meeting. 17

18 COVENANT HOSPICE, INC. WEST FLORIDA INPATIENT CENTER PROFORMA FINANCIAL STATEMENT INCOME STATEMENT West Florida Relocation Pro Forma Expected Census Scenario YR 1 YR 2 YR 3 YR 4 YR 5 Total Year Total Year Total Year Total Year Total Year Patient Revenue: Skilled Inpatient Revenue $ 2,609,281 $ 2,648,608 $ 2,675,089 $ 2,703,203 $ 2,744,814 Routine Home Care Revenue $ 20,697 $ 21,009 $ 21,219 $ 21,431 $ 21,917 Consulting/Primary Physician (1) $ 21,601 $ 21,601 $ 21,925 $ 22,253 $ 22,587 Total Patient Revenue $ 2,651,579 $ 2,691,217 $ 2,718,232 $ 2,746,887 $ 2,789,318 Charity/Unfunded Care $ 124,624 $ 126,487 $ 127,757 $ 129,104 $ 131,098 Contractual Adjustments - Normal $ 159,095 $ 161,473 $ 163,094 $ 164,813 $ 167,359 Contractual Adjustments - Sequestration $ 42,425 $ 43,059 $ 43,492 $ 43,950 $ 44,629 Total Deductions from Revenue (2) $ 326,144 $ 331,020 $ 334,343 $ 337,867 $ 343,086 Net Patient Revenue $ 2,325,434 $ 2,360,197 $ 2,383,889 $ 2,409,020 $ 2,446,232 Operating Expenses Direct Payroll, including Benefits (3) $ 1,131,931 $ 1,148,883 $ 1,143,699 $ 1,150,024 $ 1,163,626 Patient Care Expenses (4) $ 139,735 $ 141,132 $ 142,543 $ 143,969 $ 145,409 Facility Lease (5) $ 291,600 $ 303,264 $ 315,395 $ 328,010 $ 341,131 Depreciation/Amortization (6) $ 177,143 $ 177,143 $ 177,143 $ 177,143 $ 177,143 Other Direct Expenses (7) $ 37,200 $ 37,944 $ 38,703 $ 39,477 $ 40,266 Environmental, Dietary, Linen (8) $ 38,940 $ 39,719 $ 40,513 $ 41,323 $ 42,150 All Allocated Overhead Charges (9) $ 50,000 $ 50,500 $ 51,005 $ 51,515 $ 52,030 Total Operating Expenses $ 1,866,549 $ 1,898,584 $ 1,909,001 $ 1,931,461 $ 1,961,755 Net Operating Income ( Loss ) $ 458,886 $ 461,613 $ 474,888 $ 477,559 $ 484,477 Operating Margin 19.7% 19.6% 19.9% 19.8% 19.8% Non-Operating: Net Other non-operating Income/(Expense) $ - $ (19,938) $ (18,631) $ (17,300) $ (15,946) Increase/(Decrease) to Net Assets $ 458,886 $ 441,675 $ 456,257 $ 460,259 $ 468,530 Per Patient Day Operating Expenses Direct Payroll, including Benefits Patient Care Expenses Facility Lease Other Direct Expenses All Allocated Overhead Charges Total Operating Expenses STATISTICAL BASIS: Days Number of Beds Occupancy 88% 88% 88% 88% 88% Patient Days Average Daily Census Average Length of Stay (10) Number of Admissions Patient Mix: Skilled Inpatient 97% 97% 97% 97% 97% Routine Home Care 3% 3% 3% 3% 3% An additional annual contribution margin of $194,544 is generated by WFH patients receiving home hospice care, either directly upon discharge from the hospital or upon discharge from the hospice unit.. 18

19 COVENANT HOSPICE, INC. WEST FLORIDA INPATIENT CENTER PROFORMA FINANCIAL STATEMENT INCOME STATEMENT West Florida Relocation Pro Forma Worst Case Census Scenario YR 1 YR 2 YR 3 YR 4 YR 5 Total Year Total Year Total Year Total Year Total Year Patient Revenue: Skilled Inpatient Revenue $ 1,815,152 $ 1,842,510 $ 1,860,931 $ 1,880,489 $ 1,909,436 Routine Home Care Revenue $ 14,398 $ 14,615 $ 14,761 $ 14,909 $ 15,247 Consulting/Primary Physician (1) $ 15,026 $ 15,026 $ 15,252 $ 15,481 $ 15,713 Total Patient Revenue $ 1,844,576 $ 1,872,151 $ 1,890,944 $ 1,910,878 $ 1,940,395 Charity/Unfunded Care $ 86,695 $ 87,991 $ 88,874 $ 89,811 $ 91,199 Contractual Adjustments - Normal $ 110,675 $ 112,329 $ 113,457 $ 114,653 $ 116,424 Contractual Adjustments - Sequestration $ 29,513 $ 29,954 $ 30,255 $ 30,574 $ 31,046 Total Deductions from Revenue (2) $ 226,883 $ 230,275 $ 232,586 $ 235,038 $ 238,669 Net Patient Revenue $ 1,617,693 $ 1,641,876 $ 1,658,358 $ 1,675,840 $ 1,701,727 Operating Expenses Direct Payroll, including Benefits (3) $ 1,131,931 $ 1,148,883 $ 1,143,699 $ 1,150,024 $ 1,163,626 Patient Care Expenses (4) $ 97,207 $ 98,179 $ 99,161 $ 100,152 $ 101,154 Facility Lease (5) $ 291,600 $ 303,264 $ 315,395 $ 328,010 $ 341,131 Depreciation/Amortization (6) $ 177,143 $ 177,143 $ 177,143 $ 177,143 $ 177,143 Other Direct Expenses (7) $ 37,200 $ 37,944 $ 38,703 $ 39,477 $ 40,266 Environmental, Dietary, Linen (8) $ 38,940 $ 39,719 $ 40,513 $ 41,323 $ 42,150 All Allocated Overhead Charges (9) $ 50,000 $ 50,500 $ 51,005 $ 51,515 $ 52,030 Total Operating Expenses $ 1,824,021 $ 1,855,631 $ 1,865,618 $ 1,887,645 $ 1,917,500 Net Operating Income ( Loss ) $ (206,327) $ (213,755) $ (207,261) $ (211,804) $ (215,774) Operating Margin -12.8% -13.0% -12.5% -12.6% -12.7% Non-Operating: Net Other non-operating Income/(Expense) $ - $ (19,938) $ (18,631) $ (17,300) $ (15,946) Increase/(Decrease) to Net Assets $ (206,327) $ (233,693) $ (225,892) $ (229,105) $ (231,720) Per Patient Day Operating Expenses Direct Payroll, including Benefits Patient Care Expenses Facility Lease Other Direct Expenses All Allocated Overhead Charges Total Operating Expenses STATISTICAL BASIS: Days Number of Beds Occupancy 62% 62% 62% 62% 62% Patient Days Average Daily Census Average Length of Stay (10) Number of Admissions Patient Mix: Skilled Inpatient 97% 97% 97% 97% 97% Routine Home Care 3% 3% 3% 3% 3% An additional annual contribution margin of $135,344 is generated by WFH patients receiving home hospice care, either directly upon discharge from the hospital or upon discharge from the hospice unit.. 19

20 Private Duty Service Area One Research and Analysis - Acquire versus build model Service Area 1 Footprint Pensacola, Molino, Gulf Breeze, McDavid, Bagdad, Century, Cantonment, Jay, Navarre, Milton Opportunities TLC Caregivers Presented offer near 12 months ago Covenant Care is currently their largest referral source We already have a license in Service Area 1 with Peoples We could immediately refer all TLC patients internalyl Option: Erode his current business for future, cheaper buyout Home Instead Met with owner Stacey Robello Compelling model, local ownership perhaps in over their heads Unclear on acquisition scenarios due to national franchise but investigating Criteria we use to evaluate decision Core Question to Guide Acquire versus Build Are we fine with larger cost up front Can we generate speed out of the gates Do we have or need near term market power Do we have capability know how How fast and significant financial return Can we get immediate scalability Do we mind market barriers competition" Are we risk averse - slower ramp up cost Are there reasonable prospects Can we scale/consolidate back office functions 20

21 Major milestones completed Status Update Executive Director Onboard: Barbara Scheurer Transportation Food Service Dietary EMR scheduled to go to production next week. Interlinked assessments, care plans, adverse events, and outcomes for first time in covenant care system Activities list decided upon including some activities scheduled to be validated and branded Assessments for community from day 1 scheduled to occur extending reach to community beyond walls Key Dates: Construction Complete: 27 October Certificate of Occupancy: 1 November Licensure File Date: *1 November 1 January Open Date 21

22 QRSC REPORT KARA BENEDICT 22

23 LastWish 23

24 24

25 BHC IPU UPDATE JEFF MISLEVY 25