Management Discussion and Analysis Quarter Ended December 31, 2006

Transcription

1 Management Discussion and Analysis Quarter Ended December 31, 2006 Management Discussion and Analysis Forrest General Hospital Quarter Ended December 31, 2006 FINANCIAL HIGHLIGHTS Forrest General Hospital recorded income from operations of $3.9 million for the quarter ended December 31, Operating expenses for the quarter exceeded the planned amount of $82.7 million by $2.9 million, or 3.7%. Special Hurricane Katrina Recovery Funding The Federal government provided the Katrina-affected states with special funding to help health care providers deal with the record levels of uninsured patients that surged into the area hospitals during the period August 27, 2005 January 31, In Mississippi the one-time uninsured assistance program is administered through the Mississippi Division of Medicaid. The Division promulgated its guidelines and began accepting claims from providers in early April There is no guarantee of payment or even a defined benefit for beneficiaries in this program. The available funding and the number and amount of claims filed by all providers will determine any payment. During 2006, Forrest General Hospital filed with the Division of Medicaid claims totaling $27.7 million in gross charges that, if paid, would have a recovery of approximately $7.1 million at full Medicaid rates, if these were not reduced through proration of funding or inadequacy of funding for full payment. The Hospital had substantially reserved these previously uninsured accounts in the accounts receivable valuation as of September 30, For the year ended September 30, 2006, approximately $2.9 million of the expected $7.1 million had been received. During the quarter ended December 31, 2006, an additional $5.8 million was received for the accounts for a total receipt of approximately $8.7 million. The accounts, which were originally written off for conservatism to bad debt in anticipation of potential Katrina payment, were reclassified to more appropriately reflect their status with the special one-time Katrina relief fund as an other revenue deduction. The Hospital made no adjustment to the original valuation reserves, so no additional net revenue was recorded for the potential collections. As the money was collected, the Hospital took the collections directly into income. Forrest General Hospital Page 1

2 Management Discussion and Analysis Quarter Ended December 31, 2006 FINANCIAL ANALYSIS Assets and Liabilities Total assets increased $1.8 million from the previous quarter. This was primarily due to increases in operating cash and investments. Liabilities decreased $3.2 million from the previous quarter due to scheduled reductions in long-term debt obligations. Operating Revenues Net operating revenue increased by $18.2 million over the same period last year. For the quarter ended December 31, 2006, net operating revenues for the newly acquired Highland Community Hospital totaled $4.6 million. Discharges, at 7,274 for the quarter, represented a 15.1% increase over the same period last year. Approximately 10% of the increase was attributable to the addition of Highland operations. Operating Expenses Operating expenses increased by $12.0 million over the same period last year. As with operating revenues, approximately $5.6 million of the increase was directly related to Highland operations. Worked and paid full-time equivalent employees (FTEs) increased from the same period last year. Paid FTEs were up by 319 (or 11%), while worked FTEs increased by 268 (or 10.4%) compared to the first quarter of FY The May 2006 purchase of Highland Community Hospital was responsible for most of the increase. Wages and benefits increased approximately $6 million due primarily to market adjustments and recruiting initiatives implemented during 2006 as well as the addition of the new facility. Also noted for the quarter ended December 31, 2006 were increases in contract services and supply costs of $4 million over the same period last year. Depreciation expense was $1.2 million more than for the same period last year. OTHER DISCLOSURES There were no transfers out of the Hospital, Obligated Group or System, sales or restructurings for the period. There were no deletions from Obligated Group or System. Forrest General Hospital Page 2

3 Management Discussion and Analysis Quarter Ended December 31, 2006 Highland Community Hospital On May 1, 2006, Forrest General Hospital purchased certain assets and assumed certain liabilities of Crosby Memorial Hospital in Picayune (Pearl River County), Mississippi, changing the name to Highland Community Hospital. Following are key points in the legal structure of Highland Community Hospital: Highland Community Hospital is a component unit of Forrest General Hospital. Its legal status is Forrest General Hospital d/b/a Highland Community Hospital. Highland Community Hospital is governed by the Board of Trustees of Forrest General Hospital. Highland Community Hospital has separate provider numbers from Forrest General Hospital, and payer reimbursement rates and methods are different. AAA Ambulance Service, Inc. AAA Ambulance Service (AAA), a non-profit corporation, was organized in 1967 to provide public ambulance services to the citizens of Hattiesburg, Forrest County and surrounding counties which roughly approximate the same service area as Forrest General. At the time of the submission of the report for the fourth quarter of FY 2006, there was some question as to whether the operations of AAA should be blended or otherwise consolidated with Forrest General due to a review of criteria established by certain statements and pronouncements of the Governmental Accounting Standards Board relative to governance and control. At that date, management had chosen not to reflect the operations of AAA in Forrest General s financial results until a final determination of the reporting requirement was made. Subsequently, it was determined that the operations of AAA should be consolidated with Forrest General for reporting purposes. Accordingly, the financial statements for the fiscal year ended September 30, 2006 were adjusted to reflect this consolidation. AAA is consolidated in the financial statements for the quarter ended December 31, Mergers or material joint ventures During the period there were no mergers or material joint ventures. No liens on accounts receivable. During the period there were no sales of or liens on accounts receivable. Forrest General Hospital Page 3

4 Management Discussion and Analysis Quarter Ended December 31, 2006 Professional liability insurance The hospital maintains a self-insured professional liability insurance plan in compliance with statutes of Mississippi s Tort Claims Board. The program, designed around the provisions of the Mississippi State Tort Act, was initially funded at an actuarially determined level and hospital continues to set aside reserves each month based on actuarially calculated exposure. The plan has the following major features: 1. Coverage is integrated with the $500,000 per claim limit for county hospitals in Mississippi, above which sovereign immunity applies. 2. Forrest General has funded an actuarially established reserve fund account. 3. Forrest General has obtained stop loss coverage of $3 million at an attachment point of $2.5 million. 4. An experienced claims administrator operates the plan. 5. Experienced legal counsel performs legal roles in risk management. 6. The plan integrates with Forrest General s risk management program. 7. The plan covers employed physicians, which include psychiatrists in the behavioral health program and trauma surgeons. Affiliate companies have fully insured plans that do not integrate with the $500,000 statutory limits and therefore have coverage limits appropriate to their exposure. Forrest General has funded a special reserve as part of a self-insurance program for professional and general liability exposures. Adequacy of pension plan funding Pension plan funding is in accordance with the latest actuarial report. The hospital continues to fund the current cost based on the actuarial report, using a 30-year amortization for un-funded liability. In July, 2005, the Board of Trustees authorized and the hospital made a $5 million pre-payment of pension plan contributions. The hospital expects to continue making normal contributions as well, but the Board of Trustees retained the right to use the pre-payment to fund all or part of future year normal payments. Regulatory and payor environment Mississippi Medicaid Disproportionate Share Program (DSH) The Mississippi Division of Medicaid is currently in the process of changing the calculation used to distribute Federally-matched DSH payments to qualifying providers. The DSH program was set up to help offset the cost incurred for providers treating a Forrest General Hospital Page 4

5 Management Discussion and Analysis Quarter Ended December 31, 2006 higher than normal number of indigent patients. As of December 2006, Medicaid has made no payments for State fiscal year beginning July 1, 2006 to providers and amounts were not known at this time. Recently, CMS required the Mississippi Division of Medicaid to discontinue its current funding method, which relies heavily on Inter-Governmental Transfers from high disproportionate share (high-dsh) governmental hospitals such as Forrest General Hospital to fund the overall Medicaid hospital services program. This change in essence created a $90 million short-fall in the State of Mississippi Medicaid budget for State fiscal year ending June 30, The Mississippi Division of Medicaid has proposed to offset this short-fall with a $45 million assessment on all providers and $45 million from appropriations by the State legislature. The $45 million assessment prompted numerous providers to initiate a lawsuit against the Governor and Division of Medicaid Director. The Governor has recently announced the receipt of $129 million in redistributed Katrina grants that will be used to offset the $45 million deficit appropriations and will suspend the $45 million assessment on providers until April 1, 2007 at which time the 2007 Legislature can consider this matter. Due to the events above, high-dsh governmental providers can anticipate increased DSH payment, but it is not assured. Upper Payment Limit Program (UPL) The Office of Inspector General (OIG) performed a review of the UPL program and released its report in December The original finding indicated a significant amount owed back to CMS by the State of Mississippi, but not necessarily individual providers. Since the date of the OIG report, the Division of Medicaid has worked diligently to reduce any future payback. Until such agreement is reached, it is the opinion of the Mississippi Hospital Association that future UPL payments will be suspended. Medical Claims Payment Mississippi Medicaid is moving to APR-DRGs (an expanded diagnosis related group method) on July 1, The impact on Forrest General is expected to be unfavorable. For outpatient services, Mississippi Medicaid will move July 1, 2008, from combination of cost-based percent of charges and fee schedules to Ambulatory Payment Classification (APC) reimbursement. The impact is unknown at this time. Ability to fund Medicaid in its current form continues to be an issue for State government. Medicare The Medicare program announced changes in its inpatient prospective payment program effective October 1, 2006, which will redistribute relative DRG weights less in favor of Forrest General Hospital Page 5

6 Management Discussion and Analysis Quarter Ended December 31, 2006 high-intensity services and more in favor of lower and medium intensity services. The impact on Forrest General is expected to be more or less neutral in total, although not by service line. Medicare will move to APR-DRGs on October 1, 2008, and the impact of this change is unknown. Forrest General continues to see a reduction in the Medicare Supplemental Security Income (SSI) percentage from 14.62% to 12.53%. The SSI % is used in calculating the amount of Medicare DSH payments a provider receives. CMS will pay an interim rate with final settlement being made using the Medicare cost report. Depending on volumes and case mix, such decreases could potentially result in a reduction in payments in excess of $900,000 for the current fiscal year. Blue Cross Blue Shield, United Healthcare and Other Payors Blue Cross Blue Shield and United Healthcare are two of the largest commercial payors in our market. Negotiations continue with these two payors and others to obtain increased reimbursement. Investments There have been no changes in the Board s investment guidelines, asset allocation strategy and asset managers. A schedule of detail investments by category (e.g. equities, fixed income) is included in the Operations Review. State law limits investments in equities. ERISA To our knowledge there were no violations of any of the provisions or ERISA or liability to the Pension Benefit Guaranty Corporation. JCAHO Forrest General Hospital is operating under a JCAHO accreditation letter from its visit of February, Highland Community Hospital is not subject to JCAHO accreditation at this time, because its operations are deemed by JCAHO to be separate enough to justify not being included in the overall accreditation. Plans are to seek JCAHO accreditation in the new replacement facility. Forrest General Hospital Page 6

7 Management Discussion and Analysis Quarter Ended December 31, 2006 Accounts receivable aging Current and most recent FYE summary of accounts receivable aging by financial class is included in the Operations Review. Debt service schedule During fiscal years 2005 and 2006, the Hospital received an approximate total $30 million for the conversion of previously purchased assets to capital leases. There were no major changes in the consolidating debt service schedule of existing longterm and short-term debt since the last reporting period, including any debt guaranteed for affiliates or third parties, as well as off-balance sheet transactions. Debt service payments have been made on time. Highland Community Hospital has no bonded indebtedness, but it does have some operating leases, capital leases, and long-term debt related to specific medical equipment, which is pledged as collateral. Because Highland is a component unit of Forrest General: The Highland equipment and financings are assets and liabilities of Forrest General Hospital. Highland s operating results and financial position have been reported on a consolidated basis with Forrest General Hospital beginning May 1, It is presumed that Highland s revenues are pledged to the Forrest General Hospital Series 2000 bonds. Thus, for a future revenue bond financing for Highland, it would likely be necessary to refinance the Forrest General Hospital Series 2000 bonds. Competition Delineate any healthcare facilities, including clinics and physician owned enterprises that have opened or closed within the past year or will be opening or closing within the coming fiscal year that may provide or have provided competition to the hospital, Obligated Group or System and indicate anticipated financial impact and proximity to the impacted facility. Material litigation Forrest General Hospital has not had any material litigation since the last reporting period. Forrest General Hospital Page 7

8 Management Discussion and Analysis Quarter Ended December 31, 2006 Compliance Since the last date of the reporting period, has the Hospital, Obligated Group or any Affiliates been the subject of any of the following: a. Pending federal, state or local investigations (quantify their estimated impact on financial condition, if applicable)? No. b. Past due federal, state or local tax liabilities? No. c. Material unfair labor practice, discrimination or other employment claims or employment-related suite or proceedings under applicable federal or state law? No. Forrest General Hospital Page 8

9 FYE 9/30/07 FORREST GENERAL HOSPITAL DEBT SERVICE COVERAGE REQUIREMENTS BONDHOLDER COVENANT REQUIRED RATIO: 1.1 Maximum Annual Debt Service: FY 2006 Maximum Annual Debt Service: Year 2016 $ 4,327,328 - Total FY 2007 Long Term Debt Requirements 4,327,328 Number of months in reporting period 3 Pro-Rated Long Term Debt Requirements $ 1,081,832 12/31/2006 UNAUDITED Net Revenues Available for Debt Service: Net Revenues Over Expenses $ 4,975,718 LESS: All Insurance Proceeds (excluding business interruption) - (Gain)/Loss from Sale of Capital Assets (402,342) Grants, gifts, bequests not applicable to debt service (184,259) Gain/loss related to extinguishment of debt - Unrealized (Gains)/Losses (212,780) Non-recurring Charges - Extraordinary Items as defined by GAAP - Subtotal 4,176,337 ADD : Expenses excluded per official statement p. 4 Depreciation and Amortization 4,958,826 Interest 1,052,161 Net Revenues Available for Debt Service per official statement 10,187,324 Surplus (Deficit) 9,105,492 Actual Ratio 9.42 CALCUALTED AS FOLLOWS: Net Revenues Available for Debt Service / Maximum Annual Debt Service G. Edward Tucker, Jr., CPA Chief Financial Officer Net Revenues Available for Debt Service: Adjusted Annual Revenue over Total Expenses (according to GAAP) excluding the following: 1) all insurance proceeds (except business interruption) 2) proceeds from the sale of capital assets 3) gifts, grants and bequests and proceeds of tax levies which may not according to their terms be applied to the payment of debt service. 4) any gain or loss resulting from the extinguishment of Indebtedness. 5) any extraordinary gain or loss as defined by GAAP 6) non-recurring charges 7) unrealized gains or losses from investments Expenses are defined as "all expenses according to GAAP excluding depreciation interest, and amortization, plus expenditures related to capital improvements." Maximum Annual Debt Service: Maximum aggregate amount of the Long-Term Debt Service Requirement payable during the then current or any subsequent Fiscal Year. a) the interest payable on any long-term indebtedness incurred to finance the acquistion or construction of facilities shall be excluded from interest payable until such facilities are placed into service, if and to the extent that funds dedicated to the payment of such interest are held by or under the control of a person other than the Borrower or an Affiliate. b) the principal amount of long-term indebtedness required to be redeemed in any fiscal year shall be deemed to be payable in such fiscal year rather than the fiscal year of its stated maturity. c) with respect to long-term indebtedness bearing interest at a variable rate, the amount of interest payable during any period for which the actual rate cannot be determined shall be the index rate.

10 FYE 9/30/07 FORREST GENERAL HOSPITAL DEBT SERVICE COVERAGE REQUIREMENTS BOND INSURER COVENANT REQUIRED RATIO: 1.25 Maximum Annual Debt Service: FY 2005 Maximum Annual Debt Service: Year 2016 $ 4,327,328 Official statement p 44 - Total FY 2003 Long Term Debt Requirements 4,327,328 Number of months in reporting period 3 Pro-Rated Long Term Debt Requirements $ 1,081,832 12/31/06 UNAUDITED Funds Available For Debt Service: Excess Revenues Over Expenses $ 4,975,718 LESS: Unrealized (Gains)/Losses (212,780) Interest Income Earned on Variable Rate - Subtotal 4,762,938 ADD: Expenses excluded per official statement p. 4 Depreciation and Amortization 4,958,826 Interest 1,052,161 Funds Available For Debt Service: 10,773,925 Surplus (Defict) 9,692,093 Actual Ratio 9.96 CALCULATED AS FOLLOWS: Funds Available for Debt Service / Maximum Annual Debt Service G. Edward Tucker, Jr., CPA Chief Financial Officer Funds Available for Debt Service: Excess revenues over expenses excluding the following: Unrealized Gains / Losses on investments Interest Income earned on variable rate investments Depreciation & Amortization Interest Expense Maximum Annual Debt Service: Maximum aggregate amount of the Long-Term Debt Service Requirement payable during the then current or any subsequent Fiscal Year. a) the interest payable on any long-term indebtedness incurred to finance the acquistion or construction of facilities shall be excluded from interest payable until such facilities are placed into service, if and to the extent that funds dedicated to the payment of such interest are held by or under the control of a person other than the Borrower or an Affiliate. b) the principal amount of long-term indebtedness required to be redeemed in any fiscal year shall be deemed to be payable in such fiscal year rather than the fiscal year of its stated maturity. c) with respect to long-term indebtedness bearing interest at a variable rate, the amount of interest payable during any period for which the actual rate cannot be determined shall be the index rate.

11 FYE 9/30/07 FORREST GENERAL HOSPITAL LIQUIDITY COVENANT REQUIREMENTS COVENANT REQUIREMENT: (See Applicable Days Below) Using Current Operating Expense Levels Using FY 2006 Expense Levels For Bondholders For Bond Insurer For Bondholders For Bond Insurer Total Cash & Investments $ 121,335,555 $ 121,335,555 $ 121,335,555 $ 121,335,555 Less: Trust Held Funds (538,545) (538,545) (538,545) (538,545) Less: HIE Investment Less: Reserves Less: Deposits (683,434) (683,434) (683,434) (683,434) Less: Set-Asides Less: Debt Service Funds (259,008) (259,008) (259,008) (259,008) Less: Construction Funds Less: Reserve Funds (4,924,020) (4,924,020) (4,924,020) (4,924,020) Less: Malpractice Funds Less: Litigation Reserves Less: Self Insurance (2,582,819) (2,582,819) (2,582,819) (2,582,819) Less: Pension and Retirement Less: A/P > 70 days Unrestricted Cash & Investments $ 112,347,729 $ 112,347,729 $ 112,347,729 $ 112,347,729 Total Operating Expenses (excludes bad debts) $ 82,673,329 82,673, ,616, ,616,060 Less: Depreciation & Amortization (4,958,826) (4,958,826) (17,803,883) (17,803,883) Add: Bad Debt Expense (Insurer only) - 24,027,371-65,068,892 Add: Employee Health Adjustments (reported as revenue deduction) 3,297,666 3,297,666 12,931,329 12,931,329 Operating Expenses for Period $ 81,012,169 $ 105,039,540 $ 255,812,177 $ 320,881,069 Calendar days in fiscal year to date Operating expenses per day $ 880,567 $ 1,141,734 $ 700,855 $ 879,126 Days Operating Cash on Hand Unrestricted Cash & Investments $ 112,347,729 $ 112,347,729 $ 112,347,729 $ 112,347,729 Days Operating Expenses Cash on Hand FY 2007 Required Days Excess Days (1) Days in Accounts Payable A/P 12/31/06 10,060,681 Excess Amount Supplies 12/31/06 18,377,897 - Ratio 0.55 Times Days in FYTD Total Days in A/P (Note: A/P greater than 70 days excluded) (19.64) Calculated as follows: a) Unrestricted cash and marketable securities that the Board could apply to the payment of indebtedness without violating any lien or other security agreement, including cash and securities in the Reserve Fund. 1) marketable securities should be valued at FMV as of the date of determination 2) unrestricted cash and marketable securities will be reduced by the amount of Short-Term Indebtedness as of the date of determination. G. Edward Tucker, Jr., CPA Chief Financial Officer b) Annual operating expenses shall be calculated based on the total operating expenses for the last Fiscal Year preceding the date of determination for which audited financial statements are available. 1)subtract the following from the total operating expense: * Depreciation * Amortization * Bad Debt * Unrealized Gains/Losses * Any other non-cash item that may be included c) Applicable Days of operating expenses shall be calculated by multiplying the annual operating expenses by (Applicable Days / 365). 1) Applicable Days means for any computation made with respect to the following FY: * 60 days FY ended 9/30/2001 * 65 days FY ended 9/30/2002 * 70 days FY ended 9/30/2003 * 75 days thereafter NOTE: This calculation is required to be performed semi-annually.

12 FORREST GENERAL HOSPITAL RESERVE FUND REQUIREMENTS FYE 9/30/07 LEAST of A,B, and C: Official statement p 13 A) 10% of lesser of Par Value or 2000 Bonds proceeds OR Par Value Proceeds $ 50,000,000 $ 47,876,141 10% 10% Threshold 5,000,000 4,787,614 B) Maximum Annual Debt Service OR 2000 Series Year 2017 $ 4,203,269 Threshold C) 125% of Avg Annual Debt Service (2000 Bonds only) 2000 Series Principal $ 50,000,000 Interest 59,721, ,721,036 Term (years) 30 Avg Annual Debt Service 3,657, % Threshold $ 4,571,710 Reserve Fund Requirement (B) $ 4,203,269 12/31/06 Amount in Reserve 4,924,020 Excess in Reserve Fund $ 720,751 Means as to the Series 2000 Bonds, the lesser of: a) 10% of the lesser of the par value or the proceeds of the 2000 Bonds b) the Max Annual Debt Svc calculated with respect to the 2000 Bonds c) 125% of the avg annual debt svc requirement calculated with respect to the 2000 Bonds G. Edward Tucker, Jr., CPA Chief Financial Officer Deposit of Funds: page 16 (official statement) $4,203,269 deposited to the reserve fund Money shall be used to provide a reserve for the payment of the principal of and interest on the 2000 Bonds and any additional bonds for which amounts on deposit in the Reserve Fund are to be available as a reserve for the payment of the principal of and interest on such Bonds.

13 FORREST GENERAL HOSPITAL BALANCE SHEET - CONSOLIDATED (UNAUDITED-WITH YEAR-END ADJUSTMENTS) (in thousands) ASSETS December 31, March 31, June 30, September 30, December 31, March 31 June 30 September 30 December Current Assets Cash $ 13,478 $ 10,413 $ 23,966 $ 14,505 $ 15,214 $ 8,430 $ 11,001 $ 30,814 $ 32,687 Accounts Receivable, Patients, Net of Allowances 25,994 28,988 27,661 26,021 28,404 28,846 40,160 37,262 33,917 Estimated Receivables, Third-Party Payors ,344 3,481 3,065 5,962 Accounts Receivable, Other 1,162 1, , Inventories 4,377 4,434 4,339 5,670 5,385 5,373 6,379 5,802 5,891 Prepaid Expenses and Other Current Assets 819 1,718 1,318 1,297 1,209 2,931 4,054 3,822 3,367 Total Current Assets 45,830 46,807 58,252 48,313 51,486 51,864 66,024 81,505 82,728 Assets Whose Use is Limited Board Designated Assets 96, , , ,219 99,977 88,683 84,950 82,389 83, Series Bonds-Debt Reserve 4,555 4,584 4,826 4,668 4,849 4,552 4,927 4,845 4, Series Bonds-Sinking Fund Total Assets Whose Use is Limited 100, , , , ,054 93,628 90,101 87,641 88,649 Property, Plant and Equipment Property, Plant and Equipment 305, , , , , , , , ,932 Accumulated Depreciation (176,764) (180,060) (183,377) (184,972) (188,738) (191,982) (196,679) (176,346) (180,910) Net Property, Plant and Equipment 128, , , , , , , , ,022 Construction in Progress 9,708 12,803 16,945 21,298 25,823 10,995 10,700 14,312 16,425 Total Property, Plant and Equipment 138, , , , , , , , ,447 Other Assets Deferred Costs-Bonds 1,849 1,823 1,798 1,772 1,748 1,724 1,700 1,676 1,653 Investment in affiliates 1,129 1, Pension Fund Advance ,000 4,878 4,878 4,450 4,267 4,235 Other Assets ,707 2,649 2,532 Total Other Assets 3,758 3,533 3,296 7,994 7,774 7,653 8,982 8,774 8,600 Total Assets $ 288,842 $ 303,653 $ 313,804 $ 317,348 $ 325,575 $ 325,997 $ 343,374 $ 361,628 $ 363,424 LIABILITIES AND FUND BALANCE Current Liabilities Accounts Payable, Trade $ 8,204 $ 7,376 $ 8,981 $ 13,349 $ 11,619 $ 14,453 $ 10,690 $ 13,127 $ 10,061 Salaries and Wages Payable 8,951 6,949 9,094 7,183 9,251 7,636 10,951 9,161 11,168 Payroll Taxes and Withholdings 979 2,068 1,010 1,035 1,080 1,168 1,232 1,340 1,379 Estimated Payable, Third-Party Payors 4,045 2,295 2,826 3, Current Portion of Bonds Payable 1,105 1,175 1,175 1,175 1,160 1,175 1,175 1,371 1,215 Current Portion of Capital Leases (lease purchases) 645 2,600 2,628 3,493 5,250 5,307 6,564 6,912 7,073 Other Current Liabilities 12,366 13,285 12,410 12,188 16,782 18,101 12,653 15,124 14,867 Total Current Liabilities 36,295 35,748 38,124 42,063 45,627 47,840 43,265 47,035 45,763 Long-Term Obligations Bonds Payable, less Current Maturities 54,380 53,570 53,570 53,570 53,220 52,395 52,395 52,395 52,005 Capital Leases (lease purchases), less Current Maturities 2,170 10,651 9,984 8,472 15,540 14,405 19,264 17,635 16,117 Total Long-Term Obligations 56,550 64,221 63,554 62,042 68,760 66,800 71,659 70,030 68,122 Total Liabilities 92,845 99, , , , , , , ,885 Fund Balance Fund Balance 193, , , , , , , , ,563 Excess (Deficit) of Revenues Over 2,033 9,720 18,162 19,279 (2,055) (1,886) 15,207 31,320 4,976 (Under) Expenses Total Fund Balance 195, , , , , , , , ,539 Total Liabilities and Fund Balance $ 288,842 $ 303,653 $ 313,804 $ 317,348 $ 325,575 $ 325,997 $ 343,374 $ 361,628 $ 363,424

14 FORREST GENERAL HOSPITAL STATEMENT OF REVENUES AND EXPENSES - CONSOLIDATED (UNAUDITED-WITH YEAR-END ADJUSTMENTS) (in thousands) DESCRIPTION December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, Patient Service Revenue Routine Services $ 20,816 $ 24,137 $ 22,391 $ 20,421 $ 24,039 $ 25,990 $ 25,883 $ 26,793 $ 23,898 Inpatient Ancillary Services 79,891 89,829 83,190 77,183 90,819 99, , , ,063 Outpatient Ancillary Services 51,208 55,295 57,905 54,153 60,758 64,917 70,914 89,868 83,448 Total Patient Service Revenue 151, , , , , , , , ,409 Deductions From Revenue Medicare Contractual Adjustments 40,336 44,627 39,527 38,795 47,921 51,023 53,127 52,972 56,158 Medicaid Contractual Adjustments 10,476 11,318 8,234 9,187 10,349 12,714 13,158 7,128 17,605 Blue Cross Contractual Adjustments 6,727 6,637 7,827 6,089 8,712 8,943 9,353 10,912 11,833 Charity Care Provision 7,469 10,497 8,014 6,144 7,374 8,970 8,626 5,926 4,632 Managed Care Adjustments 7,279 7,246 7,415 7,080 9,166 9,508 9,393 12,752 11,645 Provision for Bad Debts 10,557 13,922 16,649 12,803 22,118 21,021 (4,663) 26,593 24,027 Other Revenue Deductions 4,251 4,409 3,874 4,214 5,361 6,330 31,013 5,824 5,982 Total Deductions from Revenue 87,095 98,656 91,540 84, , , , , ,882 Net Patient Service Revenue 64,820 70,605 71,946 67,445 64,615 71,552 79,675 97,690 82,527 Other Operating Revenue 2,276 2,472 2,904 2,428 2,842 2,700 15,640 3,622 3,107 Total Net Operating Revenue 67,096 73,077 74,850 69,873 67,457 74,252 95, ,312 85,634 Operating Expenses Salaries and Wages 28,010 27,875 28,046 28,801 29,365 30,158 31,694 38,102 34,829 Payroll Taxes and Other Employee Benefits 5,469 4,615 5,693 5,257 5,825 5,836 6,567 7,787 6,443 Contractual Services 6,604 7,187 7,074 8,567 7,632 7,493 9,565 10,873 8,701 Supplies - Medical 12,536 12,991 14,613 12,133 13,434 15,210 15,721 17,041 16,151 Supplies - Non-Medical 1,969 2,036 2,026 2,034 1,937 2,242 2,137 2,429 2,227 Repairs and Maintenance 1,557 1,722 1,374 1,651 1,784 1,989 1,856 2,863 2,288 Travel and Education Other Direct Expense 2,635 2,312 2,624 2,991 3,015 3,297 3,044 2,796 3,421 Leases and Rentals 1,767 1,710 1,560 1,695 1,975 1,792 1,974 1,987 2,161 Interest Expense ,059 1,092 1,052 Insurance (370) (51) Depreciation and Amortization 3,242 3,335 3,343 3,536 3,790 4,073 4,728 5,212 4,959 Total Operating Expenses 65,557 65,504 68,225 67,630 70,672 74,027 79,178 91,102 82,673 Income (Loss) From Operations 1,539 7,573 6,625 2,243 (3,215) ,137 10,210 2,961 Non-Operating Revenue (Expense) Income From Board Designated Assets ,001 1, ,001 1,047 Contributions and Grants (17) (168) 188 (230) 66 (953) (318) (399) (104) Gain (Loss) on Investments, Unrealized (285) (637) 499 (491) (302) (361) (231) Gain (Loss) on Asset Disposals (1,588) 215 (51) 461 (31) 402 Other Non-Operating Revenue (Expense) , Total Non-Operating Revenue (Expense) ,817 (1,125) 1,160 (56) 956 5,902 2,015 Excess Revenue Over Expenses $ 2,033 $ 7,686 $ 8,442 $ 1,118 $ (2,055) $ 169 $ 17,093 $ 16,112 $ 4,976

15 STATEMENT OF REVENUES AND EXPENSES - CONSOLIDATED For the Quarter Ended December 31, 2006 CURRENT QUARTER YEAR-TO-DATE DESCRIPTION Actual Plan % Var. Actual Plan % Var. Patient Service Revenue $ 23,898,136 $ 29,021, % Routine Services $ 23,898,136 $ 29,021, % 107,063, ,265, % Inpatient Ancillary Services 107,063, ,265, % 83,447,780 76,079, % Outpatient Ancillary Services 83,447,780 76,079, % 214,409, ,366, % Total Patient Service Revenue 214,409, ,366, % Deductions From Revenue 56,158,139 59,649, % Medicare Contractual Adjustments 56,158,139 59,649, % 22,219,408 20,084, % Medicaid Contractual Adjustments 22,219,408 20,084, % (4,614,454) (5,097,303) -9.5% Medicaid DSH & UPL, net (4,614,454) (5,097,303) -9.5% 11,833,327 10,236, % Blue Cross Contractual Adjustments 11,833,327 10,236, % 4,632,443 9,266, % Charity Care Provision 4,632,443 9,266, % 8,345,856 7,663, % Managed Care Adjustments 8,345,856 7,663, % 3,297,666 3,315, % FGH Health Plan Adjustments 3,297,666 3,315, % 24,027,371 23,976, % Provision for Bad Debts 24,027,371 23,976, % 5,982,415 7,175, % Other Revenue Deductions 5,982,415 7,175, % 131,882, ,270, % Total Deductions from Revenue 131,882, ,270, % 82,526,965 78,096, % Net Patient Service Revenue 82,526,965 78,096, % 3,107,186 3,143, % Other Operating Revenue 3,107,186 3,143, % 85,634,151 81,240, % Total Net Operating Revenue 85,634,151 81,240, % Operating Expenses 34,829,389 33,475, % Salaries and Wages 34,829,389 33,475, % 6,443,128 7,433, % Payroll Taxes and Other Employee Benefits 6,443,128 7,433, % 8,701,521 7,166, % Contractual Services 8,701,521 7,166, % 16,150,958 13,952, % Supplies - Medical 16,150,958 13,952, % 2,226,939 2,189, % Supplies - Non-Medical 2,226,939 2,189, % 2,287,872 2,274, % Repairs and Maintenance 2,287,872 2,274, % 491, , % Travel and Education 491, , % 3,420,974 3,891, % Other Direct Expense 3,420,974 3,891, % 2,160,885 1,959, % Leases and Rentals 2,160,885 1,959, % 1,052,161 1,043, % Interest Expense 1,052,161 1,043, % (50,908) 734, % Insurance (50,908) 734, % 4,958,825 5,183, % Depreciation and Amortization 4,958,825 5,183, % 82,673,268 79,752, % Total Operating Expenses 82,673,268 79,752, % 2,960,883 1,487, % Income (Loss) From Operations 2,960,883 1,487, % Non-Operating Revenue (Expense) 1,046, , % Income From Board Designated Assets 1,046, , % (104,310) (162,626) -35.9% Contributions and Grants (104,310) (162,626) -35.9% 212, % Gain (Loss) on Investments, Unrealized 212, % 402, % Gain (Loss) on Asset Disposals 402, % 457, , % Other Non-Operating Revenue (Expense) 457, , % 2,014, , % Total Non-Operating Revenue (Expense) 2,014, , % $ 4,975,718 $ 2,150, % Excess Revenue Over Expenses $ 4,975,718 $ 2,150, %

16 Statements of Cash Flows - Consolidated FORREST GENERAL HOSPITAL As of December 31, 2006 Current Year Cash Flows from Operating Activities Income (Loss) from operations $ 4,975,719 Adjustments to reconcile income (loss) from operations to net cash provided (used) by operations Depreciation 4,811,500 Amortization 147,326 Loss (gain) on disposal of capital assets (402,342) Changes in assets and liabilities Patient accounts receivable, net of allowances 3,344,272 Estimated accrued third-party payor adjustments (2,896,254) Other accounts receivable (164,122) Inventories (89,189) Prepaid expenses and other assets 455,119 Accounts payable, trade (3,066,704) Accrued salaries and wages 2,006,954 Accrued payroll taxes and other employee benefits 57,063 Other payables and accrued expenses 1,273,359 Net cash provided (used) by operations 10,452,701 Cash Flows from Capital and Related Financing Activities Principal paid on debt and capital leases (lease purchases) (1,706,081) Acquisition and construction of capital assets (4,872,790) Interest paid, including capitalized amounts (1,744,611) Net cash provided (used) by capital and related financing activities (7,598,482) Cash Flows from Investing Activities Interest received on investments 1,046,845 Net investment (additions)/reductions (2,054,408) Net (additions)/reductions in equity and other investments 26,432 Net cash provided (used) by investing activities (981,131) Net increase (decrease) in cash 1,873,088 Cash at the Beginning of the Period 30,813,645 Cash at the End of the Current Period $ 32,686,733